The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former finance minister yesterday urged the government to “blow a hole in the budget” to end the “national emergency” created by Bahamas Power & Light’s (BPL) generation crisis.

James Smith, who held the post under the first Christie administration, told Tribune Business it needed to “make the hard decision between a balanced budget and making capital investments to benefit the wider economy” given BPL’s inability to provide reliable energy supply to New Providence.

Suggesting that the Minnis administration needed to temporarily suspend its focus on meeting the Fiscal Responsibility Act’s deficit ratio and other targets, the ex-Central Bank governor said the capital’s power shortfall should become the government’s “number one priority” item such that it “stops everything and tries to get that fixed”.

Given energy’s importance to a properly-functioning economy, Mr Smith warned that BPL’s woes had already “quite likely” cut the 1.8 percent GDP growth projected for The Bahamas in 2019.

With many businesses forced to close and send staff home early, and others enduring daily disruptions to production and customer service, he added that economic output will fall even further the longer that the state-owned utility monopoly’s problems are unresolved.

Mr Smith said BPL’s load shedding, and frequent power outages, had worsened to the point where it affected him on a personal level as he last year finally dropped his decades-long resistance to acquiring a generator by installing one at his home.

While BPL executives have suggested that their generation woes will be solved once the utility’s 132 megawatts (MW) in new generation capacity is installed at Clifton Pier, that will only happen by mid-December 2019 at the earliest.

Mr Smith said it was “going to be difficult, really difficult” for Bahamas-based businesses and residents to put up with daily load shedding and outages until then, which was why he is calling for direct government intervention now.

“This is one of those areas where we have to make hard decisions between a balanced Budget and making capital expenditures to benefit the wider economy,” he told Tribune Business. “I don’t know if BPL is asking for funding, but if they need funds for new equipment the Government should find a way to do it.

“It’s a national emergency, and the sort of thing where you break the holes to fix it. You blow a hole in your Budget but get it back in the medium term. It’s not a bad investment. To do nothing and let it drag on like this, it will get worse and worse. It’s beginning to feed on itself.”

The Government, which has invested a significant amount of its political capital in reforming the public finances by eliminating annual fiscal deficits and reducing the $8bn-plus national debt, will be loathe to abandon the discipline imposed by the Fiscal Responsibility Act’s targets - which allow for a 0.5 percent “miss” or lower - so soon.

BPL’s cash flow problems and persistent annual losses, which average in the $20m-plus range over the past decade, have left it in no position to afford new generation units or maintenance beyond the $95m Wartsila engines purchase until its debts are refinanced by the upcoming $450m-$550m Rate Reduction Bond issue.

However, no economy with ‘first world’ aspirations can operate properly without a reliable energy supply, and Mr Smith argued that an immediate fix would restore business and consumer confidence, generate renewed activity and increase imports such that any government spend on new BPL generation capacity would ultimately be recouped over the medium to long-term.

He argued that The Bahamas and its economy simply cannot afford to wait another three-four months for New Providence’s energy supply situation to improve, adding: “It’s the number one priority; something as fundamental as the sustained provision of electricity to all households and businesses operating in the country.

“You just stop everything and try to get that fixed. It’s a real national problem. It reminds me of how sometimes you have to regroup after a hurricane. You turn all your resources to hurricane relief, and the country understands that.”

BPL executives made it abundantly clear at the weekend that there is no immediate relief in sight for the three-four hour delay outages affecting all parts of New Providence, repeatedly stating that they “cannot guarantee” there will be no further load shedding this summer.

They are pinning their hopes on repairing two of the three generation units that broke down at the Blue Hills power plant recently, believing that restoring them to service will eliminate the current 40 MW generation shortfall between BPL’s 210 MW capacity and New Providence’s 250 MW peak demand.

However, BPL executives admitted there was nothing to prevent further breakdowns of these and other units in the utility’s aged, poorly maintained generation fleet. Other than repairs, the only other hope is for a mild November and an ease in New Providence’s energy demand such that BPL can meet it once again.

Given that no part of the Bahamian economy has been spared, Mr Smith told Tribune Business that “it’s quite likely” economic growth has already been impacted to the extent that it will come in below the 1.8 percent expansion projected for 2019.

With those businesses lacking a generator often forced to close early and send staff home, he added that workers’ wages - especially those receiving hourly-based pay - would be reduced. This, in turn, will lower aggregate demand in an economy where two-thirds of consumption is driven by consumer spending.

Mr Smith said companies were also incurring increased generator fuel bills and maintenance costs, forcing them to divert resources from investment, expansion and job creation, while also suffering the loss of critical electrical equipment due to BPL-related power surges and spikes.

Companies that sold perishable goods were also experiencing greater inventory loss, he said, adding: “It affects the economy at different levels and to different degrees, but the overall effect is to compress your economic growth. It affects all units of consumption and production.

“I’m really concerned about the economy. It’s disruptive to all of us, but it could have some adverse medium and long-term effects for the main industry. When you get a black eye like this, word gets around and people make decisions to cancel. We may see some of that later this summer.

“It’s also a turn-off to investment by locals and foreigners because any business putting up in this country depends on electricity being on on a normal basis. Decisions are being made now to defer planned expansions and bring on additional people.”

Mr Smith said BPL’s inability to meet its basic obligation to the Bahamian people, that of keeping the power on consistently, had also impacted him personally.

“For the last 30 years I said that any decent, working economy ought to be able to provide sustainable electricity to its population base,” he explained. “I refused to invest in a generator, but about a year ago I had to; the constant interruptions and not being as young as I used to be.”

Mr Smith said a recent newspaper from The Tribune’s archives, dated 1969, carried a lead story referring to continuous power blackouts on New Providence. He added that it showed how little the progress The Bahamas had made in half a century when it came to providing such a fundamental service.