The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday warned that all Bahamians must now “pay the price” for Bahamas Power & Light’s (BPL) failings even as his House of Assembly address left more unanswered questions.

Desmond Bannister, minister of works, said the mammoth $650m bond issue to refinance the state-owned utility monopoly would only cause a “temporary ten-month increase” of between $20 to $30 for the average household’s light bill immediately after the securities are placed with investors next year.

“Unfortunately this is the price that we all will have to pay because of the proven incompetence of the former PLP administration,” the minister said, switching temporarily into political mode. “The good news is that this will be a short term increase that will be wiped out in 2021 when the cost of generation will decrease drastically due to the completed installation of the second station consisting of even more new fuel efficient engines, better operation performance, and lower fuel costs brought on by the utilisation of Shell’s internationally-respected hedging expertise.”

However, Mr Bannister’s presentation raised several new issues that Tribune Business details here:

• Given that the National Utility Investment Bond has yet to be priced (given an interest rate) or obtain a credit rating from the major international rating agencies, it is unclear how the minister could determine there will be a $20-$30 increase in monthly light bills for the average household and that this will only last 10 months. What about the likely increase for the average business, already reeling from high energy costs and persistent power outages?

Mr Bannister’s address indicates that the $650m bond issue will be placed with international and local investors in early 2020, given his reference to “10 months” next year. However, financial analysts spoken to by Tribune Business have questioned whether BPL and the Government will be able to obtain the credit rating - so vital to determining pricing, the willingness of investors to buy-in and the debt servicing costs that Bahamian consumers will pay - in time to meet this schedule.

The minister said the bond is seeking “the best possible credit quality outside a transaction secured by a government guarantee”, and a credit rating “equal” to The Bahamas’ sovereign creditworthiness. Standard & Poor’s (S&P) currently has the Government’s finances at so-called “junk” status, while Moody’s rates it at investment grade - but barely.

The Bahamian government pays a 6 percent interest rate on its last $750m foreign currency bond. Given that the BPL bond is seeking an “equal” credit rating, it is reasonable to assume it will be priced in this area. If it does attract 6 percent, and ignoring that it will be subject to at least semi-annual adjustments, this would translate into a total $39m debt servicing cost BPL’s customers would have to pay annually.

• Leading on from this, Mr Bannister’s address also failed to clarify whether the debt servicing fee will be a flat levy or a percentage of consumer bills. From an equity perspective, and to ensure larger electricity users pay more than those consuming $60 per month, a percentage would seem the likely choice.

• The minister’s presentation shows that $70m of the $650m to be raised through the bond has been earmarked for the Phase II expansion of Clifton Pier’s “Station A” with the purchase of more generation engines from Wartsila.

This 90 Mega Watts (MW) of additional capacity, when combined with the existing 132 MW set to come online in mid-December, will provide 222 MW in new generation - exactly what Shell North America is supposed to provide with its new-multi fuel power plant. Yet there was no mention of Shell yesterday, only Wartsila, even though it is supposed to be the financing and ownership lead.

Chester Cooper, the Opposition’s deputy leader and finance spokesman, told the House of Assembly: “Today, I don’t know if he [Mr Bannister] said Shell once. The Memorandum of Understanding was signed with Shell in December 2018. Now, the Bahamian people must pay without any mention of Shell.”

Shell recently told Tribune Business it was exploring the possibility of an initial public offering (IPO) to Bahamian investors of shares in the company that will be created to own the liquefied natural gas (LNG) regasification plant and associated infrastructure that will supply fuel to the new Clifton Pier, indicating it remains committed to the power plant deal despite suggestions talks have become bogged down.

One well-placed source, speaking on condition of anonymity, told Tribune Business: “I don’t understand why they’re [BPL] funding this when Shell is supposed to be doing it. And how can you give Wartsila a contract for that amount of money when it has not gone out to tender.”

Both Dr Donovan Moxey, BPL’s chairman, and Whitney Heastie, its chief executive, declined to address these questions when contacted by Tribune Business, instead referring the issues raised back to Mr Bannister. The minister, who spent most of his day in the House of Assembly, also could not be reached for further comment.

However, Tribune Business was told that Shell remains “an integral part” of BPL’s plans to exit the power generation business on New Providence, with the multinational energy giant both owning and operating the proposed multi-fuel plant at Clifton Pier that is targeted for completion by end-2021.

This newspaper was informed that BPL is doing everything it can to minimise the impact of its refinancing on consumers, with the utility, the Government and its legal and financial advisers - Higgs & Johnson, Lennox Paton, Citibank and EY (Ernst & Young) - running through numerous financial models to produce a range of where the debt servicing costs will likely end up.

The utility’s strategy is that the refinancing will enable it to invest in more efficient generation capacity that requires less fuel, enabling it to lower such costs for the Bahamian consumer and thereby more than offset the impact of the bond’s debt servicing costs to produce a net gain.

Tribune Business was told that BPL’s current inefficient generation plant is using between 11,000-12,000 thermal units (BTUs) to produce electricity, requiring it to burn much more fuel to generate the same amount of electricity than the new 132 MW from Wartsila that consume just 7,200 BTUs.

The theory is that once these engines come online on mid-December 2019 they will help lower BPL’s fuel costs sufficiently to offset the bond’s debt servicing charges. And they will also enable BPL to stop using the Blue Hills power plant, which relies on more expensive ADO diesel fuel, as its main generation facility and switch back to heavy fuel oil (HFO) - a move that could cut fuel costs by between 30-40 percent.