The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light (BPL) has been unable to exploit the all-time low in global oil prices, a Cabinet minister revealed yesterday, adding: “Its finances get more and more perilous every day.”

Desmond Bannister, minister of works, told Tribune Business that the state-owned utility simply “doesn’t have the money” to either hedge its fuel prices or buy significant quantities at current market rates.

He added that BPL was in talks with the Ministry of Finance to address this and other challenges it faces given that the collapse in global oil prices potentially represents one of the few forms of relief available to struggling Bahamian companies and households amid the COVID-19 fall-out.

However, Mr Bannister said any effort by BPL to take advantage of the decline for the consumer’s benefit will “not have amounted to much”. He argued that the pandemic had struck when the utility was “particularly vulnerable”, having been in the middle of efforts to achieve financial sustainability through its planned $580m bond placement.

The minister yesterday acknowledged that the refinancing had been delayed indefinitely since COVID-19’s impact on the international capital markets had made it impossible to obtain the bond interest rate that BPL was seeking.

“BPL doesn’t have the money to do it,” Mr Bannister replied, when asked by Tribune Business yesterday if it had been able to generate significant customer savings by purchasing its summer fuel amid the oil market low.

“BPL is liaising with the Ministry of Finance to see whether that’s at all possible. They want to be able to hedge, and we believe they can have the expertise to hedge, but BPL simply does not have the money to do it. They have a [fuel] stock in place and commitments through a certain period, so they have to go through their stock.

“The ability to hedge, and ability to purchase at the current market price, would be based on having funds available, which they don’t. I can’t say they haven’t been doing so, but if they have it has not been much.”

Oil prices last night stood at $28.62 per barrel under the Brent Crude index, and at just $19.90 on the West Texas Intermediate (WTI) indicator. The slump in global demand due to the COVID-19 crisis, together with the price war between Russia and Saudi Arabia, drove the oil industry to an all-time low.

However, the world’s largest oil producers responded this week by agreeing to cut production by a record ten percent in a bid to boost prices. This, together with the Russia-Saudi Arabia truce, means the window of opportunity could rapidly be closing on one of the few opportunities to bring relief to Bahamians when they most need it through lower energy costs.

Dr Donovan Moxey, BPL’s chairman, confirmed earlier this year that the utility was interested in exploiting hedging strategies. This is a financial technique employed worldwide, including by Grand Bahama Power Company, to safeguard an energy supplier against oil price volatility by locking in a specific price for a set time period - as long as five to 10 years.

This would provide Bahamian energy consumers with better price certainty, and enable businesses in particular to better predict their costs given that the fuel charge typically accounts for up to 50-60 percent of the total bill.

However, Dr Moxey conceded that BPL was relying on its planned bond refinancing to provide the financial resources and breathing room to turn its hedging dreams into reality. The COVID-19 pandemic has, for the moment at least, put paid to that and locked BPL into ongoing dire financial straits.

Mr Bannister previously revealed that BPL’s March 2020 revenues had dropped by 32.5 percent year-over-year, dropping from $40m to $27m - a difference of $13m. April’s revenue performance is likely to be even bleaker given that it will feature a full month of COVID-19, with BPL also offering a three-month bill payment deferral to those laid-off, quarantined or made sick by the virus.

“Their finances get more and more perilous every day,” the minister told Tribune Business of BPL. “The longer this goes on, and the longer that money does not come in in the way experienced in the past, it’s a challenge.

“BPL is currently in discussions with the Ministry of Finance. They’re looking at a number of potential avenues to deal with the challenges they face. In due course we’ll be able to come up with something to make a difference for that entity also.

“There are quite a few options, and I anticipate we will be able to work something out. COVID-19 has impacted the world at a time when BPL, particularly, was very vulnerable.... The company is running on limited income and we’re discussing the challenges with the Government.”

Mr Bannister declined to detail the Government’s potential options for assisting BPL, saying they were “too numerous for me to go into right now”. However, it appears increasingly likely that the Minnis administration will have to forestall a potential energy crisis by propping up BPL via taxpayer support likely involving more guaranteed debt financing.

The minister added that COVID-19 had effectively blocked any improvement in BPL’s financial health via the planned refinancing, and said: “I don’t think anyone wants to potentially go into the bond markets now if they’re looking for the favourable interest rates we anticipated getting.

“Our consumers have generally been used to coming in and paying in person and, coupled with that, BPL’s online payment system was not the most efficient. When you have a situation like the COVID-19 virus, and people are told to stay at home, circumstances arise where you do not get the financing you need to get.”

Mr Bannister argued that the one bright spot for BPL was that it had “acted in swift fashion” to acquire more than 160 Mega Watts (MW) of new generation capacity, split between the $95m outlay on the Wartsila engines and the $30m spend on the General Electric (GE) unit now operating at its Blue Hills plant.

He voiced optimism that, as a result, BPL will prove it is “a reliable utility” by avoiding the daily load shedding and blackouts that plagued summer 2019. The cooling system for the new 132 MW of new Wartsila generation capacity is set to be completed at Clifton Pier “in a matter of weeks”, enabling all seven engines to be operated at the same time.

“BPL is an essential service to the Bahamian people, and we’re going to continue to provide that service come what may,” Mr Bannister told Tribune Business. “Summer is fast approaching and we need to have the type of resources in hand to ensure we will be able to keep the Bahamian people in a situation where they have power through the summer.

“We need to keep the power on during the summer. BPL needs to show they’re a reliable utility and I believe they’re going to do it. BPL didn’t have the best maintenance plans and procedures in the past, so we’re also dealing with the maintenance issues now. We can never go back to what we had last summer.”

Mr Bannister said the cooling system for the new Wartsila engines at Clifton Pier will be completed “in a matter of weeks” to enable all to run at the same time.