The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday pledged that Bahamas Power & Light (BPL) "will not sell the Bahamian people short" in negotiations with Shell North America over New Providence's new power plant.

Desmond Bannister, minister of works, responding to signs that the parties' efforts to close a deal may have run into difficulty, told Tribune Business that BPL's Board of directors and negotiators were proceeding carefully to "ensure every possibility is covered in protecting the country's interest" over what is supposed to be a 20-25 year agreement.

Asked if what has been billed as a "game changing" deal for New Providence's energy sector was now in danger of falling apart, Mr Bannister said Bahamian businesses and households had "already seen a tremendous part of the game being changed" in terms of supply reliability and energy costs over the past several months.

He pointed to the addition of around 160 Mega Watts (MW) in new generation capacity, via seven Wartsila engines and one from General Electric (GE), as having prevented a repeat of 2019's disastrous daily load shedding although outages still persist due to BPL's decaying transmission and distribution (T&D) infrastructure.

And the minister, whom has Cabinet responsibility for BPL, also pointed to the state-owned utility's newly-implemented fuel hedging initiative as having provided customers with rate certainty and electricity bill predictability over the next 18 months.

However, Mr Bannister did not provide the level of reassurance or comfort that Shell North America is likely seeking. Arguing that "the game has already changed", he added that the key goal now was

"how much more can we get out of it for the Bahamian people" whether it was "Shell, another partner or no partner".

Mr Bannister denied that he was suggesting the Government and BPL will forge ahead without Shell if no acceptable deal can be reached, when pressed by Tribune Business. However, he declined to commit to a timeline on when the negotiations may reach a conclusion or detail the issues that the parties are seemingly deadlocked on.

Praising Dr Donovan Moxey, BPL's chairman, and the utility's Board of Directors, Mr Bannister told this newspaper: "The only interest they have at heart is the interest of the Bahamian people. They are steadfast in their commitment, they have done their research, and know exactly what they ought to get on the market.

"They will be continuing with that commitment until we get what's best for the Bahamian people. I'm really happy with the people we have negotiating on our behalf and they are not going to sell the Bahamian people short. Any agreement that ends up being signed by this Board will be in the best interests of The Bahamas."

Echoing Dr Moxey's explanation in Monday's Tribune Business, Mr Bannister said BPL and its Board were proceeding cautiously given that the power purchase agreement (PPA) being negotiated with Shell North America will set binding prices and commercial terms governing the state-owned utility's acquisition of energy from the latter's power plant over a 20-25 year period.

"We are dealing with an agreement that is going to last 20-25 years, so we have to ensure every possibility is covered in protecting our country and protecting our people," Mr Bannister added. "Our people know exactly what to expect, and have done comparisons with similar projects. They know what they ought to be committing to and ought not to be committing to."

However, he stopped short of expressing full confidence that the talks with Shell North America will be successfully completed. "It's like any other agreement," the minister said. "I've practiced law for 30 years. Some get signed, and some don't."

Talks between the Government/BPL and Shell North America to seal the agreement on New Providence's new power plant infrastructure have now lasted 19 months and counting since the parties signed a Memorandum of Understanding (MoU) for the project in December 2018.

The deal was billed as paving the way for lower cost, more reliable and environmentally-friendly energy supply that would significantly slash electricity bills for both Bahamian businesses and residents, thereby improving economic competitiveness and freeing-up disposable income and spending/investment power for all consumers.

Asked whether this objective was now in jeopardy, Mr Bannister replied: "I don't know if that is so. We've already seen a tremendous part of the game being changed. We're seeing the seven Wartsila and one General Electric engine in place, and the hedging strategy in place, so we've seen tremendous changes in the energy sector over the last few months. We've made quite a few steps I'm proud of.

"The game has already changed, and the question is how much more can we get out of it for the Bahamian people.... Whatever we see coming now, whether Shell is a partner, whether it's another partner or no partner, it has to be in the best interests of the Bahamian people."

Some observers will likely suggest that Mr Bannister's remarks are less than a ringing endorsement of the Shell North America talks, although the minister denied that the Government/BPL was preparing to move ahead without the preferred bidder. Still, he said BPL was "very capable of doing what needs to be done" to overhaul the Bahamian energy sector.

"I don't want to go into the specifics of negotiations," Mr Bannister replied, when asked what matters the parties have yet to resolve. "There are a number of issues that BPL and Shell are discussing, and I don't want to be seen as not acting in good faith. I'm aware of the issues, I'm aware of the policy issues involved, and as minister I am only involved in the policy issues...

"The commitment is that the Bahamian people are going to benefit in whatever BPL does under this administration, and it will be to the benefit of our consumers. Nothing that is not in their best interest will come about."

Signs that all was not well with the proposed New Providence power plant first emerged in late May when Shell North America held a virtual conference with the Bahamian media to discuss the project. Little that was not already known was disclosed, with Shell targeting 2021 for completing the power plant phase and 2022 for the accompanying liquefied natural gas (LNG) infrastructure.

The impression emerged then that Shell was trying to nudge the Government and BPL to speed up the negotiations, and this was reinforced at the weekend when an opinion piece written by its lead negotiator, Markus Hector, Shell LNG marketing and trading’s general manager for market development, was released to the Bahamian media.

It indicated that Shell appears to be becoming frustrated and losing patience over the inability to conclude negotiations, with Mr Hector writing: “Our ability to invest in the construction of an affordable liquefied natural gas (LNG) terminal, and our purchase of the new power plants, remains dependent on the timely closure of current negotiations with BPL and the Government.

“As currently designed using industry standards, this project will produce the majority of power generation for the entire island of New Providence for decades to come. It will be made up of two joint ventures – the ‘Terminal Company’ to operate the LNG terminal, receiving, storing, and re-gasifying the LNG, and the ‘Power Company’ to generate electricity, which will be sold to BPL for transmission and distribution."

The proposed power plant could play a vital role in The Bahamas' post-COVID-19 recovery if it is able to slash energy costs and improve supply reliability, as the benefits will be felt throughout the economy. The plant is designed to run off a variety of fuels, including LNG, heavy fuel oil (HFO) and automotive diesel oil (ADO), with Shell able to pick the cheapest and most appropriate solution at any given time and switch accordingly.

Mr Hector said Shell North America will retain majority interests in both the power plant and the LNG terminal, with BPL holding a minority stake in the former and Bahamian institutional investors taking a similar position in the latter. The Government has indicated that it will sell at least a portion of BPL's power plant stake to the Bahamian public via an initial public offering (IPO).

However, the negotiations have become increasingly complex. In the interests of "saving time", BPL has proceeded with constructing the very power plant Shell North America was supposed to build. It invested $95m in the seven Wartsila engines that will provide 130 MW of the 220 MW to ultimately be supplied by the multinational energy giant.

And BPL was to invest a further $70m in acquiring the extra 90 MW required by the new plant. The finished power plant will then be acquired by Shell North America from BPL under an asset transfer agreement.

However, this arrangement has been further complicated by the failure to-date to place BPL's $535m rate reduction bond (RRB) financing. For the $70m required for the final 90 MW is supposed to raised from this facility.