The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light's (BPL) mammoth refinancing has been further delayed by the need to alter its enabling legislation to better protect investors, a Cabinet minister revealed yesterday.

Desmond Bannister, minister of works, disclosed to Tribune Business that The Bahamas must make "one or two small tweaks" to the Electricity Rate Reduction Bond Act that was passed by Parliament in late 2019 in response to global capital markets feedback.

Admitting that "this is totally new territory for us", Mr Bannister signalled that major institutions wanted greater comfort - given that the upcoming BPL bond issue will not be backed by a Bahamian government guarantee - before they would be prepared to invest their clients' capital.

Mr Bannister, while not giving more details on the proposed changes, said the Attorney General's Office was working on their drafting and that they should be presented to Parliament for its approval "very soon".

He also disclosed that the total sum sought to refinance BPL "may be less" than the $580m figure previously given. That already represented a major drop from the initially-planned $650m, but Mr Bannister said "everything is in place and ready to go" for placing the bond once the amendments are passed into statute law.

The minister, who has Cabinet responsibility for BPL, acknowledged that much hinges on a successful refinancing of the state-owned utility monopoly's existing $321m debt together with the provision of more than $220m in new working capital to fund upgrades to its long-neglected transmission and distribution (T&D) network.

For BPL's entire turnaround plan, and the provision of reliable, lower cost energy to its business and residential consumers, depends on this bond issue. Mr Bannister added that its completion was critical to finalising the agreement with Shell North America to own, and operate, the new multi-fuel power plant at Clifton Pier together with liquefied natural gas (LNG) regasification terminal.

"There are a few minor challenges we have to look at and, quite frankly, there is going to be another amendment to the legislation," Mr Bannister told Tribune Business. "This bond is a new thing to us, moving into the markets and everything, it's a new thing to us.

"The PLP tried to get the legislation right but they made a lot of mistakes. We amended the legislation but, as we consulted the capital markets and got feedback, and based on legal advice, we may have to make one or two small tweaks to do what has to be done to stay on top of modern developments in the capital markets.

"The Attorney General is currently working on it. I anticipate it will be very soon when we bring it to Parliament and make a full disclosure to the Bahamian people."

The original Electricity Rate Reduction Bond Act was passed by Parliament in 2015 during the last Christie administration's tenure in office. The critical need to refinance and recapitalise BPL was well known from then, but the then-government elected to go no further than passing the enabling legislation, leaving its successors to determine when - and how - to execute.

The Minnis administration made multiple changes to the legislation last year, in a bid to both modernise it and bring it into line with current capital markets practices, but Mr Bannister yesterday conceded that the major institutions targeted as potential investors in the BPL bond wanted more assurance before they are prepared to part with their capital.

He indicated that market concerns centred on the absence of a government guarantee, with BPL having to stand on its own to repay investors. This, combined with The Bahamas' status as a small island state with a common law legal system that is not based on US law, meant investors were seeking greater comfort.

"As we moved ahead we found there were one or two things in the capital markets that required us to look at some changes," Mr Bannister reiterated. "Those changes relate to the fact we're a small sovereign country that is not part of the US legal system.

"Bahamian law is such that we have to ensure that investors are protected. It is a huge amount of money [BPL is looking to raise]. The challenge is there will be no government guarantee on this. This will solely be a bond for BPL to repay."

Many observers will argue that it is Bahamian households and businesses that will be doing the repaying given the extra debt servicing fee, likely equivalent to around 15 percent of existing consumption, that will be added to consumer bills. BPL is arguing that this fee will ultimately be offset by reduced fuel costs and more efficient generation capacity.

Mr Bannister, meanwhile, explained further: "In the absence of a government guarantee we have to do certain things. There are some protections which we have to look at, feel out, and get the advice of attorneys on. This is totally new territory for us: A small country that is looking for the confidence of very large institutional investors."

BPL and the Government had initially hoped the bond issue, which will be placed by a special purpose vehicle (SPV) to keep the debt off both their balance sheets, would be completed by the end of February 2020 with the first debt servicing levy appearing on consumers' March bills.

Given that the original target date has already been missed, with the extra legislative changes creating further uncertainty over the timeline, it is now unclear when the extra charge will be added. The BPL bond had already been delayed by the wait to obtain a credit rating - something seen as vital for investors to assess the issue's risk, and to determine the cost Bahamians must incur to repay it.

Mr Bannister yesterday voiced optimism that BPL was poised to obtain a positive assessment, adding: "We don't have an official rating but we believe we are going to get an incredibly good one".

He added that the utility and its advisers were still "finalising" the total capital it will seek to raise, and confirmed it may be less than the $580m figure previously given. "We're cognisant of our responsibilities as a country and cognisant of our responsibilities as BPL," Mr Bannister said.

"As soon as we get back to Parliament and amend the legislation, we're ready to go. We're ready to place the bond. Everything is in place, everything has been done."

Mr Bannister said completing the refinancing was the key outstanding element required to finalise BPL's agreements with Shell North America in negotiations that have lasted more than one year.

"I think the challenge relates to the current situation with respect to the finances; BPL's finances," he added. "As soon as we finalise that process, I think the Shell deal will be completed. That's really the only challenge; putting the bond in place."

BPL has stepped into Shell North America's shoes by financing the total $170m costs of constructing the new power plant at Clifton Pier - a role the global energy giant was supposed to perform. The state-owned utility will now sell these assets to Shell as part of a wider deal that will also involve a power purchase agreement to buy energy from the new plant.

Mr Bannister, meanwhile, pledged that daily summer load shedding by BPL will no longer occur after the Government showcased the utility's new 30 Mega Watt (MW) General Electric aeroderivative engine yesterday.

"We're not going to have a repeat of any previous summer," he told Tribune Business. "We've had this widespread load shedding now for the best part of two decades, and we're not going to have a repeat of it at all.

"It's been most of my life watching this challenge, my entire adult life, and we're going to resolve the generation challenge. Generation will no longer be an issue."