The Tribune

* Shell: 'Degree of urgency' to close with BPL

* 'On the precipice' as first IPP licence gained

* Energy upgrade 'paramount' to COVID revival

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Shell North America says "a degree of urgency" is required to close the deal for New Providence's new multi-million dollar power plant with an agreement thought to be just "weeks out" from conclusion.

Gerard Van-Ginkel, the multinational energy giant's project director, told Tribune Business that negotiations with Bahamas Power & Light (BPL) and the Government were "at the precipice" of reaching a conclusion following nearly two years of negotiations and the parties now needed to take that final step.

Speaking after Shell became the first Bahamas-based independent power producer (IPP) to be licensed by Bahamian energy regulators, Mr Van-Ginkel said Shell North America aimed to begin construction on the Clifton Pier-based regasification terminal and associated facilities that will supply liquefied natural gas (LNG) to the new power plant early in 2021.

The timeline, though, depends on obtaining swift BPL, government and Shell Board approvals for the agreement to proceed, and with construction likely to take a minimum of two years it is unlikely LNG will now be introduced into New Providence's energy mix until early 2023.

Pledging that the new power plant and associated LNG infrastructure will "position The Bahamas as one of the lowest-cost power producers in the Caribbean region", Mr Van-Ginkel said reliable, cheap and environmentally-friendly energy is "paramount for post-COVID-19 economic recovery" in this nation as the potential benefits will touch every aspect of the economy.

He added that the project's Environmental Impact Assessment (EIA) is already underway despite having been hindered by pandemic-related restrictions and other measures, while geotechnical studies are set to start early in the New Year.

Mr Van-Ginkel also disclosed that Shell North America, working with BPL and the Government, had managed to obtain all the land and "rights of way" required for the new power plant and LNG facilities from private and public landowners in the Clifton Pier area.

Signalling that all sides are close to completing a long-running, complex negotiation, he told this newspaper: "I think that we're weeks out. I think that when we last spoke we were targeting to conclude in the third quarter.

"That has just passed. Despite all the challenges caused by COVID-19 and lockdowns, I think in the next few weeks we will be in a position to see this come to a conclusion with BPL and the Government."

Desmond Bannister, minister of works who has responsibility for BPL, declined to comment on the status of negotiations when contacted by Tribune Business. However, Dr Donovan Moxey, BPL's chairman, echoed Mr Van-Ginkel by telling this newspaper that "we have made progress" although he declined to detail the outstanding issues or give a likely completion timeline.

"We're still negotiating," Dr Moxey said of the Shell talks. "I'm not prepared to say exactly where we are, but this negotiating process has been moving forward and we have been making progress. I'm not going to give a timeline, but we have made progress from January to now and are doing everything we can to get this wrapped up as soon as we possibly can."

One source, familiar with developments in the power plant talks and speaking on condition of anonymity, said they understood that the pricing, commercial and other terms required for an agreement were largely in place, and the deal now just required approval from the Minnis Cabinet.

"The basic deal has been done for a while now," the source said, "and it has to get Cabinet approval." While the finishing line now appears to be in sight for all parties, Mr Van-Ginkel and Shell North America indicated to Tribune Business they remain eager to get there as rapidly as possible.

"There's a certain degree of urgency that needs to be recognised in delivering this project," he told this newspaper. When asked what he meant, Mr Van-Ginkel replied: "We look forward to moving this on and getting on with construction in the New Year.

"We've been at this since 2018, and now we're in the fourth quarter of 2020. We've had a tremendous amount of global change over that period. It's Shell's view that the project is at the precipice, and it is time to take the next steps and move into a conclusion.

"We've all worked hard to get to this point, and are hoping to take it the rest of the way. We believe we've put forward a compelling proposal, and it's up to the Government and BPL to decide how they want to proceed."

After selecting Shell North America as the preferred bidder to construct, own and operate a new multi-fuel power plant that will deliver New Providence's base-load electricity requirements more reliably and affordably, Bahamas Power & Light (BPL) signed a Memorandum of Understanding (MoU) with the multinational fuels and energy giant in December 2018.

The two sides have since been locked in negotiations on what Mr Van-Ginkel described as a "complicated" and "complex" agreement that is assuming ever-increasing importance given The Bahamas' need to rapidly revive its economy post-COVID-19.

Lower cost, more reliable energy (there were power cuts on New Providence again this weekend) will be key to improving The Bahamas' overall economic competitiveness, plus the viability of individual businesses and households, with the new 225 Mega Watt (MW) power plant playing a key role in this.

Suggesting that the multi-fuel power plant will be central to Bahamian energy industry "modernisation", Mr Van-Ginkel said: "We think improvement to the energy system is paramount for post-pandemic economic recovery whether in The Bahamas or anywhere else. This project is an opportunity to reduce power prices, clean up the energy system.

"I can't underplay the importance we see in transitioning this power system away from heavy fuel oils (HFO) to natural gas. Natural gas is the way forward for energy. We see this as a landmark project for The Bahamas."

The Utilities Regulation and Competition Authority's (URCA) awarding of the 15-year IPP licence to Shell Bahamas Power Company, the entity that has been formed to own the new power plant, is a "foundational requirement" for the project and brings it "one step closer" to fruition.

The URCA process ran in parallel to Shell North America's continuing negotiations with BPL, and a separate process with the Bahamas Investment Authority (BIA) to approve its ability to operate in The Bahamas as a foreign investor.

"This is a complicated project, so the negotiations are especially complex," Mr Van Ginkel added. "A project like this has never been undertaken in The Bahamas. We've been working to land an agreement that is resilient in not only the short-term but the long-term.

"The negotiations have been long and impacted by COVID19. I used to go to The Bahamas every other week, and now I cannot do that. It's taken a certain amount of pace out of the process. I was there five times in the first 10 weeks of the year, and not been there since March 4.

"Everyone wants to make sure we get this right. Nobody wants to rush, rush a project that lasts 20-plus years and [represents] the foundational base load for the island of New Providence."

While unable to provide precise figures on the level of investment required to construct the LNG terminal, Mr Van-Ginkel said it would be in the "hundreds of millions" of dollars. "It's not a small project by any stretch of the imagination," he said.

"Especially at a time of the pandemic, when foreign direct investment is critical to all economies in terms of foreign currency and keeping investment moving, this project represents an incredible opportunity in that space alone."

The key terms will be the 20-25 year power purchase agreement (PPA), setting out the price at which BPL will buy electricity from Shell's new power plant, and the asset purchase agreement detailing the price and mechanism by which the energy giant will acquire 'Station A' and 'Station D' at Clifton Pier from the state-owned energy monopoly.

The former station houses the 135 MW of new generation capacity that BPL acquired in 2019, while the latter - which will be home to the remaining 90 MW - has yet to be constructed. Mr Van-Ginkel said the price at which BPL will buy electricity, and the purchase price for the assets, have yet to be determined although the latter will be for "fair market value".

Separate and apart from the power plant itself, Shell will be responsible for constructing the nearby LNG facilities. The project director confirmed that it was still Shell's intention to give Bahamian investors a chance to own a portion of the LNG assets, although he was unable to give details as these are still being worked out.

"This is something we're really eager to get going," Mr Van-Ginkel added of the LNG construction. "We intend to start early works in 2021 is everything goes to plan and we conclude negotiations in the next few weeks - the end of the first quarter if not sooner. We would see construction commencing in earnest in 2021 and the early works starting as soon as possible.

"The project as contemplated will position The Bahamas as one of the lowest-cost power producers in the Caribbean region. The project that Shell has put forward and is negotiating with BPL is best in class, and will result in more affordable, more reliable, cleaner energy. No doubt about that."

Mr Van-Ginkel said LNG pricing, which would be linked to the Henry Hub benchmark index, would provide the stability necessary to "move The Bahamas away from all the volatility experienced in the crude market over the years".

With the LNG terminal likely to take two to two-and-a-half years to construct, New Providence's energy mix will likely include that fuel for the first time come the 2023 second quarter.