The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light (BPL) is facing an increased financial burden after being made responsible for servicing a $246m loan that paid out government guaranteed debt.

The Government's 2020-2021 first quarter "fiscal snapshot", released yesterday, revealed that the cash-strapped state-owned electricity monopoly is having to meet the interest payments on the new loan - and not the Public Treasury - until it can be paid out with the proceeds from its planned $535m Rate Reduction Bond (RRB) offering.

The extra burden was imposed when the new loan replaced a previous $246m facility that was guaranteed by the Government. The refinancing effectively took this debt off the Government's books, as it meant it was no longer responsible for repaying the lenders if BPL was unable to do so.

"Under a separate Parliamentary borrowing resolution, dated June 22, 2020, the Government secured a $246m bridge loan facility from global investors to retire and assume direct responsibility for the $246m legacy debt of the Bahamas Electricity Corporation (BEC), which was previously a contingent liability [for the Government]," the "fiscal snapshot" said.

"Simultaneously, the Government executed a side agreement with BPL, the subsidiary of BEC, for the servicing of the new debt until it is repaid out of the proceeds of BPL’s prospective rate reduction bonds issuance."

K Peter Turnquest, deputy prime minister, yesterday confirmed that BPL and the Government have a "service agreement" where the former will cover repayments on the new $246m facility until it can be replaced by proceeds from the planned bond issue.

However, the extra loan repayment could further strain BPL's finances at a time when around 16,000 customers have either been disconnected or are in danger of being cut-off due to an inability to pay their bills amid the COVID-19 pandemic.

And BPL is itself "concerned" it will be forced to pay a high price to place its $535m bond issue due to the Government's recent borrowing. Desmond Bannister, minister of works, said the utility's Board were fearful that the 8.95 percent interest attached to The Bahamas' recent $600m sovereign bond will be used as a benchmark to price its own upcoming debt financing which it still aims to place before year-end 2020.

With BPL's rate reduction bond (RRB) likely to be perceived as riskier than the Government's borrowing, especially given the absence of a guarantee from the latter and the fact the utility is still in the middle of its turnaround strategy, the interest rate will almost certainly be greater in either the high single digit or even double digit range.

This means that BPL's household and business customers, who will be called upon to service the interest and principal costs owed to investors who buy into the National Utility Investment Bond, may have to pay higher electricity bills than were initially anticipated.

BPL executives previously said the extra charge to be added to customer bills would be equivalent to 15 percent of current consumption, but the higher interest rate that will likely have been set following the Government's recent borrowing may force this to increase.

The "fiscal snapshot", meanwhile, showed that the BPL refinancing helped propel the Government to some $921m in gross borrowings during the 2020-2021 fiscal year's first quarter. With debt repayments of some $229m, this increased the Government's net borrowings or liabilities by a further $692m during the three months to end-September.

"The Government borrowed a total of $921m during the first quarter, as compared to $162.6m in the same period a year prior," the report said. "Of the total, $592.3m was used to cover the overall deficit, being comprised of a $248.0 million bridge facility from global investors, a $200m policy loan from the Inter-American Development Bank (IDB), $140m in short-term advances from the Central Bank and $4.3 million in drawings under existing external loan agreements. A total of $81.5m in maturing bonds were refinanced through an equivalent issuance of new bonds."