The Tribune

• Asks where funds coming from as none in Budget

• Sears: Gov’t will ‘pay what not covered by hedge’

• Adds that it will be ‘backstop’ for most vulnerable

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s leader last night said it would be illegal for the Government to directly subsidise Bahamas Power & Light’s (BPL) fuel costs after a Cabinet minister reiterated this is the only way to prevent higher electricity costs.

Michael Pintard told Tribune Business the Free National Movement (FNM) supports “any lawful remedy” to ease what he described as “a potential albatross around the necks of Bahamians”, but voiced doubts over whether the method openly being considered by the Davis administration would comply.

He spoke out after Alfred Sears, minister of works and utilities, effectively told the weekly media briefing by the Prime Minister’s Office that BPL would have no choice but to pass on increased fuel costs to its customers via higher electricity bills unless the Government (Bahamian taxpayer) intervened to partially underwrite this expense.

Asked whether the Government will intervene to stop BPL’s fuel charge, which typically accounts for 50-60 percent of customer bills, from increasing, Mr Sears replied: “With respect to BPL, BPL cannot absorb increases. So there are only two options.

“One is to pass it on to the consumer or for the government to provide a subvention to pay, and the Prime Minister has made it very clear that the Government is committed to providing a measure of safeguard for the consumer given the fact that, in many homes, people’s lives have been disrupted by employment, through death and illness as a result of the pandemic. We still have a lot of climate refugees in our country, people who were displaced by Hurricane Dorian......

“So, we are in a very challenging time in the Commonwealth of The Bahamas and we have to be sensitive that so many of our compatriots are hurting and challenged and trying to get their bearings.”

However, multiple sources have argued that the Government is barred from directly subsidising BPL’s fuel costs by the Bahamas Electricity Corporation (Amendment) Regulations 2020, which were gazzetted on June 26 that year to facilitate the hedging strategy implemented by the former Minnis administration.

They pointed out that the first two clauses in ‘Part B: Fuel Adjustment Charge’ stipulate that this “shall be the total cost of fuel required to produce and deliver each kilowatt hour of electricity to consumers.” The use of the word “shall”, they argue, means that the full cost must be passed to business and residential consumers and not subsidised in part by the Government.

Thus the Davis administration will likely have to amend these regulations to facilitate its subsidy plan, which is hardly an insurmountable obstacle. But, in his response to Mr Sears, Mr Pintard said: “We want any remedy that is lawful that can assist in lessening the burden that the Bahamian consumer would experience as it relates to any increase in the cost of electricity in The Bahamas.

“It is a drag on businesses, it is a potential albatross around the necks of Bahamians. To the extent we can find ways to lessen that burden, the FNM completely supports it. However, the minister has not been able to point to a lawful way that can be accomplished because to the best of our knowledge the Government does not have a way to provide a subsidy in the traditional way being suggested by the minister. The additional cost must be passed on to the consumer.”

Mr Pintard also questioned where, if the Government does ultimately end up subsidising BPL’s fuel costs, the multi-million dollar sum required will come from given that no funding source was provided in the just-passed 2022-2023 Budget.

“There is nothing in this year’s Budget to show provisions have been made,” the Opposition’s leader added, pointing out that global oil price trends were well-known for months before the Budget was passed. The Public Financial Management Act’s implementation now makes it much harder for the Government to simply shift funds around without returning to Parliament to seek approval for a revised Budget.

Mr Sears, though, sought to blame Russia’s invasion of Ukraine - which added to already-rising global oil prices - for the impending hike in BPL’s fuel charge.

However, well-placed sources yesterday revealed that the present $102-$104 per barrel of oil prices had been predicted by the global futures markets from as far back as fall 2021 when the Davis administration took office. And that was before the Ukraine war broke out.

Mr Sears yesterday said the four BPL oil price hedging contracts initiated by BPL in 2020 “do not cover the full scope of the increase that would have occurred” subsequently in global oil prices, even though the last one is set to expire in 2024. This newspaper understands that, under the former administration, BPL had hedged all its fuel needs for 2022, half for 2023 and a quarter for 2024.

The state-owned energy monopoly did not hedge all its fuel needs for 2023 and 2024 because it needed to see which direction global oil prices took, and several sources suggested the Davis administration failed to respond to rising prices by executing the strike options left in place by its predecessor that could have secured lower-cost supplies late last year.

“What the hedge does not cover the Government will have to pay,” the minister added. “In fact, the Government is the back stop.” With the Prime Minister having committed to protecting the most vulnerable segments in Bahamian society from surging fuel prices, Mr Sears said: “The Government really has to provide the backstop.”