The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Inter-American Development Bank’s (IDB) president yesterday hailed the impact of Bahamas Power & Light’s (BPL) fuel hedging strategy despite doubts on whether it remains in place.

Mauricio Claver-Carone, in a roundtable discussion with Caribbean media, did not directly answer a Tribune Business question as to whether the hedging initiative it developed with the former Minnis administration remains in place. But, with oil yesterday briefly hitting $139 per barrel, he said the savings it generated were “starting to look even more attractive”.

“What we did in The Bahamas, for the first time, is an energy hedging instrument. The hedge is done by these instruments. We’ve learned a lot from it,” Mr Claver-Carone said. “I won’t speak to whether any country has maximised it, but the impact for The Bahamas is that it has been able to mitigate the impact of [rising] energy prices thanks to that.

“As we sit here, and looking at today’s $130-$131 oil, some of that hedging starts to look even more attractive and was perhaps [future-telling] in that regard. It shows we need to get better at and innovate in that way. It’s definitely had an impact, definitely helped to mitigate these prices.”

It remains unclear, though, whether BPL’s fuel hedging strategy remains in place following the events of last week when the state-owned electricity monopoly was forced to retract an announcement of a 30 percent increase in its fuel charge component - due to take effect that very same day, March 1 - less than two hours after it was issued.

Tribune Business investigations revealed fears that BPL customers could suffer a $200m hit over the next two years via increased electricity bills, due to higher fuel costs, amid suggestions that the Davis administration had failed to pull the trigger on executing the quarterly hedging renewals that came due in September and October last year.

Clint Watson, the Prime Minister’s press secretary, subsequently said he had been informed by Alfred Sears QC, minister of works and utilities, that BPL still had a fuel hedging strategy in place but provided no details. Mr Sears and Pedro Rolle, BPL’s chairman, could not be reached for comment yesterday despite numerous phone calls and messages being left.

This newspaper was told the hedging strategy left in place would have addressed all BPL’s 2022 fuel “needs”, with 1.6m barrels of oil “hedged” at a price of $40 - almost 65 percent less than prevailing market prices - for the period from February 1, 2022, to October 31, 2022. A contact said savings for February alone would have amounted to almost $8m compared to market prices.

For the subsequent 12 months, some 1.45m barrels were hedged at $40 until end-October 2022 and, for the period November 1, 2023, to March 2024, another 430,000 barrels were included in the hedge.

Had this structure been maintained and executed, one source said, it would have generated collective savings for BPL’s consumers of $134m over the next two years based on a $93 per barrel global oil price.

But, amid increasing uncertainty over whether the Davis administration has actually followed through on this, they added that, if oil prices stick at $110 per barrel, this could add a total $205m to The Bahamas’ energy costs at a critical time in the country’s post-COVID recovery.

Sources spoken to during Tribune Business’ inquiries added that the failures to execute the quarterly hedges that came due in September and December 2021 now threaten to cost Bahamian businesses and consumers dearly in their struggle to rebound from COVID-19’s devastation.

Asserting that there were predictions last September, well before Russia’s conflict with Ukraine emerged as an issue, that global oil prices would breach the $100 mark by March 2022, they argued that it is now almost impossible for BPL and the Government to obtain a good fuel hedging deal beyond June 2022 because the markets are reeling from events in eastern Europe.

Meanwhile, Mr Claver-Carone yesterday said the IDB and the Bahamian government were “in sync” over the latter’s priorities with a meeting held between himself and “the minister of finance” just last week.

He added that the IDB had done its “first policy-based guarantee” with The Bahamas via the $200m “blue economy” initiative, which will “help The Bahamas access about $700m in the market” via foreign currency bonds. That financing, though, has been delayed until market conditions improve.

The IDB president said the multilateral lender plans to provide $1.3bn in financing to the Caribbean region this year, tripling last year’s $435m, and intends to “double down” on its assistance to tourism by improving supply chain linkages and the integration of agriculture and other local suppliers into the mix.