The Tribune

• Gov’t ‘rejected’ plan ‘to save Bahamians $100m’

• Sears: Strategy ‘not in best interest’ of country

• Blames PM, finance for decision long denied

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s leader yesterday accused a Cabinet minister of “misleading Parliament” after he admitted the Davis administration rejected proposals “that had the potential to save the Bahamian people $100m”.

Michael Pintard yesterday told Tribune Business that himself and other Opposition MPs were left “stunned” after Alfred Sears KC, minister of works and utilities, conceded that the Ministry of Finance - headed by Prime Minister Philip Davis KC - had dismissed recommendations to continue the trades underpinning Bahamas Power & Light’s (BPL) fuel hedging initiative as “not in the interests of the country at that time”.

The Free National Movement (FNM) leader said that apart from placing the blame on the Ministry of Finance, and seemingly throwing the Prime Minister under the proverbial bus, Mr Sears had also admitted that which he and Mr Davis have spent weeks denying - that they ever saw, and/or reviewed, recommendations to execute the rolling series of BPL fuel purchases that were scheduled for September and December 2021.

Executing these trades would have secured BPL extra fuel volumes at below-market prices, just as global oil costs were starting to spike, enabling it to keep its fuel charge in a relatively low range of between 10.5-11.5 cents per kilowatt hours (kWh). This compares to the phased-in increases that will result in consumers using over 800 kWh paying a fuel charge that will be some 163 percent higher between June and August next year, when consumption is at its peak.

Mr Pintard yesterday again slammed the failure to execute the trades, and preserve BPL’s fuel hedge and previous monthly charge, as “bad judgment by the Davis administration” and “a dereliction of duty” that was now set to cost the Bahamian people and businesses millions of dollars in extra, unnecessary costs that were entirely avoidable.

With the Government set to pay Shell some $90m over a nine-month period to cover BPL’s fuel debts, run-up after the trades were not executed, Mr Pintard accused the Government of imposing a $100m burden “on the backs of the Bahamian people”. He described rising electricity costs as inflicting “pressure” and “anxiety” on Bahamian households already struggling with the cost of living crisis.

Mr Sears’ response, in which he admitted much of what himself and the Prime Minister have sought to deny for so long, appeared to have been prompted by concerns that Mr Pintard would try to lay e-mails and other documents in the House of Assembly to prove his allegations over BPL’s fuel hedging initiative.

Seemingly trying to pre-empt and get in front of this, the minister replied: “What the honourable member has not divulged is a hedge.... First of all, BPL, it’s a determination by the Ministry of Finance. The Ministry of Finance, in October [2021], made a determination that the proposal the honourable member is referring to was not supported.

“Only the Ministry of Finance can support using the Public Treasury’s money in an undertaking. It was not persuaded at that time, before the Ministry of Finance.. it was not in the interests of the country at that time.”

Then, referring to the Opposition leader, Mr Sears added: “The honourable member has a draft Cabinet paper. It’s addressed to the minister of finance [Mr Davis]. [That] indicates where the determination is to be made. The draft Cabinet paper is addressed to the minister of finance for the minister of finance’s consideration.

“The minister of finance communicated that based on what was presented, it was not supported. That determination was communicated in October 2021. What is the relevance of this new revelation?” Mr Sears declined to speak further on the matter when approached by reporters at the House of Assembly yesterday.

The reasons and rationale for the Ministry of Finance’s decision not to execute the trades, and effectively pull the rug from under BPL’s fuel hedging initiative, was never explained by Mr Sears. However, it backs Tribune Business sources who have revealed that senior Ministry of Finance officials opposed the trades, believing that the hedging strategy was not optimal, could be done better and was effectively “a subsidy for hotels and rich people”.

Mr Pintard, meanwhile, seized on Mr Sears’ admission by arguing that it contradicted previous assertions by both himself and the Prime Minister when they told previous House of Assembly meetings they were unaware of recommendations to execute the trades.

“In this House I raised the question whether the member for Fort Charlotte (Mr Sears) and the Prime Minister; were they aware of the recommendations made? The member for Fort Charlotte has just confirmed what I asked several weeks ago; were you aware of the recommendations that had the potential to save the Bahamian people $100m?

“The member answered on his feet, and the Prime Minister. They said ‘No’, they didn’t receive any recommendations. The member for Fort Charlotte just admitted the minister of finance was fully aware and rejected the recommendations. He admitted on his feet the minister of finance saw the recommendations and rejected them. He also indicated he rejected the recommendations.”

Mr Sears replied by launching into a long explanation of how parliamentary questions should be asked, adding that Mr Pintard was treating the matter “as if in a court of law”. He added: “I have checked with the financial secretary [Simon Wilson], and I have confirmed with the financial secretary that the documents which were provided were also provided to the minister of finance.

“The Ministry of Finance, it was considered and communicated that based on what was presented to the Ministry of Finance the proposal was not accepted. Questions were asked that were not addressed satisfactorily. What the Ministry of Finance explained to me is that any commitment to a hedge strategy, BPL was not in a financial position to cause that itself.

“Through the IDB [Inter-American Development Bank] and Ministry of Finance, both of which have the requisite technical capacity, they reviewed what was put forward and did not accept it. That was a determination by the Ministry of Finance.” Quite why the IDB would recommend against executing trades to support a hedging initiative it was instrumental in putting in place was never fully explained.

Mr Pintard, pressing on with the attack, added: “What the member for Fort Charlotte should have been answering is a question asked of the minister a month ago. The question is, one, whether the fuel charge increase was inevitable.

“Second, he indicated on his feet, and so did the Prime Minister, that they were unaware of any recommendations about the hedging programme. On their feet. The member for Fort Charlotte has confirmed not only was he aware but the Prime Minister was aware.”

The Davis administration and BPL have repeatedly said the initial fuel hedging structure, put in place by the IDB in 2020, remains in place. This is correct. The December 2020 hedge covered a total 3.565m barrels of oil for BPL that were priced at $40 each and split into three tranches.

This transaction hedged 75 percent of BPL’s fuel needs for 2022, 50 percent of its requirements for 2023, and 25 percent of 2024’s needs via the IDB’s upfront hedge. These were were not hedged 100 percent because BPL needed to monitor global oil price movements so that it did not end up hedging at a price above market costs and thus end up losing substantial money.

The Government, though, is not giving the full story. BPL was supposed to “backfill” the original IDB hedge by purchasing the extra fuel volumes to fully address its needs. This was to be done via the series of trades, known as call options, referred to by Mr Pintard that would have enabled BPL to obtain fuel - covering the 20 percent balance for 2022, 50 percent for 2023 and 75 percent for 2024 - at prices below then-prevailing oil market rates had they been executed.

It was these trades, scheduled to have been executed in tight windows in September 2021 and December 2021 just after the Davis administration took office, that were not carried out. As a result, BPL has increasingly been buying fuel at higher market rates with the fuel charge artificially held at 10.5 cents per kWh via the combination of government subsidies and $90m Shell non-payment. This can no longer be sustained, and consumers must pay up as a result.