The Tribune

• ‘Outright anxiety’ in industry over fuel charge rise

• Many operators likely to cost-cut, even downsize 

• Super Value chief: ‘No company can absorb that’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian hotels yesterday warned that Bahamas Power & Light’s (BPL) planned fuel charge hikes of up to 163 percent have caused “outright anxiety” in the sector and could “derail” the post-COVID return to financial viability.

Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, told Tribune Business that the “extraordinary” magnitude of the proposed hikes - to be phased in quarterly over the next 11 months - will force resort operators to “re-engineer” their expense structures and business models to cope with the increase in their second-largest cost item.

Hinting that the sector, which is The Bahamas’ largest private sector employer, may in some cases be forced to reduce staffing levels to compensate, he revealed that the extent of BPL’s cost increases had taken the resort industry by surprise.

“I don’t know if it’s so much a threat to the recovery, but it’s certainly an impediment to the ability of many hotel operators to continue to enjoy, for the first time, a level of financial stability,” Mr Sands told this newspaper of the consequences.

“This is a drastic increase and, even though it is gradual, certainly as it peaks within the next 15 months the rate of increase - barring the cost of oil - is going to be significant in a number of operations. It will be a meaningful impact.”

Labour and energy are the two greatest expense items for the Bahamian hotel industry, with Atlantis yesterday disclosing to Tribune Business that its annual electricity bill is $30m or, on average, $2.5m per month. The BHTA president suggested that the increases, which customers will first see in next month’s electricity bills, are substantial enough to force cost-cutting in other areas including staffing.

“Any increase that is extraordinary will cause hotel properties to re-engineer their financial position, and the recovery in the revenues,” Mr Sands said. “Any extraordinary expenses will cause operators to consider alternative ways to engineer their cost of operations for savings to compensate for this extraordinary occurrence.

“I think the announcement was not unexpected. I think the level of increase was very much surprising, especially the gradual level of incremental increase over the next four to five quarters. It’s not the type of news the industry would wish to have during  period of sustained growth, and also coming against the backdrop of a very difficult protracted period” due to the COVID-19 pandemic.

BPL’s fuel charge hikes, which are to be phased in, are thus threatening to strip the Bahamian private sector of confidence while also robbing the post-pandemic recovery of much-needed momentum. Some companies may not be able to survive such a hike in their energy bills, with the fuel tariff comprising 50-60 percent of the total, and go out of business while others could be forced to lay-off staff and thus increase the national unemployment rate.

BPL unveiled a series of “phased increases” that will result in most, if not all, Bahamian businesses experiencing up to a 163 percent increase in the fuel charge component of their electricity bills. Customers who use more than 800 kilowatt hours (kWh) per month will endure a series of rolling 4.3 cents per kWh increases, with the first - from the present 10.5 cents to 14.8 cents - taking effect in time for November billings.

The increases will peak at 27.6 cents per kWh in the three-month period between June 1 to August 31, 2023, which represents a 163 percent jump before the fuel charge starts to drop, It is forecast to hit 25 cents between September 1, 2023, and November 30, 2023, before falling further to 18 cents between December 1, 2023, to February 28, 2024. The BHTA, though, noted that these forecasts were susceptible to change due to oil market volatility.

Hotels and food stores are among The Bahamas’ largest consumers, and therefore among the businesses most likely to be impacted by the increases. Rupert Roberts, Super Value’s president, who is converting his chain’s 13 stores to solar power, yesterday voiced optimism that much of the conversion would be complete by the time fuel charges peaked next summer.

Nevertheless, estimating that BPL’s strategy could increase Super Value’s monthly light bill by an average $500,000, he told Tribune Business: “That’s a big deal with the spiking cost of groceries right now.... We need to find less expensive fuel to run those engines right now.

“It’s going to really add to the spiking cost of living. We can’t take that on the bottom line; no company can. We have to figure that into things like payroll and rent and everything else. The poor hotels... Leslie Miller said that if Super Value and Atlantis don’t pay their bills, BPL couldn’t pay for their bill. That will hit Atlantis and Baha Mar pretty hard.”

Suggesting that the Davis administration will likely find some way to avoid the increases sought by BPL, Mr Roberts added: “I can’t see the Government going out and disappointing it’s people like this without having something up its sleeve. Today, they lost 90 percent of their voters. If we had an election tonight, it would be serious. The people who are slipping through the cracks can’t afford this, and the people just managing can’t go through it.”

Mr Sands, in a statement, added: “We have fielded feedback from stakeholders ranging from significant apprehension to outright anxiety as some have stated they are at a loss as to how they will be able to accommodate the increase in cost of operations.

“This is very alarming, particularly for commercial consumers, which encompasses all facets of business owners and operators as they have finally begun to see sustained recovery of their respective businesses. It is important to remember, at a stage where the potential for growth-beyond-recovery seems imminent, the surety of a successful return to financial viability will be susceptible to disruption or even derailment because of these increases.”

Acknowledging that global oil prices, and the factors impacting them, are beyond the Government’s control, the BHTA statement called for it to extend VAT relief on energy bills beyond the $400 ceiling unveiled yesterday. It also called on BPL to revive its previous fuel hedging strategy, and accelerate approvals for hotel properties to deploy renewable energy at their facilities. 

“The Bahamas Hotel and Tourism Association, with heightened urgency, reiterates its support and encouragement of efforts undertaken by BPL previously to deploy a hedging strategy that would provide the stability and predictability of pricing that we have enjoyed in the recent past,” the BHTA added.

“The cost of electricity ranks as one of the highest expense items in our budgets due to the fact that operators, particularly in the tourism industry, must maintain a certain level of energy consumption, regardless of occupancy, in order to protect assets, securitise facilities etc. Therefore, it is imperative that we find ways to help alleviate the financial burden this represents.

“Finally, and most importantly, we encourage the acceleration of efforts to ensure industry stakeholders are able to access alternate sources of energy. This is paramount to our ability to diminish our reliance on environmentally unfriendly fossil fuels that contribute to climate change,” the BHTA continued.

“Public and private sector collaboration regarding awareness, understanding, access to capital and the implementation of policies that encourage off-grid energy alternatives are key to ensuring we do not continue to face such financial uncertainties in the future as it pertains to energy costs.  Alternative energy initiatives and projects must be front and centre; we must roll out the red carpet and roll up the red tape for such projects.”