The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Questions were raised yesterday as to why Bahamas Power & Light (BPL) is proposing to increase its fuel charge by up to 163 percent at a time when global oil prices are starting to decline from their March 2022 peak.

Michael Pintard, the Opposition’s leader, was among those challenging the magnitude of the hikes on Bahamian businesses and consumers in what appears to be an attempt to reimburse the Government for the taxpayer subsidies that underwrote the existing 10.5 cents per kilowatt hour (kWh) fuel charge for so long.

“What is most interesting from today’s BPL press release is that the cost of the fuel component of the BPL bill is scheduled to increase when everyone knows that the cost of oil on the global markets has been decreasing from a high of over $127 per barrel in March or this year to around $90 today,” Mr Pintard said.

Oil was last night trading at $85.95 per barrel on the West Texas Intermediate index, and $91.26 on its Brent Crude counterpart. Yet BPL, in fuel charge increases unveiled yesterday, revealed that Bahamian families consuming 800 kWh or less will suffer up to a 76 percent increase compared to current costs when the 18.5 cent per kWh peak is hit between June and August 2023.

That is a time which coincides with maximum demand and the greatest usage in terms of consumption. As for businesses and households that use over 800 kWh, fuel charges are set to increase by 138 percent, 163 percent and 138 percent - more than doubling compared to the present 10.5 kWh rate - during the periods of March 1 to May 31, 2023; June 1 to August 31, 2023, and September 1 to November 30, 2023.

BPL and government officials, in a press conference yesterday that effectively admitted that the cash-strapped Government can no longer afford to subsidise BPL’s fuel costs, effectively confirmed that the utility must now repay those taxpayer hand-outs without explicitly saying so. However, one source, speaking on condition of anonymity, said: “What they’re trying to do is recover the money that has already been spent.”

They estimated that the Government may have spent between $40m-$50m in subsidising BPL’s fuel costs. No figures were provided yesterday, with Shevonn Cambridge, BPL’s chief executive, saying: “I can’t give you an exact figure. I don’t have that figure with me, but it’s significant, let’s put it that way.”

Simon Wilson, the Ministry of Finance’s financial secretary, added: “We’ve spent a substantial amount, a significant amount, in the tens of millions of dollars. That’s the best way to describe it. Obviously a lot of the money that was spent will be recovered over a period of time........

“BPL does owe an amount to the Government for the support given. Given the Public Financial Management rules, the Government cannot provide a subvention in the normal course to BPL. It has to be done on a commercial basis under the Public Financial Management rules that currently exist.”

This suggests that the Government’s support for BPL is effectively a loan, or some form of credit, that now has to be repaid from the fuel charge increases being imposed on Bahamian businesses and households. Mr Wilson, meanwhile, also confirmed that BPL’s planned Rate Reduction Bond (RRB) refinancing has been deferred by the Government because the high interest rates prevailing in the global capital markets “do not allow for that type of solution”.

He added that BPL will work with the Ministry of Works and Public Utilities to “develop a new solution to accomplish the same thing, taking care of the legacy debt which was assumed by the Government in the February transaction”. No details were provided.

Mr Cambridge, meanwhile, suggested that the fuel charge increases will enable BPL to redeploy operational cash flow back to its day-to-day business as opposed to financing fuel purchases. He added that “now’s the time to right size” a fuel charge that had been held constant since 2020, aided by the former Minnis administration’s fuel hedging initiative, adding: “Once you delay, you accumulate. There was an accumulation of arrears which we are now seeking to recover through the glide path structure.”

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, was yesterday among those who challenged the justification for such steep fuel charge increases given that oil prices have fallen from their March peak and may continue to slowly decline.

Pointing to the forecast maximum 76 percent and 163 percent peak increases, compared to today’s fuel charge, that persons consuming less than 800 kWh and more than 800 kWh face respectively, Mr Myers said these appeared excessive when matched against average per barrel oil prices on the Brent crude index.

Prices there had risen by 57 percent year-over-year, jumping from an average $65 per barrel in 2021 to $102 in 2022. “They’re now starting to fall. Arguably by the end of the year they could be lower,” Mr Myers said of oil prices. “I’d expect the fuel charge to be in line with that. I’m not sure how they justify 76 percent and 163 percent increases proportionally... There’s no justification to raise it 163 percent.”

Pointing to the likely impact for Bahamian businesses, Mr Myers said hotels, food stores, shopping malls, wholesalers, distributors and other companies that consume large quantities of electricity will be among the most affected. “For all of us it’s straight off our bottom line, which hurts business,” he told this newspaper. 

“When you’re already fighting inflation, the higher prices go the more people don’t show up to your store. There’s a price elasticity. You can only pay so much for hamburger meat and stop eating it. You can only pay so much for produce and stop eating it. This increase hurts everybody, including the Government. It slows the economy. Every time there’s an increase it takes money out. It reduces disposable income and slows the economy. It hits everybody’s bottom line.”

Mr Myers said the inevitable consequence of BPL’s fuel charge increase will be a further rise in consumer prices across the board as companies pass the energy cost rise on. Mr Pintard, meanwhile, said the plan to create two separate fuel charges - one for small consumers and another for businesses and larger users - was illegal under the Electricity Act.

“BPL has now placed the fuel pass though to consumers in different consumption categories at different costs, which is counter to provisions of the Electricity Act, where the fuel pass through must be passed along to consumers at the same rate” the Opposition leader added. 

“The question is what does URCA have to say about this? URCA has been unusually quiet regarding BPL over the past 12 months and the question is why? They are supposed to protect the consumer, and now that the Davis administration has proposed a 163 percent increase in fuel costs to consumers over the next 12 months, URCA needs to weigh in on this matter as well.

“Our economy is still recovering from the pandemic, consumers are experiencing the pressures of inflation, and yet [Mr] Davis seeks to burden businesses and households with electricity cost increases that are historic. The new day that the PLP promised is turning out to be a morning after nightmare, and PM Davis must do better and come clean to the Bahamian people.”