The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light (BPL) was on track to save its customers more than $54m over the 18 months to January 2022 if its controversial fuel hedging initiative was followed, a Cabinet minister was informed.

Michael Pintard, the Opposition’s leader, last night tabled a letter from former BPL chief executive, Whitney Heastie, to Alfred Sears KC, minister of works and utilities, in the House of Assembly following a day of heated exchanges over whether the up to 163 percent hike in the utility’s fuel charge - which all Bahamians will have to endure next summer - was “inevitable”.

The document was tabled by Mr Pintard in a bid to show the Davis administration had been fully briefed on BPL’s fuel hedging strategy and the need to maintain it, after both the Prime Minister and Mr Sears, the latter of whom has ministerial responsibility for the electricity monopoly, both repeatedly denied they had received advice and Cabinet papers recommending they execute the necessary rolling trades to achieve this.

Mr Sears subsequently described Mr Heastie’s letter as a technical, theoretical document rather than a recommendation to conduct the purchases necessary to maintain BPL’s fuel charge at 10.5 cents per kilowatt hour (kWh) or at a level close to that.

And Philip Davis KC last night indicated that while “recommendations were made to execute the trades”, these were still being addressed by the Government’s “technical people” who wanted to examine “the circumstances” in which they would be executed given rising global oil prices and volatility.

Mr Pintard made his move after asserting it was “not inevitable” that Bahamian households and businesses would have to bear a 163 percent increase in BPL’s fuel charge between June 1, 2023, and end-August next year, had the Davis administration pulled the trigger on fuel purchase options left in place by its predecessor.

Accusing the Government of “failing to act”, charges that were disputed by the latter’s representatives, Mr Pintard said that during peak summer 2023 consumption - when BPL’s fuel charge is predicted to hit 27.6 cents per kWh - “the most vulnerable” will see their light bills increase by between 35 percent and 46 percent while middle income Bahamians and business owners will suffer “an almost 100 percent” rise.

Mr Heastie’s letter, sent to Mr Sears on October 18, 2021, just over a month after the Davis administration’s general election victory, appears to be an effort to both justify and explain the rationale for BPL to employ a fuel hedging initiative. The document, which appears to have been a reply to an e-mail from the minister, asserted that BPL had seen “huge benefits” from locking in much of its fuel needs at lower prices with oil costs trending up to $85 per barrel.

“To prevent large movements in the fuel charge, timely fuel hedges are executed. These periodic purchases provide ‘layering’ of the hedges that will result in a smoothing effect to the fuel charge to customers over time,” Mr Heastie wrote.

“The execution of contracts is based on quotes obtained from the market by the IDB (Inter-American Development Bank) and passed on to BPL. The options have a strike price and with each strike price is a corresponding premium that is paid, along with the transaction fee to the IDB.....

“Through September 2021, BPL and its customers have benefited by a reduced $30m fuel cost over the past 13 months. It is estimated that by January 2022 the savings amount will be $55m. This reduction in fuel oil price through hedging has also reduced the demand for US dollars from the foreign reserves of the country.”

Mr Sears, during the morning’s proceedings in the House of Assembly, denied that he had been briefed on BPL’s fuel hedging strategy - and the need to execute the rolling trades - upon coming to office. Instead, he argued that he was pressured to sign-off and approve BPL’s proposed $535m rate reduction bond (RRB) refinancing even though the former Cabinet - of which Mr Pintard was a member - failed to give the go-ahead prior to the general election.

“What was on the table was the Rate Reduction Bond (RRB) to borrow $500m (sic $535m). Five hundred million, Mr deputy,” Mr Sears said. “The first briefing I received, this was urgent. This was the solution. This would solve the problems of energy in Commonwealth of The Bahamas. They said it had to be signed right away.

“Mr deputy speaker, I’m a new minister. I haven’t been fully briefed. The first question was for me to sign this and take it to Cabinet.” Noting that there was no provision for renewable energy attached to the bond documents, Mr Sears argued that Mr Pintard had failed to disclose the Minnis administration’s failure to approve the $535m financing despite being “fully briefed” and having “months to prepare”.

The minister added that BPL’s existing fuel hedging structure, put in place in 2020 via the IDB, continues to exist and will not expire until 2024. “The hedge is still in place, and BPL is working right now through a committee internal to BPL on how to extend it,” Mr Sears told the House of Assembly.

The Government and BPL have repeatedly said the initial fuel hedging structure, put in place by the Inter-American Development Bank (IDB), remains in place. That is correct, as the December 2020 hedge executed by the IDB 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 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 a series of trades, known as call options, 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.