The Tribune

• Ex-minister: ‘I don’t know how businesses surviving’

• Others say impact as ‘brutal’ as ‘hits keep coming’

• Price-controlled businesses forced to absorb blow

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Private sector executives yesterday branded the 71 percent hike in Bahamas Power & Light’s (BPL) total energy costs as “outrageous” and “brutal”, with one saying: “I don’t know how businesses are surviving.”

Dionisio D’Aguilar, Superwash’s principal and a former Cabinet minister, told Tribune Business that the return of load shedding meant all businesses and households are paying huge sums for an inconsistent, poor quality electricity supply that frequently fries and burns out vital electrical equipment.

Describing BPL’s service as “dirty power”, because the voltage is “never quite right” and fluctuates frequently, he added that his laundromat chain is “always adjusting” prices to market conditions and expenses and had already implemented an increase in response to soaring energy costs.

Ben Albury, the Bahamas Motor Dealers Association’s (BMDA) president, and Bahamas Bus and Truck general manager, told this newspaper that industries and businesses such as his were especially impacted by the extent of BPL’s skyrocketing bills because they are unable to pass at least some of the burden on to consumers due to being price controlled.

Describing the fall-out as “brutal” for his and other companies, he added that BPL’s all-in light bill is “probably the biggest salary in the business right now” and said: “The hits just keep on coming. It’s definitely going to sap and stagnate some of the recovery we were enjoying coming out of COVID.”

Research by Tribune Business shows that, while global oil prices have fallen by around 37.27 percent compared to the $116.80 per barrel they fetched exactly 12 months ago, BPL’s fuel charge and overall bills have been going in the opposite direction despite crude last night costing $74.43 on the West Texas Intermediate (WTI) index and $78.74 on Brent Crude.

BPL’s fuel and overall costs would usually move the same way as global oil prices after a time lag created by when it purchases its supplies. The fact they are not, and Bahamian businesses and households are paying more than the market cost of oil in their fuel charges, reflects the ‘glide path’ strategy initiated to recover at least $90m in unpaid fuel costs that were incurred because the Government failed to execute purchases of low-cost oil to underpin BPL’s hedging strategy.

Mr D’Aguilar yesterday told Tribune Business his total electricity rate had gone from 24 cents per kilowatt hour (kWh) in October 2022, when the ‘glide path’ was enacted, to 41 cents per kWh today - an increase of just under 71 percent in around nine-ten months.

“It’s outrageous,” he blasted. “It’s up 71 percent. I don’t know how businesses are coping. It’s just that, on top of that, you’ve got an intermittent power supply and, while we may have back-up generators, you have to service them and maintain them. And if there’s constant power outages - on, off, on, off - it’s doing untold damage to the electronics in your business.

“You have to go out and buy UPS to provide sufficient power between when the light goes off and the generators kick-in... those 13 seconds. You have a lot of wear and tear on your generators. You’re paying 71 percent more for power and getting an intermittent power supply that is doing untold damage to electronics in your business.”

Noting that enhanced technology means that Superwash is increasingly reliant on electronics, such as computer boards, to run its washers and dryers, Mr D’Aguilar said the present woes inflicted by BPL were being worsened by grid instability.

“The power in The Bahamas is not called clean power; it’s called dirty power,” he argued. “It’s never quite the right voltage. It drops some times and when you have brown outs. The power is just not clean and consistent. It comes on sometimes, then doesn’t come on at the right voltage, and burns out your equipment.

“Every business, everybody is just suffering with this. BPL is operating less than optimally and charging the most expensive rates ever. Here we go again with load shedding and the like, and they’ve gone up 71 percent.” Mr D’Aguilar said the increase is costing Superwash “tens of thousands of dollars”, but added: “Luckily for me BPL is not my greatest expense. Propane is my greatest expense.

“I cannot imagine how businesses are coping. A 71 percent increase is a massive increase in your power costs over a nine-ten month period. Wearing my political hat, does this have something to do with the hedge that was cancelled? You and I know what happened.”

While BPL’s hedging strategy was never cancelled, the surge in electricity bills - driven by a 163 percent fuel charge increase compared to October 2022 - has resulted from the Davis administration’s decision not to execute trades in September and December 2021 - shortly after taking office - that would have secured more cut price oil for BPL.

With fuel hedging, utilities such as BPL typically do not lock-in a price that secures 100 percent of their needs. This is done to minimise risk, cost and exposure in case they find themselves on the wrong side of an unexpected oil price move. As an example, they may hedge 80 percent of their fuel needs for the first year, 50 percent in the second and 30 percent in the third.

The Davis administration, faced with a cash-strapped Treasury and a $200m-plus BPL loan coming due in February 2022, elected not to execute the trades that would have secured the extra cut-price oil volumes necessary to cover 100 percent of BPL’s fuel needs.

However, they also held BPL’s fuel charge at the original 10.5 cents per kWh for a further 12 months until October 2022 even though - without the extra hedged volumes - the actual cost was considerably more. The Government effectively subsidised BPL to ensure this price could be maintained - something that the regulations accompanying the Electricity Act prevent it from doing, as fuel costs are supposed to be 100 percent passed through to the consumer.

Now the Government and, by extension, BPL’s fuel supplier, Shell, need to reclaim the under-recovered fuel costs, and this is what has caused the electricity monopoly’s bills to spike well in excess of market costs. Several sources have urged the Davis administration and BPL to break down the fuel charge into how much is being allocated to this recovery, and the amount going towards purchasing current supplies.

Regardless, Mr D’Aguilar said of the impact: “It’s huge. Power is a considerable component of every single business, and businesses are having to respond to quite substantial increases in power by increasing prices and, when you increase prices, you make it much more difficult for customers to purchase what you are selling.

“What a lot of businesses are doing is just absorbing it. We’ve had to increase our prices. In my business, it’s number of spins multiplied by the rate that equals revenue. If you compare the number of spins to 2019, we’re just about back to 2109 in terms of spins, but we’re not having more revenue because of increased spins.

“A lot of the revenue increase is not because we have got more customers, but because we are charging more money because expenses have gone up. It’s painful, very painful. I’m sure a lot of people will not be paying their BPL bills because they cannot afford it.”

Describing the BPL hikes as “brutal”, Bahamas Bus & Truck’s Mr Albury said it would further worsen the cost of living crisis by adding to the general inflation and expense increases seen after the COVID-19 pandemic. Soaring electricity costs will also slash disposable income and impose further pressure on already-squeezed household incomes, potentially slashing consumer demand.

Pointing to the forthcoming National Insurance Board (NIB) rate increase next July, the BMDA president said of the higher power bills: “It’s definitely going to sap and stagnate some of the growth and recovery coming out of COVID and dealing with all those supply chain issues. It’s another hurdle that’s definitely making things a lot more challenging.

“It’s a lot of money. It’s probably the biggest salary in the business right now. It’s definitely not a good thing. The hits just keep coming. We’re price controlled on parts and vehicles so there’s no way we can pass these additional costs on to consumers. At the end of the day, it has to come off the bottom line.

“I’m kind of used to it. There’s a lot of challenges living here, and it’s difficult to do business to begin with. It’s definitely frustrating. It feels like when you take a step forward, there’s always something.” Mr Albury, though, voiced optimism that the 25 percent year-to-date increase in sales enjoyed by his business will help offset BPL’s impact, while noting that efforts to incorporate renewable energy into his business will take time to bear fruit.

Besides increasing revenue, businesses can always seek to cut costs to maintain margins, and that could result in redundancies and lay-offs for some. Companies will also likely reduce operating hours, with the Government hoping the advance warning it gave, and the fact BPL’s fuel charge will star to reduce post-September/October, will ensure the economic impact is not long-lasting.

The latest Fiscal Strategy Report revealed the extent of BPL’s financial woes and the need for government support. “The recent disclosure of approximately $150m of payment arrears of Bahamas Power & Light (BPL) represents a significant unbudgeted liability of the Government,” it said. “To ensure continued provision of essential electrical services to the public, the Government has committed to ensuring payment of this liability by the corporation.”

Alfred Sears KC, minister for public works and utilities, who has responsibility for BPL, last October informed the House of Assembly that the utility’s debt to Shell was around $90m as he unveiled plans to pay it off in a series of $10m monthly installments through to June 2023. The $90m potentially accounts for the bulk of the $150m arrears identified in the Fiscal Strategy Report.