The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s leader has pledged to “continue to hammer” the Government over the accounting treatment it is using for the $110m loan advanced to Bahamas Power & Light (BPL) to pay off its fuel arrears.

Michael Pintard told Tribune Business the Free National Movement (FNM) is going “to continue to press the issue” as BPL customer bills skyrocket amid peak summer energy consumption to enable the cash-strapped utility to repay debts owed to Shell, as its fuel supplier, and the Government.

He spoke out after publicly releasing a letter, previously sent to Prime Minister Philip Davis KC and Terrance Bastian, the auditor general, urging the Government to clarify how the $110m BPL loan was made given the absence of any parliamentary approval for such an advance and where it has been booked in the public finances.

The issue was raised during the 2023-2024 Budget debate’s committee stage and discussion on all spending line items, but the Opposition is arguing the assistance provided to BPL must cause “spending projections” for the current fiscal year to be adjusted as the Government has to come to Parliament to debate and pass new legislation to give effect to this sum.

“We are going to continue to hammer the issue,” Mr Pintard told this newspaper. “He [Mr Davis] has a legal responsibility to deal with this. We are going to stay on this issue. It shows the Government is not committed to being open and transparent with the public, so we are going to continue to press on with this issue.”

The Opposition leader said he had given the Prime Minister “what I thought would be a reasonable time for him to respond” after the latter committed to review the matter following the Budget debate. “He actually said that somewhere in Finance it will no doubt be reflected,” Mr Pintard said of Mr Davis.

“That’s not what the constitution says in article 30. When you make funds available to a government entity, it has to come through an appropriation by Parliament. It doesn’t give him that flexibility. It is further blocked by the Public Debt Management Act. There’s no wiggle room for him in this regard. He has to be able to explain in a very simple way where they have booked this loan and what the terms are.”

Mr Pintard, in his letter to the Prime Minister and Mr Bastian, agreed that both the Public Debt Management Act and the Public Finance Management Act versions in effect at the time allowed the Government, through the latter’s section 55 (1) to extend a loan to a government business enterprise such as BPL. However, he pointed out that section 55 (2) requires that “all investments made under subsection (1) shall be made under an appropriation”.

Hence the Opposition’s case that the $110m loan to BPL requires parliamentary approval. “But even outside of this provision the expenditure outlays to BPL for this loan would in any case have come from borrowed funds or government revenue that, by law, had to be deposited into the Consolidated Fund” under the constitution’s article 128,” Mr Pintard argued.

“Accordingly, these outlays must comport to the Article 131 provisions of the constitution, which limits public spending strictly either to parliamentary appropriated sums or to statutory expenditure.” Given that the 2022-2023 Budget and projections for the current fiscal year did not clearly identify provisions for the $110m BPL financing, Mr Pintard argued it did not fall under statutory expenditure.

“If no such sums have been made available from authorised appropriations, then consistent with the provisions of the constitution and the Public Financial Management Act 2021, it is our considered view that you will require a supplementary appropriations bill to cover this sum,” he added.

“We anticipate that this undertaking will cause a readjustment in the spending projections for this fiscal year equal to that sum once it is properly appropriated and expensed consistent with the law. We also require a copy of the loan documents and all the related terms and conditions, including if and how this loan impacts the fuel charge imposed on BPL customers.”

Tribune Business revealed in mid-May 2023 that government loans to state-owned enterprises (SOEs) and agencies near-tripled during the first nine months of the current fiscal year to enable BPL to pay off its fuel bill arrears.

Simon Wilson, the Ministry of Finance’s financial secretary, said then that the $80m increase in such “bilateral loans” during the three months to end-March 2023, which took the nine-month jump to $110m, represented financial support to the state-owned electrical utility to enable it to pay-off past due and outstanding debts.

“You’re correct. That’s BPL,” he replied, when asked about the figures, which were contained in the Ministry of Finance’s last quarterly public debt statistical bulletin for the quarter to end-March. Asked whether these loans were to help finance payments to Shell, Mr Wilson confirmed: “Yes, that’s correct.”

Under the heading “debt owed to government”, the debt bulletin confirmed: “Agencies and government business enterprises’ (GBEs) bilateral loans with the central government increased by $80m over the review quarter to $150.8m at end-March 2023, and by $110m since end-June 2022.”

Figures provided in the bulletin showed that BPL’s debt had risen from $113.6m at end-December 2022 to $192.3m at end-March 2023, the increase matching the $80m rise noted earlier on the report. This sum had also risen from $85m at end-June 2022, again matching the $110m increase for the nine-month period.

The Opposition is eager to seize on the $110m loan because it allows it to target a perceived government weak point - the failure to execute the trades to secure increased cut-price fuel volumes that would have supported BPL’s fuel hedging strategy. This has triggered a series of events leading to this summer’s soaring energy bills for businesses and households.

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 under-recovered fuel costs of at least $90m, and this is what has caused the electricity monopoly’s bills to spike well in excess of market costs.