The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday asserted that Bahamas Power & Light’s (BPL) key generation investment has suffered a $21m-plus “cost overrun” while failing to deliver the promised efficiencies and savings.

JoBeth Coleby-Davis, minister of transport and energy, in tabling a review on BPL’s Clifton Pier ‘Station A’ in the House of Assembly said the $117.9m cost incurred to-date in purchasing and installing seven Wartsila-manufactured engines, and making the building fit-for-purpose, continues to accumulate.

The present price tag, detailed in the July 30, 2023, report by BPL’s chief executive, Shevonn Cambridge, to Prime Minister Philip Davis KC and then-minister of works and utilities, Alfred Sears KC, seemingly represents a 24.2 percent “overrun” on the initial $95m budget.

The report, quoting a March 8, 2019, update to the Minnis administration’s BPL Board, said the then-directors were told “the total investment required for bringing Station ‘A’ online with 132 MW (mega watts) of generation assets is $95m, inclusive of the costs of the generation assets, auxiliaries, building upgrades and sub-station improvements.

“The costs for this new power plant will be funded by the expected insurance proceeds and allocations from BPL’s capital budget,” the former Board was informed. The “insurance proceeds” refers to the anticipated payout that BPL was to get from its insurers as a result of losing “two of the company’s most efficient units” - and 60 MW of generation - in the September 2018 fire.

However, Mr Cambridge’s report to the Prime Minister said some $117.9m in costs have been incurred “to-date” relating to ‘Station A’. These were broken down into $108.3m for the seven Wartsila engines and their “auxiliary” support infrastructure “through 2022”; $7.5m in expenses related to the “dismounting of Station A”; and $2.1m of repairs that remain ongoing to fix the building’s structure and prevent concrete spalling.

Mrs Coleby-Davis said of these figures: “To be clear, I am advised that the budgeted cost for the project was $96.9m. However, the cost-to-date is $117.9m, a cost overrun of some $21m. It is important to note that this figure continues to grow with no clear end in sight as many serious issues continue to come to light.” Based on the $95m figure in the Board paper, such an “overrun” could be nearer $23m.

However, sources familiar with the Wartsila deal and engines’ installation, speaking on condition of anonymity, challenged the “overrun” assertion. One explained that the $95m covered only the initial acquisition and installation costs, and that the $117.9m figures includes expenses incurred subsequent to the Wartsila engines going live in early 2020, as indicated by the term “to-date” and dates provided.

They added it was always recognised that Station A’s roof and facade needed further repairs and upgrading, so it was always anticipated that the investment outlay would ultimately extend beyond the initial $95m.

Mrs Coleby-Davis, though, said the ‘Station A’ report highlighted the “poor decisions” that have placed BPL in dire straits and revealed the “‘real reason” behind its woes. She signalled that these, and not the Davis administration’s decision against executing further trades to support BPL’s fuel hedging initiative, are to blame. 

The minister said: “We hear all this talk about hedge. Let me advise you that the real reason why BPL is in this situation is because of poor decisions made, as you will see detailed in the report that I am tabling today.

“There has been much concern about the manner of BPL’s decision to engage Wartsila in 2018. I believe wholeheartedly that the Bahamian public deserve and are entitled to the full facts.” Speaking rhetorically, she posed a number of questions that were left unanswered.

“What prevented BPL from conducting a competitive process to contract rental generation to replace ‘Station C’ after the fire in 2018?” Mrs Coleby-Davis asked.  “Do we consider the terms to be favourable to The Bahamas and in line with industry standards? Why was the contract amended to add more generators in a building acknowledged at the time of the decision as structurally incapable of bearing such weight?”

She added that new and existing BPL-related contracts will be “scrutinised and negotiated to the most advantageous position” for Bahamians. “To our vendors, please note that moving forward all new contracts and possible consideration of renewal of existing contracts will be scrutinised and negotiated to the most advantageous position for the Bahamian people,” Mrs Coleby-Davis said.

“This will include the review of existing contracts to ensure that all contractual obligations are being met. Deficiencies will be noted and brought in line with contract terms and conditions.” The report tabled yesterday, though, appeared to stop short of the Prime Minister’s description of the Wartsila contract earlier this year when he declared to the House of Assembly that “the smell is rotten”.

Mr Cambridge, who was not BPL’s chief executive when the seven engines were acquired, did not directly criticise or challenge the selection. His report, though, did question the decisions surrounding the installation’s execution and choice of supporting infrastructure, pointing that this resulted in less than optimal generation output and the promised efficiencies and savings were never fully realised.

Wartsila initially proposed supplying BPL with 45-68 MW of permanent generation assets to replace those lost in the September 2018 fire, Mr Cambridge said, noting that this was supported by Shell North America.

“On October 16, 2018, just a few weeks after the fire, Wartsila presented a proposal to BPL for four engines utilising one of two model engines. The models offered were either a 12 MW or 18 MW unit, which would result in combined plant outputs of 44.8 MW or 67.8 MW respectively,” he wrote.

The report, though, made no mention of the fact that ‘Station A’ and its Wartsila engines were ultimately intended to be incorporated in the new Clifton Pier power plant that was to be owned and operated by Shell North America under a long-term power purchase agreement with BPL.

Mr Cambridge, meanwhile, noted that the total price of the engines was $41.1m, with their conversion to burn liquefied natural gas (LNG) at a later date was $506,000 per unit. An all-in price of $42.6m was agreed for 75 MW, but he added that the terms of the deal struck on December 21, 2018, were “inconsistent with redundant systems normally utilised in baseload power plants.

BPL also assumed responsibility for making ready Station A, which Mr Cambridge said was already experiencing “spalling” issues with concrete falling from the roof and walls. Then, on February 28, 2019, the Wartsila deal expanded from four to seven engines with a total output of 132 MW, the total cost increasing to $78.7m.

“This represented a 75.6 percent increase in capacity and an 84.7 percent increase in cost,” Mr Cambridge wrote. “The engines were also to be installed in a powerhouse built in 1981 which was already showing signs of structural deterioration.” The final price tag was $95m, with BPL’s Board told the investment would reduce fuel costs “by as much as 40-50 percent” given greater use of heavy fuel oil (HFO).

The BPL chief executive was critical of his predecessors’ failure to secure sufficient rental generation capacity to avoid the blackout and load shedding nightmare of 2019, when New Providence was subjected daily to a rolling series of four to eight-hour outages while ‘Station A’ was being readied.

“It is noted that at this point, some 11 months after the fire, there was ample time for temporary supplemental power arrangements to have been made to relieve the hardship that was put on the public with the four to eight hour rolling blackouts that occurred in New Providence during the summer peak load season of 2019,” Mr Cambridge wrote.

Tribune Business sources, though, said BPL’s then-management and Board believed they had sufficient capacity to meet summer 2019’s peak load until they were hit by the unexpected loss of two engines at the Blue Hills plant. And, by that time, it was too late to secure rental generation capacity as all units were “spoken for”.

“The outsourcing of BPL’s plant (Station A) was also a mild form of ‘union busting’ as Wartsila hired its own personnel to operate ‘Station A’ and BPL’s staff were prohibited from going on site,” Mr Cambridge wrote. 

“It should be noted that the testing, commissioning and overall acceptance procedure was inconsistent with BEC/BPL’s standard procedures for the acceptance of new plants. That is, the standard procedure is that the new plant must operate at full load for 30 consecutive days before BPL accepts it. We’re advised that the units were run individually for three hours and accepted thereafter.”

The ‘union busting’ assertion was yesterday rejected by sources familiar with events at the time, who said that no BPL employee or union member lost their jobs as a result of ‘Station A’. They added that none wished to transfer to the new plant, so Wartsila had to train and recruit its own people.

As for the testing concerns detailed by Mr Cambridge, they argued that a 30-day full load run-out was not necessary in this case as Station A was being operated by the same company that supplied the engines -Wartsila. BPL was not taking any risk or liability, and given that Wartsila had multiple performance guarantees to fulfill it could not afford for the engines to run below standard.

Mr Cambridge, though, was critical of the operations deal entered into with Wartsila on October 18, 2019. “The O&M (operations and maintenance) agreement specifically called for the segregation of ‘Station A’ from BPL’s Clifton Pier operations,” he added.

“This later created operational and financial inefficiencies for BPL that negatively impacted the engines’ availability, reliability and overall performance at ‘Station A’. Where it was most impactful was the overall quality of supply and cost to the end user, the consumer...

“The agreement, which was to cover the first two years of operations for the plant, was projected to cost $13.9m over the course of the two years or $6.9m per year. BPL ended up spending $8.2m per year or $24.6m over the course of the two-year contract and third-year extension,” Mr Cambridge continued.

“On December 30, 2021, BPL and Wartsila signed an extension to the agreement. This is the third-year extension discussed prior that saw the costs jump from $6.9m to $8.2m per year over the three-year term. There was an increase in the monthly fixed charges retroactive to the commencement of the original agreement, and an increase to the variable charge in year three if BPL opted out of a fourth year, which they did. This took the three-year calculated amount to $24.6m.”

Wartsila ultimately issued a termination certificate that “listed several breaches by BPL, which basically prohibits BPL from enforcing certain performance guarantees”. Mr Cambridge added: “The handover of Station A to BPL means that the company must address certain deficiencies to ensure optimal performance from the Wartsila engines that make up BPL’s baseload plant.

“The priorities are to replace the cooling water system; correct the ambient temperature with adequate ventilation; install a waste heat boiler for proper and efficient fuel treatment; remediate the structural defects in the building; and integrate the employees contracted by Wartsila into the BPL employee pool.

“It is important to note that BPL’s present management, once it took over the plant, moved swiftly to address some of the defects in the fuel pre-treatment and delivery process, which resulted in an increase in HFO consumption to more than 50 percent at proper temperatures and conditions suitable for optimum combustion in the engines,” he continued.

“This will help drive down fuel costs by using higher volumes of the cheaper HFO. It also decreases the units’ vulnerability to damage caused when HFO isn’t treated properly. Five of the seven units have already completed their annual overhauls with the final two overhauls expected to be completed within a few weeks.

“While it is ideal to have all seven units available to facilitate rotations for routine maintenance, the reality is that only five can run safely simultaneously. We look forward to the day very soon when we can truly realise all the efficiencies touted by the previous administration about ‘Station A’. A true tri-fuel baseload plant capable of consistently producing 132 MW of electricity.”