The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The company poised to take over New Providence’s energy grid is predicting that its profits will increase by more than 31 percent during its first five years to reach $13.677m.

Bahamas Grid Company’s offering document for its $100m bond issue, which formally launched yesterday, revealed that the majority-owned company is forecasting steady year-over-year increases in its bottom line from an initial $10.419m after first year in existence.

The financial projections also disclose that Island Grid, the entity that will manage the firm charged with overhauling and transforming New Providence’s creaking transmission and distribution network, will be paid an annual management fee of $4.359m for each of the company’s first five years.

Maintenance and operations expenses are pegged at $21m for its first year, declining to $20m thereafter, with $3.416m allocated annually to both a hurricane emergency restoration fund and helping to repay BPL’s legacy debts. The $8m annual interest payment to Bahamas Grid Company’s bond investors was shown as declining from the fourth year onwards as the principal starts to be repaid.

The Government, meanwhile, pushed back against concerns raised in this newspaper that Bahamas Grid Company was valuing the transmission and distribution (T&D) assets being transferred to its control at more than double the $100m “book valuation” being placed on them by the Davis administration and Bahamas Power & Light (BPL).

Chester Cooper, deputy prime minister and minister of tourism, investments and aviation, yesterday accused critics of employing “fuzzy maths” as he suggested the $220m figure on Bahamas Grid Company’s first-year balance sheet was derived from adding the $130m in capital improvements it plans to make during its first year to the Government’s $100m “book valuation”.

This, though, did not stop Michael Pintard, the Opposition leader, from continuing to argue that the Government/BPL were handing over New Providence’s energy grid at a significant discount given that replacing it entirely would cost between $500m to $800m. The Prime Minister, though, has signalled that its actual worth is a lot less given that parts of the grid are either on the point of collapse or past their useful life.

And financial sources, speaking on condition of anonymity, said the Government should disclose how the $100m “book valuation” was arrived at. They added that normal practice in such transactions would mandate that an independent third-party, such as an accounting firm or consultant, be hired to conduct a valuation on the assets involved.

The same contacts argued that the key issue to be explained is how the Government is only getting a minority 40 percent ownership interest in Bahamas Grid Company in exchange for contributing assets valued at $100m, whereas the private investors are gaining 60 percent majority control by putting up just $30m of their own money as equity.

“The amount of equity for both parties is so skewed that it makes no sense,” one said. “The Government put in $100m for its 40 percent and the investors put in $30m for 60 percent. The $30m gets 60 percent, and the $100m gets 40 percent.”

Meanwhile, the Bahamas Grid Company profit projections in its $100m bond offering are significantly less than those given in the private placement document that accompanied its now-completed $30m equity raise. As an example, the $21.708m net income forecast for the venture’s fifth year in the equity offering has dropped by more than $8m in the bond offer to $13.677m.

That represents a 37 percent decline yet the bond and equity offering documents are separated by just several months in terms of their publication. The main factor driving the lowered expectations is non-cash depreciation, which the bond offering document shows as having doubled to $11m annually compared to the $5.5m forecast in the equity offering.

Bahamas Grid Company is forecasting that its grid improvements will generate between $10m-$30m in annual savings per year at the start of its initial 25-year term through “less line loss and reduced outages”. It will also install an additional 172 mega watts (MW) of grid carrying capacity between Clifton Pier and the rest of New Providence, and is promising grid operating costs  and consumer bills will be reduced.

The joint venture is pledging a “reduction in frequency and duration of large-scale outages, enabled by the substation protection schemes”. It is also promising “fewer appliance issues stemming from the distribution upgrades, which will reduce voltage fluctuations on parts of the island that are most impacted by them”.

There will also be “less line/voltage loss, or more power delivered with the same fuel use, resulting from the transmission upgrades. The ongoing cost savings associated with this benefit will sustain the residential utility bill reductions beyond year one”.

“Strains on a transmission and distribution system arise when too much power is pushed through equipment that is not sized to handle the load,” Bahamas Grid Company said.

“As such, when there is a new significant generation source or high-usage customer being proposed to interconnect with the system, Bahamas Grid Company and BPL will work together to ensure that the new customer load or new generation capacity adequately pays into the system for the needed upgrades.

“This dual BPL-Bahamas Grid Company approach enables the much-needed infusion of capital into New Providence’s utility transmission and distribution infrastructure and support systems, as well as the ability to systematically plan for future maintenance needs – both of which are prerequisites to our nation’s ability to introduce cleaner generation sources and customers on to our system.”

The proposed Heads of Agreement with the Government will allow Bahamas Grid Company, in addition to the 5.5 cents per kilowatt hour (KWh) it is set to receive from all customer billings, to levy a “one-time interconnection fee or demand charge” for “new generation and/or large customer loads” added to the grid.

“It is contemplated that the principal infrastructure upgrades will include the upgrade of the transmission system, which will improve the capacity of power that can be moved across the island of New Providence and will install protection within all critical substations to dramatically reduce outages and increase reliability,” Bahamas Grid Company’s offering document said. 

“This transmission work will have the additional benefits of ‘looping’ the transmission system, which will allow any type of new generation to be installed at any location on the island of New Providence, as well as reduce the ‘line loss’ of power from existing generation assets.

“The fundamental infrastructure upgrades are also intended to improve critical aspects of the distribution grid. The proposed improvement activities contemplated by the project will mitigate and reduce voltage fluctuations with the aim of bringing about stable voltage so that household appliances will not be adversely affected.”

Bahamas Grid Company’s management team is all-expatriate. Chris Snyder, its chief executive, is a commercial attorney with extensive background in the energy industry, and features on Island Grid’s website as its general counsel. 

Ken Isett is named as chief financial officer, while Nathaniel Fryer, Bahamas Grid Company’s senior director of engineering and system planning, and Josh Eller, senior director of construction, both have experience of working in the Caribbean and previously worked for Pike Electrical. Eric Pike, Pike’s chairman, heads Island Grid, the manager for Bahamas Grid Company.

Bahamas Grid Company also plans to rely heavily on expatriate workers initially until it trains and upskills BPL staff and other Bahamians. “Bahamas Grid Company’s plan is to hire new Bahamian staff and upskill BPL staff as the core workforce to maintain the upgraded grid,” the bond offering document states.

“Because this cannot happen overnight due to the additional training that will be required, Bahamas Grid Company’s workforce plan is to stage employee growth as follows. Bahamas Grid will post for local job opportunities outlined with the skills needed and what Bahamas Grid training will be available to bridge the gap between current training and skills needed.

“Bahamas Grid will hire the New Providence transmission and distribution employees at BPL for a period of one year, after which they will have the opportunity to remain with Bahamas Grid or return to BPL. As a benefit to BPL to lower its operating cost model, Bahamas Grid Company can release these job listings first to all BPL employees,” it added.

“The goal in this phase is to hire a core group of local employees that will be trained first. Bahamas Grid Company will bring in US-based contractors with storm hardened grid experience to work efficiently on energised lines and get the foundational upgrades implemented.

“During this period, the locally hired workforce will shadow and learn from the contractors, in addition to participating in cooperative programmes to learn energised work skills in the US. Once the foundational upgrades are complete and the steady-state maintenance workload is clearer, Bahamas Grid Company will continue to hire and train local staff while bringing in offshore contractors on an as-needed basis for specific projects.”

Bahamas Grid Company’s Board will feature Mr Pike and Mei Shibata from Island Grid. The other three will be Christina Alstom, BPL’s former chief operating officer; Anthony Ferguson, principal of CFAL, which is handling the $100m bond offering, and Dr Anthony Farrington.