The Tribune

By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

BAHAMAS Power & Light’s (BPL) financial crisis was yesterday further exposed by negative net profit margins of -20 percent and -24 percent for the past two financials years when it was unable to cover its debts.

The Utilities Regulation and Competition Authority (URCA), unveiling the findings of a BPL performance and organisational audit conducted by a third- party consultant it hired, revealed that the state-owned energy monopoly is operating inefficiently as its return on assets for 2023 financial year was a negative -12 percent.

Castalia, the consultant engaged by URCA, also disclosed that BPL was likely unable to cover interest and other payments

on debts totalling several hundred million dollars by itself because of negative debt service coverage ratios that plunged as low as -8.8 for the 12 months to end-September 2022.

There was a slight improvement to a -2.2 ratio in 2023, but BPL’s external auditors have consistently qualified the state-owned enterprise’s (SOE) accounts by invoking the “going concern” phrase for the past seven years since 2017. The negative debt service coverage ratios likely mean BPL’s debt obligations had to be at least partly covered by the injection of government, or Bahamian taxpayer, monies.

However, URCA’s summary of the consultant’s findings confirmed that BPL’s financial health would receive a major boost if the Government paid its electricity bills.

Castalia said government ministries, agencies and departments owe a collective $89 in unpaid light bills with no attempt by BPL to enforce disconnections or standard collection procedures on this customer category.

Asserting with deft under-statement that BPL “is in a poor financial position URCA affirmed: “BPL has been operating at a loss since 2022. Its net profit margin was -20 percent and -24 percent in financial year 2022 and financial year 2023, respectively. Since financial year 2017, BPL’s net profit margin has averaged -2 percent.

“Other financial key performance indicators (KPIs) also demonstrate BPL’s poor financial standing. For example, in financial year 2023, BPL’s EBITDA (earnings before interest, taxation, depreciation and amortisation) margin was 7 percent, its current ratio was 120 percent and its return on assets was -12 percent.”

Pointing to further negatives, URCA added: “The audit highlighted BPL’s debt service coverage ratio has been negative for the last two years, reaching as low as -8.8 in 2022 and -2.5 in 2023. This has been an ongoing issue for BPL.

“Since at least financial year 2017, auditors have noted that ‘conditions may cast doubt on the company’s ability to continue as a going concern’ and expressed doubt that ‘BPL will have sufficient financial resources to meet its financial obligations as and when they come due’.”

No dollar figures were provided by URCA, but Jobeth Coleby-Davis, minister of energy and transport, revealed in a release last month that BPL’s annual operating losses have now reached as high as $60m. Yet one source, speaking on condition of anonymity, yesterday alleged that BPL was “close to turning the corner” and “close to returning to profitability” when the Minnis administration was voted out in 2021.

The findings, though, will likely be seized upon by the Davis administration to justify the rapid pace with which it is now driving reform at BPL and in the wider energy sector despite concerns about the proposed structure and lack of competitive bidding for both the baseload generation and transmission and distribution (T&D) contracts. For the results show the status quo at BPL is simply unsustainable.

While Castalia’s report branded BPL’s metering and billing processes as “effective”, its assessment was less bright when it came to collecting due payment in full and on time from customers - especially where the Government and public sector are concerned.

“Collection from government customers is much lower compared to other customer categories. BPL does not enforce disconnection and arrears control processes on government customers, which has led to receivables from Government customers of about $89m,” URCA said in its results summary. And, for all customers, the average time to collect bills has increased by 61 days in the seven years since 2024.

“The audit reveals that the collection rate has remained relatively consistent, averaging 93 percent in the past four years. Collections dropped to 87 percent in 2020 during COVID,” URCA added. “Compared to benchmarked utilities, BPL’s customers take longer to pay. BPL’s average collection period is 135 days, an increase of 45 percent from 74 days since 2017.”

That means, on average, that the time taken to collect on BPL customer has increased by almost two months since 2017. Castalia, meanwhile, also voiced concern about BPL’s management of its generation assets and “Shell’s monopoly on fuel” supply which it blamed for high costs.

On the former issue, URCA said the consultant found BPL did not always prioritise bringing its lower-cost generation assets online first - something that breached its public electricity supplier licence. It added that BPL was using Aggreko’s rental generators “continuously as baseload” even though they operated on more expensive fuel compared to the utility’s own assets.

“Dispatch in New Providence is not fully based on a merit order,” URCA said. “BPL’s licence requires BPL to establish and operate a merit order dispatch to provide the least-cost generation capacity. Currently, dispatch is not fully based on a merit order because of constraints with HFO (heavy fuel oil) handling and the take-or-pay charges with independent power producers.

“BPL-owned units are cheaper to run but are dispatched after the more expensive rental Aggreko units. The Aggreko units, with an average variable cost of 21 cents per kilowatt hour (kWh), run continuously as baseload. BPL and Bahamas Utilities Company-owned HFO units are cheaper, with the average variable cost between 12 cents and 15 cents per kWh.”

Given present energy costs it appears likely that the per KWh charges cited here are fuel charges only. And BPL, in its feedback to Castalia’s findings, disputed that it was bringing higher-cost generation assets online first and not managing its fleet properly.

“In response to Castalia’s assertion that ‘dispatch is not fully based on a merit order because of the take-or-pay charged with independent power producers (IPPs),” BPL posited that it is incorrect and further stated that, under normal conditions, BPL would not dispatch Aggreko units before a Bahamas Utilities

Company HFO/ADO unit. The Merit order is generally followed but is subject to plant availability,” BPL said.

But, elsewhere, URCA said: “The audit found that BPL does not have a least cost generation and system plan in place, or a set process, to develop and maintain system planning whilst there are opportunities for BPL to reduce its generation costs.

“Fuel makes up more than half of BPL’s operating expenditure. Fuel costs are mainly high due to Shell’s monopoly on fuel provision. Shell has an effective monopoly on fuel supply, maintains a large fuel storage facility in Freeport through its sole licensed distributor, FOCOL, and a Shell licensee is contracted for the onward delivery of ADO (automated diesel oil) to Family Islands.”

Tribune Business, though, was told that BPL’s fuel supply contract is put out to competitive bidding. They added that where the “monopoly” comes in is the shipping of fuel to BPL’s Family Island plants because only BISX-listed FOCOL Holdings possesses a fleet of ships able to perform the job.

The same entities - Bahamas Utilities Company, which is a FOCOL Holdings subsidiary - are now poised to supply New

Providence’s baseload energy needs through the construction of a new 177 mega watt (MW) power plant at Blue Hills that will primarily use liquefied natural gas (LNG) as its fuel. Key terms, including the price at which energy will be sold to BPL and the contract’s duration, have not been disclosed.

“The audit found that apart from the obvious mandate of ‘keeping the power on in The Bahamas’, BPL staff are unsure of the company’s long-term vision and values. Staff believe that BPL’s mission and vision should evolve to meet sector developments,” URCA said.

“According to the audit, BPL is focused on short-term objectives as a coherent long-term strategy does not seem to exist. BPL does have a 100-day strategy plan as of November 2023, but it does not include details and specificity.

“Strategic planning appears to be a senior management activity with minimal staff input. There appears to be limited sharing and feedback of key information across the organisation such as operational plans, both from top-down to lower levels and across departments/ functions.”