The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s decision to act as liquefied natural gas (LNG) middleman will drive lower fuel and energy costs through leveraging economies of scale, a Cabinet minister is asserting.

Jobeth Coleby-Davis, minister of energy and transport, in a messaged reply to Tribune Business questions said the Government’s plans to create a fully-owned special purpose vehicle (SPV) to acquire LNG from Shell will result in lower energy prices for Bahamian electricity consumers rather than raising them through inserting another entity into the supply chain.

She explained that the SPV will not only be selling the LNG on to Bahamas Utility Company, the FOCOL subsidiary that has been selected as New Providence’s generation partner, but also Bahamas Power & Light (BPL) as well as independent power producers (IPPs) based in the Family Islands. Sourcing LNG for all these customers via one entity, the minister said, will leverage economies of scale for better fuel prices.

“The structure actually does quite the opposite; it is to control the cost,” Mrs Coleby-Davis said, when asked why the Government plans to take an active role in the electricity fuel supply chain by creating another entity - its SPV - that seemingly will add another layer of cost in the supply chain.

“Although The Bahamas Utility Company (BUC) will consume LNG, Bahamas Power and Light (BPL) will also convert engines in its generation fleet to LNG. In addition, our Family Island IPPs will also use LNG and purchase from the 100 percent SPV,” the minister added.

“By consolidating the purchase of LNG through a single entity, we leverage economies of scale, which will result in a more favourable pricing structure. Bulk purchasing in this sector yields significant cost savings compared to smaller, individual purchases.

“In summary, the Government’s decision to use a 100 percent-owned SPV for LNG purchases from Shell North America is driven by a comprehensive strategy to achieve cost savings, ensure energy security and streamline operations. This approach will ultimately benefit all, contributing to a more stable, affordable and efficient energy sector for The Bahamas.”

Several observers have queried why the Government is inserting itself into the LNG supply chain after Mrs Coleby-Davis, during her 2024-2025 Budget debate contribution, said: “The bulk purchase of LNG will be sourced from Shell North America, specifically, Shell North America LNG.

“The Government will set up a SPV 100 percent owned by the Government to purchase the LNG directly from Shell North America and the SPV will then sell to the independent power producers. Negotiations with Shell North America are ongoing, and we are close to concluding same. These negotiations are merely a restructuring and renegotiating of a tentative agreement we met in place from the former administration.

“The Ministry of Finance has hired the large consulting firm, McKinsey and Company, to advise the Government and BPL to ensure we get the best possible price on our LNG contracts with Shell North America and our various power purchase agreements with independent power producers.”

Few would disagree with the notion that The Bahamas has needed fundamental, wide-reaching energy reform for two decades with BPL central to any strategy. However, the details announced to-date have in many instances raised more questions than answers, with decisions such as the “single source” bidding for both the New Providence generation and transmission and distribution coming under fire.

Michael Pintard, the Opposition’s leader, last week argued that it was impossible to determine if the Bahamian people and businesses are getting the best possible deal and energy costs because these key awards were not put out to competitive bidding where rival offers were entertained.

The Marco City MP also argued that the proposed ownership structure for Bahamas Grid Company, the entity that is gaining a minimum 25-year contract to own, transform and upgrade BPL’s New Providence transmission and distribution network, should be “reversed” so that the Government is the majority - not the minority - shareholder based on the value of its equity contribution compared to the private sector.

Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, reiterated to Tribune Business that greater transparency and public consultation in advance over reforms such as those planned for the Bahamian energy sector are the only way to secure “greater public buy-in” and prevent them from becoming ensnared in a political controversy.

“From ORG’s perspective, this current situation highlights the opportunities that can come from transparency and meaningful consultation in governance. Addressing complex, long-standing issues, like BPL or the National Insurance Board (NIB) or the sustainability of some of the other SOEs (state-owned enterprises) is critical for our long-term social and economic growth as a nation,” Mr Aubry said.

“The current government does need to be recognised for bringing movement on some of these issues. However, reform of systems like these that have a day-to-day effect in the lives of Bahamians will be most successful if the Government of the day can facilitate a proactive public understanding of the process of decision-making, a clear understanding of the implications of the policies which can foster greater public buy-in of the solutions.

“Launching a programme or law, and then trying to sell it to the population after the fact, limits the opportunity for the critical two-way dialogue that can generate many positive outcomes. Transparency and consultation build trust in the developed solutions, lead to increased participation compliance by the public in the form of paying taxes and formalising businesses, and result in development and policy that is more inclusive and sustainable.

“Conversely, the lack of these can breed the public scepticism we are currently observing that can slow long-term progress when these issues and solutions become absorbed into the ongoing and increasing partisan political battle,” Mr Aubry continued.

“Instead of critically evaluating the merit of solutions offered by the Government and the important questions raised by the Opposition, citizens and private sector can be relegated to sideline observers of the back and forth rhetoric. Research on governance shows this can reduce local and external investor confidence and reinforce narratives that point to patronage and corruption, which can undermine the intended benefits of the posed policy solutions.

“As the reform of these issues will most likely require significant investment of public funding, adjustment periods or negative impacts for some sector of the public, it is even more important to get the input from those most affected by these decisions in the formative stages of decision-making,” he added.

“The current situation further reinforces ORG’s call to fund and prioritise Freedom of Information and the Ombudsman Acts in this Budget; to bring the Public Procurement Act into full effect particularly with state owned enterprises, and to reform the Public Disclosures Act. These mechanisms of transparency and accountability are important tools for both the Government and the citizenry to gain input, build trust and work together for national development.”