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BPL ‘requires over $500m’ as Bannister blasts ‘insult’

Bahamas Power and Light headquarters.

Bahamas Power and Light headquarters.

photo

Former Deputy Prime Minister Desmond Bannister.

• Ex-DPM: ‘We wouldn’t do any secret deals’

• Gov’t would have to find $100m guarantee

• Multi-million legacy liability, bid concerns

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-deputy prime minister yesterday branded the Government’s handling of Bahamas Power & Light (BPL) reforms “an insult to the Bahamian people” as it emerged the utility’s “financing needs” exceed $500m.

Desmond Bannister, who held ministerial responsibility for the state-owned electricity provider under the Minnis administration, told Tribune Business that “we were not prepared to do any secret deals” involving The Bahamas’ energy and water assets after the Government’s plans to outsource management of key BPL functions was revealed.

The possible split, or break-up, of BPL into three separate entities was disclosed as the Government’s mid-year Budget noted that it would have to provide a taxpayer guarantee of “at least” around $100m to underpin the more than half-a-billion dollars in new financing that the power provider still requires.

“Financing needs exceeding $500m,” the mid-year Budget book said of BPL on page 120. “Would need at least roughly $100m guaranteed.” This huge capital requirement, and a guarantee that would account for around half or 50 percent of the $198m-$218m in total such support required by all state-owned enterprises (SOEs), explains why the Government is so eager to find private sector partners for BPL.

However, the Davis administration was over the weekend forced into damage control mode after the two trade unions representing BPL’s middle management and line staff voiced strong opposition proposed public-private partnership (PPP) agreements following meetings with their respective memberships.

Prime Minister Philip Davis KC denied the Government plans to privatise BPL by selling its assets and business operations off to private investors and utilities or other such purchasers. Instead, he signalled that it is seeking private sector “partners” to take over specific aspects of the utility’s operations via management or operating agreements, while the Government retains ownership of the assets.

Mr Davis also pledged that the energy sector revamp would nor result in any BPL lay-offs, while all existing union contracts - including their members’ benefits and salaries - will be honoured and maintained intact. This, though, has not appeared to pacify the Bahamas Electrical Workers Union (BEWU) or Bahamas Electrical Managerial Union (BEMU).

The Government has disclosed little to no details of what it is proposing for BPL, which makes it impossible to judge whether the planned reforms will have the presumably desired effect of reducing energy costs, thereby lowering the economic burden on Bahamian households and making businesses and the economy more competitive, while making supply more reliable and transitioning to cleaner fuels.

Tribune Business has thus far been able to confirm that the Government is mulling whether to split BPL into three separate entities. Two new companies would be created under this structure - one responsible for power generation, the other for transmission and distribution (T&D), which covers all the utility’s poles, wires and substations.

Kyle Wilson, the BEWU’s president, confirmed that Pike Corporation and its subsidiary, Pike Electric, headquartered in the Carolinas are the front-runners to take over BPL’s T&D business based on his meeting with Jobeth Coleby-Davis, minister of energy and transport, and her adviser, former BPL chief operating officer, Christina Alstom.

Meanwhile, several sources have suggested that Shell, which under the Minnis administration won the bidding process for outsourcing New Providence’s baseload generation via the development of a new 225 Mega Watt (MW) power plant at Clifton Pier, may be a contender to take over generation again. BPL, as Bahamians now know it, would be left responsible for the back office - customer service, billing, collection.

One source, speaking on condition of anonymity, backed the Government’s intentions by saying: “The truth is that change that was 50 years in the making is now taking place at BPL. At the end of the day, BPL is going to be a dramatically better company with less cost for consumers. The quantum of money being spent on this is huge. The stakes are very high.”

However, Mr Bannister yesterday questioned whether the selection of Pike and BPL’s purported generation partner had complied with both the utility’s own internal procurement guidelines and the two Public Procurement Acts passed into law since 2021 given the absence of a public tendering process.

And he also queried how BPL’s cost structure will accommodate the new management/operating partners given that they will require a return on any investment they make to upgrade the utility on the Government’s behalf. This would likely require BPL’s base tariff to increase, which the Government will probably seek to offset by converting to cheaper fuel, thereby reducing the fuel charge.

Finally, Mr Bannister raised the fate of BPL’s legacy liabilities, which included more than $320m in debt (a portion of which has been temporarily transferred to the Government’s balance sheet), a $100m-plus deficit in the employee pension plan, and a host of environmental and clean-up costs relating to legacy oil spills and other pollution.

These were supposed to be refinanced by the proposed $535m rate reduction bond (RRB), which has been shelved - at least for the moment - after global markets and interest rates moved against The Bahamas post-COVID. Given that any new management partner will not want to be burdened with such liabilities, Mr Bannister voiced fears they will continue to burden BPL consumers and Bahamian taxpayers.

“We took the position that BPL was the Bahamian people’s patrimony and that meant, as much as possible, BPL ought to be run by Bahamians and that’s why we did not change the structure of the company,” Mr Bannister said, apart from the proposed outsourcing of New Providence’s baseload generation to Shell North America.

“There were many, many offers from persons that wanted to purchase the generation and the whole. We felt that ought not to happen. We took a strong position on that. Anything that ought to happen with BPL, it was important for us to take it to the Bahamian people.

“There are several reasons for that. Aside from it being our patrimony, it is absolutely critical that anything that affects the day-to-day lives of Bahamians - access to power when at home and at work - that is something that is critical to the every day lives of Bahamians like water,” Mr Bannister continued.

“Putting it in the hands of someone other than the Government and not consulting the Bahamian people is, quite frankly, an insult to the Bahamian people and something that ought not to have been done. We were not prepared to do any secret deals on anything.”

The Prime Minister at the weekend admitted what has been known for a long time, namely that BPL is in “dire straits” and the Government lacks the capital to meet its financing requirements, hence the search for private sector partners with the capital and expertise to step into the breach and do what is required.

Many Bahamians, especially in the business community as well as many households, would likely welcome a privatised BPL if it results in significantly lower energy costs and a more reliable supply. However, there are questions as to how the process reached this point without an open tendering/bidding process as all work to-date has seemingly been done behind closed doors via the Prime Ministers Office.

One source, speaking on condition of anonymity, said: “If you don’t do the ‘beauty contest’ how can you ensure you are getting the best deal? How can you ensure you are getting the best value for money?” They added that the Government will also have to regain control of the public narrative from that which has been set by union opposition to the deal.

Asserting that the Davis administration should have known the unions would make the briefing they received public, given the obligation to their members, the source said: “It was comically badly done, and they are going to have to do a massive clean-up exercise. They cannot answer the question: Where is the beauty contest? Where is the RFP (request for proposal) to ensure the country is getting the best deal?”

Asked whether he thought the process had complied with the Public Procurement Act’s requirements, Mr Bannister replied: “Even more so than that, BPL has its own procurement provisions. No legislatively, but in order to stop this type of thing they adopted their own procurement provisions. This doesn’t seem to comply with any of them.

“I’ve not run into any Bahamian who was aware this was happening. This is actually very frightening. I believe any government owes it to the Bahamian people to consult them and to hear their views, their opinions, before coming to any type of conclusion on issues that impact their lives.

“I haven’t heard anything about it, and as a Bahamian consumer I’d like to know about this before any action is taken. Most Bahamians would say the same thing.” Other contacts familiar with BPL and the energy sector also suggested it was unusual to split transmission and distribution from a legacy utility, as the Government seems to be mulling with BPL, as usually only generation is divested.

Doing this, and outsourcing management to an entity such as Pike, will add a new layer of cost to BPL’s present structure. Pike would need to make a return on its investment, typically via some kind of management fee and/or a percentage of revenue, and to accommodate this BPL’s base tariff will likely have to rise.

Mr Bannister yesterday agreed this was a likely scenario, although the Government will likely hope that the all-in or total tariff paid by consumers falls due to switching to cheaper fuel sources such as liquefied natural gas (LNG) so that generation costs decline.

And the former deputy prime minister said there is also a danger that BPL’s restructuring will “socialise the losses”, and leave its hundreds of millions of dollars in legacy liabilities to be dealt with by its customers and the taxpayers.

“If there’s going to be that type of division in BPL, nobody is going to come in and take on debt they did not incur,” Mr Bannister told Tribune Business. “Whatever the Bahamian people are left with, it’s going to be hundreds of millions of dollars in debt and it appears the profitable part of the utility is going to be taken away from them. The only way for the Bahamian people to pay that debt is for them to be taxed on it.”

Comments

Sickened 9 months, 3 weeks ago

I find it troubling and hilarious at the same time that government misses the fact that BPL can be profitable. Proof is that other companies are willing to buy part or all of it. If BPL couldn't make money then absolutely nobody would be interested. Now that is cleared up ask yourself how would somebody else come in and make it profitable? They would have to do quite a few things but there are two things for sure that would HAVE to be done. 1) reduce the number of staff. 2) maintain the equipment. These two things alone may even bring BPL close to break even, and really that's all our government needs to do. An outside owner would certainly look to make a big profit, but as it is state owned our government doesn't need to. They just need to stop BPL from losing money.

sheeprunner12 9 months, 3 weeks ago

BEC was a profitable entity until Bradley Roberts took over after 2002 & started fuel surcharge & caving in the the Unions who now have the whole country in a vice grip.

Then came PowerSecure under Perry/Davis ....... Now we are at the end of the road (privatisation)

No matter how the New Day PLP spin it. It is privatisation.

birdiestrachan 9 months, 3 weeks ago

Mr banister we remember ms Ormond you did not even have the grace to deal with herì

Observer 9 months, 3 weeks ago

Mr. Bannister has admitted the level of his competence, in open senior court, recently. He is therefore disqualified from making an informed comment on something as complex as the BPL fiasco, in which he had an active hand.

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