The Tribune

By LEANDRA ROLLE 

Tribune Chief Reporter 

lrolle@tribunemedia.net

THE Davis administration’s proposed energy sector reforms could boost GDP growth by 0.5 percentage points by 2035 if successfully implemented, while also cutting emissions and lowering electricity costs for low-income households, according to a new International Monetary Fund report.

The study — authored by Beatriz Garcia-Nunes, Shane Lowe and Jose Luis Saboin Garcia — supports the government’s use of public-private partnerships (PPPs) to advance the reforms but warns that such arrangements carry potential risks to public finances.

The IMF paints a stark picture of the country’s current energy landscape as expensive, unreliable, and largely dependent on imported fossil fuel.

The IMF notes that renewable energy accounts for just two percent of the mix, which is significantly lower than regional counterparts like Barbados and the Dominican Republic.

The report also highlights the sector’s ageing infrastructure, which has struggled with growing demand and maintenance needs.

Energy intensity — defined as the amount of energy used to produce a unit of economic output — has also worsened in The Bahamas, according to the IMF.

In 2021, the country had an energy intensity of 2.87 megajoules (MJ) per 2017 USD Purchasing Power Parity (PPP) GDP, a 42 percent increase over the past 15 years.

Meanwhile, other countries in Latin America and the Caribbean (LAC) and those in the Organisation for Economic Co-operation and Development (OECD) regions reduced their energy intensity by 8.2 percent and 5 percent, respectively, over the same period.

The IMF partly attributed this inefficiency to the lack of a specific energy efficiency (EE) policy, noting that The Bahamas has substantial untapped potential in this area.

Institutional limitations are another major concern.

It noted that before the establishment of the Ministry of Energy last year, the energy sector was largely overseen by the Ministry of Public Works.

The IMF said this previous arrangement lacked integrated energy planning and coordination, limiting efforts to streamline infra- structure investment and prioritise renewable energy and climate resilience.

With the creation of the new energy ministry, activities previously fragmented across various entities are expected to be consolidated. However, the report cautions that the ministry must quickly build institutional capacity and strengthen governance to modernise the energy sector effectively.

Last year, the Davis administration unveiled its energy reform plan, which focuses on five key areas: building utility-scale solar power systems in the Family Islands; expanding solar projects in New Providence; modernising the electricity grid and transmission and distribution networks; implementing LNG-powered energy generation in New Providence; and introducing an equity rate adjustment programme.

According to the IMF, these reforms could strengthen The Bahamas’ external position and support real GDP growth over the medium term. The proposed transition to solar and LNG would also help the country achieve its climate mitigation goals.

However, given The Bahamas’ high debt levels and limited fiscal space, the IMF emphasises the need for private sector participation in financing and implementing the reforms.

“In the case of The Bahamas, high public sector debt, large gross financing needs, and elevated borrowing costs have lessened fiscal space and kept capital expenditure and capital transfers below two and a half percent of GDP over the past three years. Partnering with the private sector can also help the authorities to increase capital expenditure to their target of 31⁄2 percent of GDP by 2025/26, while allowing space for investment in other priority areas.”

Still, PPPs carry inherent risks — especially if they involve government guarantees or undisclosed liabilities.

Cost overruns, poorly structured contracts, or failed projects could lead to unexpected financial pressures if not properly managed.

“The authorities have attempted to mitigate the risks of the PPP for the announced reforms in a number of ways,” the report added. “The fiscal risks associated with the electricity sector reform appear to be limited, with the Ministry of Finance playing a central role in the negotiations of the proposed reform and with the government not granting any guarantees to private sector participants.”

“The authorities have also announced that some of the PPAs between the government and the private sector are expected to include key performance indicators for the private participant, which allows for penalties to be imposed should the relevant parties fall short of meeting their agreed performance commitments.”

The Davis administration is pursuing several public-private partnerships (PPPs).

Among the most significant is an agreement with Island Grid, a consortium led by Pike Corporation. Under this PPP arrangement, the government has entered a 25-year lease deal with Bahamas Grid Company, in which private investors hold a 60 percent stake and the government retains 40 percent ownership by contributing $100m in grid assets. The initiative will overhaul BPL’s transmission and distribution network, which the IMF

noted has long struggled with ageing infrastructure and reliability issues.

In addition to grid modernisation, the government has pursued solar energy expansion across the country. Construction has begun on utility-scale solar microgrids in several Family Islands, with solar and battery storage projects also being developed in New Providence. These efforts, supported by the Inter-American Development Bank and other international partners, are designed to cut fuel costs, reduce emissions, and improve energy resilience in hurricane-prone areas.

A shift to liquefied natural gas (LNG) is also underway, with the government planning to construct a 177MW combined-cycle LNG plant at the Blue Hills Power Station by 2026. Officials expect this will bring cost savings, fewer outages, and significant emissions reductions — all of which are central to the IMF’s recommendation for greater diversification and sustainability in energy generation.