The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has issued a ‘comfort letter’ promising BISX-listed FOCOL Holdings and all renewable energy generation providers that itself and Bahamian taxpayers will step in if Bahamas Power & Light (BPL) is unable to meet its financial obligations to them.

Included in the 3,260 pages of documents released yesterday by the Prime Minister’s Office, and which detail the Davis administration’s energy reform dealings and negotiations, was a standard letter promising that the Government will inject cash or loans into BPL should the state-owned energy monopoly be unable to pay any of the private sector producers for electricity purchase from them.

The document was labelled as a ‘form of letter of comfort’, a document typically designed to secure a borrower or party’s ability to pay, rather than a government guarantee. “This letter is not a guarantee,” it stipulated, likely in a bid to ensure any financial support provided to BPL stays off the Government’s balance sheet and does not add to the $12bn-plus national debt. It also promised to seek parliamentary approval if any extra borrowing or allocations are required to support BPL.

Likely issuing the comfort letters to give private sector generation partners confidence that cash-strapped BPL, with its present $500m debt, will not sink the energy reform drive and leave them exposed through an inability to pay, the Government letter stated: “In recognition of the critical nature of the PPA (power purchase agreement) and the project for The Bahamas generally, the Government confirms its commitment to supporting the development, construction and long-term operation of the project.

“The Government commits to assist in funding BPL's (and its successors or assigns, if applicable) obligations under the PPA throughout the full term thereof, to the extent not otherwise satisfied by BPL. Such support shall include but shall not be limited to the funding of additional cash amounts to be contributed or loaned by the Government to BPL in order to enable BPL to satisfy its obligations under the PPA in a timely manner.

“Where necessary, the Government will prepare and obtain approvals for any necessary Budget allocation and appropriations in order to fund the support described herein.” The letter’s issuance to FOCOL Holdings, and its Bahamas Utility Company subsidiary, which will be responsible for New Providence’s baseline generation, as well as the renewable providers, highlights the concern over BPL’s financial condition and its potential to undermine the much-touted reform benefits.

“The Ministry of Finance confirms that it will support BPL in fulfilling all the rights and obligations undertaken by BPL arising from the PPA, and shall continue such support, as stated herein until BPL's obligations under the PPA are fulfilled,” the ‘comfort letter’ states.

“The Government's support as set out in this letter is irrevocable and unconditional until such time as BPL's obligations under the PPA are fulfilled. The Government acknowledges that seller has relied on the Government's assurances to support BPL as indicated herein in entering into the PPA. This letter is provided solely to the Seller in order to support BPL's obligations under the PPA.

“Subject to any applicable laws or the provisions of the PPA, the Government, including the Ministry of Finance, shall not take or permit to be taken any action which would prevent or interfere with the development, construction, ownership and operation of the plant.”

The Government’s generation partners will likely have sought this letter to appease their own financiers and investors, who may otherwise have lacked the confidence to participate in funding their projects without confirmation that the Government would step in and provide BPL with sufficient financial support so that they earn a return on their investment.