Published On:Wednesday, August 19, 2009

By NEIL HARTNELL

Tribune Business Editor

The company that proposed to supply the Bahamas Electricity Corporation (BEC) with liquefied natural gas (LNG) has sold the lease to its proposed terminal site to a Bahamian-incorporated company, Tribune Business can reveal, although it has not completely abandoned its plans for this nation.

AES Corporation's decision to sell the lease to its proposed LNG terminal site on Ocean Cay, a man-made island near Bimini, was yesterday said by sources familiar with the situation to have been a move designed to minimise the considerable costs it had already incurred in what has been, to date, a fruitless eight-year wait for successive Bahamian governments to approve its project.

However, Tribune Business can reveal that although the Ocean Cay lease has been sold, AES has not completely walked away from the Bahamas and its proposed Ocean Express project. It is understood that the deal includes an option for the US energy giant to re-lease part of Ocean Cay should the Government finally give approval for the project.

"AES has spent a tremendous amount of money in trying to conduct an LNG project on Ocean Cay," one source, who requested anonymity, said yesterday. "They have disposed of the rights to the island, Ocean Cay. They decided to sell the lease to the island to a company which has agreed that, if the Government gives permission for the project, AES will re-lease a portion of it."

The lease sale was said by sources to have been completed within the last several months, with the buyer being a Bahamian-incorporated company beneficially owned by a Bahamian citizen.

Tribune Business understands that the buyer is Bahamian investor Tony Myers. Sources said he was planning to team up with foreign investors to form a company that will re-start aragonite mining on Ocean Cay, a man-made island originally developed for such a purpose.

AES has spent at least $65 million in trying to win approval for the project, only to incur ever-increasing frustration at the failure of both the Christie and Ingraham administrations to give final approval, despite meeting all the Government's requirements - chiefly completing a positive Environmental Impact Assessment (EIA) and Environmental Management Plan (EMP).

When contacted yesterday by Tribune Business about AES's sale of the Ocean Cay lease, Phenton Neymour, minister of state for the environment, replied: "I haven't received that information."

The Government's failure to thus far approve an LNG project, especially the AES development, located some seven miles from the nearest inhabited island, is somewhat mystifying, given that all requirements have been met and the Treasury's desperate need for revenue.

The AES project had promised to generate around $1 billion in revenues for the Government during the first 25 years of operations, via a combination of annual business licence fees, sea bed lease fees and a throughput fee linked to the Henry Hub natural gas index.

When the price of LNG pumped to Florida by AES exceeded this benchmark, the Bahamas would gain a percentage of the additional revenues - a figure that could have hit $40-$50 million in 2005.

AES had also proposed to supply BEC with LNG from Ocean Cay, something its then-project manager said could save the Government-owned Corporation between $1.4 billion to $4 billion - $80 million to $210 million per annum - in fuel costs over a 15-year period.

Aaron Samson said that AES was effectively offering the Government two options - approving the original LNG terminal and pipeline that would service Florida only, or giving the go-ahead for that project and the pipeline to New Providence.

Yet Tribune Business understands that the Government's concerns over the AES proposal relate to long-term LNG prices, and whether they would increase at the same rate - and reach the same level - as oil prices as global demand increased. Such a development would negate any advantages from switching BEC to LNG.

AES and its attorneys have been pushing for a government decision on whether to make the approval in principle that was granted to its project back in 2001 a full, approval that would allow it to proceed.