The Tribune

• $100m facility supporting troubled utility

• Minister: Loan 'top-up' but no subsidies

• Consumers not hurt by delaying rise

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is seeking to recover $50m in advances made to Bahamas Power & Light (BPL) via fuel charge hikes of up to 163 percent that will be imposed on households and businesses in 2023, it emerged yesterday.

Alfred Sears KC, minister of works and public utilities, told the House of Assembly that the Davis administration had elected to "top-up" the loan facilities the Government has made available to the cash-strapped energy monopoly instead of providing subsidies as has been normal practice.

Some $50m, or half the available $100m, has been advanced to BPL to-date to enable it to pay its bills, and the minister subsequently said this "interim funding will be repaid from the funds recovered via the fuel charge".

Responding to a series of BPL-related questions posed by Opposition leader, Michael Pintard, and finance spokesman, Kwasi Thompson, Mr Sears denied that BPL was using operational revenues to cover its higher fuel costs. The latter is supposed to be passed through 100 percent for consumers to cover via the fuel charge component of their electricity bills.

"The company is not using operational revenue to cover the increased fuel cost. The company has an accrual that has built up with the supplier due to the actual fuel costs outpacing the fuel charge collected," Mr Sears replied, effectively confirming that - up to October 2022 at least - BPL had not been passing on its full fuel costs to consumers as required by law.

As to whether the Government is providing taxpayer-funded subsidies to BPL to cover its fuel expenses, Mr Sears denied this while affirming that the series of phased-in fuel charge hikes throughout 2023 are designed to generate sufficient funds so as to clear the utility's debt to Shell.

"The fuel charge under-recovery will be recovered via the recently implemented glide path recovery mechanism, which will be used to pay for current and overdue balances to the supplier," the minister said, referring to Shell. "What the Government has done is top-up the existing facilities to BPL.

"I am referring specifically to the 2019 and the 2021 loans. These loan facilities provided BPL with additional cash to meet its obligations. The arrangements of these loans are the subject of ongoing negotiations between BPL and the Ministry of Finance."

Mr Sears provided no specifics on the nature of these discussions, while noting that BPL's government credit lines were put in place by the former Minnis administration. He later reiterated: "This is not a subsidy, but a top-up of the existing facility by way of a loan which was entered into in 2019 and 2021. The present value of the facility is pegged at $100m. To date, approximately $50m has been advanced to BPL."

Stating that what he described as "interim funding" complied with regulations requiring BPL to adjust its fuel charge "to recover all prudently incurred fuel costs", the minister added: "That is, the interim funding will be repaid from the funds recovered via the fuel charge."

Mr Sears, in what appeared to be carefully-worded answers to the Opposition's questions, did not link BPL's $50m drawdown on the loan facilities provided by the Government or their recovery to the ongoing fuel hedging controversy. Indeed, he avoided any mention of the word "hedge" in his statements, which were read out in the House of Assembly during the morning session.

However, well-placed BPL sources said Mr Sears was clearly indicating that the fuel charge hikes imposed on electricity customers this year are designed at least in part to recover the Government's $50m advances. Given that the increases are also designed to repay $90m in unpaid fuel bills due to Shell, it appears that the rolling series of fuel charge rises could be seeking to recover as much as $140m via BPL's household and business consumers.

Based on Mr Sears' disclosures, one well-placed source told Tribune Business yesterday: "What we are paying in these additional fuel charges is to recover the Government's fees for that debt and the loan, which is what we suspected. That's what it sounds like to me, based on what he's saying. When they put forward these additional fuel charges everyone was trying to figure out how they made those calculations."

Other Tribune Business contacts said the two BPL loan facilities identified by Mr Sears were each worth $30m when set-up under the former Minnis administration in 2019 and 2021. They added that only $30m was outstanding, and due to government, when the former administration was voted out in the September 16, 2021, general election, implying that a further $20m drawdown has occurred under the Davis administration.

"It was a float to help BPL remain solvent and pay its bills," one contact said, adding that this was supposed to have been fully paid-off via BPL's now-aborted $535m rate reduction bond (RRB) refinancing. They pointed out that BPL has been close to financial meltdown for years across multiple administrations, with its cash flow insufficient to pay all its vendors and debt servicing costs alone amounting to around $2m.

"The reality is that BPL has had financial challenges for years, for decades," one source said. "It is still spiralling downwards from there. Nobody has put forward a comprehensive solution to resolve it, and whatever resolutions come to the fore, no government commits to them. It's a challenge the country is going to continue to face.

"It's one of those things that has to be communicated to the public that, at some point in time, to resolve the problem it's going to cost people some money. There needs to be a realistic conversation with the public about what it takes to fix BPL once and for all. It's just one of those things."

Mr Sears yesterday did not explain what has caused such sharp hikes in BPL's 2023 fuel charges other than to blame the early 2022 increase in global oil prices sparked by Russia's invasion of Ukraine. He again sought to justify the Government's decision to delay passing on increased fuel costs to BPL's customers so as to give them more time to recover from COVID-19's ravages.

"In order to insulate consumers from the impact of rapidly-rising fuel costs brought on by the Ukraine crisis, we delayed the pass-through to coincide with the economy’s emergence from the shocks brought on by Hurricane Dorian and the COVID-19 pandemic," the minister confirmed.

This meant holding BPL's fuel charge at 10.5 cents per kilowatt hour (KWh) for at least an extra seven to eight months, even though the Government had not executed the trades to purchase extra cut-price fuel volumes that were essential to hold the charge at this level. As a result, the fuel bills paid by BPL's customers were insufficient to repay Shell, the fuel supplier, in full and the debt owed to the latter began to accumulate.

BPL, in early March 2022, sought to get ahead of the Shell debt accumulation by announcing a 30.4 percent, or 3.2 cent, increase in the fuel component of consumers' bills to 13.7 cents per KWh. This, though, was rejected by the Government, with the Prime Minister pledging that it would "brainstorm" to come up with alternatives - which never materialised.

Mr Sears, though, yesterday denied that the magnitude of the correction - and fuel charge hikes set be experienced throughout 2023 - would have been less if BPL had implemented these adjustments earlier. "The overall costs paid by Bahamians would remain the same regardless of the rate of recovery as the fuel costs are a direct pass-through," he said.

"However, the monthly fuel charge (as in the case of the recently-announced glide path schedule rates) is dependent on the period set for the recovery. It is noted that the Government sought to hold the fuel charge constant to provide price stability to the consumer over a fixed period, and is now facilitating the recovery of the accrued amount over an equitable comparable period to dampen the impact of the same, as announced in October by the Prime Minister."

The extent of BPL's debts was disclosed in the recently-published Fiscal Strategy Report, which said: "The recent disclosure of approximately $150m of payment arrears of Bahamas Power & Light (BPL) represents a significant unbudgeted liability of the Government. To ensure continued provision of essential electrical services to the public, the Government has committed to ensuring payment of this liability by the corporation.”

The Davis administration vehemently denied that the bulk of this sum was accrued on its watch due to the decision not to execute the trades that would have underpinned BPL's hedging initiative and the 10.5 cents per KWh fuel charge. It instead claimed much of the unpaid bills were built up under its Minnis predecessor, which the Opposition has rejected.

Mr Sears' House of Assembly answers indicate that, besides the unpaid fuel bill owed to Shell, the $150m sum also includes monies owed to the Government and other vendors. While a portion was likely incurred under the Minnis and other administration, the evidence - especially the timing of the disclosure - strongly suggests that the majority built-up during this administration's term.

The minister, meanwhile, said the Government has no plans to eliminate VAT on BPL's fuel purchases as this would result in greater costs being passed on to consumers. "The Government has not removed VAT on fuel purchases because BPL charges VAT on the electricity which it produces, and the removal of VAT would impose on the suppliers of the fuel a cost increase which would be greater than the VAT on fuel," Mr Sears said.

"This cost increase would be transferred to the consumers of electricity. It is to be remembered that VAT is charged on the importation of fuel, and disallowing VAT on the sale of fuel would lead to an increase in the price of fuel. Most fuel used for generation is diesel so this decision would impact other consumers, not just BPL."