The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamasair is “overstaffed by about one-third” compared to international aviation industry standards, it was disclosed yesterday, with its payroll and pension scheme also branded “rather costly”.

In a withering analysis of the burden imposed on Bahamian taxpayers by loss-making public entities, the International Monetary Fund (IMF) said the national flag carrier’s woes were being “exacerbated” by its aged fleet and ever-increasing competition from private airlines on domestic routes.

“Despite reducing its staffing level through natural attrition from a peak of 822 down to about 630, Bahamasair is still considered, by industry standards, to be overstaffed by about one-third, and its pay and pension structure to be rather costly,” the IMF’s Article IV report said.

This implies that Bahamasair’s workforce needs to be slashed by just over 200 persons to bring it into line with industry standards, an action the Government will almost certainly avoid taking given the high level of unemployment (around 15 per cent) and implications for election votes.

The IMF, meanwhile, said that while the decision to deregulate domestic, inter-island routes in 2006 had benefited both consumers and privately-owned airlines, the same could not be said for Bahamasair.

Following the end of its monopoly. Bahamasair was now having to compete with more than 31 carriers operating planes with greater than 30 seats, in addition to nine smaller airlines.

“These private companies are free to cherry-pick profitable destinations to fly to, while leaving less profitable islands for Bahamasair to serve,” the IMF said.

“Bahamasair’s financial shortfall is significant, requiring annual government subsidies of about $18–20 million. Its problems are exacerbated by an aged airplane fleet that is costly to maintain, and relies on oversized propeller planes to cover the domestic market, resulting in steadily declining load factors. In addition, fuel costs have more than doubled over the past decade.”

As for the Bahamas Electricity Corporation (BEC), the IMF’s Article IV consultation report joined current chairman, Leslie Miller, in attacking the former Ingraham administration’s energy relief plan.

While the previous government’s strategy was designed to reduce the impact of high energy bills, and enable disconnected residents and businesses to enjoy resumed electricity supplies, the IMF said it had caused BEC’s accounts receivables to “mushroom”.

In addition, the Fund said the relief programme had “aggravated cash flow problems” at BEC, while failing to take into account the income (ability to pay) of those applying for it.

“While BEC benefitted from a rate adjustment in July 2010 (the first in seven years), its cash flow problems were aggravated by a three-year government program (2010–2013) aimed at alleviating the impact of high electricity bills on residential customers at a time of economic distress,” the IMF’s Article IV report said.

“Under this programme, all residential customers (irrespective of income) may stretch out bill payments over three years at very favourable terms.

“As a result, BEC’s accounts receivable mushroomed - even as its payment for fuel inputs soared - forcing it to defer vital maintenance, take on additional loans, and accumulate arrears.”

To-date, the Government has sought to do some minor restructuring to BEC’s balance sheet, looking to replace short-term bank borrowings with cheaper long-term capital via a $250 million US dollar bond issue.

But is has yet to move decisively on integrating renewable energy into the Bahamas’ electricity supply matrix, having effectively placed all such investment applications on hold until it determines the way forward from a legislative and regulatory perspective.

Noting that BEC spent $360 million on oil imports in 2011, the IMF said that figure was equivalent to 4.5 per cent of Bahamian gross domestic product (GDP), and 70 per cent of the Corporation’s annual operating costs.

And, with the archipelagic nature of the Bahamas forcing it to place power plants on each island, the IMF said BEC was unable to achieve cost savings and efficiencies related to economies of scale.

“Because of the large distances between New Providence and the Family Islands, BEC has had to set up separate fuel-powered generation plants on each of the inhabited islands, effectively eliminating economies of scale,” the IMF warned.

When it came to the Water & Sewerage Corporation (WSC), the IMF backed the $81 million Inter-American Development Bank (IDB) financed programme designed to transform its fortunes and end annual $25-$40 million taxpayer subsidies.

“The WSC’s water delivery system is antiquated, with 55 per cent of its piped water lost to wide-spread leakage. The company also suffers from overstaffing and an inadequate tariff structure that, for more than a decade, has not kept up with mounting energy costs," the IMF said.