The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Caribbean experience has shown that the Bahamas Electricity Corporation (BEC) privatisation model selected by the Government is “more fraught with problems than anything else”, its former executive chairman said yesterday.

Michael Moss told Tribune Business that in this region only Trinidad & Tobago had split up the power generation and transmission/distribution functions when privatising the incumbent utility, and this had “proven less successful” than models that kept such companies intact.

Arguing that the Government should follow the latter course and seek to privatise BEC as a whole, single entity, Mr Moss said splitting the Corporation into two would also prevent the achievement of economies of scale - especially where the Family Islands were concerned.

Suggesting that BEC operations in smaller Family Islands be “interconnected”, so that multiple locations were served from just one generation plant, Mr Moss said this would allow the Corporation to potentially close smaller, higher-cost operations.

Yet splitting BEC into two, he added, would see the high cost burden for interconnection fall on the smaller, low capital base distribution company, making such a plan non-viable.

Mr Moss also pointed out that 80 per cent of BEC’s cost base was tied up in its power generation side, where there was the greatest scope for extracting cost savings.

In contrast, he argued that there was little scope for major efficiency gains on BEC’s customer service, distribution and transmission side, which accounted for just one-fifth of its cost base - making it a much less attractive proposition.

“I don’t think it makes sense to be honest with you,” Mr Moss said of the Government’s plans to break BEC into two. “I think it would be better for BEC to be privatised as is, complete, and then for competitors to be invited into the sector.

“The reason for thinking so is one, if you look at BEC’s cost structure, the generation costs - fuel, manpower and maintenance - are 80 per cent of BEC’s total costs.

“So the potential for savings is going to be much greater in that sector. What is the potential for savings in the other sector [transmission and distribution]? Twenty per cent savings on 20 per cent is just 4 per cent.”

Noting the problems posed by the Bahamas’ geography for BEC’s efficiencies and cost structure, Mr Moss noted that it operated 27 Family Island power stations.

These generators, he added, had capacities ranging from 25 Kilowatts (kW) to 12,000 kW, but just Abaco, Exuma and Eleuthera were close to covering their operational costs.

To end Nassau’s subsidisation of the Family Islands, Mr Moss said BEC should interconnect the smaller Family Islands into one power plant via undersea cables - a plan that would be undermined if transmission/distribution was split from generation.

“If you can interconnect a number of the islands, you can shut down some of the smaller, high cost operations,” he explained to Tribune Business.

“But if you split off generation from distribution, the interconnectivity will have to be covered by the distribution company.

“You are going to have a low cost distribution company absorbing high capital costs for interconnectivity. All things considered, it would be far better to privatise the entity [BEC] intact.”

Several observers have suggested that the Christie administration is likely to encounter difficulties finding a suitable private sector entity to take over BEC’s remaining transmission/distribution business on a management contract.

This company would still be 100 per cent owned by the Government, and contain many of BEC’s existing problems - not to mention hundreds of miles of overhead wires and other grid infrastructure that is time-consuming, and costly, to maintain.

True privatisation, under the Government’s plan, will only occur on the power generation side, where it is seeking a joint venture partner to take over, finance and manage BEC’s existing power plants and meet future demand via new facilities.

However, Mr Moss told Tribune Business that Caribbean precedents did not offer favourable omens for the Government’s ‘twin track’ approach to solving the Bahamas’ energy woes.

“If you examine the entire Caribbean region, I know of one country that pursued the model the Government is pursuing,” Mr Moss said, referring to Trinidad & Tobago.

“If one was to examine the Trinidad & Tobago model, one would find it more fraught with problems than any other privatised utility throughout the Caribbean.”

This, the former BEC executive chairman suggested, was largely because in deciding to break the Trinidad and Tobago Electricity Commission into two, that island’s government decided to retain 100 per cent ownership of the transmission, distribution and customer service elements.

“We all know what happens when governments retain control,” Mr Moss said. “And this is what they [the Bahamian government] have announced.”

He added that his views might be different if the Government had released reports by Genting Energy and other consultants, which likely set out the rationale for its plans, but these were being held “very tightly to their chest”.

And Mr Moss also conceded that he might be “biased” because of his involvement in the due diligence team that oversaw the privatisation of Jamaica’s incumbent utility, the Jamaica Public Service Company (JPS), which has also remained one entity.

He also suggested that BEC focus on fuel usage, and particularly switching from high cost diesel fuel, as one of its priorities.

“Switching operation of BEC’s simple cycle and combined cycle plants to burning gas rather than diesel will reduce fuel cost at Blue Hills by almost 60 per cent, and BEC’s overall fuel cost for New Providence by about 25 per cent,” Mr Moss writes on Page 3B today.

“It should also be possible to provide natural gas infrastructure at BEC’s larger Family Island installations.”