The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian hotel industry wants a 50 per cent reduction in energy costs over the next five years, a senior executive yesterday describing this as “simply critical to our future”.

Stuart Bowe, the Bahamas Hotel and Tourism Association’s (BHTA) president, said just a 15-20 per cent reduction in industry electricity bills would potentially trigger multi-million dollar capital investments into this nation’s economy.

He told the Bahamas Energy Security Forum that apart from improving the sector’s international competitiveness, and lowering visitor prices, reduced power costs would eliminate the need for resorts to choose between meeting payroll or paying their light bill.

Mr Bowe added that it was vital to “build confidence” in the hotel industry that investment in energy conservation would reap the desired rewards.

He disclosed that the fuel surcharge for many resorts had stubbornly refused to change, despite their bills showing a drop in energy consumption measured by kilowatt hours (KWh).

“Our goal is to see the cost of utilities lowered by 50 per cent over the next five years,” Mr Bowe told the Forum, which was organised by the Bahamas Chamber of Commerce and Employers Confederation (BCCEC).

“We’ve very expensive. Right now, the average vacation in the Bahamas, we’re ranked second in the region.”

Joy Jibrilu, the Ministry of Tourism’s director-general, cited Atlantis’s annual electricity costs as an example of how difficult it was for Bahamas-based hotels to generate the profits, and cash flow, needed to re-invest in refreshing their properties.

“It’s a known fact that Atlantis is paying on average $65 million per annum on its BEC bill,” Ms Jibrilu said. “How does any company sustain a business when electricity costs are that high?”

Echoing this theme, Mr Bowe, himself a senior Atlantis executive, said just a 20 per cent reduction in the resort’s energy costs could “inject a lot of capital investment into the local economy”.

He added that a number of Bahamas-based hotel properties were “getting old”, and in need of fresh investment and refurbishment.

The ‘vicious circle’ alluded to by Mr Bowe has been an ever-present concern for hotel industry and economic planners since the turn of the millennium.

High labour and utility costs make its extremely hard for resort developers/owners to generate the needed returns on their investment, depriving them of the profit margins/cash flow essential to financing the constant product upgrades demanded by the market.

With new investment deterred, and hotel owners not executing on expansion plans, the creation of additional Bahamian jobs becomes impossible.

Then there are the higher prices that have to be charged to tourists, which make the Bahamas uncompetitive against rival destinations, further squeezing resort top-lines and profits.

Mr Bowe yesterday also backed persons suggesting that energy sector reforms, and lower costs, would represent the greatest - and most rapidly achievable - offset to the cost increases anticipated from Value-Added Tax (VAT).

“This is not a VAT conference,” he joked. “But we have a number of other expenses coming on.”

Mr Bowe pointed out that under the hotel industry’s existing tax structure, the levy fell solely on the rooms via the 10 per cent occupancy tax.

This is set to be eliminated by VAT, which will broaden the tax base imposed on the hotel sector through its application to areas such as food and beverage and other guest services.

“This is going to make the Bahamas more expensive than we were yesterday,” Mr Bowe said. “The reduction of energy costs is simply critical to our future; simply critical for our future success.

“Hotels are making decisions based on their lack of capital, are not hiring people, and are deciding about payroll, profits and employment.”

The BHTA chief added that the hotel industry also needed to see a return on its investment in energy efficiency and conservation efforts launched over recent years.

With fuel surcharges remaining relatively unchanged, despite hotel electricity bills showing a reduction in kilowatt hours consumed, Mr Bowe said it was vital “to build confidence in the industry that if you reduce kilowatt hours and reduce the surcharge, you will see a reduction in energy bills”.

“That surcharge really intrigues us. Many persons have taken steps to reduce their kilowatt hours, and the surcharge in some respects has not moved,” Mr Bowe added.

“We’ve been investing a lot of money in the tourism industry in energy audits, auditing 30-40 hotels in the last two years.”

Mr Bowe said energy cost reductions between 10-20 per cent would also allow Bahamian resorts to pay bonuses to staff.

And the Bahamas’ high energy costs, and how to reduce them, were among the first issues prospective industry investors inquired about.

Pointing out that energy costs were something the Bahamas could immediately impact, Mr Bowe said tackling their negative effect on tourism should be a priority given the sector’s economic importance.

“Tourism in the Bahamas is going to be the number one industry in the Bahamas for the next 30 years,” Mr Bowe said.

“It’s nice to talk about agriculture, oil exploration. But the reality is we have 5,000 kids coming out of high school every year.”

The hotel industry, he added, had the ability to absorb not just large numbers of workers, but many of the semi-skilled persons coming out of the public school system.

Therefore, Mr Bowe said “getting down the cost of operations” was vital to the building of more hotels and expansion of existing ones, and freeing-up the capital investment to make this happen.

“In the short-term, we have to ensure this tourism product works. We have all that human capital coming out of the high schools, and hotels employ persons,” he explained.