The Government will today begin negotiations with PowerSecure International over the five-year Bahamas Electricity Corporation (BEC) management contract, amid pledges that the deal will be overseen by “a non-partisan” Board.
Prime Minister Perry Christie will be present at the meeting, Tribune Business sources familiar with the process revealed, while PowerSecure’s team will be led by Eric Dupont, its executive vice-president of finance and administration
“They’re having their preliminary meeting tomorrow [today] to set the agenda,” one source said of today’s meeting. “The Prime Minister is going to be there. They’re trying to move faster.
“The Government has to do a deal. They’re desperate. Time has run out, and PowerSecure knows it.”
Deputy Prime Minister Philip Davis yesterday told the House of Assembly that “the major terms” of PowerSecure’s five-year BEC management contract have been agreed, implying that just the fine details remain to be negotiated.
But Tribune Business revealed last week that the protracted nature of the BEC bidding process, and the delayed announcing of the winner, meant there had effectively been no contact between PowerSecure and the Government for seven months.
The two parties are now ‘re-starting’ their relationship, and PowerSecure will likely have to conduct further due diligence and be ‘brought up to speed’ on everything that has happened at BEC in the interim so it can finalise its business plan.
And PowerSecure’s business plan will assume extra importance, as it will have to be approved by the ‘new BEC’s’ Board. It also sets the targets to which the company’s management fees will be linked, determining how much the Carolinas-based firm gets paid.
Mr Davis yesterday told the House of Assembly that the Government and its advisers, the KPMG accounting firm and DNV Gl, were focusing on “the next steps” following PowerSecure’s selection.
Apart from finalising the management contract, the Deputy Prime Minister said a Transition committee - featuring “business and technical persons”, including some existing BEC management executives - will be formed to facilitate the hand over to PowerSecure.
The Government is also preparing legislation that will “establish the New BEC”, with the Corporation’s existing operating assets (generation plants and transmission and distribution infrastructure), plus “certain liabilities”, set to be transferred to this company that will soon be formed. BEC’s real estate, though, will not be transferred.
And, confirming that the existing Board and its outspoken executive chairman, Leslie Miller, would be replaced by new directors, Mr Davis said: “ That legislation will establish a completely new and non-partisan Board to oversee the management contract and operation of New BEC.”
He added that PowerSecure’s business plan for BEC “will be a contractual document once approved by the Board of the New BEC, and the quantum of the management fees will be tied to meeting the targets set out in the Business Plan”.
Mr Davis also confirmed that the Government’s Energy Task Force was currently assessing proposals from investment banks who are bidding to place a rate reduction bond that will refinance BEC’s legacy debts, and provide PowerSecure and the ‘New BEC’ with necessary working capital.
BEC’s “legacy liabilities” totalled at least $450 million, Mr Davis said, including bank debt and bonds; overdue payables; and the employee pension plan deficit.
And he suggested that this sum would ultimately go higher, given that BEC’s massive environmental liabilities had yet to be quantified.
One source familiar with the BEC restructuring process, speaking on condition of anonymity, questioned whether the rate reduction bond would add to already-high energy costs, given that payments to the bondholders would effectively be financed Bahamian businesses and households.
“What is the impact of that financing on BEC’s eventual cost per kilowatt hour,” the source, speaking on condition of anonymity, told Tribune Business.
“There are so many questions to ask. What will be the final price to the consumers under this management agreement? What will happen to the staff at BEC? Why would you pick a company that has no generation experience, when generation is the crux of your problems and challenges at BEC?”
The source also questioned why the Government changed the structure and objectives of the BEC reform process, and asked if all bidders were informed at the same time.
That is a reference to the Government’s decision to abandon the initial plan, which called for BEC to be split into two via separate generation and transmission/distribution arms, in favour of adopting the same model used for Lynden Pindling International Airport (LPIA) - the Nassau Airport Development Company (NAD).
The initial bid document also said the winning generation bidder would receive an equity take in that entity, with shares also eventually being made available to Bahamian investors.
However, the Government finally decided to go with the NAD model, and bring in a management company for BEC while retaining 100 per cent ownership of the Corporation and its assets.
Mr Davis’s presentation, which in some respects was more notable for what was not said, did not really address any of these concerns.
It largely glossed over the change in the objectives for BEC, saying merely: “As the process evolved, taking into account various challenges, in particular, the issue of restructuring the large amount of legacy debt, the structure was adjusted such that the relevant assets (excluding land) and business of BEC would be transferred to a single entity, the New BEC, and Government would itself procure offers for the refinancing of the legacy debt.”
Nor was any explanation offered for why the BEC reform process dragged on for 20 months, with numerous deadlines missed.
The initial goal had been to select preferred bidders by year-end 2013, with contracts finalised and BEC’s private partners running the company by May 1, 2014.
While those targets were aggressive, the BEC reform process is effectively one year behind schedule.