By NEIL HARTNELL
Tribune Business Editor
Bahamas Power & Light’s (BPL) proposed $650 million refinancing is “not the panacea” for this nation’s energy woes, which the private sector likened to “running in quicksand”.
Both Michael Maura, the Chamber of Commerce’s chairman, and Kenwood Kerr, Providence Advisors’ chief executive, are warning that the Rate Reduction Bond (RRB) refinancing will not cure the energy monopoly’s underlying problems.
And Mr Maura, in particular, suggested that the Government and BPL will likely have trouble in placing the RRB with financial investors simply because the utility is not a going concern.
The two spoke out after the International Monetary Fund (IMF), in its statement on the Article IV consultation with the Bahamas, described moving ahead with the RRB as “a critical step” to energy sector reform and cheaper, more reliable power.
However, Mr Maura told Tribune Business: “The mention of the rate reduction bond, I believe, is quite a bit more involved than they indicate. BPL is bankrupt, and if you don’t agree why is over 30 per cent of the permanent power generation off-line? Why are we spending approximately $20 million a year on temporary power in New Providence alone?
“To complete a rate reduction bond, BPL must be a going concern, not propped up. It must be professionally managed, and equipped with efficient, modern cost, effective generation. The finance community will want to see evidence that BPL will have no difficulty in meeting financial targets, and this means BPL must be fixed before the rate reduction bond is secured.
“Who in their right mind would lend $600 million to a company that can’t pay its bills today?” Mr Maura added. “And the other issue is that the Government is not in a position to guarantee the debt.
“Furthermore, the rate reduction bond will need to be paid by the utility’s consumers, and that is you and me. We cannot afford to pay more, so this means that BPL will need to produce less expensive, reliable power so that we do not realise an increase in our individual electricity costs. Energy is - and has been - killing our growth. It’s comparable to running in quicksand; eventually you stop and die.”
Mr Maura’s sentiments were echoed by Mr Kerr, who told Tribune Business: “While they [the IMF] mention the RRB, is is not the panacea for BPL.
“You’re raising the money without fixing the underlying problems. The underlying problem at BPL is to fix the generation at BPL, which will lead to reliable, lower cost electricity.”
Refinancing the Bahamas Electricity Corporation’s (BEC) legacy $350 million debt, together with unfunded pension and other environmental liabilities, was initially seen as key to freeing up the balance sheet of its newly-created subsidiary, BPL.
An RRB would have been issued to investors by a special purpose vehicle (SPV), raising between $600-$650 million in new capital to pay out these liabilities, while keeping the new debt off both the Government’s and BPL’s balance sheets.
In theory, this would have freed the latter to raise fresh capital essential to upgrading its generation and transmission and distribution infrastructure, leading to more reliable, lower cost energy.
However, despite passing legislation for the RRB’s creation, both the former Christie administration and current Government have been reluctant to move ahead with the refinancing vehicle.
The previous government is understood to have run into the problems identified by Messrs Maura and Kerr, namely a cool attitude towards the RRB from potential investors - Bahamian and foreign - who were reluctant to part with their capital until BPL’s underlying technical and financial problems were on the way to resolution.
Desmond Bannister, minister of works, who is responsible for BPL, recently told Tribune Business that the Government would support no refinancing solution that increases the energy costs for Bahamian businesses and households.
Given that a portion of consumer tariffs would have to go towards servicing principal and interest payments to RRB investors, this is exactly what the proposed bond may do. This is also understood to have given the Christie administration pause for thought prior to the general election, but the Bahamas may have not choice but to increase costs short-term for longer term gain.
Mr Maura, meanwhile, backed the IMF’s call for civil service pension reform. Agreeing that public servants should contribute to their retirement income, he said: “Yes, why not.
“The Government is a business and must run as a business. That means having a fair and balanced relationship with labour. The days are gone where pensions are 100 per cent company funded. The $1.5 billion pension liability is unmanageable.”
Agreeing that the Government needed to balance fiscal controls with the flexibility to respond to hurricane-related disasters, the Chamber chairman added: “The discussion surrounding fiscal responsibility legislation seems reasonable recognising that mechanisms must exist to address unforeseen exceptional circumstances.
“That said, the Government’s fiscal policy should consider curtailing expenditure, restructuring operations and investing in growth. We need GDP growth, which will undoubtedly be supported by public debt and expense reductions, but it is dependent on capital investments which directly result in job creation, productivity, innovation and economic activity.”