By NEIL HARTNELL
Tribune Business Editor
The government is “likely” to raise the $300 VAT-free threshold on electricity bills to minimise the impact from Bahamas Power & Light’s (BPL) $650m refinancing, a Cabinet minister revealed yesterday.
Desmond Bannister, minister of works, told Tribune Business that Dr Hubert Minnis will make a public announcement on the issue amid fears the additional charge added to BPL bills for servicing this mammoth borrowing could push many Bahamian households above this mark and expose them to the extra burden of monthly VAT payments.
“That’s one thing the government is considering; raising the VAT threshold on electricity bills,” Mr Bannister confirmed. “I gave an indication that the prime minister will make an announcement, but it’s likely that what he’s going to do is increase the threshold for VAT.”
His comments come amid general anxiety as to what BPL’s upcoming bond refinancing will mean for already sky-high consumer electricity bills, coupled with the potential knock-on impacts for household finances and business profitability/investment.
The minister himself told the House of Assembly last week that “the average household” will likely have to endure a $20-$30 monthly increase in their electricity bills for some ten months in 2020 immediately after the bond is placed, and several Tribune Business sources had voiced concerns that even this small increase could push low energy users over the $300 VAT-exempt threshold.
Debbie Deal, head of the Chamber of Commerce’s energy and environment committee, told this newspaper: “Are they going to raise the threshold? Below $300 a month you don’t pay VAT on your bill. Say my bill is $285 per month, if you go up another $20-$30 you’ve gone above $300, so not only are you paying an increase but VAT as well. Have they thought about that?”
Mr Bannister’s remarks suggest the government has, and that it is conscious of the increased burden and potential “double whammy” that the BPL bond’s debt servicing charge could inflict on low energy users - the majority of whom are likely to be single persons and low income families - by pushing them above the threshold where they must pay VAT.
Paul Maynard, the Bahamas Electrical Workers Union’s (BEWU) president, told Tribune Business last night that he thought the light bill VAT exemption will have to be increased to $500 to offset the bond servicing charge and alleviate the potential negative impact for BPL’s most vulnerable consumers.
And he also questioned whether VAT will be levied on the debt servicing fee as well as the other portions of customer bills, adding that this would produce a potential revenue windfall for the Government if that happened.
“The bond is what it is,” Mr Maynard said. “The whole town is talking about it. I think they’re a bit off with the figures. There’s no way they are going to pay back $650m at $40m a year. They have to get the money first, and they’ve not even gotten that yet.”
Bahamian households and businesses are effectively being made to pay for years of mismanagement, poor governance and political interference at BPL by bailing-out the state-owned electricity provider through this bond issue.
Possibly the only monopoly to be losing money, what has made this new financial burden especially difficult for Bahamians to bear is the total lack of trust they have in BPL producing a more reliable, lower cost energy supply as a result of their outlay.
BPL and the Government, though, have remained consistent in arguing that the $650m refinancing - which will make $222m available for electricity infrastructure improvements, as well as removing $321m in debt from the utility’s balance sheet - will more than offset the bond debt servicing charge and result in total energy costs decreasing.
In the first instance, they say this will be achieved by the new 132 Mega Watts (MW) of Wartsila generation capacity that is due to come online this month. Besides enabling BPL to switch back to the cheaper Bunker C (heavy fuel oil) from more expensive diesel, these new engines also have a lower heat rate, meaning they require less fuel to generate the same amount of electricity as the existing engines.
This, in theory, will lower BPL’s fuel costs and result in savings that can be passed on to consumers. And the addition of liquefied natural gas (LNG) into the generation fuel mix via Shell’s power plant that is due to become operational in late 2021/early 2022 is supposed to further slash energy costs.
Yet concerns persist. Ms Deal said the Government “didn’t embrace us in any way” over the bond refinancing and its plans for BPL and wider energy sector reform. This, in turn, made it much more difficult for the private sector to approve of the plans.
“They’ve not addressed other issues besides new generation,” she added. “Transmission and distribution is also 60 years-old, and we’ve not addressed the back-up generation that was supposed to be temporary. Here we are eight to nine years later and we still have back-up generation. It doesn’t seem like the fix this country needs at this point in time.”
Mr Bannister’s House of Assembly presentation set out how BPL plans to use the bond refinancing proceeds for both transmission and distribution and renewable investments, with New Providence due to receive over $100m in the former area alone.
Yet doubts over Shell’s involvement in the energy reform mix persist, with Mr Bannister telling this newspaper that “the Shell decision is really going to be up to Shell. There are a number of things they have to do” for the proposed multi-fuel power plant at Clifton Pier to go ahead under its lead.
Speaking after Tribune Business was tipped that the Cabinet met on Friday to discuss the Shell deal, Mr Bannister said the project had obtained some but not all of the necessary government approvals.
“There are a number of decisions that have been taken, and a number of other things that have to be done,” he added. “We’ve taken a number of decisions in relation to Wartsila, done a number of approvals, and the Shell decision is really going to be up to Shell....
“As far as we are concerned the process with Shell is proceeding. Shell has gotten a number of approvals. The National Economic Council has given Shell a number of approvals. There are just a few issues that have to be resolved before they get all the approvals, but they’ve gotten a number of them.
“They have a number of issues they’re going to have to resolve, and once they resolve them they will have all the approvals to be able to move ahead.”