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Bpl To Seek Shell Equity For Its $95m

BPL CEO Whitney Heastie and Edmund Phillips, Business Development Manager at Wärtsilä. Photo: Terrel W. Carey Sr/Tribune staff

BPL CEO Whitney Heastie and Edmund Phillips, Business Development Manager at Wärtsilä. Photo: Terrel W. Carey Sr/Tribune staff

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamas Power & Light (BPL) will likely take an equity ownership interest in Shell’s new power plant in return for its $95m emergency generation investment, it was revealed yesterday.

Whitney Heastie, BPL’s chief executive, told Tribune Business that the severity of New Providence’s energy crisis meant the utility had “no option” but to act ahead of sealing the agreement with Shell to address the capital’s power needs long-term.

Arguing that Bahamian households and businesses cannot wait until 2022, when the Shell power plant is scheduled to become operational, to enjoy much-reduced energy costs and more reliable supply, Mr Heastie described BPL’s 132 megawatt (MW) deal with Wartsila as a “precursor to what will be done” by the energy giant.

He added that Wartsila’s seven engines will effectively be “rolled into the Shell project”, with BPL using the 132 MW to bridge the three-year gap until the latter’s arrival and eliminate load shedding, blackouts and eight years of relying on temporary rental generation units to make up the shortfall.

“BPL is just making the initial investment,” Mr Heastie explained of the $95m Wartsila deal. “It has no option but to try and stabilise the shortfall in generation. What we’re doing today all falls under Shell tomorrow, when the LNG facility is available for it to run on LNG. This is a precursor to what will be done by Shell.”

While BPL and Shell North America last year signed a Memorandum of Understanding (MoU) to formalise the latter’s selection as the preferred bidder to build, own and operate a new 220 MW power plant at Clifton Pier, the two sides have yet to tie down a power purchase agreement (PPA) and other commercial terms.

BPL’s newly-announced deal with Wartsila effectively gives it a headstart in addressing New Providence’s energy woes in advance of agreeing all terms with Shell, including the price at which the state-owned utility will buy electricity from the new plant.

The Shell plant will be designed to run on multiple fuels, including heavy fuel oil (HFO), diesel and liquefied natural gas (LNG), and the seven engines to be supplied by Wartsila match these requirements so that they can be seamlessly incorporated into the former’s new plant when it is constructed

Mr Heastie yesterday said Shell will still be responsible for adding the final 90 MW of generation to bring its plant up to the agreed 220 MW capacity, along with construction of the onshore and offshore infrastructure needed to facilitate use of LNG.

He added that this will include LNG storage and regasification facilities at Clifton Pier, together with a jetty and cryogenic line, to enable Shell’s plant to use LNG as one of its fuel source options from 2022 onwards.

With BPL’s Wartsila deal bringing in 60 percent of the new power plant’s capacity, Mr Heastie said the state-owned utility now has to discuss with Shell how it will be compensated for making a $95m investment that the energy giant will ultimately benefit from.

“We’re in the initial stages of having definitive discussions with Shell now that we’ve signed the MoU,” he told Tribune Business. “So one of the things we will talk to Shell about is how the 132 MW rolls into their project.

“We still have to define with them how the value of these assets [the 132 MW] will roll into the overall project. It may be that BPL takes an equity stake in the project. We could not wait, in all fairness to Shell, until there’s a definitive agreement. There’s no mechanism for them to invest as there’s no contract between us now.

“The mindset here was because of what we have been experiencing on the fuel charge, we’ve got to be able to provide some relief to the Bahamian public, or public in general. This 132 MW is obviously about 50 percent of peak demand, and we anticipate that once this is complete there will be a significant shift downwards in what consumers pay based on the fuel charge.”

Mr Heastie explanation answers Paul Maynard, the Bahamas Electrical Workers Union’s (BEWU) president, who yesterday questioned whether BPL would recover - or receive compensation for - a $95m investment that will ultimately accrue to Shell’s benefit.

“Shell owes this country $95m,” Mr Maynard charged. “In 2021-2022, when they take over they will get a new power plant. I want to know when they will give back $95m to this country. It means that they owe us money. That has to happen, that has to be a part of it. I can’t see it not being a part of it.

“It means they [Shell] only have to provide 90 MW. Their budget was $300m, from what I understand. We’ve spent $95m for them, and they need to give us this money back.”

Mr Maynard, who represents BPL’s unionised line workers, said his difficulty with the Wartsila agreement lay “in what is not being said” by senior executives. “The devil is in the details, as they say,” he told Tribune Business.

“There are a lot of missing components that normally accompany a contract of this nature. For example, training (operations and maintenance), critical spares, warranty engineering support. Is the $95m a turnkey price or is it just the price of the engines.

“Shipping and transport from Italy to Clifton, HFO and LNG requires additional auxiliaries for fuel treatment and regasification, respectively.” Mr Heastie, though, confirmed to Tribune Business that $95m is the ‘all-in’ price that includes the cost of the seven engines together with their shipping and installation.

Mr Maynard, though, made clear his unhappiness that the union had been left out of the Wartsila discussions. He suggested that this broke with previous protocols where the BEWU had been “involved”, and consulted on, the past installation of new engines at both Clifton Pier and Blue Hills power stations.

The union chief also hit out at BPL’s decision to “outsource” operation and maintenance of the new 132 MW to Wartsila, even though the same will happen under Shell. The latter’s deal with BPL will split generation from transmission and distribution, with the state-owned utility focusing solely on the latter on New Providence, and Shell acting as an independent power producer (IPP).

“My concern is that our people have to run the plant because we’re paying $95m. We have to run it. They didn’t come to the union, and we need to talk about this training component,” Mr Maynard told Tribune Business.

“My thing is that BPL was originally supposed to get 60 MW from them [Wartsila]. I don’t understand why we’re going down this road. Shell was supposed to do this. I don’t understand why we’re paying.

“It’s not going to help them this summer, that’s for sure, and that’s a problem. My thing is I would have preferred turbines to these engines. That’s how I feel. The chief executive likes reciprocating engines, but we need to get into modern technology such as aeroderivative turbines.”

Mr Heastie, though, said Shell had been fully involved in the selection of Wartsila and its generation technology to ensure it fitted with the long-term power plant plans.

BPL had started moving antiquated generation assets, which it no longer uses, out of Clifton Pier’s building ‘A’ from November last year to make way for the new 132 MW. The “pedestals” upon which the old two-stroke turbines rested are now being raised to the main floor’s level, with “significant improvements” to both engine houses and substations now on the way.

“What we’re doing is outsourcing the operation and maintenance of that plant to Wartsila, or a Wartsila-qualified service provider will be operating that facility,” Mr Heastie told Tribune Business. “They’re going to be responsible for providing the training for persons to operate that facility.

“We have stipulated that the majority of personnel are Bahamian. We would prefer them to hire individuals with diesel plant generation experience and train them on the four-speed engines. There’s no one in New Providence today with that experience on four-speed engines.”

Mr Heastie said the new power plant operator will be held accountable by having to meet key performance indicators, such as reliability, availability and cost, which will be based on global energy industry standards.

He added that, once the 132 MW becomes operational in October-November 2019, BPL will be able to reduce its reliance on the Blue Hills power station that burns the more expensive diesel fuel.

The utility is currently generating 80 percent of New Providence’s energy needs from Blue Hills, which is why customer fuel charges have soared, a situation not helped by last September’s Clifton Pier fires that took out 63 MW of BPL’s most efficient engines.

Mr Heastie confirmed that BPL was behind on maintenance of its generation assets as a result of capacity shortfalls, which meant it could not turbines off-line when it wanted to service them. The utility typically seeks to complete all scheduled maintenance by March/April every year, in time to meet peak summer demand, but this will continue into those months in 2019.

BPL’s immediate problem now is to get through summer 2019 without incurring frequent blackouts and load shedding, while it waits for the new 142 MW to be installed. Mr Heastie conceded this will be challenging given the utility’s aged, strained infrastructure, and he confirmed it was seeking an extra 30 MW in rental generation to help get it through.

“We want our consumers to be energy conscious and conserve as much as they can in the summer months,” he told Tribune Business. “We’re optimistic, and certainly thinking that if we make it through this summer it will be smoother sailing thereafter. We’re going to be tested on this one, but if we make it through we will be in good shape.”

Comments

Naughtydread 2 weeks, 5 days ago

Uh ohhh looks like Frankie Wilson won't have the monopoly on fuel anymore. This explains why he was crying in the newspaper the other day talking about how his shares are extremely "undervalued " at $3.00, better increase those dividends payments are you might be looking at a huge sell off sooner than you might have expected.

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TheMadHatter 2 weeks, 5 days ago

An equity stake? Why use such language to fool the general public? In other words, Shell likely won't pay us back for these stupid incompatible Finnish engines, so we will just "say" on paper that we own a certain percentage of shares in the new Clifton company whenever it becomes incorporated.

Just like the lost 2% shares in BPL. LOL

Shell will say too bad too sad for yall. We dont want nothing to do with it.

The Bahamian people have to pay yet again. Get ready for ya beer and chicken rally in 2022. Put em in again.

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Bahamianbychoice 2 weeks, 4 days ago

My guess is Shell NA will distance itself. Shell NA is a publically traded company that can not afford to be associated with corruption. Is this not one of the main reasons the former board members were terminated as changing the agreement with Shell NA to using either of the European companies had kickbacks written all over it. How can funds that were loaned to them now be diverted?? I seem to remember new stories about the financing. What covenants with the exiting loans from the expat banks have been breached. How does this effect the country's credibility? Why no RFP for these engines..why were none of the employed engineers consulted? How could the appropriate staff not be made aware of the plans?? My guess is New Fortress is in..Shell is out...and let me guess..a private group locally will raise the funds for the RRB. Its all so predicatable...and all the same players will get a piece of the pie while the locals pay for it.

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John 2 weeks, 3 days ago

If you can’t smell a rat by now then maybe it’s because you still smelling the four arson fires at BPL. Why they just looking to get equity after the fact. Why are they still buying engines that burns a fuel that is banned in most of the world. Except for use in industrial settings. Is the LNG story just a blindfold.

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