By NEIL HARTNELL
Tribune Business Editor
A Cabinet minister yesterday blasted Bahamas Power & Light’s (BPL) financial past as “absolutely shameful” amid revelations it received a $15m taxpayer loan to help repay due debt.
Desmond Bannister, minister of works, told Tribune Business that “terrible financial planning” at BPL and its Bahamas Electricity Corporation (BEC) predecessor had resulted in the state-owned utility becoming increasingly reliant on taxpayer support ahead of its long-term refinancing.
He spoke to this newspaper after the government’s fiscal “snapshot” for the 2019-2020 first quarter revealed that BPL has received at least two “short-term” loans from the Ministry of Finance to help repay debt liabilities falling due and for other purposes.
“The government made a $15m short-term shareholder loan to BPL in August 2019 to assist the entity in meeting amortisation payments that became due in September 2019,” the “snapshot” said. “Like the terms of the previous facility extended to BPL in June 2019, the loan is to mature no later than December 31, 2019.”
Mr Bannister said the second loan mentioned likely referred to an “advance” on financing for the project to convert all street lighting to more efficient, less costly LED technology, while the former was needed to cover debt repayment obligations that the cash-strapped, loss-making utility could not meet from its own resources.
“We all appreciate the financial planning at BPL over the years was terrible,” he told Tribune Business. “BPL has a number of loans that are coming due. One came due earlier this year and another comes due, I believe, on December 11 - early December.”
Mr Bannister said the Ministry of Finance’s “short-term” loans will be repaid from the Rate Reduction Bond (RRB) issue, the mammoth $450-$550m long-term financial restructuring of BPL that has been planned since the former Christie administration was in office.
With Citibank already selected as the RRB’s financial advisor/placement agent, the minister said the bond issue was still scheduled to be placed before year-end with expectations that the financing will be received in January.
“Once that is placed there will be funding for all this; BPL’s challenges,” Mr Bannister said. “In the interim, as BPL has challenges, the Ministry of Finance stepped in to loan the funds to BPL - not to give the funds to BPL.
“That short-term funding from Finance will be repaid once the bond is placed by the end of this year. January is when we anticipate receiving the funding.”
BPL’s RRB refinancing, while essential to its future financial health, may provoke controversy among some elements of Bahamian society given that it is ultimately the state-owned energy monopoly’s customers that will pay for it via an extra charge that will be added to their monthly bills.
The original plan, developed by the former Christie administration under the Electricity Rate Reduction Bond Act, calls for the sums raised by this additional charge to be used to pay the interest owed to investors who purchase the bonds.
The Bahamas Rate Reduction Bond Ltd, not BPL, is the special purpose vehicle that will be responsible for issuing the bonds and paying investors due interest. This structure will exchange BPL’s legacy BEC debt and other liabilities for new debt, which will be kept off BPL’s balance sheet via the SPV’s role as issuing agent.
The old liabilities include around $350m in bond and bank debt; a $100m employee pension fund deficit; and other assorted liabilities including the cost of environmental clean-ups at various sites around The Bahamas. It is likely that some of the financing may also replace the $100m short-term funding that helped acquire the 132 Mega Watts (MW) of new Wartsila engines.
Explaining the rationale for the RRB issue, Mr Bannister told Tribune Business: “Mr Hartnell, the financial history of BPL is shameful, and that’s one of the things the current Board and management is changing.
“It’s absolutely shameful. It’s gone on for decades, and I’m so grateful it’s going to change under the leadership of this Board which will ensure that BPL is able to take care of itself financially and do what has to be done for the Bahamian people.”
Mr Bannister then revealed that there will be “tremendous opportunities for Bahamian ownership” in the new multi-fuel power plant that Shell North America is due to construct at Clifton Pier by 2021, although the details have yet to be worked out.
Disclosing that potential investors approached to doubt have been almost unanimous in expressing interest, he said: “Shell is looking for Bahamian investment and they are going to provide that opportunity for a number of our big investors to own share of the power plant.
“There’s going to be a tremendous opportunity for Bahamian ownership, and the Bahamian investors we have spoken to so far, most of them are very, very interested.” It is unclear how much of the proposed power plant would be offered to Bahamian ownership, and whether it would be a debt or equity offering that is involved.
Meanwhile, Mr Bannister pledged that “everything is going to be finished” with respect to the Shell power plant’s construction by 2021, and added: “I met with Shell in the last two weeks. They are very excited. They’ve set some timelines with respect to the power plan, and have some applications before the Government.
“Those applications are being reviewed, are coming through the system and will be released so they can move forward.” Mr Bannister said the applications in question were the typical ones foreign investors have to make to the Investments Board and National Economic Council (NEC).
He added that “most of the challenges” faced by BPL will be solved once the 132 MW of new generation capacity provided by Wartsila are installed by the December 2019 target date, and confirmed it was “part of the plan” for the latter to manage the new Shell plant.
“There are still some challenges with these old transmission and distribution (T&D) lines that we have to resolve, but I don’t anticipate having anything like we had this summer. I expect next summer to be very pleasant for all Bahamians,” Mr Bannister told Tribune Business.
Wartsila confirmed yesterday that of the 31-strong workforce it plans to hire to operate the new 132 MW, some 27 - or 87 percent - will be Bahamians. The announcement was not greeted warmly by Paul Maynard, head of the Bahamas Electrical Workers Union (BEWU), who blasted it as “asinine” and failing “to make sense”.
Suggesting that his line staff members would be giving up their existing benefits by transferring to Wartsila, Mr Maynard said he would “reserve judgment” until he met with the generation provider on November 11.
He added that he and the union were informed of Wartsila’s offer only yesterday by BPL’s executive director, Patrick Rollins, and the utility’s human resources staff.