By NEIL HARTNELL
Tribune Business Editor
Bahamas Power & Light (BPL) is hoping to make the extra charge associated with its $650m refinancing “cost neutral” for consumers by August 2020, its chairman revealed yesterday.
Dr Donovan Moxey, confirming that the National Utility Investment Bond levy will likely be equivalent to 15 percent of every consumer’s monthly per kilowatt hour (KWh) consumption, said BPL hoped to cancel out its impact within months of its planned March 2020 introduction.
He told the Bahamas Business Outlook conference that this will be achieved through the recently-installed 132 megawatt (MW) of new generation capacity at Clifton Pier, whose 30 percent greater efficiency means they will reduce the fuel costs that make up 50-60 percent of BPL customer bills.
And Dr Moxey said the planned switch from automotive diesel oil (ADO), currently the most expensive fuel source available, to heavy fuel oil (HFO) would reduce BPL’s generation costs by a “further 30 percent”. Combining these two savings gains, he added, should offset the addition of the new debt servicing charge and ultimately ensure customers’ total bills do not increase following the initial “hit”.
The BPL chairman, who revealed that its imminent $650m Rate Reduction Bond (RRB) placement is the first of its kind in the Caribbean, also defended the refinancing from concerns voiced by conference attendees.
Acknowledging that there was “no easy answer” to BPL’s financial quagmire, Dr Moxey admitted that it “cannot borrow another dime” without a government guarantee that would place further strain on an already-ailing Public Treasury. As a result, the utility has to “get out of this hole” by repaying its existing $321m by placing an extra burden on the backs of households and businesses.
Arguing that Bahamians had no choice but to “bite the bullet” as a result of poor decisions made by past governments, Boards and management, Dr Moxey argued that BPL’s current strategy represented the “best solution” since it ultimately held out the promise that total customer bills will eventually decrease once the new multi-fuel power plant and liquefied natural gas (LNG) come on stream by 2021-2022.
“Initial estimates are that it will be 15 percent of the bill,” Dr Moxey confirmed of the debt servicing charge. “The average bill for consumers is $180, so that’s a $27 increase. We’ve developed a strategy on how to make this cost neutral for our consumers.
“Given the plans we have in place, and if everything falls into line with the RRB in place by March, by August that cost will become cost neutral. You get a little hit, we recognise that, but our plan is to make sure that hit is not sustained over the life of the bond.
“How do we do that? Number one: Generation. The new Wartsila engines are 30 percent more efficient. Then we will switch fuels from diesel to HFO and you will have a further 30 percent reduction. When all assets come on line, we will get rid of rental generation and the Blue Hills engines, and be running high efficiency engines on the least expensive fuel, possibly by summer.”
Dr Moxey’s remarks imply that Bahamian households and businesses may only see a hike in their total light bills, as a result of the National Utility Investment Bond fee’s addition, for four to five months during the 2020 Spring and early summer.
That, though, remains to be seen, and BPL’s recent track record is unlikely to give consumers much comfort and confidence that this will become the reality following last year’s daily summer loading shedding and unreliable supply that destroyed valuable electrical equipment belonging to the private sector and homeowners.
However, Dr Moxey yesterday added that the 132 MW supplied by Wartsila will soon be joined by 100 MW of existing BPL generation capacity at Clifton Pier, which is currently being serviced and refurbished.
This, he added, will give the state-owned energy monopoly 230 MW “running off the least expensive fuel” in time for both peak summer demand and to hit the August “cost neutral” target on consumer bills. It will also enable BPL to finally start “ridding ourselves of rental generation”, which costs its $2m per month plus the expensive diesel fuel, and to no longer rely on the Blue Hills engines that failed last summer.
Dr Moxey said BPL was aiming to place the bond issue by mid-February, even though it has yet to obtain a credit rating from the likes of Fitch, Standard & Poor’s (S&P) and Moody’s. Such a rating is critical to pricing the debt, and determining how much Bahamians will have to pay to service it, meaning that the “15 percent” charge cited by the chairman is yet to be finalised.
Describing the existing $321m debt as a “ball and chain we’ve been carrying for a number of years”, the BPL chairman suggested that the proposed bond refinancing was the best option for dealing with a financial crisis that had no easy or quick fixes.
“The debt was to the point where BPL required government support,” Dr Moxey told the conference. “That’s unsustainable, and we have to get ourselves out of this hole. Yes, it’s a cost of about 15 percent on the bill, but understand that we want to mitigate that cost impact so that it’s cost neutral.
“As we become more efficient as an organisation, our costs are going to go down. That’s in the long-term. The challenge we’re in; I’m going to be honest with you. We’re all Bahamians. BPL cannot borrow another dime without the Government guaranteeing those loans.
“From a sovereign debt point of view, we’ve been downgraded because the Government extended too much debt to entities that should stand on their own. To borrow more is a non-starter,” he continued. “The RRB is the way to go to get the utility out of debt.
“It’s a cost. It’s a cost all of us are going to have to bear. It’s a cost we’re going to have to bear because of decisions made before we came to the table.”
Dr Moxey reiterated that the key decision was the one taken in 2003 by the late Bradley Roberts and Al Jarret, minister with responsibility for the then-BEC and Board chairman, to cut the base rate that generated all the utility’s cash flow and profits below the cost of producing electricity. That turned average profits of $15m prior to 2003 into consistent annual eight figure losses.
The cut, from 16.5 cents per KWh to 12.5 cents per KWh, was said to have cost BPL almost $1bn in lost revenues that could have otherwise been put to generation maintenance and upgrades, transmission and distribution infrastructure improvements, and other initiatives that would have improved its performance.
“That’s the bullet we have to bite, the cost we have to share to improve the utility,” Dr Moxey said. “All we did was maintain the status quo and hope the problem would solve itself. We kept kicking the can down the road.”