The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Shell executive yesterday said The Bahamas can be "a real front runner" in adopting cheaper, more environmentally-friendly fuels through New Providence's proposed new multi-fuel power plant.

Markus Hector, Shell LNG marketing and trading's general manager for market development, said the choice of liquefied natural gas (LNG) as the plant's main fuel opened up other opportunities beyond resolving the island's long-standing energy crisis.

With an LNG regasification terminal and pipeline due to be constructed at Clifton Pier by 2022 to accompany the power plant, Mr Hector said it also provided a foundation to supply the fuel to Bahamas-based industrial companies, the Family Islands and passing cruise ships.

"Having the infrastructure here and the fuel here, there's opportunities in industrial use, opportunities in the Family Islands, and opportunities as the cruise lines, in particular, and other vessels, are rapidly switching to LNG," he explained. "There's an opportunity for The Bahamas to be a real front-runner and create opportunities for the people of The Bahamas."

Dr Donovan Moxey, Bahamas Power & Light's (BPL) chairman, yesterday confirmed the Government's intention to offer shares in the new power plant to "rank and file Bahamians" and others via an initial public offering (IPO) once it became operational.

He explained that the deal with Shell North America is being structured such that two companies will be created, one to hold the power plant, PowerCo, and the other to own the LNG pipeline infrastructure and regasification terminal, TerminalCo.

Shell will have majority ownership in both entities, but Dr Moxey confirmed the structure has shifted from the power plant being a joint venture solely between BPL and the international energy giant to one where Bahamians will have an opportunity to invest via an IPO.

Pointing out that electrical utility investments typically generate a 9 to 11 percent return, the BPL chair said the Government wanted to give Bahamians an opportunity to create wealth and compensate for the 15 percent charge being added to their bills to service the utility's imminent $650m debt refinancing (see other articles on Page 1B).

"We recognised that rather than just take from the Bahamian people, we would give them an opportunity to own," Dr Moxey said. "Bahamians will have an opportunity to have ownership in their own power plant. They have an opportunity to get a 9-11 percent return."

He was unable to provide any details on the IPO, such as the percentage of PowerCo that will be made available for Bahamian public ownership; the price the shares will be sold at and the minimum subscription amount; and whether it will be BPL, Shell or both selling part of their equity interest as the two sides were still sorting out the details.

Dr Moxey also disclosed that the LNG terminal will have "local investment" in it, although this will come from institutional investors such as the major investment banks, pension funds, insurance companies and the like.

"The way we run our business we want to have strong local participation," Mr Hector added. "We want to develop this as power complex and LNG terminal for The Bahamas in the best possible way, and get local investment in these entities as soon as possible. We confirm our intent is to get maximum Bahamian ownership in both these entities."

Mr Hector added that negotiations between Shell and the Government/BPL were "progressing extremely well", and said: "I have been here the entire week. We had a very good meeting with BPL and the other government agencies.... We have made significant progress getting our licenses progressed by the Bahamas Investment Authority, the environmental impact assessment and getting the land we need. We're at an advanced stage."

The LNG terminal infrastructure will have to go over land owned by the likes of FOCOL Holdings and the late Tennyson Wells' Source River group, with Mr Hector disclosing that a 20-25 year power purchase agreement (PPA) was being negotiated for the Shell majority-owned power plant to supply energy to BPL.

Dr Moxey added that the two parties were aiming to conclude talks on the PPA and an asset purchase agreement by "the end of March" 2020. "Those are the very important initial agreements," he said. "Once that falls into place, all the other agreements fall behind them."

The asset purchase agreement involves Shell purchasing from BPL both Clifton Pier's Station A, which contains the latter's recently-installed 132 Mega Watts (MW) of new generation, and the 90 MW Station D for which construction is scheduled to start in March 2020 and be completed by August 2021.

BPL has invested $95m in Station A, and will spend a further $70m on Station D. Dr Moxey said the price Shell will pay BPL for both facilities has yet to be determined, as he explained that both sides had decided the state-owned utility should proceed with construction due to their "very complex negotiations" that have yet to be concluded.

"It's better for BPL to cover the cost and Shell buy the plant from us," he said, noting that talks between them began in mid-2018 leading to the Memorandum of Understanding (MoU) in November 2018.

Dr Moxey, meanwhile, added that BPL is "pushing Shell hard" to establish and agree a fuel hedging mechanism to ensure that the state-owned utility can fulfill its goal of providing price certainty and stability to consumers.

Noting that BPL had passed up the chance to do this in 2016 when oil prices were $39 per barrel, Dr Moxey said hedging strategies - while did not necessarily guarantee the lowest price - locked in fuel costs.

He described this as a "game changer" for the Bahamian economy, investors and the private sector, as BPL would now be able to provide them with accurate forecasts on what their energy costs would look like as far as five to 10 years out due to the price certainty.

Dr Moxey said BPL was also pushing Shell to construct the LNG terminal in less than the 24-30 months it typically takes provided there were no "cut corners" on health and environmental safety.