The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Shell North America says it has become the first company to apply for an independent power producer (PP) licence in The Bahamas through its May 29 submission to local regulators.

The energy giant, in a statement, said the approval as an IPP is essential if it is to own and operate the proposed new multi-fuel power station at Clifton Pier plus the accompanying liquefied natural gas (LNG) regasification terminal and associated onshore infrastructure as part of its agreements with Bahamas Power & Light (BPL).

It added that the application had met its commitment to provide the Utilities Regulation and Competition Authority (URCA) with all necessary information by June 1 in a bid to further signal that it remains committed to The Bahamas and transformation of New Providence's energy sector.

Markus Hector, general manager of market development for Shell LNG Marketing and Trading, said: "We're pleased and excited to reach this milestone, another key step towards solidifying the Shell-BPL partnership as we move forward with our world-class LNG-to-power project.

"Shell is ready and willing to work with the Bahamas' Utilities Regulation and Competition Authority (URCA) to advance this application so we can continue to move this project forward as quickly as possible. Now that we have submitted our application, we look forward to working further with the government on the Heads of Agreement with an eye on finalising this and other agreements."

This IPP application comes after months of negotiation between Shell and BPL over the structure of their deal, the power purchase agreement, the asset purchase agreement and the Heads of Agreement with the government. The application has been submitted under the Electricity Act and other permitting applications are well underway (eg Environmental Impact Assessment)

Desmond Bannister, minister of works, recently told this newspaper that "there are a number of legal issues to be cleared up" before Shell North America's multi-fuel power plant deal can proceed.

He said he had set out the government's position to Mr Hector who, on the same day, told Bahamian media via an Internet conference call that the necessary agreements were "weeks, not months" away from being concluded.

The minister, who has responsibility for BPL, declined to comment much further other than to reiterate that "there are a number of issues involved". He added: "There are a number of legal issues to be cleared up. I have spoken to Mr Hector last week, and Shell is aware of the government's position."

Shell's recent public relations moves appear designed to nudge the government towards completing the power plant deal. For Mr Hector's conference call with Bahamian media revealed little to no details that were not already known.

He confirmed that the deal is still being structured in a manner that would see BPL finance construction completion of the new power plant, with Shell then purchasing a substantial ownership interest in the facility "at fair market price" from BPL.

This raised eyebrows when it was announced earlier this year, given that the original plan had been for Shell to construct, finance, own and operate the 220 megawatt (MW) plant as an IPP that would enable BPL to exit the generation business and focus on transmission and distribution (T&D). It is also unclear whether BPL has the necessary financial muscle to do it given that its rate reduction bond (RRH) refinancing has been delayed indefinitely.

However, Dr Donovan Moxey, BPL's chairman, said then that allowing the state-owned utility to begin construction and then sell the power plant to Shell would save time given how negotiations between the parties have now lasted some 18 months since they signed their initial Memorandum of Understanding (MoU).

Mr Hector was also unable to provide specifics on the size and value of any investment opportunities that will be made available to Bahamian investors, or the timing of such offerings. He also declined to provide figures on how much both the power plant and LNG terminal will cost to construct, and the likely savings that will result for Bahamian energy consumers from the projected lower generation costs.

Acknowledging that Shell North America had "wanted to be settled on the agreement now" with BPL, Mr Hector added that the energy giant had "seen some delays" as a result of both the lengthy negotiations and the COVID-19 pandemic.

He disclosed, though, that the 2021 deadline for completing the power plant portion of the project remains unchanged, with the associated LNG infrastructure likely to be in place some time in 2022.

With the Bahamian economy in dire straits as a result of the COVID-19 enforced tourism shutdown and wider economic lockdown, the proposed multi-fuel power plant and Shell's deal with BPL have assumed even greater urgency and importance given that reduced energy costs and a more stable power supply are one of the most immediate and widely-felt improvements that can be achieved.

The key documents will be the power purchase agreement (PPA), setting out the price at which BPL will buy electricity from Shell, and the asset purchase agreement detailing the price and mechanism by which the energy giant will acquire the power plant.

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 the plan is to give Bahamian public investors an opportunity to invest in the power plant via an initial public offering (IPO). And it was also the intention to solicit Bahamian institutional monies to help finance the LNG terminal and associated infrastructure via a private placement.