The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Minnis administration was “too late getting out the gate” on Bahamas Power & Light’s (BPL) mammoth $535m refinancing, an ex-union president said yesterday.

Paul Maynard, the Bahamas Electrical Workers Union’s (BEWU) president, told Tribune Business that “the whole dynamic” has changed since BPL’s rate reduction bond (RRB) was first conceived to the point where global capital market conditions would impose prohibitively expensive costs on Bahamian households and businesses if it went ahead.

The Prime Minister last week signalled that, at best, the BPL bond will be delayed because the 20 percent increase in electricity costs that it threatens to impose “simply cannot be justified” at a time when Bahamians and businesses are trying to rebuild from the financial devastation inflicted by the COVID-19 pandemic.

However, warning that BPL’s problems have not gone away, Mr Maynard said the Davis administration has “no choice” but to come up with an alternative refinancing mechanism to address the energy monopoly’s aging transmission and distribution (T&D) systems as well as its legacy $320m debts, unfunded $100m employee pension deficit and legacy environmental liabilities.

“I think they’ll have to come with another way of financing it,” he said. “They have no choice; it has to get done. You cannot wait four-and-a-half years to deal with it. The whole dynamic has changed.

“They [the Minnis administration] were late getting out of the gate. Four-and-a-half years was just too long. It should have been done four-and-a-half years ago. If it was done four-and-half years ago, we would not be having this conversation.”

The RRB, as a mechanism for resolving BPL’s financial woes, was originally developed under the last Christie administration. It was now-prime minister Philip Davis, then holding the post of deputy prime minister with responsibility for BPL and other utilities, who shepherded the enabling legislation to facilitate the bond issue through Parliament in late 2015.

Mr Davis last week said the Christie administration left a framework for the bond’s issuance in place with its successor, with J P Morgan to act as financial adviser/placement agent, but it is unclear how far work had progressed prior to the 2017 general election.

Getting the capital-raising ready for market also appeared to be slow-going under the Minnis administration, with reforms to make the Rate Reduction Bond Act more investor-friendly still not brought to Parliament prior to the September 2016 general election.

In the meantime, global capital market conditions have altered drastically due to the COVID-19 pandemic and other factors. The successive downgrades suffered by The Bahamas, with its sovereign debt now rated as ‘junk’ by the two main credit rating agencies, coupled with BPL’s own shaky finances and absence of a turnaround plan, have all increased the bond’s risk.

As a result, investors are demanding a higher price (interest rate) for parting with their money. And, given that BPL’s business and household consumers will be charged with repaying investors who buy into the $535m bond, the extra debt servicing charge that was proposed to be added to their bills will be higher than originally anticipated.

“He [Prime Minister Davis] said it was too expensive, and he wasn’t prepared to do it,” Mr Maynard added. “It would be too much money on the taxpayer, on the consumer......

“This is a situation where you have got to find a way to cut electricity costs in half. If you cut electricity costs in half, it will be a whole new economy, simple. This economy has to have a chance to grow itself, and you need to reduce the rate. The cost to put electricity into is a big, huge cost.”

Dr Donovan Moxey, BPL’s chairman, previously said that the bond’s issuance would temporarily increase consumers’ electricity costs by 15 percent - a level not too far away from the 20 percent cited by the Prime Minister. The plan was that this would be a short-term hike, with improved generation efficiencies and lower fuel costs offsetting the rise and, ultimately, lowering net light bills.

However, market sources, speaking on condition of anonymity, told Tribune Business they understood that the interest rates on the $455m RRB component due to be placed internationally had increased from the originally-targeted 7-8 percent range to around 9 percent. The latter figure equates to a collective $40.95m in new annual debt servicing costs BPL customers would have to pay.

“That’s too much at 9 percent. That’s a lot of interest,” Mr Maynard replied, when informed. As for the $80m RRB portion that was due to be placed in The Bahamas, this newspaper understands the Government and BPL’s advisers were contemplating a 7-8 percent interest coupon based “on the spread with international paper”.

One source suggested the Government was likely to wait until capital market conditions became more favourable to obtain lower interest rates before the RRB was placed. They added that the structure might also change, with the Government possibly in a better position than BPL to raise the debt and then shift it over to the utility’s balance sheet.

It is unclear, though, how the Davis administration plans to address BPL’s still-precarious financial and operational position despite suggesting the bond is “dead in the water”, given that no formal alternative has yet been unveiled.

Pedro Rolle, BPL’s newly-appointed chairman, yesterday declined to comment on the basis he had yet to be fully briefed on the matter, but said he would be better-placed to talk later this week. Neither Alfred Sears, minister of works and utilities, who has responsibility for BPL, or Michael Halkitis, minister of economic affairs, could be reached for comment although messages were left.