The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Government has hired Deloitte & Touche to conduct a 30-day “rapid assessment” of Bahamas Power & Light’s (BPL) massive $535m refinancing, a Cabinet minister said yesterday.

Alfred Sears QC, minister for works and utilities, told the House of Assembly that the Davis administration is “currently reviewing BPL” to determine if the proposed rate reduction bond (RRB) placement and other initiatives designed to restore the energy utility to financial and operational stability should proceed.

“To carry out the restructuring, there was a Rate Reduction Bond to borrow, via private placement, about $523m [sic],” he said during his contribution to the Speech from the Throne debate. “That matter came before the Cabinet in June of this year. It was not approved and we are currently reviewing it.

“I would like to announce that the Government will be engaging Deloitte & Touche to do a rapid assessment over the next 30 days of the rate reduction bond, the hedge strategy and the operation of BPL so that the Government can get a very quick study in order to make decisions about the strategy going forward.”

The “hedge strategy” refers to BPL’s fuel hedging strategy, which was put into place under the former Minnis administration and is due to end in June 2022 unless renewed. Still, Mr Sears’ announcement of the Deloitte & Touche review indicates that BPL’s $535m bond refinancing mechanism is not “dead in the water” as seemingly signalled by the Prime Minister last week.

Philip Davis last week said the 20 percent increase in electricity costs that would have been imposed on BPL’s business and household customers, via an additional charge added to their bill that would be used to pay interest on the bonds to investors who purchased them, “cannot be justified”.

However, cash-strapped BPL’s debt and operational woes are not going anywhere, and no alternative to the RRB has been announced by the Government for a financing mechanism that was viewed as the preferred option by both the last Christie administration and its Minnis successor.

The Rate Reduction Bond Act 2015, which provided the legislative platform to facilitate the $535m refinancing, was passed by Parliament when Mr Davis was then-deputy prime minister and minister of works, with responsibility for BPL.

Abandoning the bond now would waste years of work, and several sources yesterday suggested that Mr Sears’ announcement indicated the RRB will likely still proceed but be delayed until next year and possibly restructured in the hope better interest rates, and therefore lower costs for BPL consumers, can be obtained.

And, if the bond does not proceed, the Government will be unable to pay out the $237m loan that the former administration transferred from BPL’s balance sheet to its own - a transaction that Mr Davis complained about as recently as last week.

BPL’s outgoing Board has already pushed back against the Davis administration’s bid to kill-off the $535m refinancing by defending it as the “optimal solution”.

The departing directors, headed by chairman Dr Donovan Moxey, issued a statement reiterating that fuel price reductions and electricity generation efficiencies stemming from the proposed rate reduction bond’s (RRB) placement will - “within three years” - produce savings that outweigh the costs imposed on BPL customers from this refinancing.

Suggesting that the bond’s debt servicing costs would initially increase energy bills by between 15 percent to 18 percent, slightly less than the 20 percent suggested by Prime Minister Philip Davis last week, the outgoing Board said this would amount to a rise of between $27 and $32 per month on the average consumer’s $180 bill.

Pointing out that BPL’s $321m legacy debt is not going anywhere, and represents a “significant burden” to the utility’s cash flow worth $2m in monthly interest costs, the statement affirmed that the Government (meaning Bahamian taxpayer) is having to pump cash into the state-owned monopoly to keep afloat because it is unable to borrow funds by itself.

The outgoing Board argued that removing this debt by paying it back through the RRB proceeds, which will remain off BPL’s balance sheet, would leave the utility free to finance transmission and distribution and other key infrastructure developments while persisting with a hedging initiative said to have already reduced customer fuel costs by between 38-44 percent.

Describing the RRB bond’s placement as critical to unlocking cheaper electricity prices and stable, more reliable, energy supply, the departing directors said the $535m raise was also a critical component in their plan for BPL to achieve “an annual operational profit of 5 percent to 7 percent of gross revenues”.