• Top executive: ‘No active work’ on either transaction
• Declines to say if Gov’t subsidising BPL’s fuel costs
• ‘Nothing off the table’ but way forward undecided
By NEIL HARTNELL
Tribune Business Editor
Bahamas Power & Light’s (BPL) top executive last night revealed the troubled utility’s mammoth $535m refinancing and New Providence power plant deal with Shell are both “in abeyance”.
Shevonn Cambridge told Tribune Business that while “nothing has been taken off the table” when it comes to solving the state-owned utility monopoly’s woes, “no active work” or negotiations are taking place on either the Rate Reduction Bond (RRB) or outsourcing New Providence’s baseload generation needs to Shell North America.
Both transactions were left on the drawing board by the former Minnis administration, which elected to pull the trigger on neither, and they remain on hold under its successor. Mr Cambridge said BPL’s management, Board and the Government were exploring “the best options” for addressing the power producer’s financial and operational woes, “but nothing’s finalised” almost one year into the Davis administration’s term in office.
The BPL chief, though, declined to confirm if the Government is now actually subsidising the utility’s monthly multi-million fuel bill, although there is every indication that it is since the fuel charge on this editor’s latest electricity bill shows the fuel charge still at 10.5 cents per kilowatt hour (KWh) - the same level it was at prior to June 2022 when, under regulations enacted two years ago, it is supposed to be adjusted to account for prevailing global oil prices.
“I’m not able to speak to that,” Mr Cambridge said, when asked by this newspaper if the Government is subsidising BPL’s fuel costs. “All I can tell you is that the fuel charge has not been adjusted yet.” Asked when this would occur, he replied: “No idea because that has still to be fleshed out with the Government.”
Well-placed BPL sources, speaking on condition of anonymity because they were not authorised to speak publicly, have confirmed to this newspaper that the Government is indeed subsidising its monthly fuel bill to maintain predictable costs for consumers even though such payments were not provided for in the 2022-2023 Budget. “They are, but they cannot do it for much longer,” one contact said.
The Opposition has charged that the Government is acting illegally in subsidising BPL’s fuel costs because, under the Bahamas Electricity Corporation (Amendment) Regulations 2020 that were implemented to facilitate its fuel hedging initiative, these all have to be passed on to the end-consumer. Bahamian businesses and consumers, though, are likely to care little as long as energy costs remain predictable and relatively low amid soaring inflation elsewhere.
However, Mr Cambridge’s remarks indicate the Davis administration has yet to determine the way forward for BPL which remains another multi-million burden for the Bahamian people - both as customers and taxpayers. Asked about the status of the proposed multi-fuel power plant and liquefied natural gas (LNG) terminal at Clifton Pier, the latter of which was supposed to be financed and developed by Shell North America, the BPL chief said: “There’s no active negotiations.”
Asked whether this meant the deal was dead, Mr Cambridge replied: “No, that doesn’t meant that. It only means it’s in abeyance at the moment; that’s the best way of putting it. I’m not aware of any active negotiations.” It was a similar story with regard to the $535m BPL refinancing left behind by the Minnis administration.
“The Rate Reduction Bond, that, too, is kind of in abeyance,” Mr Cambridge told Tribune Business. “There’s no active work being done on the Rate Reduction Bond. All alternatives are being explored, including the Rate Reduction Bond. Nothing has been taken off the table, but nothing has been finalised. We are looking at the best option given the current market.
“Whether you look at the fuel market and what’s going on there, the bond market and what’s going on there, that’s going to affect our decision - whether we go with fuel hedging, whether we go with the Rate Reduction Bond, whether we go with a loan. The experts are looking at it, and are going to come back with whatever recommendations are best.”
Legislation to give legal underpinning to the Rate Reduction Bond was passed under the last Christie administration, with now-prime minister Philip Davis having primary responsibility for it. Had it proceeded, debt securities would have been issued to Bahamian and international investors to raise the necessary capital to refinance BPL’s then-$321m debt; pay for key transmission and distribution overhauls; and deal with legacy pension deficits and environmental liabilities.
The bond principal, and associated interest payments, would have been secured against - and paid by - electricity bill payments by BPL’s customers. However, this would have required a temporary increase in customer bills until improvements in BPL’s electricity costs kicked in to offset this, and the Minnis administration is understood to have declined last June to give the Rate Reduction Bond the go-ahead for fear of its impact on the upcoming election.
The financial markets have now moved against the Rate Reduction Bond, with interest rates soaring as the US Federal Reserve and other central banks move to fight inflation. This means BPL’s bond would attract higher rates, leading to even greater electricity prices for consumers, which was why Prime Minister Philip Davis QC indicated previously it was unlikely to proceed.
Tribune Business understands, too, that negotiations with Shell North America had largely been completed under the former administration but, again, it did not approve the deal before the September 2021 general election. This would have seen the global energy giant acquire some of BPL’s latest Clifton Pier generation assets as part of a 220 Mega Watt (MW) multi-fuel plant that would have supplied Nassau’s baseload generation via a 20-25 year power purchase deal (PPA).
There was talk of the Bahamian government and/or local investors having a significant minority stake in the power plant, while Shell was also to finance and construct a terminal that would have enabled the use of LNG and thus lower generation costs. This, too, is now on hold with no certainty as to whether it will proceed.
Mr Cambridge, meanwhile, reiterated that BPL’s hedging strategy remains “in place, operating just as it was set up” under the former administration despite Opposition charges that it effectively broke down when the necessary trades or ‘strikes’ in September and December 2021.
However, he added: “The market has not been right for the current hedging strategy. There are different strategies that can be used for different market conditions, and we’re looking at this. We’re looking at all the metrics and trying to make the best business decision.
“We’re actively looking at the fuel mix. We’re looking at things operationally where we can try and enhance the efficiency of fuel consumption, and we’re looking at the revenue side. There are things operationally that can be done to manage the cost better and other matters for how we address the revenue side.”
Mr Cambridge said BPL’s base tariff, fuel charge and hedging were all being assessed. “There are many variables, many, many working pieces. It’s one big balancing act trying to get the best cost out of it at the end of the day,” he added.
Asked how confident he was that BPL can be turned around, Mr Cambridge replied: “I am positive we can do it. The will is there to get it done. I am reasonably confident with the attention being paid to major concerns.” However, he declined to provide a timeframe.
The failure to yet adjust BPL’s fuel charge for current market conditions runs contrary to the Utilities Regulation and Competition Authority’s (URCA) expectations, for whom Mr Cambridge was head of electricity regulation prior to taking up his current post as head of the energy monopoly.
URCA said in its 2021 annual report: “In July 2020, BPL commenced its fuel hedging programme which has resulted in the application of a fuel charge of 10.5 cents per kilowatt hour (kWh) from commencement to date.
“It is URCA’s understanding that the current hedged fuel price will remain in place until June 2022, when it is subject to adjustment in accordance with current fuel prices and an agreed adjustment mechanism. It is noted that the goals of the hedge were not solely financial, but also economic as it was viewed as a means of stabilising the fuel charge component of electricity bills during a period of economic uncertainty and heightened reliance on electricity supply services.
“While URCA has monitored the variance between hedged fuel price and an extrapolated fuel price utilising pre-hedge indicators, prima facie it appears that the hedge has been beneficial thus far.”