The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top hotelier yesterday said the oil price impact from Russia’s war on Ukraine meant it was “more important now than ever before” that Bahamas Power & Light’s (BPL) fuel hedge be renewed.

Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, told Tribune Business that reinstating a mechanism that fixes BPL’s fuel costs for a specific period of time must be “finalised as soon as possible” to protect local households, businesses and the post-COVID economy from the worst effects of soaring oil prices.

With the Ukraine conflict, and Russia’s status as a major oil producer, driving per barrel prices above the $100 mark to levels not seen in eight years last week, he suggested that time was running out for BPL to renew the fuel hedge given that there is a deadline by when this must occur.

With the existing hedge due to expire in June 2022, Mr Sands said he thought a renewal had to be completed and in place by end-March 2022 although he was uncertain of the precise date.

“We would hope there is a resolution as soon as possible,” he told this newspaper on the conflict between Russia and the Ukraine. “We would certainly be concerned about the impact it would have on oil prices, which have begun to dramatically increase, which will impact hotel operations through BPL’s fuel costs, and the impact it will have on travel from Europe.

“It is very concerning, and we have to keep our eye on this matter. These geopolitical issues can have some devastating impacts on tourism.” Asked specifically about the need for BPL to reinstate its fuel hedging initiative, he replied: “That is so important, and perhaps more important now than ever that it gets continued and the renewal gets finalised as soon as possible.

“I believe that renewal needs to take place by the end of March. I’m not sure of the exact date, but there’s some timelines in which the renewal must take place.” Pedro Rolle, BPL’s chairman, yesterday said he was in discussions on the fuel hedging issue when contacted by this newspaper.

“We are trying to determine what our next move is at this very moment,” he added. “We are discussing the hedging, the impact of what is happening in Ukraine, discussing all those things. Until we have made up our minds about how we put the numbers together it would be premature for me to comment.”

The hedging strategy, executed by the former Minnis administration in July 2020, was designed to both stabilise the “fuel charge” component on BPL customers’ bills as well as produce millions of dollars in savings for those businesses and households, as well as the taxpayer and the Government.

The move was viewed at the time as representing a triple win for BPL’s customers; the Government and its fiscal position; and the overall economy and the foreign exchange reserves given that fuel accounts for between 50-60 percent of the total customer bill.

For the “hedge” locked-in the fuel charge component of customer bills at 10.5 cents per kilowatt hour (KWh) until June 2022, providing businesses and households with electricity rate certainty for a two-year period at a time when their finances were under huge strain due to the economic crisis created by COVID-19.

Supported by the Government and Inter-American Development Bank (IDB), the hedge put control of monthly electricity bills back in consumer hands. With rates fixed, and no longer vulnerable to global oil price fluctuations, Bahamian energy costs for almost two years have been determined by each business and households’ management of their consumption.

The utility’s reduced fuel costs also helped reduce the drain on the $2.4bn external reserves at a time when The Bahamas needed to preserve every cent of foreign currency when tourism-related inflows virtually dried up.

Mr Sands, meanwhile, said the Ukraine crisis could possibly benefit The Bahamas given that it could make US travellers reluctant to head for Europe. The Bahamas, with its proximity to the US and long distance from the conflict zone, could present as an appealing alternative for Americans and see a boost in visitor numbers.

However, he added that this could be offset by a drop-off in European visitor volumes. “That possibility exists,” he added of American visitors, “but I think the greater point for us is that world harmony and peace is a much better position for us to generate business from.

“Having come off COVID-19, or having come through COVID-19, which would have added a number of increased costs - the cost of testing, supply chain disruption - which caused an inflationary increase in prices, this [the Russian invasion] is the last thing we’d want at this point in time.”

Asked whether the fall-out from the Ukraine crisis could derail tourism’s recovery, Mr Sands added: “It would be unfortunate if it’s prolonged because we’re coming out of a sustained level of decline for almost two years due to COVID, and were just beginning to get the momentum back as a destination.

“I would not want to think of the impact it could have on our industry going forward. It will be very tough, if it’s sustained, for the industry to have the level of growth we’re looking at having if such an occurrence takes place.”