The Tribune

• Coca-Cola supplier: “We’re being hit on all sides’

• Major resort to see $10m-plus energy cost surge

• ‘Perfect storm’ for producers’ cost competitiveness

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A local manufacturer is “swimming against the tide right now” with Bahamas Power & Light’s (BPL) fuel charge hikes set to increase its 2023 electricity bill by around $400,000 year-over-year to more than $1m.

Walter Wells, president of Caribbean Bottling, the Coca-Cola producer, told Tribune Business “it’s like we’re getting hit on all sides” following the state-owned energy monopoly’s confirmation that its fuel charge - which typically accounts for 50-60 percent of customer bills - will increase by up to 163 percent next year compared to the current rate in order to repay government subsidies and debts owed to its Shell fuel supplier.

“The reality is the potential impact through the next 11 months to August is in the range of $400,000,” he disclosed of the effect on Caribbean Bottling’s electricity costs. While declining to give a figure for the company’s total new power bill, he added: “It’s obvious that if that is what the increase is it will be over $1m.

“It has a significant impact, and the ability we have to mitigate some of that.... we’re kind of swimming against the tide right now with the inflationary increases. The raw material imports are going up on an almost daily basis. It’s like we’re getting hit on all sides. Every month it seems like something else is increasing.”

Mr Wells said price competitiveness is critical for Bahamian manufacturers to fight-off rival imports that typically enjoy lower production costs. BPL’s fuel charge increases threaten to upset this delicate balance, and he explained: “What makes manufacturing work here is the Government gives us concessions to be competitive against imported goods. 

“If local inflation increases continue, it may make us uncompetitive against like import products. That’s the danger, and that’s the balancing act we try to manage on a daily basis. I can only sell what I produce if it’s less expensive than it costs someone to go to Florida, bring it in and pay import duties on. That’s the balancing act I face on a daily basis.”

Bahamian resorts, supermarkets, wholesalers/distributors and manufacturers are likely to be the industries hardest hit by the fuel charge increases unveiled by BPL last week. The magnitude of the increases, which the Government is hoping will be relatively short-term and confined to a 12-13 month period, will leave most if not all businesses in a position where the rise in costs has to be passed on to consumers, with staff terminations and corporate closures a real danger.

One major Bahamian resort, speaking on condition of anonymity, revealed that the BPL fuel charge increases as they stand will cause its electricity bill to increase by more than $10m per annum - giving further insight into the extent of the impact to the sector’s cost structure, operating model and bottom line.

Robert Sands, the Bahamas Hotel and Tourism Association’s (BHTA) president, confirmed to Tribune Business that the sector will continue “advocacy” and dialogue with BPL over the planned fuel charge increases and their impact on the industry’s efforts to drive the post-COVID recovery.

“We intend to continue our advocacy with BPL on this particular issue as we have done in the past, and will continue to meet and re-engage on this particular matter,” he added. “The discussions, in particular, will take place with BPL. This is a BPL question.” 

At its peak, the BPL fuel charge increase appears set to raise consumer’s total electricity bills by around 80-90 percent at next summer’s peak. Soaring power bills which, alongside labour, are typically among a Bahamian enterprise’s greatest costs, are arriving at a time when many are still struggling to recover from the losses and unpaid bills amassed as a result of COVID-19 lockdowns and other restrictions.

The BPL fuel charge hike is also coinciding with continuing inflationary pressures due to post-pandemic supply chain bottlenecks and shortages, and the extent of the increases will likely make the cost of living crisis worse for many Bahamians since they will drive a further across-the-board rise in prices.

Mr Wells told Tribune Business that Bahamian companies were facing “a perfect storm” as National Insurance Board (NIB) contribution rate increases and a minimum wage rise also loom. While Caribbean Bottling staff are all paid above the minimum wage, and thus the company will not be affected by any increase, NIB contributions are a different matter.

“NIB I understand. NIB is mightily important to the retirement community, and benefits all of us. If we need to pay more I understand that,” Mr Wells said. “But all of these things are coming together like a perfect storm. At the end of the day, prices continue to escalate.

“We’ve increased prices, but it’s always like we’re behind the 8-ball. To be ahead, you’d have to double your prices beyond what they would be. You’re trying to catch up for the last six months increases, and then something increases again. It’s a constant battle trying to keep abreast of all these inflationary increases.”

The Caribbean Bottling chief voiced optimism that inputs which have contributed greatly to the inflationary surge witnesses in The Bahamas and worldwide post-COVID, such as shipping and freight costs, will start to stabilise and help offset some of the BPL impact. The question, though, is when, and last week’s move by the OPEC cartel of oil producing countries and Russia to cut daily output by 2m barrels to sustain higher prices is not what The Bahamas needs.

“It is six months? Twelve months? Eighteen months? No one knows,” Mr Wells added, promising there will be no sudden consumer price increases. “It won’t be immediate,” he said of the latter. “We don’t want to have a knee jerk reaction. It’s possible those increases take place but some raw materials may come down. We need to manage it more month-to-month to see how things evolve and base decisions on fact rather than knee jerk.”

Analysis seen by Tribune Business shows that, at the peak of the fuel tariff increase between May 1 and August 31, 2023, Bahamian families consuming 800 kilowatt hours (kWh) or less will suffer up to a 76 percent hike compared to the current 10.5 cents per kWh charge. That three-month period also represents peak summer, coinciding with maximum demand and the greatest energy consumption.

As for businesses and households that use over 800 kWh, fuel charges are set to increase by 138 percent, 163 percent and 138 percent - more than doubling compared to the present 10.5 kWh rate - during the periods of March 1 to May 31, 2023; June 1 to August 31, 2023, and September 1 to November 30, 2023.

Ben Albury, the Bahamas Motor Dealers Association’s (BMDA) president, described the BPL fuel charge hikes as “just another kick in the butt” for struggling companies. “I think that in all businesses and in all households it’s definitely not a good time, especially with all the other factors coming into play with inflation and other increasing costs,” he added.

The Bahamas Bus and Truck general manager voiced doubt that the Government and BPL will adjust the projected fuel charge increases, saying: “To project those increases so far in advance probably means they will not go backwards. I hope there’s room for some adjustment. Right now it’s extremely difficult. I feel terrible for a lot of struggling businesses that have had to endure COVID, lockdowns and other restrictions, plus supply shortages and inflation.”