The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians are paying “among the highest” electricity prices in the Caribbean even though the base rate is set “below cost” with tariff charges said to be double the global average.

The Inter-American Development Bank’s (IDB) 2024-2028 country strategy for The Bahamas, which has been obtained by Tribune Business, lays out just how much of a raw deal local businesses and households are receiving the state-owned utility monopolies that supply water and electricity services.

The report strengthens the Government’s case for urgent reform of Bahamas Power & Light (BPL) by further revealing that technical losses from the latter’s system, representing power that never makes it to the consumer because it is lost from the cables, overhead lines, transformers and substations that form the utility’s transmission and distribution network, exceed industry averages at 12.3 percent.

And it also discloses that almost 10 percent of electricity generated “is reportedly unbilled”, meaning that consumers are not being charged for its use. The Bahamas’ country strategy added that this country’s electricity costs “are twice the world average”, standing at 26 cents per kilowatt hour versus 13 cents for commercial and 14 cents for residential, further undermining the economy’s competitiveness.

The IDB report appeared not to account for BPL’s “glide path” strategy to regain under-recovered fuel costs, which is now coming to an end, yet last summer pushed all-in electricity costs to a total around 41 cents per KWh - three times’ higher than the average cited in the country strategy.

Bahamians are paying for these inefficiencies in their capacity as taxpayers, as well as consumers, with the IDB report revealing that transfers/subsidies to loss-making state-owned enterprises are near 30 percent of the Government’s non-interest recurrent spending - a level that is some 50 percent higher, in percentage terms, than the 20 percent typical of other high income small states.

Total SOE subsidies are forecast at $455.229m for the 2023-2024 fiscal year, and the IDB country strategy said: “Total transfers as a share of non-interest expenditure are close to 30 percent, far higher than the average for small high income countries, which is around 20 percent.

“The providers of water and electricity charge rates that are below cost but, despite this, electricity prices are among the highest in the Caribbean. Insufficient maintenance and investment coupled with high overhead result in inefficiencies, lack of competitiveness and reliance on central government transfers.”

BPL bills consist of two elements - the fuel charge, which is supposed to be a 100 percent pass through to the consumer of only the utility’s fuel costs, and the base tariff that is intended to cover all its other expenses such as labour and maintenance, as well as generate a small profit.

However, BPL’s base tariff was cut below the cost of actually providing the service during the first Christie administration and no longer fully covers these operating expenses, despite being partially increased under the subsequent Ingraham administration. As for the Water & Sewerage Corporation, it has long been acknowledged its tariffs are set below cost with the last increase occurring in 1999.

“Investment in key infrastructure is another element to improve competitiveness, and PPPs (public-private partnerships) could play an important facilitating role. Like many small island developing states, The Bahamas is almost 100 percent reliant on imported fossil fuels and subject to fluctuations in international oil prices, which impacts the cost of generating electricity,” the IDB country strategy said.

“At 26 cents per kWh for both commercial and residential, average electricity prices are twice the world average of 13 cents per kWh for commercial and 14 cents per kWh for residential. Power plants are partly outdated and face weather shocks and, thus, technical losses amount to 12.3 percent, while reportedly 9.6 percent of electricity is unbilled.

“Of firms surveyed... in The Bahamas, half saw electricity as a major obstacle and 83 percent reported suffering from power interruptions. In a typical month they experienced on average 2.5 outages that lasted 2.7 hours.”

The Government is currently in negotiations that could lead to a three-way break-up of BPL into separate generation, transmission and distribution and back office functions, with these responsibilities outsourced to private operating/management partners who would also raise the collective $500m investment that the state-owned utility is said to require in its network and infrastructure.

However, the IDB country strategy argued that the Government must “strengthen institutional capacity” to manage such PPP arrangements and called for the introduction of a “consistent and transparent” process for doing so. This would build upon the PPP policy that was outlined under the Minnis administration.

“Access to affordable and good quality basic services, such as electricity, water and transport, has important impacts on development. Conducting a consumer-centred full review of operations of the state-owned enterprises that provide these services is necessary to understand where there are inefficiencies, and therefore opportunities for improvement,” the IDB country strategy added.

“Higher investment is required, and greater use of PPPs or creative approaches involving co-operatives could be paths to attract resources. Although the Government of The Bahamas implemented its first formal policy to identify, structure and manage PPP projects across sectors in 2018, it still needs to strengthen institutional capacity to manage PPPs through a consistent and transparent process.

“Other creative approaches, especially in the water and sanitation space, include the use of performance-based contracts, which have been implemented in the water space in The Bahamas, and the incorporation of circular economy practices,” the strategy report continued.

“Access to reliable and affordable electricity, to clean water and sanitation infrastructure, and to efficient and low-carbon urban and digitally enabled, climate-resilient, inclusive and safe and inter-island transportation and services are basic elements that will allow for faster and more equitable development for the population.”

The IDB country strategy, though, warned that PPPs may not work as a tool to facilitate Family Island infrastructure development because the relatively thin populations in those locations would be unable to generate the revenues and returns to make such projects attractive and profitable for the private capital relied on to finance them.

“PPPs could be a solution in New Providence, but in the Family Islands other solutions might be needed given the low population density. Such density typically requires substantial public provisioning, as private investment returns are generally too small or negative,” the report added.