Thursday, November 7, 2019
By NEIL HARTNELL
Tribune Business Editor
Electricity consumers were yesterday told to brace for an "adjustment" to their bills via an extra charge as Bahamas Power & Light (BPL) confirmed plans for its mammoth $650m-plus refinancing.
Dr Donovan Moxey, the state-owned utility's chairman, promised that the proposed Rate Reduction Bond issue will ultimately result in "better outcomes" for all Bahamian households and businesses even though the "structure" of electricity bills will change.
Using carefully-worded, guarded language, a BPL statement quoted Dr Moxey as saying the new billing structure would "function as a short-term deposit" that will ultimately enable consumers to enjoy longer term savings from reduced fuel costs and more efficient generation plant.
However, legislation to facilitate the Rate Reduction Bond (RRB) issue, which was tabled in Parliament yesterday, makes clear that BPL's customer base will be relied upon to service what is essentially a doubling of the debt burden associated with the utility to secure its financial future.
The Order to issue the bonds, according to the Electricity Rate Reduction Bond Bill 2019, has to "approve the imposition and collection by BPL of the rate reduction bond fee" and stipulate the initial level at which this will be set.
The Bill, which will replace the Act passed previously by the former Christie administration, provides that the fee can be adjusted - "at a minimum semi-annually - to ensure that the collection of such fee will produce sufficient revenues to pay all ongoing financing costs as the same become due and payable".
And those BPL customers who pay their bills in full, and on time, could find themselves penalised by the actions of delinquent payers. The Bill says fee adjustments "will take into account historical and reasonably forseeable differences between amounts billed and amounts collected", listing "customer defaults and delays" as a key factor determining this variable.
Tribune Business has repeatedly said that BPL’s RRB refinancing, while essential to its future financial health, may provoke controversy among some elements of Bahamian society given that it is ultimately the state-owned energy monopoly’s customers that will pay for it via an extra charge that will be added to their monthly bills.
The original plan, developed by the former Christie administration, calls for the sums raised by this additional charge to be used to pay the interest and principal owed to investors who purchase the bonds.
The Bahamas Rate Reduction Bond Ltd, not BPL, is the special purpose vehicle that will be responsible for issuing the bonds and paying investors due interest. This structure will exchange BPL’s legacy BEC debt and other liabilities for new debt, which will be kept off BPL’s balance sheet via the SPV’s role as issuing agent, thereby relieving the Government of its existing $230m guarantee.
The old liabilities include around $321m in bond and bank debt; a $100m employee pension fund deficit; and other assorted liabilities including the cost of environmental clean-ups at various sites around The Bahamas. It is likely that some of the financing may also replace the $100m short-term funding that helped acquire the 132 Mega Watts (MW) of new Wartsila engines.
Dr Moxey yesterday confirmed to Tribune Business that BPL is seeking $650m through the RRB refinancing, although he declined to comment on the likely price (interest rate) that will be attached to this debt, how many years it will be before the bonds mature, and the initial fee consumers will be charged.
BPL, though, will likely be hoping that its new 132 MW of generation capacity, and the planned Shell North America multi-fuel plant that is due to be constructed and operational by 2021, will reduce fuel and other costs sufficiently that this more than offsets the additional RRB charge added to consumers' bills, resulting in a net decrease in electricity costs.
“The reality of what we found upon taking over the management of the company is that urgent action cannot wait," Dr Moxey said yesterday. "We must stabilise BPL’s finances if we are going to position ourselves for the future.
"This Bill will lead to better outcomes for all our customers. Once implemented, we anticipate an adjustment period as the billing structure changes to adapt to the new bond. In the end it will essentially function as a short-term deposit to help us achieve the necessary long-term savings as fuel delivery costs decrease when Station A [Wartsila's 132 MW] comes online by the end of the year.”
Several observers have already expressed scepticism about whether the December deadline can be met given the extensive testing and installation work that has to be done. Still, Dr Moxey said the RRB debt issue was unavoidable if BPL is to remove then "anchor around our necks" that is its present debt.
"To right the ship and get our fiscal house in order so we can start delivering consistent, reliable power at a lower cost to our consumers, we need to take actions like passing the updated Rate Reduction Bond Bill,” Dr Moxey added.
“BPL's massive debt is an anchor around our necks as we try to fix problems and invest in the future. The Rate Reduction Bond Bill will allow us to restructure the debt and access much needed capital after years of misplaced priorities and inadequate investment in the entity.”
Besides paying out BPL's $321m legacy debt, the RRB issue will also provide $350m in new financing to enable BPL to invest in its generation and transmission and distribution (T&D) network throughout The Bahamas to improve reliability and reduce power costs.
Desmond Bannister, minister of works, told Tribune Business: “BPL will seek to secure $650m. They will then be able to settle their current indebtedness of approximately $321m, thereby releasing the Government from its guarantee and ensuring the company's independence.
"The balance will be utilised for a number of badly-needed capital projects, which I will discuss in some detail during the debate.” Explaining the need for the revised RRB legislation, Mr Bannister added: "Modern bond transactions require a high degree of sophistication.”
Dr Moxey, too, confirmed to Tribune Business that the $350m balance would be invested in infrastructure upgrades or operational support although he, too, declined to give details.
BPL's statement yesterday touted the bond issue as lowering its debt servicing costs because repayments will take place over a longer period of time than its existing debt.
"Ultimately, this legislation will help lead to lower costs for our customers while allowing us to deliver consistent, reliable power to all Bahamians,” Dr Moxey added.
"We know full-well that BPL customers are frustrated with the load-shedding being experienced. It is the intent of the new Board of Directors at BPL to ensure that no Bahamian family ever has to deal with that type of crisis again.”