Friday, November 8, 2019
By NEIL HARTNELL
Tribune Business Editor
A Cabinet minister yesterday pledged that Bahamas Power & Light (BPL) will clamp down on delinquent bill payers so that compliant customers are not penalised in servicing its $650m refinancing.
Desmond Bannister, minister of works, told Tribune Business the state-owned utility monopoly had to “be more efficient” in collecting sums owed by household and business consumers so that it is “not a burden” on those who pay their bills on time.
This will become increasingly important once the bonds to refinance BPL are placed, given that the fee customers will pay to fund the interest and principal payments due to investors will fluctuate depending on various factors that include how many are not paying their bills and to what extent.
Mr Bannister yesterday conceded this could penalise compliant consumers, while acknowledging that BPL’s history in collecting sums due was not a good one given that its accounts receivables stubbornly remain in the $90m-$100m range.
Arguing that BPL “has to improve every aspects of its operations”, the minister agreed that the utility “can no longer be lax and complacent with the people’s money” if it is to regain public trust and contain any extra cost associated with the near-doubling of its existing $321m debt via the upcoming refinance.
Mr Bannister revealed that BPL’s rate reduction bond issue is set to be placed in the first week of January 2020, with the date having been pushed back from its November 2019 target.
He added that Dr Donovan Moxey, BPL’s chairman, together with Geoffrey Andrews, chairman of the The Bahamas Rate Reduction Bond Ltd, the entity that will issue the bonds, were currently in New York to negotiate their price (interest rate) and other terms and conditions with major financial institutions and investors.
Voicing optimism that the Bahamian team will be able to secure “very favourable rates”, Mr Bannister said he was also “absolutely” confident that BPL customers will ultimately see a reduction in their electricity bills despite the addition of the bond fee because this will be offset by the more efficient, cheaper energy that the utility will deliver.
“We are looking at the fuel mix, we’re looking at the increased efficiency of the engines, and we believe that ultimately it’s going to make a difference,” Mr Bannister told Tribune Business. “We’re also looking at what we anticipate will be lower interest rates on the funding that it’s carrying. I don’t anticipate it will be as much of challenge as BPL has now.
“BPL needs additional capital infrastructure works and, putting all that in place, we anticipate the operation will be more efficient, cheaper to run and fuel costs will be cheaper because of the fuel mix. Ultimately, the consumer will benefit by a large amount.”
BPL will likely be hoping that its new 132 Mega Watts (MW) of generation capacity via Wartsila, 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 bond servicing fee added to consumers’ bills, resulting in a net decrease in electricity costs.
However, legislation to facilitate the Rate Reduction Bond (RRB) issue, which was tabled in Parliament earlier this week, 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.
BPL’s customers will thus be made to pay for decades of financial mismanagement and political interference at BPL, and the failure to hold successive governments to account for failures that have resulted in the utility amassing regular annual losses averaging around $20m since 2006-2007.
And the legislation, which will replace a similar Act passed previously by the former Christie administration, provides that the bond fee paid by consumers 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”.
This means that 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 foreseeable differences between amounts billed and amounts collected”, listing “customer defaults and delays” as a key factor determining this variable.
Acknowledging such concerns, Mr Bannister said: “One of the real challenges with BPL now has been the lack of efficiency in finding ways to collect on so many consumers.”
Pointing out that Bahamians frequently switched addresses without settling outstanding balances that were not covered by deposits held by BPL, the minister added: “The company is going to have to be challenged to be more efficient than it has been so it will not be a burden on consumers like you and me who pay our bills.
“I would be offended if I thought BPL imposed a levy on me because of their inefficiency, and we’re going to have to make sure that chain and culture doesn’t happen.” Mr Bannister agreed that BPL’s existing $90-$100m accounts receivables were “too much” and “completely unsustainable”, adding that the utility needed to start improving its collection processes and techniques now.
“BPL has to improve everything it does in its operations,” he blasted. “Every single thing. It can no longer be lax and complacent with the people’s money. The Bahamian people are not going to tolerate that any more.”
The rate reduction bond issue will exchange BPL’s legacy BEC debt and other liabilities for new debt, which will be kept off BPL’s balance sheet via the The Bahamas Rate Reduction Bond Ltd’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.
Some observers will likely be sceptical that the $650m bond issue will obtain lower interest costs than what BPL is paying on its current debt, especially since the sums involved have doubled and it will no longer be guaranteed - although the new Bill refers to unspecified “property” that can be used as security.
However, Mr Bannister said: “Our people are currently in New York now and negotiating those rates. We anticipate the rates will be very favourable. I’m hearing optimism from New York, but will wait and see what they come back with.”
Describing the $650m refinancing as “really a debt reduction bond” as opposed to a rate reduction bond, he suggested that there was little alternative to its placing given the urgent need to remedy BPL’s “broke” financial status.
“BPL has a debt burden, which the Government has guaranteed, that stands at around $321m,” Mr Bannister explained. “The company is essentially broke, and has been broke for a long time. It cannot invest in infrastructure. It’s essentially been crippled in doing anything for itself for almost the last two decades.
“This is going to permit the flexibility to operate like any other company. The Government will not be burdened with that guarantee because the debt will be paid off. The whole idea is that the guarantee be removed, the old debt settled, and BPL will have to run as a responsible company. We believe we have a Board to make that happen.”