Thursday, May 21, 2020
By NEIL HARTNELL
Tribune Business Editor
A Cabinet minister last night revealed "there are a number of legal issues to be cleared up" before Shell North America's multi-fuel power plant deal with Bahamas Power & Light (BPL) can proceed.
Desmond Bannister, minister of works, told Tribune Business he had set out the Government's position last week to the same Shell executive who yesterday told Bahamian media via an Internet conference call that the necessary agreements were "weeks, not months" away from being concluded.
The minister, who has responsibility for BPL, declined to comment much further other than to reiterate that "there are a number of issues involved" and these had been discussed with Markus Hector, Shell LNG marketing and trading's general manager for market development.
"There are a number of legal issues to be cleared up. I have spoken to Mr Hector last week, and Shell is aware of the Government's position," Mr Bannister told this newspaper. He referred Tribune Business to Carl Bethel QC, the attorney general, adding that his fellow Cabinet minister is "responsible for all the negotiations in relation to this matter".
Mr Bethel, responding to this newspaper's inquiries via What's App, said it was "too early to comment" as he had only just been handed the issue. However, he indicated that it was more a matter of tidying up and agreeing certain issues with Shell North America as opposed to any serious differences or legal disputes.
"I have some preliminary meetings later this week," Mr Bethel added. "It is too early to comment, as we are only now setting up a procedure to bring finality to the matter. [There are] no legal issues per se. Just the need to reach agreement on some points. I only just received a direct outreach."
The ministers' comments came after Mr Hector and Shell held a conference call with Bahamian media yesterday that revealed little to no details that were not already known. Mr Hector reaffirmed the global energy giant's commitment to the project, which includes development of a new multi-fuel power plant and liquefied natural gas (LNG) terminal, pipeline and onshore infrastructure at Clifton Pier, and indicated talks with BPL are ongoing.
He confirmed that the deal is still being structured in a manner that would see BPL finance construction completion of the new power plant, with Shell then purchasing a substantial ownership interest in the facility "at fair market price" from BPL.
This raised eyebrows when it was announced earlier this year, given that the original plan had been for Shell to construct, finance, own and operate the 220 Mega Watt (MW) plant as an independent power producer (IPP) that would enable BPL to exit the generation business and focus on transmission and distribution (T&D). It is also unclear whether BPL has the necessary financial muscle to do it given that its rate reduction bond (RRH) refinancing has been delayed indefinitely.
However, Dr Donovan Moxey, BPL's chairman, said then that allowing the state-owned utility to begin construction and then sell the power plant to Shell would save time given how negotiations between the parties have now lasted some 18 months since they signed their initial Memorandum of Understanding (MoU).
Mr Hector was also unable to provide specifics on the size and value of any investment opportunities that will be made available to Bahamian investors, or the timing of such offerings. He also declined to provide figures on how much both the power plant and LNG terminal will cost to construct, and the likely savings that will result for Bahamian energy consumers from the projected lower generation costs.
Acknowledging that Shell North America had "wanted to be settled on the agreement now" with BPL, Mr Hector added that the energy giant had "seen some delays" as a result of both the lengthy negotiations and the COVID-19 pandemic.
He disclosed, though, that the 2021 deadline for completing the power plant portion of the project remains unchanged, with the associated LNG infrastructure likely to be in place some time in 2022.
With the Bahamian economy in dire straits as a result of the COVID-19 enforced tourism shutdown and wider economic lockdown, the proposed multi-fuel power plant and Shell's deal with BPL have assumed even greater urgency and importance given that reduced energy costs and a more stable power supply are one of the most immediate and widely-felt improvements that can be achieved.
"I want to give you the assurance that Shell is working hard to progress the LNG power project for The Bahamas. We recognise the importance of this infrastructure to The Bahamas and, in particular, New Providence," Mr Hector said.
Acknowledging that he and Dr Moxey had both committed to sealing the necessary agreements as quickly as possible, the Shell executive added that both were "on the same path" and the two sides were "making very good progress in order to conclude the commercial agreements, which we haven't quite done yet, but we are closing in very quickly in partnership together".
Later, in response to Tribune Business questions, Mr Hector went further, saying: "We are really in the final touches there. We are talking weeks, not months, in order to get closure on those agreements. Then it will basically be pens down on those agreements, and they will go into their respective approval processes with the Government that are required to get them executed."
No definitive dates were provided for a likely closing. The key documents will be the power purchase agreement (PPA), setting out the price at which BPL will buy electricity from Shell, and the asset purchase agreement detailing the price and mechanism by which the energy giant will acquire the power plant.
The deal with Shell North America is being structured such that two companies will be created, one to hold the power plant, PowerCo, and the other to own the LNG pipeline infrastructure and regasification terminal, TerminalCo.
Shell will have majority ownership in both entities, but the previously outlined plan is to give Bahamian public investors an opportunity to invest in the power plant via an initial public offering (IPO). And it was also the intention to solicit Bahamian institutional monies to help finance the LNG terminal and associated infrastructure via a private placement.
Mr Hector confirmed this was still the intention, adding: "We're looking forward to building a business based on Bahamian talent and workers, and based on investment jointly from people in The Bahamas." He said the plan for BPL to complete the power plant's construction "in principle hasn't changed", with Shell then purchasing an ownership interest in it at "a fair market price" and operating the facility.
"We will be responsible for a huge share of that investment and funding it in the end," Mr Hector said. "All of that is progressing. Shell is going to be the operator of this power station. That's a very significant position. We'd likely be having a position commensurate with that. That is part of the ongoing commercial negotiations, and we are very close to closing these agreements."
He added that he wanted to disclose no details until those deals were sealed, but reaffirmed: "The intention is to make investments available to the people of The Bahamas in the power generation assets as well as the LNG terminal assets."
Signalling that Shell understood the project's significance for The Bahamas, Mr Hector described the power plant and LNG terminal as "a complex piece of infrastructure" that will form "the backbone of the country" and represent this nation's first move into IPPs and more environmentally-friendly non-fossil fuels.