BPL's Shell MoU hits its expiry date


BPL chairman Donovan Moxey.

* Talks continue as Gov't eyes options

* Unhappy at power price, time taken

* BPL targets January for $535m bond


Tribune Business Editor


Bahamas Power & Light's (BPL) chairman yesterday confirmed a key agreement with Shell for New Providence's new power plant has expired amid suggestions the Government may approach "other parties".

Dr Donovan Moxey argued that not too much should be read into the two year-old Memorandum of Understanding's (MoU) lapse as the state-owned utility and Shell North America are "continuing our dialogue to negotiate the best possible deal for the Bahamian people".

However, multiple high-placed sources speaking to Tribune Business under condition of anonymity because they were not authorised to talk publicly, told this newspaper the Government feels the talks with Shell are dragging out too long and is mulling whether to approach other energy providers.

One contact told this newspaper that BPL was seeking to prioritise its $535m Rate Reduction Bond (RRB) refinancing because the agreement with Shell had yet to be concluded and approved by the Minnis Cabinet.

"We were told the reason the bond offering might go ahead is because the Shell transaction is taking too long, and the Government is speaking to other parties," they added. Other sources confirmed that the Government was unhappy with the price that the new Shell-owned power plant will charge for selling power to BPL, believing it too expensive, although the proposed terms were not revealed.

"The MoU has expired," one contact confirmed. "I suspect that the Government will speak to other parties that can offer the best possible deal for The Bahamas." Desmond Bannister, minister of works who has responsibility for BPL, declined to comment when contacted although he did not refute any of this when Tribune Business put it to him.

The minister cited the sensitivities of the Shell negotiations as the reason for not commenting, while a Shell North American spokesperson also declined to speak because of "confidentiality" clauses associated with then MoU.

However, Dr Moxey said it was inaccurate to say that talks with Shell North America have become bogged down or stalled, adding that he was unaware of the Government approaching other energy providers and interested parties despite being involved in the negotiations at a high level.

"The MoU has expired," he told Tribune Business. "But Shell and BPL are continuing our dialogue to negotiate the best possible solution for the Bahamian people. The MoU set out the framework for the deal to be negotiated and the time for when the deal is to be done."

That document, which set out the road map for the talks, was signed in November 2018. "We've been at this for two years, and have made substantial progress," Dr Moxey added. "It's not one of those things where we've moved forward, made substantial progress and the date came and went, and we stopped working. We're still in negotiations and discussions with Shell."

Shell, though, has increasingly betrayed its eagerness to seal the deal with BPL in recent months by going public on several occasions. Gerard Van-Ginkel, the multinational energy giant's project director, told Tribune Business last month that "a degree of urgency" is required to close the deal for New Providence's new multi-million dollar power plant.

As negotiations drag out, it is Bahamian households, businesses and the wider economy that become caught in the middle, with the objective of lower-cost, more reliable and cleaner energy pushed further out at a time when all New Providence residents need all the savings they can get amid the devastation inflicted by the COVID-19 pandemic.

The key terms will be the 20-25 year power purchase agreement (PPA), setting out the price at which BPL will buy electricity from Shell's new power plant, and the asset purchase agreement detailing the price and mechanism by which the energy giant will acquire 'Station A' and 'Station D' at Clifton Pier from the state-owned energy monopoly.

The former station houses the 135 MW of new generation capacity that BPL acquired in 2019, while the latter - which will be home to the remaining 90 MW - has yet to be constructed. Mr Van-Ginkel said the price at which BPL will buy electricity, and the purchase price for the assets, have yet to be determined although the latter will be for "fair market value".

Separate and apart from the power plant itself, Shell will be responsible for constructing the nearby liquefied natural gas (LNG) facilities that will supply the power plant with what is intended to be its main fuel source.

The second parallel process in efforts to transform BPL and the energy sector is the utility's planned $535m rate reduction bond financing, which Dr Moxey said it aims to place with a mixture of Bahamian, international and Caribbean investors early in the 2021 New Year.

"We are targeting a timeline of January next year," he told Tribune Business. "We were pushing for the end of this year, but recognise that is not going to happen. We've developed a plan to move things forward and to finally get that bond issued in January next year. There are a number of things coming that will open the gate."

Key will be changes to the law underpinnning the RRB to make the bonds more "investor friendly" and protect their rights, as well as "giving us more options when going to market". Dr Moxey said the draft reforms were completed and now being reviewed by the Attorney General's Office before being taken to Cabinet and then Parliament.

The BPL chairman also confirmed that Citibank and CIBC First Caribbean will likely act as "joint book runners" and placement agents in finding investors to purchase the bonds, adding that the latter's expertise in private placements will likely be more suited to the issue's needs.

Asked whether BPL had obtained a credit rating for the bond issue, as its plan originally called for, Dr Moxey said the utility and its advisers are aiming to structure it as "a structured finance deal so it can stand on its own" and not be linked to The Bahamas' sovereign debt and higher interest rate being paid on that.

Bond repayments will be financed by BPL's residential and business consumers via a new line item, which was initially equivalent to 15 percent of their current consumption, which will be added to their bills.

The final charge, though, will depend on the interest rate BPL is able to obtain from bond investors. The utility has said electricity cost savings that will result from the upgrades financed by the bonds will offset the extra charge and result in Bahamians paying the same price - or slightly less - for their energy.