International consultants commissioned by the Bahamas Chamber of Commerce and Employers Confederation have projected an increase in gross economic output in the Bahamian economy of between $10.1 billion and $25.2 billion over a 27-year period through the implementation of new power production facilities by a U.S. energy consortium.
A report by U.K.-based consultants Oxford Economics finds that under three possible power project scenarios involving the Bahamas Generation and Utilities Corporation (BGUC), the country stands to benefit in a major way, experiencing increased economic growth and employment levels as a result of the direct and indirect effects of lower energy costs expected to flow from the power projects over an extended period.
At the request of the BCCEC, Oxford Economics analyzed the economic impact of an initial proposal put forward by BGUC to the government in September 2013 under a Bahamas Electricity Corporation (BEC) request for proposal, along with two additional proposals added in July 2014.
BGUC is, according to the BCCEC, one of the bidders currently involved in the BEC request for proposal.
In the extensive 50-plus page report produced in July 2014, Oxford Economics looks at the economic impact, both direct, indirect and induced, of BGUC developing and constructing at its own cost either a diesel-fired power plant, a plant fueled by liquified natural gas (LNG) shipped to The Bahamas, or a plant fueled by LNG entering the country via a specially-constructed pipeline from the U.S.
In doing so, the report, titled "Economic impact of the Bahamas Generation and Utilities Corporation (BGUC) proposed power plant facilities in The Bahamas", provides forecasts based on what was the original proposal put forward by BGUC to the government in 2013 as part of the BEC request for proposal, in addition to two other proposals made when the company was invited to collaborate with the BCCEC and Oxford Economics on a project to look at the impact of other scenarios.
The BCCEC has stated that its collaboration with BGUC on the project does not represent an endorsement of the company specifically, but rather a means of highlighting the potential impact of a given set of energy reform proposals.
U.S. Embassy support
The company already has the support of the U.S. Embassy. In a September 27, 2013 letter from the U.S. Embassy to the government, then U.S. Embassy (Nassau) Charge d'Affaires John Dinkelman recommends the Bahamas General and Utilities Corporation to the government. He describes it as a consortium of U.S. companies "with over 100 years of combined experience developing and implementing innovative solutions for complex projects".
The diplomat said he was "confident [of] the technical and commercial merits" of BGUC's proposal.
Via a purpose-built input-output model that looks at the impact of construction spending, additional spending by households and businesses driven by savings in power costs, as well as incremental visitor spending, as "direct" effects of the various proposals, Oxford Economics reaches the conclusion that the total economic impact of the BGUC project would be "significant and positive, and distributed over time".
However, the economic impact becomes increasingly more positive under the shipped-LNG scenario, and in particular, the scenario in which LNG is piped to The Bahamas.
Under the original diesel-fueled generation scenario, BGUC had put forward plans to construct, at its own cost, a $200 million diesel-fueled power generation facility in early 2015 that would replace roughly 40 percent of the current power generation in the country.
Looking at this proposal, Oxford Economics finds that in its 27-year project gross economic output in the country would increase by $10.1 billion. Additionally, the contribution of value-added production (total output less the cost of inputs) to GDP would be boosted by $6.8 billion, and an additional $2.8 billion in income would be earned by workers. A range of roughly 1,200 to 6,200 full-time equivalent jobs would be generated per year.
"The proposed power purchase agreement (between BGUC and BEC) would average more than 32 percent less than the price BEC would likely offer absent the BGUC project over the time horizon of the analysis, and approximately 41 percent less than what BEC charges today," the analysis states.
Oxford Economics projects that the lower power prices would increase The Bahamas' regional competitiveness and its share of tourism; add to visitor spending; create extra employment between 2.5 and 3.4 percent higher than the baseline forecast, and boost growth by around 0.1 percent year-on-year. Other impacts would be higher levels of investment by Bahamians, keeping capital in the country.
"The benefits of lower power costs would likely extend beyond the tourism industry to other sectors not captured in the analysis, such as transportation and manufacturing, which rely heavily on energy inputs," it adds.
Government tax revenues would rise by $1.1 billion over the 27-year project horizon of the diesel plant, averaging out to $41.1 million per year.
LNG
In the second scenario, which involves the construction of a plant that would produce power from liquified natural gas (LNG), and would involve additional capital expenditures and greater power generation, the total economic output generated by the energy overhaul is again forecast to grow.
Gross output would now be increased by $13.2 billion; value-added production by $8.5 billion, and an additional $3.4 billion in income for workers would be earned. Between 5,100 and 6,400 full-time jobs would be generated during the two-year construction period, while between 5,400 and 7,500 full-time jobs would be generated per year during the 25-year power purchase agreement period, during which BGUC will be providing power to BEC.
National GDP would rise by 2.4 percent to 3.2 percent per year versus baseline forecasts, year-on-year growth would rise by 0.1 percent and employment levels would be increase by 2.7 to 3.9 percent over baseline, net of any employment reduction that may come about at BEC.
The cumulative boost to government tax revenues is estimated to be $1.4 billion over the 27-year horizon, or $51.6 million per year on average.
"The use of LNG is the primary driver of the greater benefits reported here and would have impacts through two conduits," states Oxford Economics.
LNG would be associated with a lower cost of fuel and more efficient power production. The overall price of electricity would be around 31 percent less than what would have been the case in a baseline scenario.
Further benefit would arise from the relief of $450 million of existing government debt by BGUC under the scenario, about 10 percent of national debt, the consultants found. While this benefit is not quantified in the report, Oxford Economics says it "could be substantial in the context of broader fiscal reform".
"A reduction of 10 percent in the national debt, along with other meaningful and credible changes, could lower borrowing costs faced directly by the government, and indirectly, borrowing costs in the private sector as well," states the report.
With lower interest rates for government, there could be a savings passed on by government through lower taxes and boosts in spending by the private sector in the economy, along with stronger growth in output, income and employment, Oxford Economics adds.
Under the final scenario - the implementation of an LNG pipeline as the fuel input for the plant - economic benefits would include an increase in gross output by $25.2 billion; a boost in value-added production by $15.9 billion; an additional $6.5 billion in income earned by workers in the economy; and between 5,100 to 6,400 jobs generated in the two-year construction period along with 12,400 to 13,500 jobs during the 25-year power purchase agreement period. This would equate to employment that is between 5.9 and 7.1 percent higher than the baseline forecast, year-on-year growth that is 0.2 percent higher, and a national GDP increase of 5.5 to 5.9 percent versus the baseline forecast.
Construction costs would rise to $744 million, $536 million more than in the original analysis. An additional $330 million would go to the construction of the pipeline from Florida to The Bahamas, however, because most of the benefits of this part of the project would likely accrue in the U.S., Oxford Economics did not include it in its analysis as local spending.
Electricity costs are projected to be, on average, 57 percent less than what would be the case in the baseline scenario. Government revenue, meanwhile, is expected to be boosted by $2.6 billion over the 27-year period, or $97 million per year.
'Challenging'
Describing the current state of power generation in The Bahamas, Oxford Economics calls it "challenging", with production facilities "aging" and limited funds available to maintain equipment. As a result, overall production is "at times inefficient" and the high cost of production has caused Bahamians to pay "some of the highest rates for electricity in the region". Simply producing power costs just under $0.20 per kwh, while at one station the rate for production alone is $0.40 per kwh, according to the report. Reliability is also a major issue, with outages causing equipment damage and some businesses subsequently choosing to simply run their operations off generators alone.
Paying for power accounts for around 10 percent of total spending in the economy, and likely depresses business investment, tourism market share and consumer spending, states Oxford Economics.

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