The Bahamas Electricity Corporation (BEC) plans to refinance $250 million worth of loans into a longer-term bond, giving the public entity access to the international capital markets.
A resolution tabled in the House of Assembly yesterday will guarantee the $250 million in debt, according to Michael Halkitis, the state minister of finance.
While BEC's debt portfolio becomes due in April 2013, a private placement could extend the terms for between 15 and 20 years, depending on the corporate appetite, and result in lower payments and greater cash flow,
Halkitis said that the refinancing of debt is the "first step" in repairing the government-run entity and reducing the costs of electricity for Bahamians. He noted that $211 million of the debt already carries a government guarantee, so the increase in contingency liability will be on the order of $39 million.
The minister told the House of Assembly that foreign currency financing is often predicated on the high cost of fuel for the island nation. In fact, Halkitis said fuel accounts for 64 percent of BEC's operant revenue and serves as a "tremendous drain on resources".
"At the end of 2003 crude oil was $35 per barrel, and it is now $95 per barrel. This places an exorbitant burden on consumers both residential and commercial," he said. "As a result of this burden, the previous administration agreed to a series of measures to provide relief to residential consumers through deferred payment plans."
While the plans helped consumers, the minister said it also weakened the corporation's balance sheet and necessitated more debt.
Leslie Miller, the chairman of BEC, said $200 million of loans will go directly to the refinancing of existing facilities. Around $35 million will be used for direct payments to BEC's fuel supplier, while the remaining $15 million is gobbled up by refinancing fees.
"Not a dollar of the $250 million loan extension will go to the corporation," he added.
For BEC's last fiscal year that ended in September, Miller projected a loss of $18 million.
The chairman has been aggressive in recent months over cost-cutting measures, including the elimination of excessive overtime payments, cracking down on theft and looking into the possibility of privatizing areas of the corporation.
Miller focused yesterday on the high cost of fuel and its crippling impact on both BEC and consumers. He did note, however, that the corporation's debt to its primary fuel supplier is now in excess of $80 million, down from $138 million not long ago.
The chairman took a moment to single out the private sector and its role in the corporation's financial woes.
"Over the years BEC continues to struggle with non-payments from the private sector. In 2010 it increased to $118 million, while in 2011 it jumped to $148 million. In 2012, there was a slight decrease to $143 million," he told the House of Assembly.
Overall, the corporation, which supplies 85 percent of all electricity in the country, spent $384 million on fuel in 2012.
"These escalating fuel costs have significantly hampered the ability for BEC to make its obligations to pay its bills," he said.
As the Ministry of Finance restructures the corporation's debt, Miller and his team will seek to cut costs and institute new measures to pull the public entity into the black.

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