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Asserting that Bahamians are now feeling the brunt of the current government's "inaction" and "paralysis" over the state of the Bahamas Electricity Corporation (BEC), a former government minister has claimed that there is "no excuse" for the level of inaction seen with respect to the monopoly power producer.
Phenton Neymour, former minister of state for the environment with responsibility for BEC, said: "I predicted that we would have blackouts because of the failure of the PLP government to institute certain action plans that we already had in place; on that basis I predicted everything for this summer. I was also saying that BEC is in a crisis position for the upcoming summer (2015).
"It is clear from what you have seen that there was an action plan which we had initiated. [The government] should've moved quicker for privatization and quicker for the installation of additional generation at BEC; both of those could've run concurrently," said Neymour.
He commented after BEC Executive Chairman Leslie Miller suggested that a lack of funds available to move ahead with new generation installation was behind the decision not to proceed with upgrades of power generation capacity at BEC, identified in 2012 as necessary to meet shortfalls at that time and prepare for the onset of Baha Mar.
The generation equipment upgrades were called for in a board memorandum obtained by Guardian Business on generation equipment replacement at the country's sole power producer.
Miller said he "was not aware" of the specific upgrades called for in the document by the board which had responsibility for the corporation prior to June 2012, before adding that "money" was most likely the reason why further installations did not proceed. The corporation is in a financially-stricken condition, with over $185 million in accounts receivable.
Guardian Business reported Monday that of 54 megawatts (MW) of power called for by the board to be installed between 2012 and 2015, leading up to Baha Mar's opening, less than 50 percent was implemented. A proposed 24 MW gas turbine was installed in November 2013, having been contracted for by the previous board in May 2012.
Miller confirmed that no other new generation capacity was installed at BEC, but stated that negotiations were underway to install 15 MW of additional power generation capacity at a cost of $5 million to $6 million to "satisfy Baha Mar". Speaking with The Tribune in August 2013, Miller denied that BEC would have any issue meeting Baha Mar's power demands when it comes on stream.
"We are already doing so. We will have no problem providing Baha Mar with all of its electricity needs, no problem at all," said Miller.
Neymour said that the recommendations made by the board in 2012 were supported by evidence from international consultants.
"One point I want to make very clear is that the action plan we had in place also was supported by the study conducted by (Germany energy consultants) Fichtner under the IDB (Inter-American Development Bank) and by (engineering consultants) Mott McDonald. It is clear that the PLP and BEC failed to research the documentation that is at BEC and the action plan; by Miller admitting that he was not aware it is clear he did not read board minutes. And that's why I say (the power supply) is going to get worse."
The former minister added that notwithstanding the financial position of the government and the corporation, the government had a responsibility to find a way to finance new generation equipment being installed to ensure capacity is sufficient to meet demand and to support Baha Mar when it comes on stream. He accused those responsible of failing to properly assess the challenges faced by BEC, or acting to address them.
On Friday, Miller initially stated that BEC has enough capacity to meet present demand, before going on to add that if one generator is not functioning this causes production to slip below demand levels.
Neymour said: "At the end of the day the Bahamian people are suffering because of the inactivity of the government and we clearly are in a crisis position moving forward."
He pointed out that it can take over a year to order and have installed a major piece of generation equipment.
Robert Myers, chairman of the Bahamas Chamber of Commerce and Employers Confederation, questioned what would have happened had Baha Mar come on stream in December 2015 as planned.
Myers said that the memo and Miller's response highlights evidence that BEC has a problem meeting "base load" power demand, let alone peak demand.
"You need to make sure that when something goes down your base load is maintained but we're not even at the 2015 base load. The base load plus some margin of error is not being met and so clearly there's a shortfall, a significant capacity issue. You don't need to be an engineer to work that out."
In response to Miller's comments indicating that the corporation is simply not in a position financially to move ahead with upgrades to generation capacity, Myers added: "If they were holding off in the expectation that someone would take over, that's a risky game. There's no capacity to change things overnight as we well know. Even if they bring someone in tomorrow, you're looking at 18 to 24 months before you can get that capacity online. There may be ways to crisis manage the way out of it, but that doesn't help our costs."
KPMG stated last week that it expects to make an announcement this week on how the government intends to reform the BEC to ensure more affordable and reliable power. Five to six international entities are believed to still be in the running for generation and transmission and distribution contracts.
Myers said: "The country's problems go well beyond Leslie Miller. I think he's between a rock and a hard place. He and the government have some very difficult decisions to make and they need to make them nonetheless. Finding a quality power producer that can generate electricity at a consistently lower price is of significant importance to Bahamians if we intend to remain competitive. The current situation is a shambles."
I rise on behalf of the Ministry of Health to make my contribution to this 2010/2011 budget presentation and thank the great constituency of Killarney for the opportunity to present this, my third health budget to this honorable chamber.
I wish to congratulate the Rt. Hon. Prime Minister and Minister of Finance, the Hon. Hubert Alexander Ingraham, for his courage in presenting a Budget that is reflective of the realities of the national economic situation and that refused to defer difficult decisions for future generation of leaders.
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.
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.
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.
A local consultancy firm is conducting a 'needs analysis' survey on 800 small and medium-sized businesses throughout the country, as the government seeks to develop and introduce the Small and Medium Enterprises Development Agency (SMEDA) sometime next year...
As the government moves full speed ahead with its intention to implement value-added tax (VAT), a leading hotelier said he would have preferred a sales tax and is urging the government to delay the implementation date for VAT.
In an interview with Guardian Business, Atlantis President and Managing Director George Markantonis said for the Paradise Island property, implementing a sales tax would be "easier" than implementing VAT. He made this suggestion as uncertainty still looms about the latter form of taxation.
"We all understand it and the whole world has done it (sales tax). And more importantly for us, our computer systems would be able to take those changes," he said.
While the government has proposed a general VAT rate of 15 percent, the hotel sector will be subject to a lower rate of 10 percent. Markantonis has estimated that his company will have to spend at least $500,000 on technology to implement VAT.
Markantonis is not the only one suggesting that a sales tax be implemented instead of VAT.
Numerous members of the business community, such as President of the Bahamas Motor Dealers Association Fred Albury, and Super Value President Rupert Roberts, have also touted such an alternative as a simpler alternative to VAT.
Meanwhile, Pedro Delaney, a chartered accountant and chief financial officer at Societe Generale Private Banking (Bahamas) Ltd. and SG Hambros Bank and Trust (Bahamas) Ltd., recently said the government should consider other forms of taxation such as a corporate income tax, which he believes would be easier to implement.
"When you consider income taxes, there are personal income taxes as well as corporate income taxes. Corporate taxes may be an easier measure to implement if we are going to address income taxes. The government may in considering that want to consider a flat rate for corporations on their net income," he noted.
The government, however, has pointed to the more "regressive" nature of a sales tax, which does not allow for credits for tax paid on inputs, and therefore becomes "a tax on a tax". Officials have also suggested the credit mechanism under VAT would increase compliance with the tax regime.
Atlantis' top executive is urging the government to postpone the July 2014 implementation to allow for more preparation time. In the meantime, Markantonis confirmed that Atlantis plans to hire consultants to help it understand the ins and outs of VAT and the impact it could have. He maintains that his biggest concern is the possibility of The Bahamas outpricing itself as a destination.
"We're not sure how it's going to impact us spread across our campus because we have multiple business units and revenue streams. They're not all what it would be in a typical hotel. Is Marina Village, which has four of our restaurants, part of the hotel or not? How do the dolphins fall into this picture? There are a lot of factors you have to look at," he told Guardian Business.
"We're not going to eat the costs, that's for sure. So the issue is going to be if there is going to be an added cost, and if we're not going to be reimbursed for it in another manner, which is trackable, that's the key, then obviously we are going to have to pass that on to the consumer. Do we like it? Well, no. I hope it doesn't get to that because we certainly don't want to outprice our destination because we are already fairly pricey."
Officials at the Ministry of Finance estimate that VAT can generate approximately $200 million in revenue in the first year alone, which the government has suggested is key to reducing national debt levels.
The Bahamas Agricultural and Marine Science Institute (BAMSI) will need to offer temporary accommodations for members of its staff and students due to construction delays and reported payment disputes.
Bahamas Agricultural and Industrial Corporation (BAIC) Executive Chairman Arnold Forbes insisted yesterday that the North Andros BAMSI project will meet its slated September opening date, but revealed that the institute will likely require temporary housing and educational facilities until construction of the main campus is completed.
"The school will be open in September, [but] it may not be open at that site... There are some activities that will probably take place on-site, [but] the school will be open on schedule," said Forbes.
The executive chairman also denied that the construction delays and need for temporary housing would increase the cost of the project, stating: "It has not increased the cost per se... We are on course basically to finish the construction part of it in short order."
Forbes added that BAMSI officials are currently arranging accommodations for its students, claiming that they "will be well cared for at the substitute for the campus until it's finished".
Last week, Ministry of Agriculture Permanent Secretary Rena Glinton assured Guardian Business that the dormitories are complete and the institute will welcome its first class of students this week.
A recent NB12 report revealed that the construction of many of the institute's facilities, including student dormitories, labs and roads, was severely behind schedule and would likely miss the government's September deadline.
Speaking with NB12, Leader of the Opposition Dr. Hubert Minnis criticized BAMSI's slow progress, fearing that it is months off schedule, and demanded greater accountability from the government over accusations that political affiliations played a role in awarding BAMSI contracts.
"From what we've seen, you know that we will need millions more to complete this project... The public accounts committee will aggressively pursue how this money was spent. We need accountability," stated Minnis.
Bahamas Contractors Association President Godfrey Forbes pointed to BAMSI this week as an example of how the government should be more "transparent" with its contract awards, to enable more in the construction industry to potentially benefit.
The government hired 14 contractors to construct the estimated $20 million institute. One worker suggested that nearly 70 employees had quit after continued payment issues with a contractor.
However, Arnold Forbes argued that the government could not be held accountable for the reported payment issues.
"We are not responsible after we gave those contracts...I believe, unfortunately, that there are some contractors that are slow in paying their individuals, but it will not delay the opening," said the BAIC chairman, calling on all BAMSI contractors to pay their workers and end the pay disputes.
Minster of Agriculture V. Alfred Gray confirmed that the government was aware of the payment issue, and had directed the construction workers to the Ministry of Labour.
Following the reports, BAMSI President Godfrey Eneas issued a press statement, announcing that the institute would receive its first class of 50 students on September 29. The statement further
claimed that BAMSI's first international course with foreign students would commence in January 2015
The government had previously suggested that BAMSI could reduce the country's dependence on foreign produce imports, potentially slashing import costs by $210 million by BAMSI's third year of operation.
While many members of the Bahamian agricultural sector have supported the government's efforts to revitalize the country's farming industry, some have questioned the packaging and shipping logistics of the project, due to its North Andros location, and expressed concerns over its increasing budget.
In June, Guardian Business revealed that one of the government's top consultants on the BAMSI project had resigned from a senior post in Jamaica over questions regarding the legitimacy of his academic qualifications.
The hiring of Jamaican Omer Thomas in place of a Bahamian and in spite of his controversial past was defended by various Cabinet ministers.
By NEIL HARTNELL
Tribune Business Editor
Political interference has resulted in "low operating efficiency" and "misuse" of the Bahamas Electricity Corporation (BEC), a consultant's report has confirmed, urging that it be allowed to operate as a commercial, profit-driven business supervised by an independent regulator.
Fichtner, the German consultants hired to perform an overview of the Bahamian energy sector's ownership and regulatory structure as part of an Inter-American Development Bank (IDB) funded project, recommended that there be "a basic change in the institutional set-up and the existing framework of the regulatory sector".
Noting that BEC was curre ...
By NEIL HARTNELL
Tribune Business Editor
The Bahamas Electricity Corporation (BEC) "will in the medium to long run be privatised", joining its Bahamas Telecommunications Company (BTC) counterpart, a consultant's report recommending that competition be introduced into the Bahamian power sector through Independent Power Producers (IPPs) supplying a mix of renewable and conventional energies.
A report on strengthening the Bahamian energy sector, produced by German consultants Fichtner, suggested that competition be created by separating electricity production from its transmission and distribution to end-consumers, given that the latter was likely to be a 'natural monopoly' ...
The Bahamas Electricity Corporation's (BEC) line staff union staged an emotionally charged protest at BEC's main office that shut down operations and eventually led to a shoving match with police yesterday. The protest, led by the Bahamas Electrical Workers Union (BEWU) and supported by the Bahamas...