No decision on government stake in BEC company

Fri, Aug 16th 2013, 08:08 AM

The government has made no policy decision yet on what stake it will take in the proposed power generation company which will take over generation from Bahamas Electricity Corporation (BEC), or what proportion of the entity could ultimately be owned by the Bahamian public via an initial public offering process.

However, the government's request for proposal (RFP) clarifies that it will to continue to own 100 percent of the other entity which will be responsible for the operation, maintenance, repair and expansion of electrical transmission and distribution, for which it plans to offer a private company a management contract to operate.

Meanwhile, Guardian Business has learned that the government considers the transfer of BEC assets into the generation company, in which it will either have a partial stake via a joint venture, or for which a management contract will also be issued, as a possibly temporary state of affairs.

Parliamentary Secretary in the Ministry of Works and Urban Development Renward Wells, who was also chairman of the National Energy Task Force, told Guardian Business: "(The stake in the generation company) happens to be an issue with some in and outside of my party. I was one of the people who did not like the BTC (Bahamas Telecommunications Company) deal at all - I was completely opposed it - so for me the difference I see with this and BTC is that we are entering into a power purchase agreement (PPA) with whatever entity it is for about 25 years and at the end of it the government can either take back all the assets or sign a further PPA. It's not going to be given away ad infinitum.

"We're still working out the details. The government will sit down with whatever partner it decides and decide if it's a JV (joint venture) or management contract and we're not going to move faster than the Bahamian public; the views and values of people, who are our bosses, will be taken into consideration - that's why (the RFPs) open-ended."

On Tuesday evening, Prime Minister Perry Christie announced a far-reaching and "fundamental realignment" of this country's energy sector, with the goal of achieving reduced cost electricity for consumers and more energy security, among other ambitions.

He said the government is of the view that such far reaching reforms require "the financial support, operational experience and innovation of the private sector".

In an RFP issued today in the media, the government states that a so-called transmission and distribution (T&D) company will be created which will not only be responsible for the operation, maintenance, repair and expansion of electricity transmission and distribution systems, and for billing, collection, customer services and all other relevant services across The Bahamas, but also for assisting the government in transitioning the T&D systems and related assets, liabilities, operations and personnel from BEC.

"The successful bidder will assist the government in driving performance improvement and upgrading the T&D system to the highest standards," said the RFP.

In the case of the so-called generation services company, the RFP states that the government will enter into either a management contract or a joint venture with this company to assist in providing the country's "core electricity generation services".

"This new entity will be responsible for the operation, maintenance, repair, financing and expansion of BEC's current electricity generation facilities and certain other assets located across the country.

"The winning proposer will assist in developing the power needs, as well as transition service agreements for the transition of the generation facilities and related assets, liabilities, operations and personnel from BEC."

Wells clarified that it is the government's expectation that the new generation company would develop a new power plant of some kind in New Providence as part of its mandate to reduce electricity costs.

"If they are looking for efficiencies they would need a new power plant, that would have to be a part of the mix, whether it's gas turbines, LPG (liquid propane gas) or automotive diesel oil; with the flip of a switch gas turbines can burn any of those.

The introduction of a new plant gives you fuel flexibility and helps you to be able to deliver energy at a lower cost."

As to the new regulatory regime for the sector, Wells said that although this ultimately remains a policy decision for the Cabinet of The Bahamas, it would be "common sense" that the Utilities Regulation and Competition Authority (URCA) would assume that regulatory role with respect to the new BEC entities.

Contacted yesterday for comment, Stephen Bereaux, director of policy and regulation at URCA, told Guardian Business that it is too early for him to comment on the latest energy sector developments.

Wells called the government's plans for energy sector reform "aggressive but achievable".

Current timelines have the government receiving all proposals from bidders by September 13, 2013, followed by contract negotiations in November and December and contract execution in January or February of 2014.

New laws and regulation oversight would be established in March 2014, in time for a May 2014 start of operations by the two companies.

Chester Cooper, chairman of the Bahamas Chamber of Commerce and Employers Confederation, issued a statement yesterday calling on the government to ensure full transparency and public education on the various elements of the modernization of the sector.

Cooper suggested that the timeline involved must allow for "full opportunities for participation by the Bahamian business community and a full understanding of the environmental, economic and social impacts" of the changes proposed.

Meanwhile, he expressed concern that so far the government's reform proposals appear to suggest a move towards "a private monopoly with a single licensee generating and another transmitting and distributing" energy.

"If care is not taken, this outcome may have the unintentional result of higher prices and continued poor service. We await further details on the government's plan," said Cooper, who added that the Chamber applauds any "positive, transparent, well-executed initiative" that efficiently addresses the cost of energy.

The BCCEC chairman noted that the organization wants to see more details on how the latest proposals with respect to BEC and energy cost reduction tie into broader reforms relating to reducing reliance on "expensive fossil fuels" and "maximizing exploitation of renewable energy resources."

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