NASSAU, BAHAMAS – Bahamas Power & Light (BPL) consumers can expect to see a temporary increase in their electricity bills of about $20-$30 per month due to the company’s electricity rate reduction bond (ERRB), according to Works Minister Desmond Bannister.
Bannister revealed the average increase during his contribution to the debate in Parliament on the Electricity Rate Reduction Bond Bill, 2019.
He said: “We expect that the issuance of the rate reduction bonds will lead to a temporary increase in the average household billing of an average of $20 to $30 monthly for about ten months in 2020. Unfortunately this is the price that we all will have to pay because of the proven incompetence of the former PLP administration.
“The good news is that this will be a short term increase that will be wiped out in 2021 when the cost of generation will decrease drastically due to the completed installation of the second station consisting of even more new fuel efficient engines; better operation performance, and lower fuel costs brought on by the utilization of Shell’s internationally respected hedging expertise.”
Bannister added: “From all indications that we are getting it is clear that the debt issued will be of the best possible credit quality outside a transaction secured by an outright government guarantee.
“The rate reduction bonds issued by the Bahamas Rate Reduction Bond Limited (BRRBL). Non-Government guaranteed commercial borrowing by BPL cannot achieve this level of credit quality, and the cost of alternative commercial borrowing would therefore be higher, with a larger impact on customer tariffs.
Bannister noted that the BRRBL, the special purpose vehicle (SPV) that will issue the rate reduction bonds (RRB) to restructure BPL’s multiple legacy liabilities, intends to offer the majority of the bonds in the US capital markets as the amount of BPL funding available from global capital markets is larger than that available in the local market. Approximately $70,700,000 will be offered in the Bahamian capital markets.
“The proposed rate reduction bond will be longer ,20 years, than what is available to BPL in commercial banking markets -typically less than five years,” said Mr Bannister.
“This means the cost of debt service is spread out over time and is eventually outweighed by operational cost savings from the capital expenditure that is funded by the rate reduction bond. This minimizes the cost impact on customers and indeed allows customer tariffs to be reduced over time.”
Bannister noted that it is anticipated that the funds raised by the bonds will be used to refinance BPL’s debt of $321 million; to pay for the desperately needed Wartsilla Phase II power plant; for conversion of fuel to lower cost LNG; for capital upgrades at BPL; for family island solar projects; and for the implementation of an advanced metering system, among other projects.
Bannister slammed the Opposition for its criticism of the ERRB, noting that a similar legislation introduced by the former Christie administration would have required by law that customers of BPL pay the rate reduction bond fee.
“They got cold feet with an election coming up in 2017 and refused to carry out their plans to utilize Rate Reduction bonds to improve the availability of electricity for all of us. That is why we had such a challenging summer. That is why we all had to endure load shedding,” said Bannister.
Further, he asserted that the ERRBA introduced under the previous administration had ‘many deficiencies’, such as a lack of clarity and internal consistency in places; failure to implement transaction mechanics and credit protections that are standard in securitization transactions; and the ERRBA 2015 does not allow the bond proceeds to be used for much needed capital expenditure by BPL.
“There is almost no section of this poorly drafted 2015 Act that doesn’t have to be amended. So we had no choice but to throw the whole thing out,” said Bannister.