by Larry Smith
The government wants to split the state-owned Bahamas Electricity Corporation into two separate companies by the end of this year, and has invited private sector management bids.
The proposal is similar to the current situation in Trinidad and Tobago, where a state-owned utility retails electricity via a single interconnected grid, while a privatised joint venture company produces the electricity.
Trinidad’s state-owned utility divested its generation assets in 1994 to a public-private partnership called PowerGen. The shareholders of PowerGen include the state utility, Maru Energy of Georgia and Amoco of Texas.
The proposal prompted a response from former BEC chairman Michael Moss, who said unbundling the corporation's assets was not a good idea. "Power plants account for about 80 per cent of BEC's total operating cost," Moss said, "with transmission, distribution and customer service accounting for the remaining 20 per cent.
"Separating generation from transmission, distribution and customer service will likely lead to increased cost to consumers, as there will inevitably be a duplication of administrative and other overhead costs in the two organisations."
Moss also told me that the number of small Family Island plants operated by BEC (some with as little as two or three employees) posed another problem.
"How do you split generation from transmission, distribution and customer service at such locations? Not only will there be an increase in administrative overheads with two separate entities, there will likely have to be an increase in the number of employees."
He said the government should privatise BEC as a a single entity to maintain economies of scale, and noted that the Trinidad model had proven less successful than models which kept the original company intact.
Although the timeframe for such a major restructuring of the Bahamian energy sector is considered extremely short, Prime Minister Perry Christie has denied that the government’s move was influenced by special interests.
Some observers have suggested privately that the proposed arrangements are part of a done deal with generation specialists who have no knowledge of, and want no part of, the headaches of operating a transmission and distribution network and dealing with customer service issues.
Government will therefore be stuck with these less desirable components, as is the case in Trinidad and Tobago. All of the power companies within CARICOM are vertically integrated except for Trinidad and Tobago. The regional electricity market is characterized by a mix of state-owned and private or partially private utilities.
Under this scenario, the most likely player is Genting Group, the Malaysian multinational which has announced several investments in the Bahamas tourism industry since Christie and his Progressive Liberal Party were returned to office in May 2012.
Genting's oil and gas division is both a production and exploration company, and the Bahamas is about to embark on exploratory oil drilling in offshore waters. Genting also generates power in Malaysia, China and India.
Genting provided the government with a report on energy and cost reduction at the end of last year, and this past May Christie was said to be in "high-level talks" with Genting in New York involving energy and resort investments in the Bahamas.
But the prime minister has insisted his administration did not have any specific candidate in mind to take over BEC. He said he was pushing to seal the deal by the end of the year purely in response to complaints about the country's high electricity rates.
There had been no public discussion of restructuring BEC until the prime minister's surprise statement in mid-August. A Request for Proposal was subsequently issued, which outlined “the intent of the government to create two new companies into which relevant assets, liabilities and operations of the Bahamas Electricity Corporation will be transferred...to achieve cost and operational efficiencies.”
An experienced utility management service provider will be recruited to help manage transmission and distribution services. This will include nationwide responsibility for the operation, maintenance, repair, and expansion of electricity transmission and distribution systems, as well as billing, collection, customer services and other relevant services.
A joint venture partner will be recruited to assist with the operation, maintenance, repair, financing, and expansion of BEC’s current electricity generation facilities across The Bahamas. Once established, a portion of the shares of the joint venture company will be offered to the Bahamian public.
All proposals must be submitted by September 13, with payment of a non-refundable fee of $25,000.
“We are inviting (applicants) to bid on the management of BEC, similar to the Nassau Airport Development Company," Christie said. "You simply come in and manage BEC, or a private company becomes responsible for the generation of electricity at BEC and the management and distribution of it.”
Nassau Airport Development Company is owned by the government and currently managed by a Canadian firm called Vantage Airport Group under a 10-year contract. In 2007, NAD signed a 30-year lease with the government to manage and operate Lynden Pindling International Airport.
Christie said the government’s objective is to “create efficiencies which will allow for significant reductions in the cost of energy, increased energy security, environmental responsibility, reliability, and increased competitiveness as a country.”
He said there would be no job losses as a result of this process, adding that any agreement would include significant investments in new technology training for Bahamians. He also said that “liberalisation” of the energy sector could be expected to create new business opportunities for Bahamians.
But union leaders reacted negatively, saying they had not been consulted over the restructuring proposals. Union leader Clinton Minnis said BEC employees were concerned over their jobs and unsure of what the proposals would mean for consumers “as the government is carrying a lot of the electricity costs now.”