Bahamian government puts electricity sector management in private foreign hands

Years of losses and inefficient service provision under the country’s home-grown Bahamas Electricity Corporation (BEC) have finally compelled the Bahamian government to set aside what it says is an altogether “unsustainable” operation and agree to cede management responsibility for power supply to an expatriate company.

The government disclosed earlier this month that it was entering into a management contract with PowerSecure Inc of North Carolina to assume management control of the Bahamas Power and Light Company (BPL) for an annual fee of US$2 million.

Bahamas Deputy Prime Minister Phillip Davis
Bahamas Deputy Prime Minister Phillip Davis

The Caricom member state’s Deputy Prime Minister and Minister of Works and Urban Development Philip Davis disclosed earlier this week that the agreement will hand PowerSecure full responsibility for the country’s electricity generation, transmission, and distribution, procurement, and customer service.

The decision to remove responsibility for power supply from local management comes against the backdrop of stated official concerns that service inefficiencies could seriously compromise much-needed private sector investment in the country. Davis said the country’s power supply and is unable to continue to operate under its present structure, pointing out that that, among other things, the system design needs capital investment of at least US$450 million over the next five years in order to resolve the many issues that it faces.

Ongoing operating inefficiencies also mean that BEC continues to incur staggering annual losses reportedly ranging between US$20 million to US$30 million annually due to what is believed to be an unworkable rate structure. Accordingly, according to the country’s Deputy Prime Minister, “BEC is now unable to obtain a credit rating, and, therefore, has no leverage with lenders or suppliers.”

PowerSecure has been given an initial five-year management contract with the option of another five years based on mutual agreement with BPL. PowerSecure will be required to prepare a business plan and financial model each year for approval by the board and will appoint two members to the BPL board while the Bahamas government will appoint six members.

In addition to its annual US$2 million fee, which will be adjusted yearly based on inflation, PowerSecure has the opportunity to earn a performance-compensation bonus of up to 150 per cent of the base fee.

Davis disclosed that fuel costs accounted for 60 per cent of the country’s electricity bill and that while falling oil prices had brought a measure of relief reform of the sector remained an urgent priority since the cost and reliability of energy supply had proven to be a deterrent to investors.

“For many years now, Bahamians and investors alike have complained that energy costs are exorbitant. Apart from the cost of energy, the security and reliability of energy supply are also highly frustrating concerns. The single most important factor to driving down costs, that encourages investment, entrepreneurship, ownership, and security relates to electricity,” Davis was quoted as saying.