Nassau, Bahamas – Rising energy costs has the Bahamas Electricity Corporation (BEC) suffering financial duress. As a result, BEC has submitted a request to the Government to consider reinstating the 1993 Fuel Surcharge Tariff to pay for importing fuel.
“We must return BEC to a position where it is financially independent of Central Government, and in a position to develop and meet the demands of The Bahamas in the near future,” said the Hon Phenton Neymour, Minister of State in the Ministry of the Environment during a town meeting to discuss a new tariff hike, Thursday, May 10.
“In 2007, we recognized there were a number of deficiencies in shortfalls at BEC. So we began a number of programs in parallel, in an effort to address BEC’s challenges, not just internally but to address the Energy sector as a whole,” he said.
BEC contends it has been 17 years since the Corporation last received a moderated tariff increase of 5.25 per cent in 1993.
The goal of the straight life tariff was not realized because it was eliminated shortly after 2002. BEC was required to absorb the 10 per cent customs duty imposed on its fuel imports, since 1994. The Corporation suffered seven financially crippling blows in 2004.
· The first was when a 10.6 per cent tariff decreased BEC’s revenue collected from residential customers, using less than 800 units of kilowatt-hours per month.
· The second was when BEC experienced an additional five per cent reduction in revenue for residential customers using more than 800 units of kilowatt-hours per month.
· The third was a five per cent energy rate decrease for small commercial customers was also added.
· The fourth blow caused BEC to increase its debt percentage ratio by imposing an additional seven per cent energy rate reduction for large commercial customers.
· The fifth blow reduced a fuel recovery charge.
· The sixth was when their maximum demand for electricity occurred every six months rather than annually.
· The seventh involved customer deposits attracting only three per cent per annum interest, which threw the Corporation into financial duress.
Mr Neymour also outlined BEC’s key issues.
“Over the last two and a half years, I have repeatedly expressed a concern in every budget contribution for the financial position of BEC.
“In January 2010, for every dollar collected by BEC as revenue, approximately 78 cents of that dollar went towards paying BEC’s fuel bill,” explained Mr Neymour. “The receivables, essentially monies owed to BEC, were approximately $132 million. The payables, which are monies BEC owed to various suppliers including its fuel supplier, mounted to approximately $190 million.
“Another concern was late last year, as a result of BEC’s cash flow challenges, the Government had to make a one time direct payment to Shell, the fuel supplier, of $30 million. That was more than we paid to subsidize Water and Sewerage for an entire year and more than we subsidized Bahamasair.”
In addition to those costs, the Government had to guarantee a refinancing package for loans to BEC in the amount of $211 million.
“BEC is a public utility that requires significant funding for its operations. It also needs significant funding for its future development. The fact is that electricity demands throughout The Bahamas is growing,” said Mr Neymour.
By measuring the cost of capital from 1993 to today, the Dollar in 1993 was worth 73 cents to 2010’s Dollar.
Estimates prove that if the 5.25 per cent fuel surcharge tariff had not been eliminated after 2002, Bahamians would have benefitted from being grandfathered into a commitment to pay only 5.25 per cent on 73 cents. This price would be fixed, despite the upward movement of the retail price index, over the last 17 years, he explained.
“When we came into office, we analyzed all the developmental plans of BEC and we put the budgeted amounts to these plans. It amounted originally to $580 million. I am not talking small change here. These are the facts,” said Mr Neymour.
Terise Knowles (right) speaks with Minister of State in the Ministry of Environment the Hon Phenton Neymour at BEC’s Town Meeting on a new tariff hike at L W Young Junior High School.