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Monday, July 6, 2009

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BEC board wants rate increase By JUAN McCARTNEY ~ Guardian Senior Reporter ~ juan@nasguard.com: The board of the Bahamas Electricity Corporation (BEC) has asked the government on several occasions — and as recently as last month — to approve a rate increase that will allow the company to recoup the heavy losses it has suffered since the tariffs were lowered in 2003, The Nassau Guardian understands. BEC board chairman Fred Gottlieb confirmed that the board is in favor of an increase. "The board of BEC would like to see a tariff rate increase to bring it in line with the economic cost of producing electricity," Gottlieb said yesterday. "However, it would be up to the government to make the final decision and it is understood that the government may have to take other factors into account in arriving at its decision." Gottlieb refused to comment on whether the board has asked for the increase, or answer any further questions The Guardian put to him. However, a source close to BEC's financial operations who is not authorized to speak on the matter said that the board has been agitating for a rate increase for several months, and though the government is considering the increase it has been reluctant to do so given the poor state of the economy. The International Monetary Fund's (IMF) 2009 Article IV consultation said that the government has indicated that it will consider a rate increase in the future. "Government-imposed rate reductions and customer relief programs have contributed to growing operational losses since 2006," the report said. "Discussions of a rate increase to cost recovery levels are on the government's agenda for the coming year." The source said that given the information in the IMF report and recent statements by Minster of State for Finance Zhivargo Laing about the extent of BEC's debt, Gottlieb and the rest of the board have not gone far enough in pressing the government for the rate increase. "At the end of the day the money has to come from somewhere, so if BEC does not increase its tariffs it will not break even. It will operate at a loss and that loss will have to be subsidized by tax dollars," the source said. It has also reportedly been suggested by some on the board that the government should assist those consumers that cannot pay their electricity bills by giving subsidies to those that qualify, rather than allowing BEC to continue as a loss-making enterprise, which is in line with what consultants that were hired by BEC almost two years ago recommended. The Guardian also understands that PA Consultants, which was hired by BEC's board to conduct an audit of its operations, conducted a tariff review of the corporation and made various proposals related to increasing rates at BEC. Minister of State for the Environment Phenton Neymour said in an interview with The Guardian in April that, "the government is in the process of reviewing that amongst other matters, so as to turn around the financial position of BEC right now." "These are extremely challenging economic times and to increase the rates at BEC at this time may be extremely challenging to the Bahamian consumer, and so all of those factors have to be taken into consideration [before we] put in place our action plan for BEC," Neymour said. He added that since the former administration reduced rates at BEC in 2003, the corporation lost approximately $20 million a year as a direct result. During debate on a resolution to guarantee $211 million worth of loans that BEC was in danger of defaulting on, Minister of State for Finance Zhivargo Laing said that BEC now has more than $512 million in obligations, which it will be hard pressed to meet. Those obligations include the $211 million loan package, more than $255.7 million in capital projects it has already committed to, and approximately $46 million to pay off vendors BEC currently owes. Additionally, Laing said the corporation requires another $50 million in working capital to cover the $3 million to $4 million deficit in cash flow that BEC reportedly runs on a monthly basis. Included in that capital projects cost of $255.7 million is $136 million for a planned expansion of the Clifton Pier plant which has not yet begun. In the House on Monday, Neymour said that as of April, BEC owed more than $134 million to its creditors. Of that $134 million, Neymour said $38.2 million is owed to foreign vendors (with $27.62 million being owed to Shell Gas Company), government vendors — primarily the Customs Department — are owed more than $29.3 million, and local vendors are owed nearly $6.7 million. Neymour said that while the corporation owes many millions, it has so far not collected from its debtors to the tune of $99.3 million. The Water and Sewerage Corporation owes BEC more than $10 million of that amount, according to Neymour, who also said that private companies owe the government entity almost $57 million. Laing said on Monday that BEC's $512 million in obligations was only a reflection of the "most dire circumstances of the corporation". Wednesday, July 1, 2009