Christie: FNM Dishonest about BEC's Money Troubles

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Former Prime Minister Perry Christie/ Leader of the Progressive Liberal Party (file Photo)

Nassau, The Bahamas – Allegations that the PLP was responsible for the losses expected this year at the Bahamas Electricity Corporation by the Junior Minister responsible for BEC, Phenton Neymour, were addressed this week in the House of Assembly by PLP leader and former Prime Minister, the Rt. Hon. Perry G. Christie.

Mr. Christie quickly pointed out the deliberate and misleading inferences made by Mr. Neymour and the FNM as to the cause of BEC’s losses. Mr. Christie reminded the House of the situation met at BEC in 2002 when the PLP took over where under the FNM, there was a systemic breakdown in responsible management of the facilities that led to numerous costly breakdowns and the issue of load shedding. Mr. Christie also pointed out steps made by the PLP to address these problems while at the same time, continuing to earn a profit. Mr. Christie pointed out the error in Mr. Neymour’s reasoning as it was Mr. Neymour who revealed the true cause of BEC’s losses in his initial address.

HERE IS A FULL TEXT of Mr. Christie’s remarks:

Response to Remarks made byJr. Minister Phenton Neymour To the Mid-Term Budget in the HOA February 28th, 2008 By The Rt. Hon. Perry G. Christie MP March 3rd, 2008.

On the Bahamas Electricity Corporation

Mr. Speaker, as was the case with the Water & Sewerage Corporation the Jr. Minister & MP for South Beach began his contribution on the Bahamas Electricity Corporation by attacking the PLP Administration for the recent losses at BEC. Mr. Speaker I shall shortly return to the issue of BEC losses and to explain that it was the Jr. Minister who in his contribution discloses the reason for the same. I should also remind Parliament that BEC by Law is restricted on the Level of Profits it can earn.

Mr. Speaker, before doing I would be grossly remiss if I did not remind this Parliament of the state of affairs my Government found at BEC when we came to office in May 2002 when load shedding was an ongoing major vexing problem.

BEC PRE-MAY 2, 2002

Mr. Speaker, at my Party’s Convention in November of 2002 the then Minister of Works & Utilities disclosed that a recent Special Review by Consultants of the power generation needs of BEC had revealed that BEC’s management needed to be more forceful in addressing shortcomings with employees, equipment, processors and vendors. It stated that generating unit availability is much lower than it should be. Average system availability had fallen from around 83% in 1997 to only 73% in 2001. Many major overhauls and periodic inspection had not been performed.

Further Mr. Speaker, the report disclosed that as a result of management’s negligence, chronic defects were often accepted instead of solved and repaired as long as the unit can still be operated. To put it in plain language, they let the engines run until they break down. Historical insurance audits indicated that maintenance has been lacking and the report called for additional technical talent needing at both Clifton Pier and Blue Hills.

Mr. Speaker, the study further revealed that the pattern of not diagnosing and not addressing problems at the Corporation had led to malaise and the growing acceptance of mediocre performance. ‘The will to manage the corporation is weak.’ The end result was that those employees who would wish to make a difference at the Corporation were normally discouraged.

Mr. Speaker, that was the sad conditions that my government met when we came to power in May 2002. The Minister & with a vibrant, energetic and committed Board headed by Mr. Alfred Jarrett moved quickly to begin the process of implementing the recommendations contained in that report.

Mr. Speaker, My Minister also disclosed that much of the plant at Blue Hills was aged and had for the most part exhausted its usefulness. Those Gas Turbines – Gas Guzzlers were far from being fuel efficient in the 21st century. It was declared that The Corporation must retire these units at the earliest possible time and we did Mr. Speaker with the State of the State of the Art Gas Turbines including a power saving Combine Cycle Plant at Blue Hills.

Mr. Speaker, Members and the Public may recall on June 20, 2003 during the 2003/04 Budget Debate, the then Minister of Works & Utilities provided this House and the Bahamian people with a comprehensive overview of major initiatives which were designed to ensure that the electrical infrastructure in New Providence/Paradise Island, as well as the 28 supply areas throughout the Family Islands would continue to keep pace with the ever increasing demand for electricity. The initiatives were intended to ensure that the quality of supplies and customer service would continue to improve and be maintained at world class standards. The then Minister said it is worthy of note that BEC’s power generation in New Providence over the then past three months has improved tremendously. Load shedding that summer was at a minimum.

Mr. Speaker, on September 19th, 2003 the then Minister of Works delivered a major Communication to this Hon. House wherein he advised that the Bahamas Electricity Corporation has reviewed the Tariff structure taking into account the benefits from the following initiatives: (1) Refinance of the Inter-American Development Bank financed loans with a projected savings per annum of $5.0 million. REFINANCING OF IDB LOANS – $128 MILLION

Acknowledgement Mr. Speaker, The assertion by that Jr, Minister the MP for South Beach that paying off and re-financing with a payment structure has severely impacted BEC’s cash flow negatively is at minimum ludicrous. The Euro has continued to rise sharply against the US Dollar. Anyone with basic knowledge of finance would not dare make such a baseless charge. The Facts on the Refinancing of the IDB $128 Million Loans.

Over the years the IDB has been very instrumental in the financing of most the Bahamas Electricity Corporation major projects. The IDB can be credited to a large extent for the project management competencies within BEC.

Review of Corporate records indicate that the refinancing of this loan by the consortium banks amortized over 10 years, based on LIBOR (1.125%) plus 1 1/8, will save the Corporation $5 million per annum in interest cost and eliminate the high exposure risk associated with this basket of currencies. During the past year, BEC lost $1.5 million due to the exchange exposure in US Dollars, which declined by 20% against the Euro. The last six (6) months’ rate paid to the IDB on Loan No. 560 (approx. $52 million) was 8.4% compared to the Euro dollar rate of $2.25%, a difference of over 6%. In addition to the substantial savings expected from the refinancing of these loans, the BEC will benefit from the purchase of an interest rate cap of 4½% from participating banks during the life of the loan.

(2) Benefits of new Fuel Oil Supply Contracts with savings per annum of $4.03 million.

(3) Improvements in fuel operating efficiencies with projected net savings of $18 million.

(4) Increased income on Fuel Tank lease of $1.237 million.

     The projected net increase in profitability for the Corporation in these measures is $28.3million.

The then Minister disclosed that the Bahamas Electricity Corporation would reduce the tariff on electricity to all customers in New Providence and the Family Islands effective October 1st, 2003 (the start of BEC’s financial year). This reduction will range from 8.6% for Small Commercial customers, 10.62% to Residential customers and 12% for Large Commercial customers.

INTEREST ON SECURITY DEPOSIT Mr. Speaker that then Minister all disclosed that successive Governments of the Bahamas promised to pay interest on security deposits in the utility corporations. That with effect from October 1, 2003 BEC will pay 3% interest on all customer deposits.
This exercise will cost the Corporation approx $700,000.00 based on current deposits. That was first of the utilities, the others would follow in due course.

Mr. Speaker, since the first time ever rate reduction in the history of BEC, I wish to inform this House of BEC’s financial performance for the years ended September 30th 2001 thru 2004 which discloses that the years following the reduction in rates BEC maintained its level of profitability. Year ended 30th September 2001 -17.1 million Year ———————– 2002 -10.5 million Year ———————–2003 – 11.1 million Year ———————–2004 – 14,1 million

Mr. Speaker, I now wish to return to the real reason for BEC’s decline in profits which can be summed in three words the unpredicted, unprecedented, “Escalating Oil Prices” on which the Jr. Minister provided details.

Mr. Speaker, During the 1994 Budget presentation the FNM Government without discussion with BEC’s Management, unilaterally levied a customs’ Tax of 10% on all Oil imported by the Corporation. This act, combined with the standard 7% stamp tax already charged on the Oil product, resulted in the Corporation paying an unbearable rate of 17% for its Oil usage. Although the 7% stamp tax is eventually recoverable, the 10% is not passed on to the Public.

Clearly Mr. Speaker, this has had an adverse effect with the unpredicted, unprecedented, Escalating Oil Prices in the past few years on BEC’s financial performance.

Rather than calling a spade and advancing the truthful & factual position that confronts BEC and the Bahamian people, the Jr. Minister instead sought to mislead this Parliament and the Public. Without question BEC cannot continue to absorb the 10% tax and would recommend that the Tax on all Oil imported by the Bahamas Electricity be repeal forthwith and if feasible be made retroactive for two years.

Mr. Speaker, I am very proud that the Government I led significantly discharged its commitment to upgrade and modernize BEC with the view of providing quality electricity supply to its customers in New Providence, Paradise Island and the twenty-eight supply areas throughout the length and breadth of The Bahamas. The plans left behind if followed will further strengthen the Corporation.