Bec Preferred Bidder To Gov’t ‘Within Week’

Friday, November 28, 2013

By NEIL HARTNELL – Tribune Business Editor,

The Government should “within the next week” receive recommendations as to who the preferred Bahamas Electricity Corporation (BEC) bidder(s) should be, Tribune Business was told yesterday.

Simon Townend, a KPMG (Bahamas) partner and head of its corporate finance arm in the Caribbean, said the accounting firm and other advisers to the BEC reform process had “got our heads down” analysing the six bids that were submitted by the November 15 deadline.

Together with DNV Kema, the technical adviser, and US law firm Hogan Lovells, Mr Townend said the trio were now “formulating our recommendations to the Government”.

Four generation, and two transmission/distribution, bids made it into the so-called ‘pricing round’, and Mr Townend told Tribune Business: “I think we should be making our recommendations to the Government soon; within the next week.

“There’s a lot of moving parts with respect to the bids, and there’s a lot of technical aspects to it, not least fuel types, fuel mixes and so on.

“So there’s a lot of analysis and evaluation of bids on a wide range of other issues and proposals, and we’re coming up with recommendations on the way forward,” the KPMG partner added.

“There’s some pretty well thought-out and mature bids, but it’s quite a complex transaction notwithstanding all the issues surrounding the debt, the legacy liabilities, the environment, and we’re trying to address those things and figuring out a way forward. I think we’ve made very good progress to date.”

Mr Townend recently told a Bahamas Institute of Chartered Accountants (BICA) conference that BEC had potentially massive environmental liabilities, in addition to a $350 million debt mountain and $81 million employee pension fund deficit.

“We have these very significant environmental issues, not least at Clifton Pier, but elsewhere. These environmental issues have built up over many, many years,” he said.

“It’s going to take a lot of work and money to figure out what the damage is. It could be $40 million, it could be $80 million, it could be over $100 million to sort out the environmental issues. But we don’t know what the figure is until the work is done.”

Mr Townend yesterday clarified his comments on the environmental liabilities, stating that all bidders had been made well aware of their existence via the tender process and data provided, coupled with site visits.

Implying that their existence was unlikely to impact bidder price offers, Mr Townend suggested that the financial burden of dealing with BEC’s legacy environmental liabilities would likely be shared between the winning bidder(s) and the Government post-restructuring.

Disclosing that some kind of structured fund, with proper rules and governance, would be created to take care of the situation, he added that bidders were being required to support any clean-up efforts required and “contribute funding to remediation”.

“Money will be set aside for dealing with the environmental liabilities,” Mr Townend told Tribune Business. “We see it as there being a remediation fund and governance structure around the environmental remediation process.

“The first issue of the day is to quantify it, and identify the sites, then establish a response over time and come up with what needs to be done to remediate.

“The Government fully recognises this is something that needs to happen. There’s nothing opaque about that.”

The Government is hoping to use BEC’s split into two, a generation and transmission/distribution entity, to get some $223 million in debt it has guaranteed on the Corporation’s behalf off its balance sheet.

Looking at the wider potential benefits for the Bahamian economy, Mr Townend said: “I don’t think anyone would debate that the reform of the energy sector is critical.

“It’s critical to bring down the cost of power, both for social and economic development reasons.”

While the BEC bidders have never publicly been disclosed, Tribune Business previously revealed that one bid on the transmission/distribution side included an all-Bahamian group, Northern Bahamas Utilities.

Its members include Carlton Bosfield, the former technical services director, and environmental, safety and security director, at Grand Bahama Power Company, with 36 years in the electric industry.

Other Northern Bahamas Utilities Board members include Rodger L. S. Johnson, Grand Bahama Power’s former community and customer relations director, and transmission and distribution director, plus Alexander Brown, the utility’s former electrical and controls engineer.

Another director, according to the company’s website, is Leon Cooper, Grand Bahama Power’s former technical services manager, and plant maintenance manager.

Sources close to the process confirmed that the Bahamian group’s bid also involved former Grand Bahama Power Company general manager, Ken Rosanski, and they were said to have partnered with one of two US electrical utilities, Carolinas-based Power Secure or Pike Electric Company.

On the generation side, one bidder is the Caribbean Power Partners consortium, headed by Texas-based Taylor Cheek and featuring Fluor Corporation and ProEnergy Services.

The other three generation bids are unknown, although there has been ‘talk on the street’ of bids from China and Asia.

Tribune Business sources with political contacts/connections have repeatedly suggested that Malaysian conglomerate Genting, which is behind the controversial Bimini development, has been lined up to get at least one of the two BEC contracts.

It is unclear, though, whether Genting is participating in the bid process. The timeline calls for the Government to conclude negotiations with the winning bidder(s) by Christmas/New Year, pass legislation to facilitate energy liberalisation come early 2014, and then hand BEC over come May next year.