The government intends to make $10 million payments to Shell each month for nine months to satisfy Bahamas Power and Light’s (BPL) debts to its fuel supplier, Minister of Works and Utilities Alfred Sears said yesterday.
Sears said with this arrangement in place, BPL’s arrears with Shell will be eliminated while the incremental increase in the fuel charge in the country announced by Prime Minister Philip Davis on Tuesday allows BPL to meet its current fuel bill obligations.
Sears said the government has been assisting BPL through various financing arrangements.
“A firm arrangement has now been arrived at whereby as of 1st October, 2022, the government will make a monthly subvention of $10 million to Shell to be applied to BPL’s arrears,” Sears said during a communication in Parliament.
“This arrangement will continue to June 2023. It is important to note that BPL, as it has been doing, will continue to meet current charges from Shell.
“The net effect of these arrangements will be the elimination of arrears, while remaining current with payments for fuel from Shell.”
Because the government chose not to increase the fuel charge as the price of oil increased globally after the start of Russia’s war in Ukraine, BPL’s fuel hedge, which Chief Executive Officer Shevonn Cambridge said did not provide the savings that was intended, turned into a financial burden for the power company with the fuel charge kept at 10.5 cents per kilowatt hour.
“The government cannot continue to subsidize the fuel charge and the fuel hedging policy adopted in 2020, when supply outpaced demand and prices were considerably low, is no longer realizing the same benefits as before,” said Sears.
He added: “… At the time (2020) the fuel hedge worked in our favor. The global slowdown meant that supply was higher than demand driving down prices.
“During this time, we enjoyed a prolonged period of low fuel costs and was able to benefit from hedging.
“Without going into the methodology associated with fuel hedging, within the last twelve months fuel prices have increased globally at an astounding rate due to the global economic and political shocks. In fact, the fuel used to generate electricity now costs about 100 percent more than it did a year ago.”
He added that a fire that eliminated of one of BPL’s engines that burned the cheaper heavy fuel oil and the introduction of new engines that burned more expensive diesel fuel, “eroded the benefits of the hedge strategy and placed BPL in a spiraling cash crisis”.
Sears explained that if the increase in the fuel charge is not introduced, BPL would fall off of the financial cliff it has teetered on now for years.
He added that the power company has to move towards a mixture of cleaner fuel options and sustainable power sources in order to continue to survive as a company.
“BPL is on the precipice of financial fallout if we do not act immediately to align the fuel charge with current global fuel prices, ensure reliable sources of clean, affordable and sustainable energy and move to reduce our reliance on fossil fuels, as promised in Our Blueprint for Change,” he said.
Sears contended that the changes that have been made to BPL’s fuel charge are not intended to “enrich” the power company, but to restructure the pass-through fuel charge so it is aligned with the market price of fuel.