Mr. Speaker:

 You may recall on September 17, 2003 during the announcement of the electrical rate reductions to all of the Bahamas Electricity Corporation’s customers in New Providence/Paradise Island, as well as the 28 supply areas throughout the Family Islands, I informed this Honourable House and the Bahamian people that a Government Guarantee was necessary for the Refinancing of the $128 million IDB loan.
 I am therefore pleased to move for the adoption of the following resolution…
 Mr. Speaker, the resolution clearly points out that BEC has found it desirable for the better performance of its functions under the Act to refinance its loans with the Inter-American Development Bank (IDB).
 Mr. Speaker, the letter of undertaking duly executed by the Hon. Prime Minister and Minister of Finance committed the Government to provide its guarantee as security for this loan within 30 days of the execution of the facility agreement.  Should the guarantee not be delivered within the 30-day period, the rate of interest on the loan would be increased by 25 basis points upon the expiration of such period, (but retroactive to the date of draw down of the loan) until such time as the guarantee and all necessary Government approvals had been provided.
 Mr. Speaker, the inordinate delay in the past in providing the Government formal guarantees has been a major concern of banks.  My Government has determined that we will take the issue to a higher level.
 Mr. Speaker, the guarantee sought by the resolution before us today merely seeks to replace the guarantee provided to IDB with a guarantee to the consortium  of five (5) banks who are party to the facility agreement.
Why Replace IDB Loan with Loan From Consortium of Banks
 Mr. Speaker, in May 2002 a new PLP Government headed by Hon. Perry Gladstone Christie was elected to govern the Bahamas following a landslide victory.  We in the PLP were aware  as were the people of the Bahamas that BEC was not meeting its mandate to the residents and the business community in our land.
 Great care was taken in the selection of the now Board of Directors for BEC.  Mr. Alfred Jarrett, a distinguished banker and businessman was selected as Chairman, the Rev. Dr. James Moultrie, a former MP, diplomat and Anglican priest was selected as Deputy Chairman.
 Mr. Speaker, one of the very first items the Board drew to my attention was the high level of interest BEC was paying on its long term debt with IDB.  Further, it was also drawn to my attention that one of the loans comprised a basket of foreign currencies including the Euro (12 currencies), the Yen, the Swiss Francs and US dollars.
 Mr. Speaker, I gave instant approval for the Board to explore a replacement loan that would have eliminated major exchange risk on the basket of foreign currencies and rate of interest reflecting the realities of the times.
 Mr. Speaker, as the Board began to pursue this mandate, BEC Management drew to the Board’s attention that previous Boards under the FNM Government as far back as 1995 sought to obtain the FNM Government approval to refinance the IDB loans up and until the beginning of 2002, primarily to reduce exchange risk not the reduction in interest rates.
 Mr. Speaker, a reading of the BEC Board’s minutes from 1995 to 2002 clearly confirms the inability of the FNM Government to provide effective and progressive management of BEC finances.  In my opinion, the record confirms that the former FNM Member of Parliament for Montagu and Minister of Finance Sir William Allen was terribly indecisive,  a bungler, a bad money manager.
 This issue, Mr. Speaker, was bounced from pillow to post, from committee to committee to advice from international experts.  Yet no decision was taken by Sir William Allen and his Government.  Millions of dollars  in exchange losses and high interest rates were poured down the drain, as a result of the FNM Government’s failure to take a decision that would be obvious to a first year college student studying economics or accounting.
 In early 2000 BEC’S Management held talks with the IDB, who expressed concerns about the option proposed by BEC to refinance all outstanding loans with IDB.  The financial models from IDB were reviewed and the results were not accepted by BEC.
 Mr. Speaker, a reduction in electricity rates could have been achieved years ago, but what did the FNM Government do?  They failed to take a decision to refinance the IDB loans  but in addition to that they imposed heavy new taxes on BEC.  The Corporation was obliged to pay customs duty on its fuel imports and stamp tax on other items for the first time in its history.  These new taxes for BEC’s in fiscal year 2002 totalled $20,800,000.
 Mr. Speaker, BEC had four loans from the IDB.
First Loan Contract 560/OC-BH
 The first loan was dated May 16, 1990, a facility denominated in various currencies with an original equivalent of US$109 million.  The loan was repayable in US$ in semi-annual consecutive and equal instalments.  The first payment on May 16, 2010.  This was a 16 year loan.
Second and Third Loans Contract 659 and 660 OC-BH
 Dated March 31, 1993 for US$28 million and US$3.8 million.  These loans were repayable within 20 years with semi-annual, consecutive and equal instalments, to commence in September 1999.  The rate of interest payable are determined by the IDB based on the daily outstanding balances of the loans at a rate per annum for each semester, plus a spread.
Fourth Loan Contract 964/OC-B11
 Dated April 4, 1997 for US$56 million, the loan was repayable within 20 years by semi-annual equal instalments.  The first instalment is due 6 months after final disbursement and the final instalment shall be paid no later than April 4, 2017.  The rate of interest is determined by IDB and is based on the average borrowing cost to the bank, plus a spread.
 Mr. Speaker, the interest rates on the IDB four loans on the payout date were as follows:
LOAN  NUMBER  AMOUNT  INTEREST RATES NEW RATE DIFFERENCE
   1           560       $51.3M             8.4%             2.3%            6.1%
   2        659       $18.5M             5.27%           2.3%            2.97%
   3           660       $1.8M               5.27%           2.3%            2.97%
   4           964       $50.3M             5.39%           2.3%            3.09%
 
Mr. Speaker, contrast the interest rates I have just mentioned with the new interest rates which are fixed at three months LIBOR (London Interbank offered rate) plus 1.1/8 % (spread).  For the three month period Nov. 21, 2003 to Feb. 21, 2004 LIBOR was fixed at 1.17% plus 1.13% (spread) gives a total interest rate of 2.30%.  Further, Mr. Speaker, there will be no principal payments due during the first six months of the loan.
Mr. Speaker, The refinancing of the subject loans could not have been timelier for the following reasons:

I. Basket of Currencies

The loans were carried in a  portfolio of basket of foreign currencies including:

(i) The Euro (twelve (12) currencies)
(ii) The Yen
(iii) Swiss Francs
(iv) US Dollars

During each repayment period of 3 months the IDB would make a determination of which currency unit they would wish to receive principal and interest payments.   Usually they would choose currencies which best favour their books during the quarter.  However, historically the most predominant currencies quoted were: Yen, Euro and US Dollars.  Exchange and interest rates were then determined from their internal unit and passed on to BEC.

II Fluctuations in Exchange Rates vs US Dollars

During the past twenty (20) months the US Dollar rate has been showing major declines against all of the foreign currencies mentioned.  The following spot rate recaps would show these trends:-

Currencies vs US  Dollars
 Mar. 1, 2002 Dec. 2002 Dec. 8, 2003 Difference % Decline
EuroJapanese YenSwiss Franc .86133.461.71 .999N/AN/A 1.22107.651.47 -36-26-24 42%19%14%
 

The above decline in these currencies against the US Dollar during the periods indicated would show the significant increases in the cost to purchase currencies to repay the IDB loans.  For example, the Euro strengthened by over 48% against the dollar from the year 2002.

III  Interest Rate Cap

BEC has also been prudent in purchasing an interest rate cap from Scotia Bank in so doing the Corporation has protected itself from any major increases in the Euro-Dollar rates during the next five (5) years.  The cap will guarantee that BEC will not pay more than a gross rate of 4 ½% on its loan during the period.  Any increase in interest rates above 4 ½% will accrue to the Corporation by the Bank.
IV.    Mr. Speaker, one may ask what are the major Advantages  of Refinancing the loans

· Significant savings in interest rate to BEC

· Significant savings in exchange rates

· Significant potential savings in the country’s external rates reserves position

· Improved profitability and cash flow to BEC

· Systematic and predictable rate structure with

· quarterly payments in same currency purchased at par from the Central Bank.

· More flexibility to do business with other countries

Mr. Speaker, I am advised that the prepayment of these loans to IDB is unprecedented in the history of the Bank.  I am further advised that in light of BEC’s decision to prepay all of its loans with the IDB the Bank has announced new standard loan charges for new loans, fully disbursed loans currently being repaid, and for loans now in disbursement the lending spread will be 30 basis points.   For the semester 1 July 2003 to 31 December, 2003 the lending rates announced for loan in execution and those in the repayment phase are as follows:
For Currency Pool Loans, Variable rate               4.85%
For Single Currency Facility Loans (US Dollar)     4.96%
In addition, for active loans in the portfolio, the Bank has announced the reduction of the Credit Fee from 0.75% per annum to 0.25% per annum of the undisbursed loan balance; and a permanent waiver of the Inspection and Supervision charges (FIV).
 Mr. Speaker, my Government is personally delighted that IDB was so motivated by BEC’s decision to prepay all of its loans because of the serious implication for past and future huge currency losses and the downward international trend in the interest rates has done the right thing by reducing rates to its many customers.
 Mr. Speaker, the Bahamas Electricity Corporation is one of the public corporations for which I hold ministerial responsibility.
The Progressive Liberal Party “Our Plan” Pledge To create efficient public utilities and in regard to Electricity it was clearly stated that my Progressive Liberal Party government would:

· Continue the upgrading and maintenance of generating plants to reduce load shedding.

· Reduce the cost of electricity services to remote customers.

· Respond quickly to complaints and claims of consumers whose services have been interrupted or appliances damaged.

· Pay interest or give equivalent credit on customer deposits.

· Ensure in the event of privatisation, Bahamian control.

Our Plan clearly outlined the governments and the Bahamian community’s expectation of BEC. Additionally, Mr. Speaker, under the heading Rescuing the Economy, it was clearly stated that:
 “A primary economic objective of the Progressive Liberal Party government will be to create a sound economy upon which a high quality of life for all can be maintained.
The Progressive Liberal Party will: Serve as a catalyst for economic growth and development providing first and foremost a secure and harmonious environment in which the private sector can flourish.”
Mr. Speaker, The tourism industry in a taskforce report contended that the Bahamas Electricity Corporation tariff structure was one of the main reasons for the uncompetitive Bahamian tourism sector.
 Mr. Speaker, these undertakings outlined in ‘Our Plan” are compatible with the Bahamas Electricity Corporation’s Vision and Mission.

BEC’S CORPORATE VISION, MISSION AND CURRENT OBJECTIVES

BEC Vision is:
“To remain the number one public corporation in the Bahamas, and to rank among the best utilities of our size and character in the region.”
The Corporation’s main objectives this year were to change the culture of BEC to be more proactive and productive in order to truly achieve that vision.
BEC Corporate Mission is
“To secure a safe, reliable cost-effective supply of electricity and to obtain an income sufficient to:
(a) Recover all costs, including debt service,
(b)  Provide a reserve fund and
(c)  Self-finance some of its capital projects.”
Some of these objectives were:
1. To become more cost efficient and effective in managing the cost of doing business, including bank loans, purchasing of goods and services, purchasing of fuel oils, better managing its human resources etc.

2. To establish a more proactive preventative maintenance programme during winter months and timely replacing old plants where feasible to achieve more cost efficiency in oil usage.

3. To improve customer service with the introduction of new initiatives such as:
· the Interactive Voice Response (IVR) System and
·  the Corporation’s Automatic Meter Reading programme.

4. To implement a High Performance/Performance Management Programme (to be signed off by the Unions) to better manage and measure staff performance, which should result in improved productivity in the Corporation.

5. To make the Corporation more profitable.

6. To place more emphasis on training and development at all levels.

7. To significantly reduce the unacceptably high receivables.

The Bahamas Electricity Corporation is one of the public corporations, in my view, that is held to international standards for the cost and quality of service it renders and is quickly admonished and criticized when it fails to maintain those standards. I am happy to say they have taken up and are delivering on the challenge to provide reliable and cost effective electrical supply.
In keeping with its Vision and Mission the Corporation has developed the listed strategies that can or have already had significant impact on the cost and quality of the service it provides:
1. To refinance of the IDB loan
2. To install efficient generating plant
3. To upgrade the Transmission and Distribution System
4. To upgrade of generation and Distribution systems in the Family Islands
5. To introduce an Interactive Voice Response System
6. To introduce an Automatic Meter Reading System
7. To negotiate new Fuel Supply Agreements
8. To negotiate a new fuel tank lease agreement
9. To introduce a Demand Side Management Unit
MAINTENANCE
The aggressive annual corporate-wide Planned Preventative Maintenance Programme, has again been intensified during these the off peak months between October and June. The major overhaul of the Combined Cycle unit at the Blue Hills Power Station is currently in progress with all of the scheduled power plant and transmission and distribution maintenance programmed for successful completion in time to enable BEC to provide reliable power throughout the 2004 summer peak period.

SYSTEM PERFORMANCE – SUMMER 2003
Improved maintenance coupled with good management practices and timely decisions to replace old plant, in particular the replacement of GT8 at Blue Hills with a new gas turbine, has resulted in the reduction of outages and an increased availability of plant.  Mr. Speaker, as mentioned earlier, we are therefore happy to report that this past summer has been one with minimum load shedding.  Mr. Speaker, load shedding occurred only one day this summer in New Providence.
Going forward Mr. Speaker, the Corporation is gearing up to improve even further on the performance of last summer.

TRAINING AND DEVELOPMENT

BEC realizes that training and development is vital, if continuous improvement in overall performance is to be realised.  In this regard additional emphasis is being placed on training at all levels. This includes managerial training, development of engineers and accountants, recruitment and training of apprentices, local training by manufacturers’ representatives, training at manufacturers’ works, and customer service training, etc.
Mr. Speaker, BEC’s  present General Manager, Mr. Bradley S. Roberts will retire from the Corporation in February of next year.  The Board of Directors has conducted an in-depth review and has selected Mr. Kevin Basden one of the acting Deputy General Managers, to become the General Manager designate.  Mr. Bradley S. Roberts has had a long and distinguished career with the Corporation, having advanced from the entry level stage to becoming the General Manager and we wish him well in his retirement.  Mr. Kevin Basden, on the other hand, is a third generation of Basdens who have given long years of outstanding service to the Corporation.  We wish him well in his new appointment.  Mr. Speaker, the Board will shortly be making announcements regarding other promotions at the Corporation.

INDUSTRIAL AGREEMENT UPDATE
The Corporation is presently negotiating a new industrial agreement with the Bahamas Electrical Workers Union.  The negotiations are at an advanced stage and BEC’s emphasis is on the High Performance and Salary Administration System.  This is a merit-based system that links pay increases to performance of the individual employee and the performance of the Corporation.  It is envisaged that the new industrial agreement would be completed very shortly through the combined effort and spirit of cooperation between the management and union.
TOTAL INSTALLED PLANT NEW PROVIDENCE

The installed generation capacity in New Providence is 327 megawatts.  The maximum load (peak load) measured to date is 201.5 megawatts.  In order to keep up with growth due to ongoing developments, the Corporation carries out both short term and long term load forecasting. In line with planned improvements and upgrades, BEC will have sufficient capacity to supply Kernezer International and other developments.

NEW PROVIDENCE
GENERATION
Mr. Speaker, in New Providence, two new items of generating plant were into operation. At the Blue Hills Power Station a twenty-three, (23MW) megawatt ultra modern gas turbine unit was successfully commissioned in July 2002. A 30-megawatt slow speed diesel engine, D/A12, at Clifton Pier has been completed.  The reliability run was somewhat problematic nonetheless the unit has in operation at reduced output of twenty-six megawatts. Steps are being taken to address the reliability issues in accordance with the supply and installation contract.
The installation of the two modern gas turbine units will increase output and significantly improve fuel efficiency.

Additionally, it is intended to utilize the exhaust gases from these two gas turbine units (GT4 & GT8R) to produce steam in waste heat boilers which will drive a steam turbine to produce an additional 20 megawatts of power without the need to burn additional fuel. (i.e. the combination of the two gas turbines along with the waste heat boilers and steam turbine will comprise a “Combined Cycle” unit).

Negotiations of a supplier financed contract have been completed with Sumitomo and Kawasaki for the supply and installation of this Combined Cycle unit, which is scheduled to be in operation by July 2005, will result in significant fuel cost savings to BEC. Mr. Speaker, the Combine Cycle unit will cost $30 million and is being supplier financed over a five-year period with out a government guarantee. Mr. Speaker, this speaks clearly to the confidence that the local and international business community have in the Bahamas Electricity Corporation and the fiscal prudence of this government.

FAMILY ISLANDS
Initiatives in the Family Islands to date have been dominated by projects in Exuma, which were mainly to accommodate the new Emerald Bay Four Seasons Resort. Other significant projects are in progress in the Family Islands that are demanding significant resource scheduling and allocation, (i.e. the Emerald Bay and Crab Cay projects in Exuma and other touristic developments in Abaco, Eleuthera, Rum Cay and other Family Islands.)
REFINANCING OF IDB LOANS - $128 MILLION

Acknowledgement

Over the past seventeen years the Inter-American Bank (IDB) has been very instrumental in the financing of most of the Bahamas Electricity Corporation major projects. The IDB can be credited to a large extent for the development of project management competencies within BEC.
The Inter-American Bank (IDB)
The first BEC project financed by the IDB in 1986 was the Family Island Electrification programme Phase 1.
Between 1988 and 1992 the New Providence Power Expansion Programme Phase 1, which included the supply of two 26 megawatts slow diesel engines at Clifton Pier Power Station and related transmission and distribution works was financed mainly by a $109 million IDB loan.
Also the Family Island Electrification Programme Phase 2 received most of its funding via a $31 million IDB loan.
Finally, the New Providence Power Expansion Programme Phase 2, which included the supply of a thirty-megawatt slow speed diesel at the Clifton Pier Power Station and the related transmission and distribution works at a cost of $56 million was also financed mainly by the IDB.
Loans currently financed by the IDB are as follows:
· Loan 560/OC-BH totaling $51,332,025.88
· Loan 659/OC-BH totaling $18,518,810.11
· Loan 660/OC-BH totaling $1,837,140.51
· Loan 964/OC-BH totaling $50,299,241.57
Mr. Speaker, as mentioned earlier, a Consortium, consisting of Lead Bank of Nova Scotia, and members, First Caribbean Bank, Royal Bank of Canada, City Bank, and Bank of the Bahamas have agreed to refinance the $128 million IDB loan. 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 the basket of currencies in which the loan was denominated.  During the past year alone, BEC lost $1.5 million due to the exchange exposure in US Dollars, which declined by 48% against the Euro since 2000.
 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%.
Mr. Speaker, you may recall that during my presentation on the BEC rate reduction, that BEC projected annual savings over the next several years to the rate reduction to be sustained. In particular over the course of the next fiscal year BEC has projected savings of some $28.3 million, through the introduction of the following initiatives:
In this regard it should be noted that to realize the rate reduction and pass on the savings:
· Recent commissioning of more fuel efficient generating plant
· New fuel oil supply contracts
· New fuel tank farm lease agreement
· Introduction of the high performance work place
· Refinancing of the IDB loan
Mr. Speaker, it is projected that the refinancing of the IDB loan by the Consortium of local banks will result in savings of some $5 million per annum over the next ten years. The $128 million will be disbursed as follows:
· Pay off all IDB loans  $121,977,218 million
· IDB legal cost   $     1,500,000 million
· Interest Rate Cap  $     2,830,000 million
· Automatic Meter Reading $    1,692,782 million
Total     $128,000,000 million
Mr. Speaker, as previously mentioned, all of outstanding the IDB loans are secured by government guarantee; the refinancing package also requires a government guarantee. I therefore conclude my submission by requesting  Parliament’s approval of a government guarantee to secure the refinancing of this $128 million loan package to enable finalisation of the loan agreement with the consortium.
 Mr. Speaker, it is clearly the proper thing to do.  It should have been done a long time ago.  I am therefore pleased to move for the adoption of the resolution.