BPL hoping to capitalize on low cost of oil

With the price of oil on the global markets in the mid to low $20 range due to the COVID-19 pandemic, Bahamas Power and Light (BPL) is hoping to fuel hedge in order to bring down the cost of electricity for Bahamians, BPL Chairman Dr. Donovan Moxey said yesterday, adding that the company continues to work on finalizing the rate reduction bond amidst globally volatile markets.

Moxey said that while the successful placement of BPL’s bond would greatly assist the company in fuel hedging while prices are low, he explained that the company has a fuel hedging plan that does not consider the cash from the bond.

He said one scenario that does not consider the bond relies on financial backing by the government because hedging requires the security of liquidity, which BPL is hard-pressed for.

“When you do hedging you have to have a credit coverage for hedging and so we need the cash to do that,” Moxey said.

“Even if the bond rates, given the volatility in the market, are a little higher than you would typically expect, then you balance that against being able to lock in fuel prices for the long-term, then the net effect is you have a significant reduction in the cost of electricity for Bahamians.

“I never imagined in my mind that oil would ever get to this level. When we were talking about hedging, we were talking about essentially putting in a program where we could take advantage of hedging with fuel being where it was, which was in the 60s ($60). Now, you’re talking about fuel in the 20s ($20), which means that hedging now is extremely important to us.

“But again, it requires credit support, credit support requires cash and cash basically comes in the form of the bond offering.

“We can actually do some hedging without that, provided we have appropriate support from government. So, no, the bond is not required for hedging at all.”

Moxey said the bond remains an important goal for the cash-strapped BPL, however, explaining that the volatility in the market could be a silver lining for the uptake of the $650 million bond.

“The good thing about it is this though, if you look at the markets, folks are moving money out of equities and they’re looking for safer havens for their money,” he said.

“Well bonds are safer havens at this point in time for money, because bonds give you a fixed coupon return rate. It may not be as high as the market, but right now the markets are very, very volatile.

“So you have a lot of investors, especially institutional investors, who play for the long-term, looking for places to put their money.”

He said there will be small windows of opportunity for BPL to present its bond to the markets while they are topsy-turvy, but the bond package will have to be approved by Cabinet first.

“Our approach on this bond is we’re still moving forward with preparing all the documentation as part of this bond package that’s required,” Moxey said.

“And obviously as we do this as an organization, final approvals in terms of taking this to the market are required from the Cabinet.”

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