||Last Updated: Nov 30, 2018 - 8:01:28 PM
The Hon. Philip Brave Davis
Amendment To The VAT Act (2018)
(VAT Exemption on Electricity Bills up to $300)
House Of Assembly
28th November 2018
Thank you Mr. Speaker for recognizing me.
Let me say from the onset that any relief is welcomed by us, however small – even if it is a band-aid approach that will provide temporary relief. Even though this amendment is a political ploy to veil ineptness, we nevertheless support the relief in the form of a VAT exemption because some Bahamians will benefit, however short term.
I wish to point out, however, that until and unless the government comprehensively and quickly addresses the challenges pointed out by the member for Carmichael, this temporary relief will be just that – a band-aid over a gaping bleeding wound that requires radical surgery.
With this exemption, the government is simply giving with one hand and taking away with the other due to downward fiscal pressure on government day to day operations. This is unsustainable Mr. Speaker.
Further, for technical, accounting and administrative reasons, exemptions in a tax regime such as VAT are expensive propositions, not to mention a complicated administrative nightmare. It is always better and more cost effective to look elsewhere to bring relief. That discussion is however better left for another time.
This government has distinguished itself for diagnosing and describing problems, but falls woefully short in offering or executing any sustainable prescription.
This FNM government reminds me of the former king and queen of France, King Louis XVI and Marie Antoinette. The people are hurting, hungry and restless. Give them bread said King Louis. Marie said if there is no bread, then feed them cake.
It has been eighteen into this government’s administration and Bahamians continue to pay for the mismanagement and missteps of this clueless government. The mismanagement and missteps at BPL continue and the Bahamian people continue to pay dearly.
The challenges spoken of by the member for Carmichael, has been around for a long time. We recognized them when we came to office...
When the FNM took office in 2017, they met in place an ambitious energy reform program the PLP started in August 2013. The objectives were to realize significant and sustainable reductions in the cost of energy, a financially healthy electrical utility company, increased energy security, improved reliability of energy, better customer service, more responsible environmental attention, and, ultimately, increase our competitiveness and marketability as a country. It is a process of true reform.
A new legislative regime and a new Act/RRB Act to address the legacy debt.
Alas the mantra of STOP, REVIEW, CANCEL derailed that process. Institutional knowledge was discarded and replaced with an ill-thought out ad-hoc plan veiled in a fundamentally flawed Request For Proposal (RFP) that resulted in a Memorandum Of Understanding (MOU) with Shell North America – a fuel supplier.
Last week the Prime Minister sought to justify this MOU signed with Shell by indicating that there was an independent analysis that revealed some missteps that he said were immaterial to the process. We asked for the tabling of this independent report and remain hopeful of the tabling of said document through the course of this debate.
I said an ill-thought out and ad-hoc plan because a fuel supplier was engaged – not a power or energy producer. This raises the concern of how certain we could be of the price of power. We do not know what plant would be erected – for example, would it be a pant erected by General Electric, Wartsila or Burmeister and Wain (BWSC) Power Plant Development, Construction and Operation.
Additionally Mr. Speaker, the capital and amortization costs are key ingredients to be included in the PPA rate. To date these critical empirical data are wholly.
Having discarded the reform process and ridding yourselves of persons who had the institutional knowledge not only of BEC - but knowledge about the reform process – BPL descended into utter chaos and one big ball of confusion with political interference, allegations of wrongdoing, and possible corruption – leading to the board being disappointed and the appointment of a new board that curiously kept certain members of the disappointed board at whose feet laid most of the allegations.
This left no doubt as to whose side the government chose.
All the while, a grossly expensive Voluntary Separation Package program was being prepared – as high as $70 million in value – in addition to the destruction of two power generation units by fire at the Clfton Pier facility – again through mismanagement and/or inadequate maintenance.
Much has been said about the cost of fuel and its contribution to the high cost of electricity – but is this really so?
The Minister with responsibility for BPL very helpfully explained the methodology that is employed for billing. There is the base rate that is fixed and there is the surcharge.
The Minister gave an example of the calculation using the month of October:
BPL SPENT $34 million on fuel and this SPENT amount produced 156 million KWH of power which works out to roughly 19.5 to 21 cents per KWH.
I do not share the view that we should be placing emphasis on what is spent on fuel but rather on actual fuel consumption. In other words, how much fuel is actually consumed or burned to produce 156 million KWH? What is the fuel efficiency rating? This is what you should be looking at. If you do, I am satisfied that you would find much savings there that could be passed onto the BPL customers.
During our time in office, fuel cost, overtime pay and maintenance costs were huge operational and management challenges that were aggressively attacked in the reform process that was bringing relief. I imagine these challenges still exist and should be aggressively attacked.
I am also concerned that the Voluntary Separation Package has produced redundant operational inefficiencies in service delivery and overall productivity. The increased cost associated with these inefficiencies will certainly tax the pockets of BPL customers and taxpayers generally.
During our time in office, there was a dramatic reduction in the surcharge. In fact, the fuel charge has fallen from 27.7 cents per kWh in October 2014 to 10.9 cents per kWh in December 2015. Less than 40% the earlier rate.
Sixty percent (60%) of our electricity bills was due to the cost of fuel. Notwithstanding the temporary relief due to the VAT exemption, it remains urgent to continue pushing energy sector reforms forward as the cost and reliability of supply of energy has proven to be a deterrent to investors, who feel the cost of coming to The Bahamas was prohibitive.
Not only this, but our country’s foreign currency reserves are depleted to the tune of over US$300 million a year in the purchase of imported fossil fuels for generation and other equipment, services and supplies.
The proposed restructuring of BEC, commencement of operations of BPL, and dealing with the legacy liabilities, presented the opportunity to remove the then $240 million guarantee as part of the reform process, as well as reducing the strain on our foreign reserves. This must be vigorously pursued Mr. Speaker as part of the overall energy sector reform.
In light of the comments made by the BPL board chairman, I publicly questioned whether URCA was involved in the rate hikes spoken of and forecasted by the chairman. This is necessary because the record clearly shows that the world over, self-regulation for the electricity industry can easily lead to conflicts of interest, lack of transparency, and narrowed interpretation of self-imposed rules.
In our jurisdiction, the Utilities Regulation and Competition Authority Act addresses this and the Amended Bill, 2015, expanded URCA’s role as an independent regulator to the electricity sector.
URCA’s primary responsibilities under the new Electricity Bill are as follow:
i. review and approve electricity tariff rates charged to the consumer;
ii. review the need for additional electricity generation by independent power producers;
iii. establish rules and approve competitive processes, where applicable, for procurement of power generation resources conducted by BPL, or any other public electricity supplier, and ensure such rules are fair, consistent and compatible with the objectives and principles of the electricity sector and national energy policies;
iv. ensure the efficient operation of the electricity supply system in accordance with applicable regulations;
v. review and grant applications for public electricity supplier licences and issue licences and collect fees from all licensees and public electricity suppliers sufficient to cover the cost of the regulation of the sector; promotion and approval of energy efficiency programs;
vi. to publish for public information, prior to granting approval, the initial and revised renewable electricity plans proposed by BPL and other public electricity suppliers; and
vii. ultimately, to protect consumers.
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