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Nationalisation of Belize Electricity Limited - International Law Office

International Law Office

Offshore Services - Belize

Nationalisation of Belize Electricity Limited

November 24 2011

The start of problems for BEL
BEL's financial woes
Constitutional revisions

On June 20 2011 the Belize government nationalised Belize Electricity Limited (BEL), the major supplier of electricity to the Belizean public. The government achieved nationalisation through the acquisition of 70% of the shares in BEL which formerly belonged to the Canadian-based Fortis Group. In this regard, BEL's nationalisation is similar to the nationalisation of Belize Telemedia Limited in August 2009, and the July 2011 renationalisation process through which the government compulsorily acquired the shares of companies it believed to be affiliated with Lord Michael Ashcroft. In both nationalisations, the shares of Belizeans were left intact.

The prime minister admitted that the nationalisation of Telemedia was a deliberate attempt to put the control of telecommunications beyond the reach of Ashcroft, but also asserted that there is no dispute between the government and Fortis. When presenting the bill concerning BEL's nationalisation in the National Assembly, the prime minister said that the reason for nationalising BEL was to prevent Belize from being plunged into rolling blackouts.

The start of problems for BEL

In 2008 the government introduced legislation that changed the methodology by which electricity rates were determined. Based on expert advice, BEL concluded that the implementation of the new methodology would result in a rate decrease, while BEL needed a rate increase to sustain its operations. In order to prevent the implementation of the new methodology, which would have had dire financial consequences for BEL, BEL initiated proceedings in the Supreme Court challenging the validity of the new methodology. Additionally, in separate proceedings, BEL sought and obtained an injunction restraining the implementation of the new methodology. The rate review proceedings scheduled for 2008 were therefore not conducted and BEL's rate has remained at $0.44 per kilowatt hour (kWh) since 2008.

BEL's financial woes

BEL does not generate its own electricity. It purchases electricity from several sources, including Belize Electric Company Ltd (BECOL), Belize Co-Generation Energy Limited , Hydro-Maya and Comision Federal de Electricidad (CFE) of Mexico for distribution to the Belizean public. The cost of electricity from CFE is considerably higher than the cost of electricity from BECOL. However, BECOL is a hydroelectric company and is at optimal output only during the rainy season. BEL therefore purchases substantial amounts of its power from CFE, particularly during the dry season. While the cost of power from CFE has increased steadily since 2008, BEL has been unable to increase its own rates. As a result, the cost to BEL of purchasing and distributing power, meeting its operational expenses and investing in capital improvements exceeded the $0.44 per kWh which was being charged to consumers. Consequently, BEL's financial resources were eroded between 2008 and 2011 and it experienced difficulties in meeting its obligations to major creditors and power suppliers, including CFE.

During the dry season, when BECOL is unable to generate sufficient power, BEL relies on a $5 million letter of credit from CFE, which is guaranteed by the government of Belize, to meet the cost of purchasing power from CFE. In early 2011 BEL was about to exceed that letter of credit and required an increase or other government assistance to take it through to the end of June, when the rains were anticipated to arrive and it would be able to purchase cheaper power from BECOL. Without some assistance, BEL would have had to reduce the electricity purchased from CFE by scheduling countrywide blackouts on rotation.

While the government refused to increase the letter of credit, it provided assistance to BEL by pre-paying its electricity bill for June. The pre-payment of the government's electricity bill was sufficient to allow BEL to purchase power from CFE through to the end of the month, when the rains were anticipated to arrive. Once the rains arrived, BEL was able to purchase power from BECOL at a fraction of the cost of power it purchased from CFE, and was in a position to meet its expenses as they arose.

In the circumstances, it is uncertain why the government considered it necessary to nationalise BEL just days before it would have been able to purchase cheaper power from BECOL. Furthermore, with the pre-payment of its electricity bills, the government had ensured that BEL could have purchased power from CFE through to the end of June, meaning that rolling blackouts were no longer likely. Despite the prime minister's assertion at the time he presented the bill, it appears that it was unnecessary to nationalise BEL.

Constitutional revisions

Since BEL's nationalisation, the government has tabled the Belize Constitution (Ninth Amendment) Bill, which proposes to enshrine the government ownership of a majority interest in public utilities, including BEL. The government appears to have adopted a new national policy whereby no foreign entity should control public utilities in Belize. The Ninth Amendment is clearly intended to defeat any court challenge to the constitutionality of the government's acquisition of Fortis's shares in BEL, since the Constitution would require the government to own no less than 51% of the shares in BEL.

For further information on this topic please contact Christopher Coye at Courtenay Coye LLP by telephone (+1 345 814 2013), fax (+1 345 949 4901) or email (ccoye@courtenaycoye.com).

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