Reference no: EM133062852

Bahamas Power & Light (BPL) has suffered a "frightening" multi-million dollar March revenue drop that threatens the energy provider's very existence if it continues, a Cabinet minister has revealed.

Declining to give either a dollar or percentage figure for the decline, Mr Bannister said the Government was now faced with "making some policy decisions" with regard to BPL although he declined to detail what those options might be.

The minister, who has Cabinet responsibility for BPL, also acknowledged that its financial state meant the utility faces "a real challenge" to continue its suspension of disconnections beyond March 31 even though many of those impacted - businesses and households - will likely be unable to pay because of almost 100 percent income loss due a combination of the shut down, unemployment and reduced hours.

And he affirmed that BPL's near-bankrupt state also represented a potential obstacle to it taking advantage of the drop in global oil prices below $30 per barrel, as it needed "to be able to pay if it wants to play".

Mr Bannister agreed that the global oil price drop could "ease a lot of the pain" for Bahamians in terms of lower energy and transportation costs, but indicated that BPL was still some way off being able to exploit hedging and other techniques that could give consumers certainty when it comes to the fuel costs that form 50-60 percent of their monthly bills.

Confirming that he had been presented with BPL's March 2020 revenue and collection figures on Friday, Mr Bannister declined to detail precisely how much they were off compared to prior "BPL has challenges with consumers able to pay but who do not pay.

It's always been a challenge to ensure some consumers pay their bills, and pay their fair share - that those who can pay, pay their fair share.

The main global oil indices, as Tribune Business went to press last night, showed per barrel prices at between $25 to $27, but Mr Bannister said BPL's parlous financial condition might leave it hard-pressed to take advantage of a key opportunity to reduce energy costs for all Bahamians.

I. Identify the type of market failure being discussed in the above article and discuss why market failure occurs in this scenario.

II. Suggest a relevant government policy that would yield the efficient outcome and carefully explain the process through which the implementation of the government policy will lead to the optimal outcome.

III. How will the imposition of the chosen government policy impact consumer surplus, producer surplus and total surplus in this scenario