As the announcement came that the Government has agreed to introduce a river taxi service across the Berbice River, I could not help but reminisce about the time when the Transport and Harbours Department was operating a ferry service from Rosignol to New Amsterdam. In the mid-1980s, I was living in the MMA Rosignol Compound, and my two children were going to Berbice High School. It was a joy to watch the ferry dock at the Rosignol Stelling at 5.50 a.m. and how hundreds of school children and workers would hurry to catch the 6.30 ferry to New Amsterdam. Then one would hear the loud clanging of chains announcing that the ferry doors were about to close, prompting a greater rush of passengers. At 3.00 p.m., my wife would sit on the verandah of the house anxiously waiting for our two children to emerge when the ferry docked.
Those were golden days for us, and how much we would love to have the ferry service return if, and only if, there can an improvement in the management and efficiency of operations to avoid unnecessary waiting time and inconvenience to commuters. Of course, the toilets were always in a horrible state but with improved management, this issue can be resolved. Then, there was the total abuse of the priority crossings, causing vehicles in the line to wait for undue hours, especially during peak hours. There were also attendants who would accept a “facilitation fee” in exchange for an earlier crossing with a motor vehicle, and in many instances sailors were observed to be under the influence of alcohol. When the Inter-American Development Bank (IDB) was approached to assist in the funding of the Berbice River Bridge, it was reluctant to do so. The IDB felt that it would be better to upgrade the ferry service but the Government thought that it would be a waste of money to do so.
Proposal to reduce the tolls
In his 2015 Budget Speech, the Minister of Finance announced a reduction in toll of $300 from $2,200 to $1,900 or a 13.64% for motor cars and a 10% reduction for other vehicles. In order to compensate the Bridge Bridge Co. Inc. (BBCI) for the loss of revenue, the Government agreed to provide on a quarterly basis a subsidy to the company, equivalent to the loss. BBCI appeared to have agreed to the Government’s proposal, hence the announcement by the Minister. We are now told that the shareholders of the company are not in agreement with the Government’s proposal and have put forward a counter proposal. BBCI wants the subsidy to be computed based on a 55% increase in toll or an extension of the concession agreement entered with the Government from 21 years to 50 years.
Few persons would deny that the existing tolls are too high. A lowering of the tolls is likely to see more vehicles using the Bridge thereby resulting in more revenues for BBCI. It is a win-win situation for the company: more revenue from increased traffic and a subsidy from the Government. One recalls that on 15 May 2014, the National Assembly passed a Resolution No. 77 calling for a reduction in the tolls for motor cars and minibuses to $1,000, among other categories of vehicles. Like the motion to cease funding of the Marriott Hotel, the resolution was ignored. For BBCI to request a 55% increase in tolls is a source of much concern. The company appears indifferent to the plight of commuters, especially school children and the elderly, and is willing to place the private interest of who have invested in the Bridge ahead of the public interest.
The alternative proposal for an extension of the concession agreement is worth considering. However, more than doubling the life of the agreement is unlikely to find favour from the Government, considering that at the end of the concession period, the ownership of the Bridge reverts to the Government under the Build Owned Operate Transfer (BOOT) arrangement. Perhaps an extension by 5-10 years may be more appropriate, subject to two conditionalities. The first is that the financing of the Bridge’s operations is in urgent need of restructuring so as to reduce costs and hence to provide the much-needed relief to commuters. At the moment, the BBCI is too highly geared, meaning that there is too much debt (as opposed to equity) which has to be serviced from the revenues of the Bridge. Second, the Government must be allowed to have a say at the level of BBCI board that is commensurate with its investment. The current Shareholders’ Agreement therefore needs to be scrapped and replaced by a one that reflects proportionality in investment.
Cost of construction and financing arrangements
Various figures have been quoted for the cost of construction of the Berbice River Bridge ranging from US$38 million to US$41 million. This does not include the cost of the feasibility study of US$1 million as well as US$11 million expended on the construction of the access road on both sides of the river, both of which were financed by the IDB as a loan to the Government of Guyana. In addition, some G$85 million was expended by NICIL to meet various costs associated with the Bridge. Using the lower figure for the direct construction cost of the Bridge, the total project cost works out to US$50.410 million.
The direct construction cost, equivalent to G$7.874 billion, was met from a mix of financing comprising debt of G$6.484 billion, and equity of G$1.350 billion. This gives a debt to equity ratio of 83:17. The BBCI is highly geared and therefore interest charges are an important consideration in determining the financial viability of the company. We know that the company is yet to pay dividends to its shareholders, including the cash-strapped National Insurance Scheme. The company is reported to have accumulated losses totalling $1.5 billion as at the end of last year and could face insolvency. Was the company not aware from the very inception that the present financing arrangement will pose significant challenges in terms of the financial viability? Or, was BBCI hoping that, given its monopoly status, it could increase tolls to meet shortfalls in revenue vis-à-vis expenditure?
From the Government’s perspective, the NIS, which may have to be bailed out by the Consolidated Fund, has become the victim of collateral damage from a poorly thought out financing arrangement. The NIS has invested $80 million in ordinary shares and $950 million in preferred shares out of a total shareholding of $1.350 billion. NIS therefore owns 76% of the total shareholding. Yet the Government has little say at the level of BBCI board because control is skewed in favour of two private investors owning a mere 15% of the total shareholding. The concern is even greater when one considers that the Government has contributed an additional $2.571 billion through the IDB loan and the expenditure incurred by NICIL. The whole arrangement involving the mix of financing and control over the composition of the BBCI board is therefore seriously flawed.
The Berbice Bridge as a Public-Private Partnership
The Berbice Bridge is one of the three projects that the previous Administration initiated using the much vaunted Public-Private-Partnership (PPP) approach, the other two being the Marriott Hotel and the aborted Amaila Falls Hydro Project. In all three cases, concerns have been raised about the high cost of these projects, mainly due to the mix of financing which is weighted more in favour of debt, as opposed to equity. As indicated above, the mix of financing for the construction of the Bridge was 83% debt and 17% equity. The similarity is striking when one considers the financing of the Marriott Hotel and the Amaila Falls Project. In the case of the former, the mix is 80% debt and 20% equity. The cost of construction of the hotel to date is approximately US$56 million and is expected to go up to US$72 million when the Entertainment Complex is completed. Like BBCI, the private investor contributing a mere US$12 million will have two-thirds ownership rights and has the option of buying out the minority equity investor which is NICIL. The hotel is also reported to have made losses of approximately G$60 million in the first two and one-half months of operations. In the case of the Amaila Falls Hydro Project, the estimated cost was US$840.3 million, and the mix of financing was 70% debt and 30% equity.
According to an article appearing in the Stabroek News on Sunday, 19 July 2015 under the caption
“Guyana at risk of external debt crisis”, a UK-based non-governmental movement Jubilee Debt
Campaign had the following to say about PPPs in its recently released report:
… lending and borrowing by the private sector is a major source of risk in terms of future debt crises. Another factor is the rise of ‘public-private partnerships’ (PPPs). This can mean many kinds of things. One is where the private sector builds infrastructure for a government, such as a road or hospital, and the government guarantees to make set payments over a defined period. This has the same practical effect as if the government had borrowed the money and built the infrastructure itself, but it keeps the debt off the government balance sheet, making it look like the government owes less money than it actually does.
… in fact, the cost to a government is usually higher than if it had borrowed the money itself, because private sector borrowing costs more, private contractors demand a significant profit, and negotiations are normally weighted in the private sector’s favour. Research suggests that PPPs are the most expensive way for governments to invest in infrastructure, ultimately costing more than twice as much as if the infrastructure had been financed with bank loans or bond issuance.
One might add that where fees are chargeable for the services rendered for infrastructure works undertaken under PPPs, it is the taxpaying public that has to meet the higher cost, unless the Government steps in to ameliorate the situation through subsidizing the cost of operations. This is exactly what the Government is seeking to do in respect of the Berbice Bridge. Had the Amaila Falls Hydo Project not been aborted, the Guyana Power and Light would have been faced with a similar situation. Already the operations of the utility company is being subsidized to the tune of billions of dollars annually. Norway has since urged the Government to reconsider its decision on the Amaila Falls Project or risk losing G$16 billion that had been earmarked for the project. The Government has indicated that it is considering a number of options for renewable energy sources.
