A Bridge Too Dear?

Feb 27, 2009 Editorial

In yesterday’s editorial, “Questioning a gift horse” we pointed out that Berbice Bridge was constructed through a new way (for Guyana) of the financing public infrastructure – the Build, Operate and Transfer (BOT) route. And that the tolls imposed had to be high enough to deliver a pre-agreed return on the investment of the private company, BBCI, which took the plunge. One of the problems that private citizens have had, however, is they have been unable to obtain a clear and definitive statement as to what these investments and expected returns are.
At the beginning of the venture five shareholders were each to contribute G$1.55 billion to secure a 20% stake each in BCCI – which would have translated to the US$38.5 million that was touted as the cost of the bridge when the contract with the builder was signed. Has the share allocation been diluted to facilitate the sixth shareholder or has the total investment, which would have to be serviced by the tolls been upped to US$46.5 billion? The latter figure would be closer to the “overall cost” of US$43 million more recently asserted – probably because of the commitment by the government to the IDB that the bridge’s cost would not exceed that figure.
It is to be noted that the government spent US$8.7 million from an IDB loan to construct approach roads to the bridge and another US$5 million for feasibility studies, environmental studies, road surveys, relocation of affected residents etc. The Guyanese taxpayers would be repaying these loans and thus subsidising the true cost of making the bridge a reality. The government receives no share of the tolls.
Back in 2001, the IDB conducted an amazing “Willingness to Pay” (WTP) survey of existing users of the Berbice ferry and came up with a figure of US$5.1 million annually. The study was tremendously inflated and included, for instance, large number of trucks transporting cane from the Rose Hall (Canje) estate to Blairmont, across the Bridge, from the assumption that the former factory would be closed. Is it possible that this eventuality is still on the cards? It is quite possible that this US$5.1 million figure was used to entice the early investors in BCCI. In the meantime, the tolls can be adjusted unilaterally, annually to ensure the guaranteed rate of return.
Of recent, the anticipated take from tolls (before the bridge opening) has been projected at US$3.5 million per annum and the present toll structure is presumably based on this figure. Since the latter is being bitterly protested by both the ordinary users and the Berbice business community and relief has evidently been promised by BBCI, one wonders whether the payout schedule to the investors will be met in the short term.
Maybe what might make concessions more palatable to the investors are the generous conditions that have been granted on their investment – in addition to the government’s coverage of all ancillary costs such as approaches etc.
The annual rate of return of 15%, for instance, to shareholders are exempted from both corporate and withholding taxes – as is the 9% and 10% interest paid to investors in securities. In 2007, Chairperson of BBCI, Geeta Singh-Knight said that investors in the bridge have already begun receiving interest on their investment. Repayment of the principal would thus begin in six years.
The source of the funds for some of the investors should also ease the pain if the present returns are not up to snuff. It was reported back in 2006 that CLICO (GY) and the Hand-in-Hand Mutual Fire and Life Insurance Company had borrowed a total of G$10.2 billion from the National Insurance Scheme (NIS) at 5.25% interest, secured by loans at 11% – the interest from which can be deducted from their taxable income. The Government has recently confirmed a G$6 billion loan by the NIS to CLICO (GY), in the face of the meltdown of its corporate owner. Can it do the same for the Hand-in-Hand loan?
In addition to the generous interests, all the investors would have received their entire principal by 21 years – when they will hand over the bridge that has a life expectancy of 30 years, to the Government. We know from our experience how the maintenance costs will skyrocket by that time. What would be the tolls then?

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