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New Bridge Financing

Apr 22, 2013 Editorial

 

In a letter to the press, one of Guyana’s most experienced civil engineers questioned the numbers proffered by the General Manager of the Demerara Harbour Bridge Corporation for the construction of a new, concrete bridge being considered to replace the present floating structure. The Manager suggested that the fixed cost might be US$225 million. Concerns were raised about the projected overall costs and tolls that would be collected.
But we have an additional concern: the proposed method of financing which the General Manager announced: either a loan from the Exim Bank of China or a Public-Private partnership. The latter would presumably be the ‘Build, Own, Operate and Transfer’ (BOOT) model that was employed to construct the Berbice Bridge. During his budget presentation, the Minister of Finance mentioned that studies were presently underway, so presumably, the decision on financing has not yet been made.
The public has hopefully been sensitised to the most salient feature of the BOOT option through the well-ventilated debates and protests over the toll structure on the Berbice Bridge: the need to pay off the private financier(s) within a fixed time frame, typically twenty years. As we have discovered, this arrangement is covered by a contract which can only be breached at the country’s peril, since the repercussions in the international financing community would be very negative. Prospects for attracting other types of Direct Foreign Investment would be in peril.
But in the last two decades, this type of financing for infrastructural projects has been steadily growing. In the past, practically all of such projects which included bridges, roads and water supply, were financed by national governments. The loans were supplied by the World Bank or one of the other regional development banks that had been established specifically for this purpose. “Development” in the third world after WWII, in fact, had been established as the installation of such infrastructure which would then act as an enabling environment to attract foreign direct investment.
Recently, private capital funds have grown immensely in the developed countries, and with the liberalisation (read ‘removal’) of financial controls in the third world and other developing countries, this capital has sought new avenues to invest in – and of course make large profits. With the World Bank scaling back its funding for infrastructure, this has provided a new vent for private capital. The World Bank’s move is not mere happenstance. In the first five years of this decade more than US$500 billion have been directed into infrastructure from private funds. This has even dwarfed the funds being loaned by China, which itself has surpassed the World Bank in infrastructural financing.
The choice facing Guyana in financing the new Demerara Harbour Bridge is one that most other developing nations are facing, but it is somewhat a case of being between the devil and the deep blue sea. With the BOOT option, even though the traffic across the present Demerara Harbour Bridge is eleven times that of that across the Berbice Bridge and the suggested building costs for the new bridge is six times the latter’s cost, the new tolls will have to be raised by a factor of at least 20 to 30 times the present rates. We will therefore be placing similar pressures on the people of West Demerara and Essequibo as those being borne by Berbicians. This will not do.
It might appear then, that the loan from China might be the automatic way to go: the rates are reasonable and the funds are available from the US$3.5 trillion that they have sloshing around in their reserves. But there are two downside risks that this presents. Firstly, if they provide the loan they will insist on building the bridge and we have the bitter experience with the Skeldon Sugar Factory of their shoddy workmanship that the rest of the third world, especially Africa, know to their cost.
The second dilemma is their propensity to connive with domestic authorities to siphon off large chunks of the loans into the latter’s pockets.

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