KCT takeover pushed back again - Only loan paperwork remains for financial closure of port deal
The Port Authority of Jamaica has again extended financial closure of the US$510 million ($64 billion) concession agreement with French outfit Kingston Freeport Terminal Limited for the operation of the Kingston Container Terminal (KCT).
The transaction is now six months behind its original schedule.
Kingston Freeport, the vehicle used by French company CMA CGM and Terminal Link to operate the 30-year port concession, was initially to have tied down financing by last December.
That date was later pushed back to March of this year.
Then a week ago, the Port Authority told the Financial Gleaner that on May 13 of this year, after consultation with the new Jamaican Government and its advisers, it agreed to a second extension for Kingston Freeport, to June 30.
At that point - the closing longstop date - financing for the phase one works is expected to be finalised.
The first phase is expected to focus on improvements to the port's infrastructure over five years, at a cost of US$259 million.
Due to the financing delay, the Port Authority said other aspects of the transaction are being executed concurrently so that the handover of KCT to the concessionaire will also be done around June 30.
Responding to Financial Gleaner queries, the Port Authority said 100 per cent of the required financing has been committed and loan documentation is advanced.
The government agency said financial closure of the deal with Kingston Freeport was the single most important event that must occur before the handover of the port.
Under the concession, Kingston Freeport will finance, expand and operate KCT, but the deal also commits the Port Authority to dredge and maintain the channel.
Auditor General Pamela Monroe Ellis, in her comment on the fiscal policy paper tabled in Parliament in May, said she would reserve comment, for now, on whether the proposed public-private partnership - PPP - arrangement involve only minimal contingent liabilities accruing to the Jamaican government, given that the financing component of the transaction had not been finalised.
The Port Authority said contingencies are typically built into long-term PPP contracts. It did not say what those obligations might be, but suggested that any liabilities that arise are unlikely to disrupt debt targets.
It said the KCT contract is classified as a 'user-pays' public-private partnership and falls within the Public Bodies Management and Accountability Act, which provides that project loans - such as that to be included in the capital expansion planned for the container terminal - be reflected under the new contingency ceiling, which is separate from the debt ceiling.
The contingency ceiling is currently three per cent of GDP. The loans for the KCT phase one project are the first potential amounts under the ceiling, the Port Authority said.
Under a user-pays PPP, the government agency has no obligation to pay for an asset or its use.
One of the conditions of Jamaica's four-year economic support programme with the International Monetary Fund is that the Jamaican authorities cap the total loan value of all new user-funded PPPs at three per cent of GDP on a cumulative basis over the life of the agreement.
The loan value of a PPP may be excluded if the Office of the Auditor General has established that the PPP involves only minimal contingent liabilities. In other words, the project should have no debt guarantee, demand or price guarantees or termination clauses that could imply a transfer of liabilities to the government.
The Terminal Link-CMA CGM consortium signed the concession deal for the takeover of KCT back in April 2015. The port is to be transferred back to the Jamaican government at the end of the 30-year concession.
Backed by the IDB
The project is being backed by the Inter-American Development Bank (IDB) and a group of commercial banks.
Last December, when the IDB disclosed it was backing the transaction with a senior secured loan of up to US$175 million, the development bank said it was the largest
non-sovereign guaranteed transaction ever done for a project in Jamaica.
The IDB loan will help finance the deepening of the navigation channel from 13.5 metres to 14.2 metres, reinforcing part of the existing quay and the procurement of new equipment to expand the terminal capacity from 2.8 million to 3.2 million TEUs,
or twenty-foot equivalent container units, per year.
Under the agreement, Port Authority of Jamaica will receive an upfront payment of US$75 million, equivalent to the value of the equipment at KCT.
Essentially, the concessionaire will acquire the equipment; the Jamaican government will reacquire whatever equipment is on the property when the concession is terminated.
Port Authority President Professor Gordon Shirley has said the upfront fee represents the market value of the assets at KCT.
The state agency will also be paid a fixed US$15 million per year on a quarterly basis as lease for the port, and a variable fee of eight per cent of gross revenues, payable monthly.
In the first phase of the project, the plans span 1,200 metres of berth, reinforced to European Union standards; and 800 cubic metres of dredging reinforced to a depth of 15.5 metres, with the ability to accommodate Panamax vessels.