Fri | Dec 2, 2016

PPPs: the Caribbean catches on

Published:Sunday | October 26, 2014 | 12:00 AM
Passengers checking in at the Sangster International Airport in Montego Bay on July 17, 2005. Since then, private-sector investment has transformed the airport in Jamaica's western belt. -File
S. Brian Samuel, GUEST COLUMNIST
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S. Brian Samuel, GUEST COLUMNIST

Prior to about 2005, for many people who went to Jamaica on vacation, their holiday would be dampened, at the very last minute, by Sangster Airport in Montego Bay. It was so hot and overcrowded inside the old terminal building that for many people, leaving Jamaica was a negative ending to an otherwise pleasant vacation.

Fast-forward 10 years, and flying out of MoBay is now an altogether more pleasant experience. The check-in lines, if not shorter, are at least more comfortable, and your progress through to the truly air-conditioned departure lounge is infinitely faster, cooler and less stress-inducing. What's the difference? The private sector.

In 2003, the Government of Jamaica finally succeeded in doing what it had been trying to do for 10 years: privatise Sangster. The private-sector consortium, led by Vancouver International Airport, quickly invested millions of dollars in expanding the terminal building, doubling the airport's capacity and opening dozens of new retail spaces. Since then, more than US$200 million has been invested by the consortium in expansions and improvements to the airport, all of which has been entirely off the Government's balance sheet.

Since then, Jamaica has gone on to implement several more public-private partnerships (PPPs) - with mixed results. The second phase of its ambitious highway construction programme, the Mount Rosser bypass, was recently opened, eliciting oohs and aahs from drivers. At a toll rate of US$1.75 per car, drivers are finding it makes sense to have a shorter and safer journey to the north coast.

In the energy sector, Jamaica has made impressive gains in procuring new sources of renewable energy (RE) and is well placed to meet its target of 12.5 per cent of installed generating capacity by 2015. The electric utility, The Jamaica Public Service Co, has been in majority private hands since 2001; but disappointingly, this has not seen any significant reduction in Jamaica's crippling electricity tariff.

In fact, majority shares in JPS have become somewhat of a corporate football, passing from original buyers Mirant Corporation to Marubeni, Abu Dhabi, then its current holders, Korea East-West Power. How can the company invest the billions needed to replace Jamaica's antiquated generating capacity with a modern fuel-efficient plant when there's a constant game of musical chairs in the boardroom?

The rest of the region

Beyond Jamaica, other Caribbean countries are looking to the private sector to provide the money and management needed to improve the region's inadequate infrastructure services. The Dominican Republic makes extensive use of PPPs, with privately run power plants, airports and toll roads, although the latter is illustrative of the challenges facing PPPs in the Caribbean.

One major toll road concession awarded to a consortium of Spanish, US and Dominican investors, Codasca, ended in a loud, litigious and (for the government) costly termination in 2012. Another messy Caribbean PPP was the Antigua Private Power Company, a case that went all the way to the Privy Council, also ending badly for the government.

You come across PPPs in the unlikeliest of places. Tiny Nevis, with a population of 12,106, has not one, but two PPPs in operation: a wind farm and a bulk water-supply company. In Haiti, where less than 20 per cent of the population has access to legal electricity supply, three independent power producers (IPPs) supply bulk electricity to the bankrupt state-owned utility Electricite d'Haiti (EdH). Now if that isn't taking a risk, I don't know what is.

You don't only find PPPs in the traditional infrastructure sectors of transport, electricity and water and sanitation. In 2008, the government of The Turks and Caicos Islands implemented a PPP for the design and construction of two splendid new hospitals in Grand Turk and Providenciales, including the provision of clinical services, by a consortium led by Interhealth Canada. Within the Turks & Caicos, opinion is strongly divided on the benefits of this PPP.

Up and down the Caribbean you hear about all sorts of exciting PPPs in the planning stages - from wind farms to geothermal power plants. Sadly, most of them are just that: talk. The vast majority of projects never get implemented. It's like a funnel: many start; but few finish. In this way, I guess PPPs are no different from most government promises.

People often ask: What's the difference between PPPs and privatisation? Good question. It could be said that PPPs are the next phase of divestment; a sort of privatisation-plus.

A concession is a good example of a PPP. In the Sangster Airport concession, the Vancouver Airport Consortium takes over the airport for 30 years, invests in expansions and improvements, and manages the airport under an agreed set of rules. Now here's the good part: A the end of 30 years, ownership and control of the airport, and all additions and improvements thereon, revert to the Government.

In practice, the concession would either be extended (if the concessionaire has performed well); or re-bid (if it hasn't); but the important point is that ownership is never transferred outright to the private party. Concessions are used widely in airports, ports, toll roads and railways. Independent power producers (IPPs) are another good example of PPPs, wherein private generators sell bulk electricity to the national utility, which itself may or may not be state-owned.

For PPPs to provide the best value for money for the government and country, there has to be effective regulation of the sector and monitoring of the contractual terms underpinning the PPP. I'm not saying that the private sector is not to be trusted to look after the public's best interest; but, well, somebody has to do it.

The best way to get the best PPP deal is through good old-fashioned competition. Let the private investors who are interested in the opportunity put their best foot forward - and dig deep in their pockets! Politicians often use the excuse that "we don't have time for a bid", especially with a seemingly willing investor begging at their doorstep. I can appreciate the need for speed - usually dictated by the electoral timetable. However, governments are doing themselves a disservice by rushing into sole-sourced proposals, without subjecting them to the rigour of competition. How could the government - and the people - ever be sure that this was the best deal they could have gotn? Caveat emptor.

Other factors at play

One reason why many PPPs fail to launch is that they are so darn complicated. When a government wants to procure something on its own, it just does it; but with PPPs, there are many other factors to consider, investor perceptions to overcome, stakeholders to placate, financiers to satisfy, risks to mitigate, contracts to sign.

This calls for a lot of technical and legal preparatory work, which costs a staggering amount of money, plus the government needs to have the qualified staff, experienced with PPP principles and practices, to make sense of it all - and to get the best deal for the country.

The good news is: There's help out there. When I worked with the International Finance Corporation (IFC), I would tell my government clients: If you need help, be the squeaky wheel - you'll get the grease! Led by the World Bank, virtually every multilateral institution offers some form of technical assistance in promoting the private provision of infrastructure - it's a global industry.

It's not a free ride. Donors like to see governments walk at least part of the way; show some commitment; but the value of technical assistance available through donor organisations is immense.

Seek, and ye shall find.

S. Brian Samuel worked for the International Finance Corporation, the private sector arm of the World Bank, from 1998 to 2007. He currently consults on project financing and public-private partnerships. Email feedback to columns@gleanerjm.com and stevenbriansamuel@gmail.com.