Letters & Opinion

Our Future is Being Mortgaged by Huge Debt!

Next generation should brace itself for very challenging times

On Tuesday morning, with Christmas just two weeks away, the Prime Minister and Minister of Finance, Hon Allen Chastanet, presented a motion to the parliament to guarantee a loan of US$100,000,000.00 for the St Lucia Air and Sea Port Authority (SLASPA) for the redevelopment of Hewanorra International Airport (HIA).

In presenting the motion, he made the case for the redevelopment of HIA along with the source of the loan and related financial terms: Import Export Bank of Taiwan, repayment period of 20 years, a five- year grace period, interest rate of 1.5% above 6 months LIBOR.

The moment was historic. It was the largest sum of money guaranteed or borrowed by the GOSL for any single purpose.

The Prime Minister seemed unaware of the significance of the moment during a perfunctory presentation – perhaps as just another loan request for approval. Well, not quite. It was a loan guarantee that, nonetheless, required parliamentary approval.

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In his response to the motion before the house, the Hon Leader of the Opposition, Philip J Pierre, wasted little time by discounting the case for the redevelopment of HIA. This was a matter, according to him, long settled and agreed: that HIA had to be redeveloped. The issue for him was the cancellation of a signed private-public-partnership (PPP) agreement for the redevelopment of HIA, secured under the last Labour government and the reasons for the cancellation.

Under the agreement, the government of St Lucia would have avoided the need to increase the country’s level of indebtedness and keep its debt to GDP ratio under some control. PPPs had become a common vehicle for projects of that scale and magnitude — another way of saying it had become best practice.

He made the point that the current Jamaica government had gone the way of best practice and had adopted a PPP arrangement for the redevelopment of Norman Manley International airport.

The burning question for the Leader of the Opposition was the reason for the cancellation of the PPP arrangement for HIA — an arrangement that was supposedly transparent and free from government interference. The International Finance Corporation (IFC), a World Bank affiliate and member of the World Bank Group, with its focus on development issues within the private sector of developing countries, was the then labour government’s antidote against the common problems of large public infrastructural projects — they were to oversee the project processes.

It has to be said that large public infrastructural projects in developing countries — St Lucia included — are usually fraught with challenges: cost over-runs, late project delivery, poor quality and financial corruption.

Most probably, the Leader of the Opposition was mindful of what CMI, a non-profit multidisciplinary research institute out of Norway, specializing in development studies, had to say on corruption in large public infrastructural projects in developing countries: “Corruption in the construction of public infrastructure has particularly serious implications for developing countries. Inappropriate project choice, high prices, poor quality, excessive time and cost overruns, inadequate maintenance, and low returns, among other challenges, impact negatively on economic growth and poverty alleviation.” The institute went on:” efforts to improve transparency should focus on the procedures surrounding decision-making during project preparation”

Philip J Pierre was clearly locked-in and remained focused and persistent during his presentation. He wanted the people of St Lucia to know the reason(s) for the cancellation, which incidentally cost the government millions of dollars in penalty fees.

He also wanted to know who was awarded the contract for the redevelopment, with rumors circulating that it had already been awarded.

And about the tendering process, was anyone invited to tender?

Clearly constrained by parliamentary protocol, he appeared to know but could not say outright, the reasons for the cancellation.

Pierre reminded the house of the controversy surrounding A&M — a little-known construction company at the time — which was being considered to undertake the redevelopment project of HIA, during the Stevenson King UWP administration.

Allegedly, government ministers at the time were improperly and deeply involved in trying to direct the contract in A&M’s direction.

And there was the issue of Leader of the Opposition accusing the Prime Minister of misleading IMF officials during a routine meeting that HIA redevelopment project would not impact the country’s public debt, when the Motion before the parliament would be doing just that.

Members on the opposition benches followed their leader keeping to the same theme: lack of transparency and the negative impact of the loan on the government’s debt to GDP ratio — more pointedly, the reduction in the capacity of the government to borrow in the future.

And on the government’s side there was no direct response to those two issues — except to say it was within their right to cancel agreements they did not like.

But why? The question remained unanswered.

In closing the debate, the Prime Minister tried to answer the vexing question: Why was the PPP arrangement cancelled? Listening to him, you would have thought that he was justifying an expenditure of $5,000.

If there was a detailed financial analysis of the project, the PM should have made it available to members for their perusal.

Instead, he undertook a shockingly back-of-the- envelope evaluation exercise of the new US$100 million loan-funded project: anticipated revenues from passengers based on various arrival figures and growth rates in arrivals from planned cruise ship home porting in the south of the island.

No reference was made to the final cost of the project (which notoriously would end up being way above plan), no discounting of future cash-flows, a demonstration of financial naivety ($1 million today is not the same as $1million in 10 years) the cost of financing the project.

One thing is for certain, though: the loan of $US 100 million will have to be repaid; and unlike the loan obligations, future revenues are never guaranteed.

The big question is: Is it worth the risk when the real need is an improvement in the airport infrastructure to build the overall economy?

Most governments understand this but apparently ours seems to have other ideas.

The $US 100 million loan has further reduced the country’s fiscal space for borrowing when there was no need to do so.

The events of Tuesday’s sitting should be worrying for the taxpayers of this country.

The next generation should brace itself for very challenging times, as their future continues to be mortgaged by huge borrowing.

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