Last week, we discussed the concept of Public Private Partnerships (P3s) by providing a broad perspective of what a P3 arrangement is about; how it differs from privatization; the rationale for entering into P3 arrangements; its advantages and disadvantages; and the various models of P3s. We concluded that, given the Government’s expressed desire to adopt the P3 approach to certain infrastructure development works and service delivery, extreme care needs to be taken not to repeat the mistakes of the past. We expressed the hope that comprehensive analyses would be carried out of the conventional approach versus the various P3s models, preferably by an independent group of experts, to determine which option is most suited to ensure cost effectiveness and the best value for money for the investment to be undertaken. The involvement of key stakeholders before any decision is made is also crucial to successful implementation.
One of the projects earmarked for a P3 mode of delivery is the proposed construction of the Demerara River Crossing at Houston, Georgetown. The Government had announced that a three-lane fixed bridge would be constructed but has now decided to opt for a four-lane one. This change appears to have been influenced by expressions of interest that the Government might have received as well as genuine criticisms of the original design. In our column of 2 October 2017, we had stated that if funding was not available to construct a wider bridge, the project should be delayed until we are able to garner the necessary funds. However, as time goes by, the cost of the project will increase. Now that funding is likely to be available via the P3 mode, the Government has made the right decision in enhancing the original design. In the long-run, the benefits are likely to more than outweigh the additional cost of US$20 million. One hopes that the new design will include a walk-way for pedestrians as well as a cyclists’ lane.
The original three-lane design provides for a permanent structure with a height of 17.5 meters. At this height, approximately 90% of the riverain traffic will traverse the Demerara River without the need to disrupt the operations of the Bridge. To cater for the remaining 10% of the riverain traffic, there will be a section of the Bridge that will be lifted hydraulically 47.5 metres. This section will have a width of 70 metres, five metres wider that of the existing bridge at Eccles. Unlike the operations of the current bridge which opens and closes every day for more than one hour, there will be a bar and a stop light at the beginning of the hydraulic section. When a vessel approaches the bridge, the stop light will show red and the bar lowered, thereby bringing vehicular traffic on the Bridge to a halt. As soon as the vessel completes its passage through the Bridge, the green light will come on and the bar lifted. This interruption is expected to last 10-15 minutes.
Except for the addition of a fourth lane to the Bridge, it is not clear whether there will be any changes in the other aspects of the design.
Dealing with traffic congestion
In dealing with the traffic congestion that may be posed by the operation of the new Bridge, vehicles coming from West Demerara into Georgetown will be diverted in three different directions. There will be an exit at Houston for vehicles to join the East Bank traffic towards the Banks DIH Turn and the DSL junction on Mandela Avenue. Traffic on the Bridge will then continue east via an overhead pass above the East Bank road, with an exit to Cemetery Road on Mandela Avenue before merging with the traffic towards Sheriff Street. The Minister of Public Infrastructure had estimated that the West Demerara traffic will be dispersed evenly and therefore there will be less congestion coming into the city, compared with what pertains currently.
Estimated costs and financing options
The estimated cost of the four-lane Bridge is US$170 million, an increase of US$20 million when compared with that of the original three-lane design. To this figure, we must add the cost of the supporting network of roads on both sides of the river, which is being financed by the Government of Guyana at an estimated cost of US$20 million. Therefore, the estimated total cost of the proposed four-lane bridge is US$190 million.
According to the Minister, there are two options for financing. The first is for the Government to enter into a Build, Own, Operate and Transfer (BOOT) contract with a reputable operator. BOOT is a P3 project model in which a private-sector organisation finances and undertakes the construction of a large development project under contract with a public-sector partner, such as a government agency. The private-sector partner assumes the risks associated with planning, constructing, operating and maintaining the project for a specified time period. During that time, the private-sector partner charges customers a fee for the use of the infrastructure that has been built. The objective is to recover the capital and operating costs as well as providing a reasonable rate of return to the private-sector partner. At the end of the specified period, the private-sector partner transfers ownership to the public-sector partner, either for free or for an amount stipulated in the contract. Such contracts are typically long-term and may extend to 40 or more years.
The other option was for the Government to meet the cost of construction of the Bridge. This will require a loan in the sum of US$170 million. As disbursements are made, the public debt will increase, and more funds will have to be set aside for the debt. At the moment, the debt to GDP ratio is around 46%, and with the economy showing a modest growth, it is unlikely that the Minister of Finance will agree to an increase in the public debt of this magnitude. Other considerations include: whether the Government has sufficient in-house capacity to undertake the project using the conventional mode; and whether a loan of this magnitude will not crowd out much-needed smaller loans to other sectors of the economy, such as education, health and agriculture. These considerations might have influenced the Government in opting for the P3 mode for the construction of the Bridge.
It is important to note that the BOOT option is not the only mode of P3 delivery. As discussed in last week’s article, the others include: Design-Build (DB); Operation & Maintenance Contract (O & M); Design-Build-Finance-Operate (DBFO); Build-Own-Operate (BOO); Buy-Build-Operate (BBO); Build-lease-operate-transfer (BLOT); Operation License (OL); and Finance Only (FO). One hopes that the Administration has considered these other models of P3s before deciding on the BOOT model.
Transparency and Accountability
A key issue involving the use of P3s for infrastructure development and service delivery relates to transparency. While, in the case of BOOT, the private-sector partner will provide the necessary funding for the construction as well as operations and maintenance of the Bridge, the related costs will be recovered over a period of time from persons traversing the Bridge in the form of toll fees. Therefore, citizens will have every right to understand the basis under which the private partner has been selected; and the justification of the model of P3 adopted in terms of cost effectiveness and value for money.
P3 arrangements can be very complex, sometimes involving the use of proprietary information, intellectual property and issues of privacy. Therefore, an appropriate balance needs to be found to satisfy the needs and expectations of the public. It will be unacceptable for confidentiality clauses to be inserted in any proposed agreement that will prevent the public from having a proper understanding of the project, its cost structure and basis under which the toll fees have been arrived at.
The proposed construction of the new Demerara Bridge Crossing at Houston, Georgetown is a welcome development to ease the severe daily traffic congestion on the East Bank Demerara roadway, especially from Diamond to Georgetown. One hopes that the works will be completed in the shortest possible period of time and that the fees to be charged for the bridge-crossing will not be exorbitant. On a related matter, the proposed construction of the Ogle/Diamond highway needs to be accelerated. The project is being financed by the EXIM Bank of India in the sum of US$50 million, and work was expected to commence this year with the recruitment of consultants.
It is indeed refreshing that the Government has responded positively to the well-intentioned criticisms of the proposed three-lane Bridge and is making the necessary modifications. This augurs well for our democracy.