Dear Editor,
The opposition parties A Partnership for National Unity (APNU) and Alliance For Change (AFC) seem committed to damaging the investment climate of Guyana.
Is this an APNU strategy? They attack the Marriott Hotel, the Amaila Falls Hydro Electric Project, the Specialty Hospital and the Cheddi Jagan International Airport Expansion project.
More recently, their attacks on the toll structure of the Berbice bridge are all direct attacks on investors. Any reasonable person would interpret this as a strategy to scare away existing and potential investors.
With respect to the Berbice bridge, the security for all of the investors in the Berbice bridge is the Berbice River Bridge Act and the Concession Agreement issued pursuant to this act. One of the most important parts of the Concession Agreement is the right of the Berbice Bridge Company Inc (BBCI) to collect tolls and to have the tolls adjusted to cover its expenditure.
The order made by the public works minister with respect to the tolls for the Berbice bridge is based on the Berbice River Bridge Act (Act Number 3 of 2006). Two toll orders were made by the minister: Order Number 42 of 2008 published in the Official Gazette on December 22, 2008, the same month the bridge started operations and Order Number 23 of 2009, published in the Official Gazette on November 26, 2009. Since the bridge started operations in December 2008, the tolls have not gone up.
Without investors having the confidence in the rule of law and the state honouring the toll orders referred to above, any serious investor will be turned away. And the investors include the top five commercial banks in Guyana, insurance companies, pension funds, the National Insurance Scheme (NIS), the New Building Society (NBS) and major corporate investors.
Excluding the NIS, which some consider quasi-government, all of the investors in the Berbice bridge are private.
With the existing tolls, BBCI is only at a break-even position. To date, the common shareholders have not received a single cent of dividend.
To date, only the interest returns on the debt (bonds and subordinate loan stock) and the dividend on the preferred shares to NIS have been paid. The Berbice bridge has not started paying back principal on any of its debt.
If the opposition’s parliamentary motion was to be implemented, it would amount to a form of nationalisation or expropriation and would send shockwaves through the investment community. It would amount to a fundamental breach of the Concession Agreement issued to BBCI and violate the Investment Act.
Every investor would then be forced to write down their asset as the likelihood of payment of interest, much-less principal, would be impaired.
To make matters worse, this opposition’s political attack on the tolls of the Berbice bridge will jeopardise the ability to have the proposed new Demerara bridge funded as a private sector project.
In order for the new Demerara bridge to be financed by the private sector, investors will have to be confident that they can collect the tolls from users crossing the bridge. The right to collect tolls is a right derived from legislation (similar to the Berbice bridge). If there is no confidence in this mechanism working based on agreements entered into, then investors will not be willing to take the risk of investing.
Without the private sector investing in this bridge, it will force the government to borrow the money to fund the bridge. Based on the estimated capital costs contained in the pre- feasibility study, this is likely to cost a minimum of US$ 162 million. Consider this figure being added to the national debt and the implications for the government having the fiscal space to do other projects.
So if the proposed new fixed Demerara bridge has to be funded by the public sector, rather than the private sector, our national debt will go up, and the ability of Guyana to afford other capital projects will be substantially reduced.
And there is substantial liquidity in Guyana – just our banking sector has over US$ 1 billion of assets that are not loaned out. So we will force government to invest in a project, when the private sector can – all because the opposition political forces are scaring away potential investors.
One final note on the tolls and the volume of traffic on the Berbice bridge. In December 2005 (some eight years ago), a car with five passengers would pay for each way and for every passenger – one way was Gy$ 760 for a regular vehicle and each passenger was Gy$ 60 one way.
Therefore a round trip cost with the ferry for five passengers would be Gy$ 2120.
Compare this to the Berbice bridge of Gy$ 2200. So the fares are substantially similar in money terms (real terms).
Compared to 2005, the tolls on the Berbice bridge are just about the same as that of the ferry.
It should also be noted that all the studies showed that users of the ferry were willing to pay a lot more for the convenience of using a bridge vs the existing ferry. The Berbice bridge allowed users to go from three hours to cross (waiting time included) using the ferry to three minutes on the Berbice bridge.
In terms of volume, in 2005 (average round trip), about 109,000 vehicles crossed with the ferry, of which 82 per cent were passenger vehicles and the balance commercial vehicles.
The vast majority of vehicles paid the above ferry fare – commercial fares were much higher.
In 2009 (the first complete year of operations of the Berbice bridge), the total volume of vehicles crossing the bridge totalled 307,000, of which 90 per cent were passenger type vehicles. In 2012, vehicles crossing the bridge totalled 393,000 of which 90 per cent were passenger type vehicles.
So since 2005 to 2012, as a result of the bridge, total vehicular traffic has increased by 260 per cent.
Notwithstanding the so-called concern about tolls, far more vehicles are using the bridge compared to the ferry, and since the bridge has opened, volume of vehicles using the bridge has increased by close to 10 per cent per annum (2012 compared to 2009).
It is always appealing to have rates lowered – everyone would want to have their minibus fares, or electricity rate, or telephone tariffs, lowered. Who wouldn’t want that? But can we afford this? Similarly, everyone would like to see their wages go up each year.
The facts are – the BBCI is just generating sufficient cash flows to pay interest and dividends and the tolls are not that different from the ferry.
Sincerely,
Business owner, Corentyne, Berbice
Name withheld by request