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PPPs in the Caribbean: Filling the gap

Brian Samuel's picture
Prior to about 2005, for many tourists their Jamaican vacation was ruined at the last minute, by the hot and overcrowded conditions inside Montego Bay’s Sangster International Airport. Fast forward 10 years, and waiting for a flight at Sangster is an altogether more pleasant experience. The air conditioning actually works, and the whole environment is infinitely less stress-inducing than before.
 
A new waiting area at Montego Bay's
Sangster International Airport.
Photo: Milton Correa/flickr

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 a decade: privatize Montego Bay Airport. A 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, the consortium has invested more than US$200 million on expansions and improvements to the airport, all of which has been entirely off the government’s balance sheet.

Jamaica has gone on to implement several more public-private partnerships (PPPs), with mixed results. The second phase of its ambitious highway construction program — the Mount Rosser Bypass — was recently opened, cutting a swath through miles of virgin territory. However, early indications are that traffic levels are not living up to expectations, probably due to the Bypass’ steep eight percent gradient, which is beyond the means of most Jamaican trucks and buses.

In the energy sector, Jamaica is completing three PPPs with a total of 115 megawatts of renewable energy (RE) capacity, putting the country on track to meet its RE target of 12.5 percent of generating capacity by the end of 2015. Lastly, the government is currently completing formalities for the sale of Kingston Container Terminal (KCT) to a consortium of CMA/CGM and China Merchant Marine, a transaction that is expected to result in a US$600 million capital expenditure program by the port’s new owners.

Beyond Jamaica, other Caribbean governments are looking to the private sector to provide money and management to improve the region’s crumbling infrastructure. Nevis, with a population of 12,106, has two PPPs in operation: a wind farm and a bulk water supply project. In Haiti, where less than 20 percent of the population has access to regular electricity supply, three independent power producers (IPPs) sell bulk electricity to the nearly bankrupt state-owned utility Electricité d’Haiti (EdH). Now if that isn’t taking a risk, I don’t know what is.

In Nassau, capital of the Bahamas, an Israeli company Miya is fixing the island’s dilapidated water distribution system, which has reduced losses from 7.0 to 4.5 million gallons of water per day, in just two years. In an island where the vast majority of fresh water comes from expensive desalination, the economic benefit of reducing water losses is immense.
 
In Haiti, less than 20 percent of population
has electricity, but PPPs are working to
help change that.
You don’t find PPPs only in traditional infrastructure sectors like energy, transport and water. In 2008, the government of Turks and Caicos Islands implemented a PPP for two new full service hospitals, by a consortium from Canada. Trinidad and Tobago is also implementing PPPs in its social sectors, for three laboratory diagnostic centers, as well as 10 early childhood and primary schools.

 

Up and down the Caribbean, you hear talk about all sorts of exciting PPP projects, from wind farms to geothermal power plants. Sadly, most of them are just that: talk. The World Bank’s Caribbean PPP Road Map published in 2014 found that only 12 percent of all projects actually reach the tender stage; most never get past the drawing board.

One reason why so many PPPs fail to launch is that they are so complicated to structure and implement. There are many factors to consider: investor perceptions, public and private sector stakeholders, financiers, risk mitigation and many more. This calls for a lot of economic, technical and legal preparatory work, which costs a staggering amount of money: no less than US$1 million per transaction, not counting bidders’ costs.

In addition, the government needs to have qualified staff who are experienced in PPP principles and practices, to get the best deal for the country. Unfortunately, the lack of human capacity is the number one challenge facing the development of PPPs among Caribbean governments.

But there’s good news: help is on the way.

The Caribbean Development Bank (CDB), with support from the World Bank and the Inter-American Development Bank, has established a US$1.2 million Regional PPP Support Facility, based in its Barbados headquarters. The main activities under this Facility are:
  • Strengthening the enabling environment: Developing a Caribbean web-based PPP Toolkit, plus seminars and workshops to increase technical capacity among governments
  • Hands-on support: Quick response to technical requests from member governments, as well as in-country support to introduce PPP policies, and screening and developing of potential projects
  • Business plan for PPP Facility: Estimating demand for advisory assistance and investment needs, scope of services, funding mechanisms and financial projections for the Facility
It is planned that the long-term costs of the Facility would be covered by a revolving fund, replenished by contributions from governments as well as cost-recovery mechanisms from winning bidders in PPP transactions. Ultimately, CDB intends to go beyond upstream preparatory work and into the provision of long-term loans to private investors under PPP contracts.

This initiative demonstrates the commitment of CDB and its multilateral development partners, to promote the provision of infrastructure services in the region through the modality of PPPs.

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