Richards: why we really need a new terminal
Maintenance costs at LF Wade International Airport are rising “exponentially” and each time a major hurricane hits the Island taxpayers will incur millions of dollars in repair costs, Finance Minister Bob Richards has warned.
The vulnerability of the airport to storms is one of the major arguments for the Bermuda Government’s plans to build a new airport terminal in a less hurricane-prone location, Mr Richards said.
The $250 million project will be financed by a private-sector developer — meaning there will be no need for Government to add to its debt — who will then take over management of airport operations for a 30-year period.
Government has signed a memorandum of understanding with the Canadian Commercial Corporation, a branch of the Canadian government, which has in turn selected Canada-based Aecon Group Ltd as the developer and concessionaire.
However, in an update on the project in response to questions from The Royal Gazette, Mr Richards said Government is still more than a year away from signing any contract and that ground will not be broken before the second half of next year.
The opposition Progressive Labour Party (PLP) has raised concerns about the airport revenue that will be lost over 30 years, but Mr Richards said expenses would be offloaded too.
“The current terminal is in the worst possible location insofar as hurricanes are concerned — too close to Castle Harbour and vulnerable to storm waves riding storm surges,” Mr Richards said. “That’s what happened with Fabian, with seawater up to the ceiling.
“Spending good money, $12.5 million after Fabian and over $2 million after Faye and Gonzalo, will be repeat events if the terminal is not moved to a safer location and higher elevation.
“As our principal gateway to the world we cannot have an airport so vulnerable to hurricanes. The new terminal at its proposed locale will lower that risk materially.”
Taxpayers made a small loss on airport operations in the fiscal year through March 2015, according to government figures.
The Department of Airport Operations took in $10.7 million, from sources such as landing fees, commercial passenger charges and aviation security fees. When $13.4 million of airport departure taxes are included, total revenue was $24.1 million.
Airport expenditure, including compensation for 43 staff, maintenance, energy and professional services, totalled $24.4 million.
In the 2015-16 fiscal year, an increase in the departure tax from $35 to $50 per passenger will increase total airport revenue to $30.8 million, while expenses are projected to fall to $19.3 million.
As no deal has been struck with a concessionaire, it is not yet clear whether Government would maintain any share of those future revenues or expenses.
Deloitte was brought in to analyse the project and to compare it with UK government “Green Book” standards for procurement. Deloitte found gaps between what the Government has done so far and the UK standards, required to make a “full business case”.
Since the UK is responsible for Bermuda’s external affairs and the airport project has involved working with a Canada government entity in the shape of CCC, Government House was consulted on the project. Last month the UK Foreign and Commonwealth Office sent a letter of entrustment to Governor George Fergusson, stating that “the United Kingdom Government and the Government of Bermuda must agree on what measures are required to address the deficiencies that are identified by Deloitte”.
Mr Richards said: “Government is in the process of promulgating responses and information that will satisfy the gaps relative to HM Treasury’s Green Book as outlined by the Deloitte report.
“When this is complete we will fulfil the requirements of the entrustment letter.”
He added: “Nowhere in the Deloitte report does it refer to ‘deficiencies’. This word can only be found in the entrustment letter. In so far as Bermuda law and regulations are concerned there are no deficiencies. Considering where we are in the process, the findings in the report are not surprising and we still have opportunities to close the gaps identified in the Deloitte report before entering into any contracts.”
Mr Richards said Government had agreed voluntarily to the Deloitte review, in the belief that its findings would improve the project’s value for money and reduce risk.
“Merely because Deloitte did not find lengthy memoranda or explanatory documents regarding, for instance a ‘full business case’, does in no way indicate that such matters were not considered, discussed and deliberated on in the Ministry of Finance or the Cabinet, because they definitely were,” the Finance Minister stressed.
“Bermuda Financial Instructions (FI), the set of rules that govern financial procedures under which the Bermuda Government operates, do not require or even suggest that such memoranda or documents be prepared.”
Such documents were “not boxes that we have to tick in the process mandated by FI”, he added.
Under UK guidelines, a “full business case” would be required before making a “Gate 3” decision, or a final investment decision.
“It is important to note that the Government is not yet ready to make a Gate 3 investment decision,” Mr Richards said.
“We are over a year from making this decision. So we have the opportunity to close the gaps that have been identified before entering into contracts for the concession with the selected private sector supplier.
“The project will not break ground before the second half of 2016.”
Some observers have questioned whether Bermuda needs a new airport terminal right now. Mr Richards said storm vulnerability, the benefits of economic stimulus from the project and keeping up with competitors were all valid reasons.
“During the 1930s the US borrowed billions and built iconic structures like the Golden Gate Bridge, the Hoover Dam, the George Washington Bridge and the Empire State Building to reduce unemployment,” Mr Richards said.
“We need to similarly stimulate our economy, but we don’t have that proportionate borrowing capacity. With the project financed in this way, this Government can stimulate the Bermuda economy during difficult economic times, create construction jobs and longer-term retail jobs in the process.
“This terminal is an integral part of our recovery strategy.”
Rival international business centres and tourism destinations were building new airport terminals, he added.
“Bahamas has just finished one. Cayman is building one in phases. Barbados built a new airport some time ago. If we are to compete and live up to our brand, ‘First Tier, First Class, First World’, we cannot have a third-world airport.
“While you may say nobody will come to Bermuda because of the airport, people’s overall impressions of the jurisdiction will definitely by coloured by their travel and airport experience. Being First Tier demands investment to make it so.”
When private-sector operators take over public-sector facilities, there are numerous instances of jobs, wages and benefits being slashed. Mr Richards said this would not be the scenario with Bermuda’s new terminal.
“If you look at the Quito, Ecuador airport, which CCC/Aecon built, the scenario you described did not happen,” he said. “The jobs and compensation of the staff at our airport will be protected. In fact, more jobs will be created there. In the Quito airport, 99 per cent of the jobs there were filled by locals.”
The Finance Minister argued that taxpayers would get value for money.
“Bermuda will acquire a strategic asset that its residents as well its customers will enjoy for many years to come,” Mr Richards said. “It will be more efficient, both in terms of energy use as well as operationally. It will enhance the retail opportunities offered to travellers. It will be handicap friendly and protect travellers from the vagaries of the weather.
“It will reduce maintenance costs which are currently on an exponential growth curve. It will offer easy expansion options should that need arise.”
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