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A call for honesty over Aecon deal

Jaché Adams suggested this week that Aecon redistribute profits from the airport for the benefit of Bermudians (Photograph by Akil Simmons)

Progressive Labour Party backbencher Jaché Adams penned an opinion piece this week about Aecon selling 49.9 per cent of its ownership stake in the airport contract. Adams ended his opinion with the following:

“In conclusion, we call upon the people of Bermuda to join us in this fight for a just resolution, as we seek to uphold the principles that bind us in these challenging times. By standing together, we can demand a fairer distribution of the rewards of investment and ensure that the sacrifices made by our taxpayers are not in vain.”

Fight? What fight? I’m sure that I wasn’t the only reader who was left scratching their head over what Adams was referring to.

Let’s take a stroll down memory lane, shall we? The PLP fought tooth and nail against the airport contract. This fight led to the formation of the independent Blue Ribbon Panel. In February 2017, the panel concluded that the contract was “reasonable and consistent with similar projects”. Nevertheless, the PLP rejected the conclusion of some of Bermuda’s most experienced and respected financial experts by declaring:

“The Blue Ribbon Panel does not answer the question that every MP should want to know: how much money will Aecon earn from Bermuda’s most prized public asset, our airport?”

Given the PLP’s unmoved position, one would think that getting to the bottom of that question would have been its first priority upon winning the election. Surely, it was understood by July 2017 that the more development that took place at the airport, the more expensive it would be to cancel the contract? But seven months and tens of millions of airport construction development later, the Premier declared in February 2018 that it would be fiscally irresponsible to cancel the contract.

Fight over, Mr Adams. Or am I missing something?

What everyone knew long before July 2017 was that Bermuda would be subject to minimum-revenue guarantees. This was the cornerstone of this project. It allowed us to finance the airport using a multiyear public-private partnership mechanism instead of borrowing funds from a bank or a group of lenders.

What everyone also knew, especially after February 2018, was that Bermuda’s failure to meet the airlift targets would result in us having to finance the MRGs. That was the risk that everyone knew — and, yet, the PLP failed to cancel the contract.

Now, let’s fast-forward to the global pandemic. Restrictions on global travel caused Bermuda to trigger the MRGs by a wide margin, thus leaving the Government with a large bill to pay to Aecon. Of course, the Government wants someone to blame for the additional funds required because Bermuda is lacking funds desperately needed elsewhere for basic public services — while inflation is skyrocketing.

The One Bermuda Alliance, especially in its present state, is an incredibly easy scapegoat. It’s just politics, after all. But what I do find incredibly irritating is the way the PLP has been using the airport contract as an excuse for all of Bermuda’s financial woes. As a reminder, our financial challenges caused us to use PPPs long before the airport contract. And, if such deals are now deemed to be so bad, why did the PLP suggest using one for a 30-year PPP to build the “not happening yet” arbitration centre?

The “blame the OBA airport for everything” game was in full swing by summer of 2020. In July that year, former PLP Cabinet minister Lawrence Scott whacked the OBA for failing to secure a force majeure provision in the contract.

This hindsight remedy is far easier said than done for two good reasons:

First, force majeure provisions are incredibly difficult to fall back on. This is especially the case when the “act of god” requirement was arguably predictable, and when it actually does not stop the contracting parties from complying with the terms of the agreement. Any lawyer worth their salt would point to any number of prior global diseases and claim that Bermuda should have foreseen the possibility of some kind of global disease outbreak. In addition to this, they would claim that Bermuda’s airlift problems do not prevent Bermuda from complying with the MRG.

Second, had Bermuda sought some kind of provision that would offload the risk of the minimum-revenue guarantee to Aecon, Bermuda would have had to pay more for the contract. No contractor is going to absorb that kind of 30-year risk free of charge.

There are other things that the PLP has conveniently failed to point out. With the airport contract not having a force majeure provision, the next best option would have been to acquire business-interruption insurance. Arguably, such coverage would have been far more useful than a force majeure provision in this scenario. The PLP had two years before the pandemic to put this insurance in place, but failed to do so.

Let’s not forget the supposed alternative of borrowing funds to pay for the airport. Had we borrowed funds from a traditional lender, would Bermuda have been able to suspend or avoid making payments due when using traditional borrowing options? And what about the post-pandemic rise in interest rates we saw in 2022? How much more would that have cost us? After all, banks and corporate lenders make loans for great profit, too.

The hard truth is that neither party had the prophetic powers required to foresee an extended shutdown of the airport. Neither party used the costly options that might have covered the minimum-revenue guarantee payments.

I get it. It’s far easier to blame the OBA’s airport contract for Bermuda’s broad financial woes when nothing else the PLP has done seems to be working. Still, I would love for Mr Adams to explain the PLP’s alternative options in detail because at present he is suggesting only that we now do what the PLP concluded we couldn’t do back in February 2018.

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Published March 24, 2023 at 8:00 am (Updated March 24, 2023 at 8:27 am)

A call for honesty over Aecon deal

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