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Airport development: the essence of public-private partnerships

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Leah Scott

Leah Kimberley Scott is One Bermuda Alliance MP for Southampton East Central

The proposed airport revitalisation project at L F Wade International Airport has been the subject of great concern by the loyal Opposition and, most recently, the Bermuda Trade Union Congress. I have to emphasize that this project will create jobs, will not add any further debt to this country’s balance sheet and will provide Bermuda with a first-class, affordable airport that Bermuda can maintain and sustain.

The Government has entered into a non-binding Memorandum of Understanding with the Canadian Commercial Corporation (CCC) with the ultimate objective of entering into a public-private partnership, which is often called a PPP or a P3. A public-private partnership involves a contract between a public sector entity, such as a government, and a private entity or entities, such as investors, developers and project brokers. For the purpose of this article, I will call the private entity the “developer”. The role of the developer is to deliver the business objectives of the public-private partnership on terms that offer value for money to the public sector entity.

The developer who is engaged by the public sector entity assumes the financial, technical and operational risk of the project. The developer also borrows the money for the project, so the public sector entity does not have to borrow any money.

Therefore, the capital expenditure for the project falls to the developer’s balance sheet, not to that of the government.

This is what is known as an “off-balance sheet” method of financing the delivery of an asset. This is where public-private partnerships are proven to be an advantageous method of financing capital projects, particularly where the public sector entity’s capital budget is constrained. A public-private partnership allows the delivery of a service or services to the public service entity that might otherwise be unaffordable.

Typically, the public sector entity in a public-private partnership will define the scope of business, specify priorities, targets and outputs and the developer determines the best way to meet the government’s objectives. This Government has stressed to CCC that its priority is CREATING JOBS FOR BERMUDIANS, and that mandate must be achieved by the developer(s), or the public-private partnership cannot move forward.

Government has been taken to task for not inviting Requests for Proposals (RFP) for the airport redevelopment project. The Minister of Finance has stated that after consultation with the Accountant General, it was decided that because of the unique combination of financing ability and risk safeguards of the public-private partnership, the RFP requirements of Financial Instructions could be waived. Financial Instructions are in place in order to set and clarify the standards of financial control within Government, consistent with international best practice and to provide for appropriate levels of public finance control and governance.

The Shadow Minister of Finance has stated that the Government/CCC/developer public-private partnership is an attempt at “back-door” privatization.

A public-private partnership is not a form of privatization.

It is a partnership between the public sector entity and the private sectors. Unlike privatization, the ultimate responsibility for the delivery of goods or services remains with the public sector entity.

It is the public sector entity that sets the goals and the desired outcomes of the public-private partnership project and ownership is retained with the public sector. The role of the private sector entity is to meet the quantity and quality requirements set by the public sector entity for the airport infrastructure and related services.

The Shadow Minister of Finance would have you believe that this Government is selling off its most vital asset, including the runway, the control tower, radar and associated equipment and the many other buildings on the premises, as well as giving away revenue. That simply is not true. The ownership of the airport assets, which are worth several million dollars will be retained by the Bermuda Government for the people of Bermuda. The developer will receive a pre-determined percentage (which has not yet been determined) of the revenues generated by the airport operations and will not have any ownership interest in the airport. The staff that operate and manage the airport will continue to operate and manage the airport.

Public-private partnerships are merely an additional means by which a public sector entity may deliver some public services. There are several countries, including France and the UK, as well as China, Japan, Singapore, South Korea and Thailand, that have entered into public-private partnerships. It has been shown that new investments in public services made through public-private partnerships are being largely completed ahead of schedule and within budget, thereby supporting the conclusion that while it may initially be more demanding for the public sector to contract on this basis, very worthwhile gains are available. Mark Romoff, of The Canadian Council for Public-Private Partnerships reported that between 2003 and 2012, as a direct result of public-private partnerships the following direct economic impacts were achieved in Canada: $25.1 billion in Gross Domestic Product (GDP), more than 290,000 full-time equivalent jobs, $9.9 billion in cost savings, and $7.5 billion in tax revenue to government. Further, in Ontario, a 2013 study showed that 29 of 30 public-partnership projects were completed on budget and 28 of 30 public-private partnerships were delivered on time or within three months of the scheduled completion date.

This Government did not inherit an easy situation.

We are faced with the challenge of stretching scarce public funds to meet the increasing demand for new infrastructure facilities, while also having to perform the other duties expected of a modern government. Therefore, the need to engage the private sector to assist us in developing the required infrastructure for public services is necessary. We are working hard to move Bermuda forward to create employment opportunities, job security and life security. We must be united as one Bermuda working towards a common cause…it’s time for everyone to get on board with that.

LF Wade International