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Axeing airport would cost more than $100m

The cost to axe a controversial deal to build a new airport only months into its start would have been more than $100 million, a report by consultants revealed yesterday.

The LeighFisher report said that the island's struggling economy would have suffered even more damage if the Government had pulled out of the public-private partnership deal with the Canadian Commercial Corporation and developers Aecon.

The report added: “The unintended consequences of termination would include employment loss, economic damage and instability, international reputational risk, threat of credit rating downgrades and negative impact on tourism.”

The LeighFisher report said: “Terminating the project agreement would be extremely costly and would have far-reaching negative consequences for Bermuda.”

Responding to the report yesterday, David Burt, the Premier, acknowledged the price tag for cancellation of the deal to rebuild LF Wade International Airport was “a minimum” of $196 million and that it would be “fiscally irresponsible” to axe the contract.

The report explained that termination of a public-private partnership was “always challenging and this case is no exception”.

But it added: “That said, the findings of this review suggest tangible gains for Bermudians are possible to achieve within the framework of the current project agreement.”

The LeighFisher report said: “Notwithstanding the inability to change the contract, there are opportunities for optimising the project agreement but it will require co-operation from Skyport and Aecon.”

LeighFisher said it could not recommend an end to the deal “as the downside consequences will have significant and long-lasting impacts on Bermuda while upside benefits, if any, will take longer to materialise.”

The report said that after talks with the Bermuda Airport Authority and airport operators Skyport, it had identified about $15 million in “enhancements for Bermuda and Bermudians” that could be negotiated.

It added: “There is potential for benefit to be significantly higher when the optimisation portfolio initiatives have been implemented.”

The report identified jobs for Bermudians, workforce development and training, a reduction in energy costs as three of six areas where a better deal could be negotiated.

The others were passenger traffic growth and revenue sharing, social investment and accommodation for the BAA.

The report said: “The revenue sharing threshold presents a modest hurdle that could be surpassed with the addition of a single new airline route to Bermuda.

“It remains for the project agreement counterparties, the Bermuda Airport Authority and Skyport, to co-develop and entrench these elements going forward as declared benefits in their framework and to operationalise the fulfilment of the optimisation portfolio across the concession term to maximise their value to Bermuda and Bermudians.”

The LeighFisher analysis added: “To formalise the optimisation, a commitment letter from Skyport to the Bermuda Airport Authority is suggested as the method to anchor the commitments achieved under the auspices of this review and provide a frame of reference for moving forward to deliver better outcomes for Bermuda.”

The report found that the terms and conditions of the contract were “broadly consistent” with similar public-private deals.

LeighFisher also reported that the interest rate for long-term debt and the return on equity for Aecon were “within market range”.

But it said: “The project was not competitively procured. Typically, these types of P3 projects are competitively procured by a public-sector procuring agency to retain control of the procurement process, to retain competitive tension, increasing Government's negotiating leverage and ultimately garner best value for money.”

The report added: “Unlike other similar P3 projects, this project agreement doesn't allow changes. It doesn't have variation provisions, which is unusual for a 30-year concession agreement.

“The only way to make substantive changes to its terms and conditions is to terminate the agreement.”

The report said agreement on the establishment of a new minimum target of a 90 per cent Bermudian workforce at Skyport had replaced an original unspecified target.

An increase in the Bermudian workforce on the construction side from 60 per cent to 65 per cent has also been thrashed out as a result of meetings, which started last November.

The previous One Bermuda Alliance government negotiated a 5 per cent increase in Bermudian construction jobs to 60 per cent last March.

LeighFisher added that workforce and development training had been firmed up to include a $6 million training budget for Bermudians, which was not specified in the original deal.

Skyport has also agreed to fund an initial $1.3 million air service development and tourism promotion, designed to “benefit Government's participation in the project agreement's revenue sharing agreement”.

The airport operator has, in addition, earmarked $4 million over the 30-year period to fund social investment programmes including education, the environment and youth work.

The original social investment agreement did not make firm commitments.

The Bermuda Airport Authority will also get offices at a peppercorn rent, expected to be worth between $3.8 to $4 million over the life of the contract.

For the full airport review, click on the PDF link under “Related Media”

David Burt, the Premier, at yesterday's press conference (Photograph by Paul Johnston)

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Published February 24, 2018 at 8:00 am (Updated February 24, 2018 at 10:56 am)

Axeing airport would cost more than $100m

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