New Demerara River Bridge not feasible without huge Govt subsidy – Consultants

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The Guyana Government is forging ahead with its plans to construct a new Demerara River crossing currently pegged at US$170M minus additional costs, such as for the mandatory accompanying road networks, but given the cost of the entire project, it is not feasible without the input of billions of dollars annually from the Government.

An artist’s impression of what the new Demerara River bridge will look like

This warning is encapsulated in the Feasibility Study which was commissioned by the Coalition Administration at a cost of in excess of G$150M.

According to the consultants Lievense, “The Project is financially not viable without support from the government.”

The findings have since indicated that the revenues from toll make up for the operation expenditures but cannot support the debt service and that the toll rates can be increased, but there is a limit to that since “a too large increase would make the toll unaffordable for many of the people who have to use the bridge.”

While the consultants did indicate that there seems to be strong appetite and sufficient liquidity in the financial markets of Guyana and the region to fund the Project, since loans or bonds and preferred cumulative shares issues provide for the required funds, “this so-called Project Financing Structure requires a Government supported Special Purpose Company (SPC)”.

It was pointed out that a Private Public Partnership (PPP) structure like BOOT (Built, Own, Operate and Transfer) whereby an investor signs a concession agreement with the government to build and operate the bridge and in which the concessionaire has to arrange the financing “can only be successful if the government provides support in case contribution and certain guarantees.”

The required Debt Service, according to the consultants, weigh heavy on the financials of the Project and are high in comparison with the Operational Expenditures.

Debt service includes interest and repayments of loans or bonds and generally the loans/ bonds are medium term and require yearly repayment, and together with the interest the yearly cash needed for debt service is considerable, “as a result of the high debt service it was concluded that the Project is not financially viable without a contribution from Government to support the cash shortfall.”

The consultants in their report acknowledge that the government expressed the wish to maximise funding from the non-government sector in order at to limit the government contribution to the funding of the Project as much as possible.

The consultants have since determined that this “means that the Project has to be structured in a Public Private Partnership (PPP), i.e. a Built, Own, Operate and Transfer (BOOT) type of arrangement or a Project Finance structure whereby the commercial banks and (institutional) investors are involved, or a intermediate structures like DBFM (Design, Built, Finance and Maintain).”

According to the consultants, for the new bridge, a Special Purpose Company (SPC) is assumed in that it holds the assets and operates and maintains the bridge.

In case of a Project Finance structure, the government will be the sole owner/shareholder of the SPC, as envisioned by the Consultants.

In such a scenario, the Ministry of Public Infrastructure and the Ministry of Finance will be the two governing bodies and the the SPC will be a legal entity with limited liability under the laws of the Co-operative Republic of Guyana.

According to the consultants, the investment is budgeted at approximately USD$150M of which approximately 20 per cent will be denominated in Guyana dollar (G$).

The report has also taken into account the limits for increasing the toll rates are set by affordability, social responsibility, willingness to pay and what is politically acceptable, as well as the fact there are no alternatives for crossing Demerara River safely except for the ferryboats.

According to the consultants, it was concluded that none of the projected toll increases are not nearly enough to cover for the Debt Service as well, even with the highest increase of toll rates of 200% on top of the existing toll rate.

As a result the Government will have to arrange a contribution (subvention) on an annual basis to cover the gap between the revenues and the cost.

The consultants noted the main reasons for the need for significant Government contribution are the short period of the financing in combination with the high interest rates.

 

 

 

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