…company applies for toll hike, losses $2.8B
…Govt says no to increase
More than a decade after a Public Private Partnership (PPP) agreement allowed the construction of the Berbice River Bridge; the bridge company is now facing bankruptcy following Government’s decision to drop the toll and subsequent refusal to allow for an increased as per the initial agreement when the company was formed.
This is according to Berbice Bridge Company Incorporated (BBCI) Chairman, Dr Surendra Persaud, during a press conference at the National Communications Network on Tuesday. Persaud is also Chairman of the National Insurance Scheme (NIS), which holds significant shares in the company.
According to Persaud, they have had several engagements with Public Infrastructure Minister David Patterson. He noted that following a previous engagement, Patterson had informed them that a maintenance proposal would be taken to Cabinet.
According to the Chairman, they were subsequently informed that it was not approved. In fact, the company applied for a toll adjustment on three occasions; twice in 2015 and once in 2016, to no avail. They have since made another such application, dated July 9. In that application, the company had requested that the toll increases take effect by August 1.
“So, where are we today? We are in a situation where the contractual obligations of a public private partnership have not been met on the Government’s part and if not corrected, is likely to affect the willingness of the Private Sector to partner with the Government in future infrastructure projects,” Persaud said.
Here, he cited the construction of the new Demerara River bridge, a project likely to cost over US$150 million; as well as the construction of a natural gas pipeline, where PPPs are also being considered.
“The Board believes this situation is fixable. There is a contract, an established formula within the contract and there are obligations to be met. The tolls ought to be adjusted in accordance with the agreement, in good faith, to allow the company to properly maintain and operate this critical infrastructure.”
“The current tolls to the commuters are subsidised in two parts, one: internally by the company as it has not charged the toll as per the agreement and two: by the Government of Guyana, having subsidised the old toll prior to the adjustment, in accordance with the agreement of June 12, 2006.”
The internal subsidy by BBCI was implemented after Government had rejected the company’s previous toll adjustment application, while the Government subsidy is basic reduction of $300 in the tolls.
The company, according to Dr Persaud, has now accumulated a loss of $2.8 billion and faces the distinct possibility of going bankrupt. Besides the losses having prevented the company from paying out dividends, it has impacted the ability to service the 39 pontoons under the bridge.
The company is seeking increases in tolls as per the adjustment formula set out by the agreement between BBCI and with the Government of Guyana. It is understood that this tolling requirement was not applicable until 2014, after which they made their first request just prior to the former Government leaving office. According to the toll policy, the increase is calculated based on “the level of traffic on and under the bridge for the two previous financial years.”
According to the policy, “it takes consideration of the toll levels at the start of operations, any provisional toll level applied during the year and the toll level at start of operations adjusted for inflation.”
The policy goes on to note that the toll level is adjusted by the use of the consumer price index of the most recent period and two years prior to that. The second part of the formula, it added, computes a provisional toll level to be used until near the end of the financial year.
“The company’s contractual and non-contractual cash flow requirements are taken into account. These include cash requirements for servicing of debts, routine operations and maintenance, periodic servicing, trustees fees.”
“Any excess cash generated by the provincial tolls applied during the year, is used to reduce the cash flow requirement for the next year and therefore the final toll level required,” the policy adds.
Asked about previous statements from the Minister when he pointed to the lack of a maintenance programme and said he would not consider the increases, Persaud noted that the programme has actually commenced. He made it clear that they were willing to accept Government assistance.
“The proposal I spoke about was a separate proposal brought to the Minister to discuss the matter of maintenance. The Minister sought the guidance of the folks from the Demerara Harbour Bridge and we had multiple discussions. The Minister asked us to offer other options.”
“That was done. We are still awaiting a response. The maintenance programme has commenced. The bridge company is doing it, which requires a pontoon in the Berbice River to be taken out to the Atlantic Ocean, brought to the Demerara River and towed back… so that process has commenced,” Dr Persaud informed.
The ownership structure of BBCI is made up of ordinary share capital of $500 million owned by private investors and preference shares of $950 million owned by NIS. The bridge has a wide cross-section of investors including various pension schemes, insurance schemes, local banks as well as private companies and NIS.
When asked what the company’s next step is if their request is not approved, Dr Persaud stated that “the Board of Directors, along with its legal team and management, will have to determine the next step.”
Efforts by this publication to make contact with Minister Patterson were futile. However, his Ministry later sent out a statement in which they said Government was not contemplating any fare hikes.
According to the statement, “Government stands by its decision to reduce tolls in fulfilling a campaign commitment and will continue to work with the Berbice Bridge Company in ensuring that the Bridge is sufficiently maintained and safe for vehicular and marine use.”
“Further Government notes that the Bridge Agreement places obligations on all parties, which include scheduled maintenance and associated upgrades. Any request for toll increases must take into consideration a wide array of factors and cannot solely be on the basis of recouping operational costs and profits on dividend.” (Jarryl Bryan)