When officials signed the Protocols for Effective Financial Management with the United Kingdom in April 2012, the agreement was touted as a major step forward in promoting fiscal stability and transparency in the Virgin Islands.
But four years later, with government about to embark on the largest capital project in VI history in the expansion of the Terrance B. Lettsome International Airport, some of the Protocols’ key provisions are being sidestepped and downplayed as insignificant.
As a result, required analysis remains incomplete and crucial information about the project is being withheld from the public, even as government aims to select a contractor by July to design and build the new facilities.
The Protocols require a business case containing “in-depth evaluations” to be completed before the procurement stage for any major capital project — and to be made publicly available.
But the evaluation process for the airport is not yet complete, though officials say several appraisals have been carried out: Financial Secretary Neil Smith said last week that an evaluation was conducted by the firm BDO before tendering on the airport started in July 2012, and Governor John Duncan said another study was conducted more recently by the UK statutory body Infrastructure UK.
Both studies recommend an expanded airport, according to Messrs. Smith and Duncan.
Another study by the firm PricewaterhouseCoopers is also being carried out, though it is not quite complete, Mr. Smith said.
But none of those studies have been made publicly available, despite explicit directions in the Protocols that the pre-procurement business case should be released so that it can be factored into the decision about whether a given project should proceed.
An Interview with the governor
Duncan talks Protocols, airport project
By KEN SILVA
What is the status of the business case on the proposed airport expansion?
Well, let’s get away from the business case, because you’re doing what the French call chercher la petite bête, which means “looking for the small insect,” literally speaking. The Protocols for Effective Financial Management are a mechanism by which the UK government ensures the fiscal plan of the government — both its revenue and its debt scheduling — is managed in a sensible way so that it’s sustainable over the long term, and so that they don’t over-borrow and that they also keep a decent amount of reserves. That fiscal plan is put to the government every autumn, and last autumn the proposed fiscal plan included a proposal to have the airport project under a loan-financed as opposed to a public-private partnership, and that was approved. It does mean that the reserves will not be filled as quickly as was originally anticipated, but that was accepted by the UK as perfectly manageable, and the finances of the territory as of November last year were in a sustainable state.
You mentioned that the Protocols are a mechanism to ensure that the government’s finances are sustainable. But they also seem to include measures for good governance. Do you agree with that?
That’s not their fundamental purpose. I mean, they are a part of the good governance of the territory, which of course is fiscal probity. So they are part of good governance, but they are not there for good governance, if you take my meaning. They are a subset of good governance.
I asked that because one of the provisions in the Protocols states that a business case must be carried out and considered by Cabinet before government decides to go forward with a major capital project. From the information we have, it does seem that this isn’t being followed.
That’s not an accurate assessment of what’s happening. Like the [cruise pier expansion] project, these are very big infrastructure projects. The airport project has been through several iterations. The first one was very straightforward; the second one was quite complicated, involving piles and complex engineering elements for supporting the extension of the runway; the third one to my knowledge was a private-public partnership with a concession model, so someone would take over and build the thing and then they’d run it. So it’s been through several iterations. Now, what business case are you talking about? Because there are three different iterations there. We now have a fourth iteration, which is a straight-up extension and upgrade of the runway, which is a much simpler plan than the third iteration. So the case for a business case — what type of business case are you talking about? The commercial viability of the airport? It’s irrelevant. It’s not part of the estimation of this part of the process. What we’re looking at now is an issue where government wants to extend the runway, they need to upgrade the surface, they need to build more apron space. They’re going to find this from loan financing.
So government doesn’t need to do a business case?
The business case is a completely different animal. There is a study done by a very reputable organisation called Infrastructure UK. I’m not sure that paper is publicly available. It’s a study done by that body — which is a statutory body of the United Kingdom — for the BVI. It said there was a clear basis and need for this project. The study done by Infrastructure UK meets most of [the Protocols’] requirements, if not all of them. [A business case] would be required under certain circumstances, such as a concessionary model. But we’re not looking at the concessionary model — we’re looking at a basic infrastructure model. So if you build a power station, you have to decide whether you can afford to build that power station. You have to try to offset the cost of that power station by raising fees. But you can’t necessarily make it commercially viable, because it’s a basic infrastructure need. Or let’s say building a bridge: What’s the commercial viability of building a bridge? It’s an irrelevancy; it’s not the issue. The issue is whether the government needs to do this — the answer is yes. Can the government afford to do it? In the view of the British government in November, the answer was yes. And those are essentially the two key questions. It’s not about commercial viability.
It’s our understanding that PricewaterhouseCoopers is also conducting a study on the airport project. What does that study entail?
You’d have to ask the minister on this.
Premier Dr. Orlando Smith said at a press conference on Tuesday that since the overall evaluation on the airport expansion is ongoing, none of the reports can be released for public consumption.
Dr. Smith added that they will be made public once the overall evaluation is completed, though he didn’t say when that could be.
Meanwhile, the procurement process is nearing completion: Mr. Smith said there are two remaining bidders — China Communications Construction Company and Sir Robert McAlpine Holdings — and that one should be chosen by the end of June.
Spirit of the protocols
But even though the necessary analysis remains incomplete, officials insisted that the Protocols are being followed in principle.
Mr. Smith explained that the Protocols are first and foremost a VI-UK agreement designed to ensure the territory’s fiscal stability and to ensure that major projects are conducted transparently and in accordance with proper procurement practices.
Because the UK has been involved with the project since its inception, he said, the spirit of the Protocols is essentially being followed in these regards.
“If you look at the Protocols carefully, what we’re speaking about is a partnership, and we’re looking for transparency and accountability,” he said. “So sometimes even though it looks like something is out of step, the basic principle of the Protocols is still being obeyed.”
The financial secretary added that the PwC study is nearly complete, and that the UK reviewed it before approving the airport expansion proposed in the VI’s 2016-18 Medium Term Fiscal Plan.
The ongoing analysis entails detailed revisions to passenger forecasts and other projections, he explained.
“They’ve seen the results of the PwC study, and now we’re just tweaking it,” Mr. Smith said. “It’s a delicate project, it’s an expensive project, it’s the biggest and most complex project we’ve embarked upon. So it doesn’t hurt to overanalyse.”
‘The small insect’
When the governor was asked about the Protocols’ requirement to complete the business case before the procurement stage, he sought to downplay the issue.
“Let’s get away from the business case, because you’re doing what the French call chercher la petite bête, which means ‘looking for the small insect,’ literally speaking,” he said when this reporter asked him about the status of the evaluation (see sidebar for an interview transcript).
Echoing Mr. Smith, Mr. Duncan added that the VI has the requisite approvals required by the Protocols to move forward with the project.
“Last autumn the proposed [Medium Term] Fiscal Plan included a proposal to have the airport project under a loan-financed as opposed to a public-private partnership, and that was approved,” he said.
The governor also addressed the fact that the government is in breach of the Protocols’ requirement to have liquid assets equal to at least as 25 percent of recurrent expenditure.
Under the Protocols, government originally committed to meet this reserve requirement by the end of last year, but that deadline has been bumped to the end of 2017.
“[The airport project] does mean that the [Protocols’ reserve requirements] will not be filled as quickly as was originally anticipated, but that was accepted by the UK as perfectly manageable,” he said.
A few details
As for the details of the evaluations, Mr. Smith said they indicate the need for an expanded airport for various reasons.
He added that the PWC study analyses the economic impact the project is expected to have on the territory.
Among other findings, he said, it projects a massive construction boom to take place after the expansion is finished.
This, he added, will put a strain on the local labour market to meet the demand of developers throughout the VI.
“What we anticipate is upon completion of the airport, we’re going to have a problem with labour because we’re going to have a surge in development — hotel development especially,” he said. “So there’s expected to be a labour shortage.”
Similarly, when Deputy Premier Dr. Kedrick Pickering announced in January that a private-sector partner would design and extend the runway and that the BVI Airports Authority would retain control of the facilities — what he called a “design-build procurement model” — he touted the potential benefits of an expanded airport.
“This will support the growth of our tourism industry and the continued development of our financial services industry,” he said, adding that the project will also help diversify the economy into other areas.
However, not everyone is convinced by these arguments — especially in the absence of documentation.
Though Opposition Leader Julian Fraser wasn’t immediately available yesterday to speak on the issue, in a pre-election interview last year he was critical of government’s lack of transparency in carrying out the project.
Mr. Fraser said at the time that he, too, had yet to see any analyses on the potential impact of an expanded airport.
“I don’t know in details the reasoning behind this selection — and to this day, after asking for feasibility studies, which I have never seen — for this airport extension,” he said at the time.
Last May, he also said that he had several unanswered questions about the potential development.
“Will any airline accept an offer to fly into Tortola? What are the conditions? In other Caribbean countries, the airlines flying in there are doing so under condition of revenue guarantees. What is it going to be here?” he asked. “You have to get those questions answered, or else you’re risking that airport sitting there as a white elephant.”
Other residents have also voiced concerns about the project. During a public meeting in March 2012, for example, they raised questions about the plan’s effects on Beef Island’s economy and environment, with some insisting that a longer runway will bring mass tourism that will damage the VI’s existing tourism product.
At that meeting, Dr. Pickering described the project as a done deal: The topic of discussion, he said, was not whether the airport would be expanded, but how the project would be carried out.
To that end, he presented two possible options: one that would cost about $70 million and would create two runways, and another $38 million option that would keep the alignment of the existing runway but expand it into Trellis Bay.
Estimates for the airport project have since ballooned to as much as $400 million, but no further public meetings have been held about the proposal.