Before government abandoned the idea of using a public-private partnership for the airport expansion, consultants raised serious doubts about one bidder’s ability to obtain the necessary financing for the $150 million-plus project.
Now that bidder, the Colorado-based ICA Group, has been chosen for a $100 million project to transform Prospect Reef into a four-star resort.
Prospect’s profits and losses
By KEN SILVA
In response to a question from Opposition Leader Julian Fraser, Premier Dr. Orlando Smith outlined Prospect Reef Resort’s annual income and expenditures from 2006 to 2012.
According to Dr. Smith’s response, the resort made roughly $5.6 million during that time and spent about $7.8 million — a loss of some $2.2 million.
Mr. Fraser asked Dr. Smith whether government provides Prospect with a subvention to make up for that loss, and the premier said that it does not.
He did not explain how the resort is able to operate at a deficit, though he said that financial information from 2013 to 2015 is not yet available.
Premier Dr. Orlando Smith announced last week that his administration is working on the terms of a memorandum of understanding for ICA to finance, develop and operate Prospect Reef in exchange for a renewable term lease for the property.
ICA Chairman and CEO Ali Nawaz Shaikh told the Beacon this week that he’s “excited” to undertake the project and that he has big plans for Prospect Reef.
He also strongly disputed the airport business case’s suggestion that his firm might be unable to bring financing or an operator for that project (see sidebar).
Last November, government officials and private consultants met representatives from IDL Projects Inc., the Sir Robert McAlpine Group, and the ICA Group to discuss the possibility of those firms partnering to finance, expand and operate the airport.
At the time, IDL and McAlpine had formed a consortium with ICA, which proposed to bring financing and an operator, according to the project’s business case — a document drafted by the international firm PricewaterhouseCoopers that analyses various aspects of the airport project.
However, “PwC and [Baker & McKenzie] met with this consortium … and conducted a background investigation on ICA, and found no evidence of ICA’s ability (past or present) to bring financing and an operator to ultimately deliver the project,” states the business case, which was submitted to government in May. “Their financing sources were obscure at best.”
Government subsequently opted against using a public-private model for the project, deciding instead to finance the expansion itself and contract a firm to carry out the work.
‘At least four stars’
Nevertheless, Dr. Smith expressed confidence that the firm will be able to turn Prospect into a world-class resort.
ICA still wants airport project
By KEN SILVA
Despite consultants’ doubts about the ICA Group’s ability to finance the airport expansion under a concession model (see main article), ICA Chairman and CEO Ali Nawaz Shaikh said Tuesday that his firm is still interested in undertaking the project.
“That makes me upset. We have a signed letter from an operator,” Mr. Shaikh said when this reporter asked him about a business case’s conclusion that it found “no evidence” that ICA could obtain financing for the airport project.
The CEO also said he had obtained financing from Deutsche Bank, and that “Jet Blue signed an agreement with us to fly once we built the airport.”
However, he said he’s only interested in the airport project under the concession model — a public-private partnership whereby a private firm would finance, build and operate the airport for a number of years before turning it back over to government.
In January, Deputy Premier Dr. Kedrick Pickering said government is not moving forward with that model, and is instead pursuing a model where government would finance and maintain control of the property while contracting a firm to design and build it.
That’s also what the business case recommended when it was submitted to government in May.
“The concession approach was no longer considered a viable funding option for the project,” the document states. “Accordingly, subject to final affordability deliberations, the design-build approach was recommended.”
“Given what they’ve proposed, I expect it to be a decent facility — at least four stars,” Dr. Smith told the House of Assembly last Thursday in response to a question from Opposition Leader Julian Fraser about the government-owned property.
Outside of Dr. Smith’s statement, government officials have not provided further details about the scope of the project, which in 2013 was estimated to cost around $100 million. Premier’s Office Permanent Secretary Brodrick Penn and acting government Communications Director Desiree Smith did not respond to inquiries, and Prospect Reef Resort Managing Director Allen O’Neal said he had been unaware that the development was proceeding until he heard the premier’s announcement last week.
Dr. Smith told the HOA that the project will be carried out under similar terms as those outlined in government’s 2013 request for expressions of interest, which called for the construction of more than 130 hotel rooms; a modern conference room capable of accommodating up to 200 people; an affiliation with a successful “branded” hotel chain; and amenities consistent with a four-star resort.
That 2013 invitation also states that government will grant the winning bidder a long-term lease for the Prospect property, whose renewal will not be “unreasonably” withheld.
Government originally chose the United Kingdom-based McAlpine — whose Cayman Islands subsidiary is still in the running for the airport project — to develop Prospect in November 2013.
But in June 2014, Dr. Smith told reporters that the development had stalled because McAlpine wanted to conduct a feasibility study before moving forward.
Last Thursday, the premier clarified that McAlpine’s interest in Prospect had “waned,” and he explained that the firm didn’t want to proceed unless government funded the feasibility study.
Though government apparently declined to fund a study, it may be obligated to do so.
Under the Protocols for Effective Financial Management, government is required to conduct a business case — something it’s doing for the airport project — on major capital projects before opening them up to tender.
This reporter asked Financial Secretary Neil Smith about the issue, and Mr. Smith said that government isn’t conducting a business case. But he also noted that government isn’t contributing public funds to the project: It is simply permitting ICA to undertake the development on Crown land.
“In such a case I am doubtful as to whether the [United Kingdom] will need a business case, although certainly government would be best advised to have one from ICA in order to determine the ‘do-ability’ of the project by the said company,” he stated, adding that he’s not directly involved in the project.
Mr. Shaikh said that ICA has already conducted its own studies on the project, including an engineering study into the potential creation of a beach at Prospect.
According to Mr. Shaikh, ICA is headquartered in Dubai and has its “operating company” in Colorado.