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Statement from Douglas De Couto, OBA candidate for Warwick North Central, on misleading PLP airport comments

By September 19, 2020No Comments

Lawrence Scott’s background is aviation, not finance, and his comments on the financial structure of the airport are clear evidence of this fact.

The new terminal has to be financed either with increased government debt or from its own revenues. The OBA chose the latter option because the government already owed too much money.

If the government had borrowed the funds to redevelop the airport it would still have had to pay the debt service to the lenders, plus the operating costs of the airport, including salaries and overheads, even if the airport was closed.

Mr Scott simply does not understand the basics about finance.

It was generally acknowledged that Bermuda needed a new airport.

When we came to power in 2012, we inherited a $300m annual deficit thanks to the PLP. We had to increase the debt ceiling just to meet Government’s own payroll commitments.

There was no money left in the pot.

If the PLP had left us some money we may have been able to use a different way to fund the airport. But we were not given that choice because the PLP acted with total abandon when it came to spending the people’s money.

I want to address the so-called MRG.

It was set against historically low levels of air arrivals and came into force once the contract was signed in 2017.

It has only kicked in now because the Burt administration closed the airport.

The MRG was provided in order to ensure the credit rating of the airport project was sufficient to attract private financing at a low cost of borrowing thereby reducing the cost of the project and saving taxpayer’s money.

Recently, members of the Burt administration have said that there is no ‘Force Majeure’ clause in the contract.

This is false! There is such a clause.

It covers epidemics but not a pandemic – perhaps Mr Scott, in his wisdom, can tell us what insurance exists that does cover pandemics?

The Force Majeure provisions are based on Canadian P3 precedent, now used to deliver hundreds of P3 projects, and generally considered to be the global standard for how these clauses are put together – including for optimal and proven bankability.

The Force Majeure clauses have been subject to independent review (and vetting) by international legal council – for Aecon, for the Government of Bermuda (OBA) and for the international project lenders in Wall Street – and then again by LeighFisher as part of their PA review for the PLP Government in 2017/2018.

Now let’s look at the benefits of the airport.

It will substantially improve a strategic Bermudian asset.

It has created hundreds of jobs for Bermudians and will continue to create jobs for Bermudians.

It will provide a far better and safer working environment for Bermudians who had to suffer appalling working conditions at the old airport.

It will mean a more comfortable, safer and pleasant travelling experience for residents and visitors

It has stimulated economic growth in Bermuda without further encumbering the debt burden of the Government

The investment in the new terminal and life cycle maintenance, required in the agreement, will eliminate the need for continuing expenditure on the repair and maintenance of the existing terminal simply to keep it operational by the Government.

The new terminal is raised a number of metres above sea level to improve the resilience of the airport to withstand major storms and avoid expensive and disruptive repairs required following major weather incidents, compared to the existing terminal which is at sea level.

Let’s look at the new wing at KEMH.

The Premier has twice promised to release a full, unredacted version of the PPP contract. We are still waiting. So much for transparency. What is he hiding?

What people do not realise is that the KEMH PPP did not protect the Government against increases of public debt, as the debt from that project is guaranteed by the Consolidated Fund – the money used to pay for day-to-day Government services.

If the OBA had adopted the same model, the size of this additional guarantee would likely have caused an impairment of Bermuda’s creditworthiness from a rating agency perspective, thereby exposing us to downgrades and higher debt service costs.

The method used to build the KEMH wing also required a down payment and came in the form of the $44 million the Bermuda Hospital Charitable Trust had to raise towards the deal. Plus, of course, the government had to guarantee the debt service.

The One Bermuda Alliance is proud of the airport. Bermudians will be proud of the new airport. Former Tourism Minister Zane DeSilva was clearly proud of the new airport when he took part in a roof-wetting ceremony.

This project will come in on budget, unlike the PLP’s projects which wasted tens of millions of dollars of the people’s money in cost overruns and added to the public debt.

Douglas De Couto is the One Bermuda Alliance Candidate for Constituency 27 – Warwick North Central. Click here to read his profile.

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