Camilo Thame, Business Reporter
Dr. Wayne Reid (centre), managing director of the National Road Operating and Constructing Company, pointing out features of the Portmore leg of Highway 2000, to Transport and Works Minister Robert Pickersgill during its construction, in February 2006. At right is Jean-Noel Foulard, project director of Bouygues Travaux Publics, the highway developers. - FILE
The Kingston to Ocho Rios leg of Highway 2000 is projected to cost $13.2 billion and should take three years to design and construct, said state overseers of the process.
Developer TransJamaican Highway (TJH) has up to the end of June 2007 to secure its own financing, which is also the deadline for moving forward on that segment of the development, says Dr. Wayne Reid.
Jamaica's contribution to the development is likely to follow the arrangement for the leg already built, for a subordinated loan - funds to be paid out of the US$260 million loan agreement signed in July with Venezuela.
Most of the Venezuelan funds will refinance most of the existing highway debt.
Suggestive project cost
"We have a suggestive project cost of US$200 million," said Reid, chief executive of National Road Operations and Construction Company (NROCC), the vehicle created by Government to manage the highway development.
"The developer has up to the second quarter next year to assure us that he has the financing in place to start the design and construction of Phase 1B."
Currently, Phase 1B is defined as a 37-kilometre run from Sandy Bay in Clarendon to Williamsfield in Manchester, a community just outside the centre of Mandeville, one of Jamaica's faster-growing towns.
But the Government has re-prioritised aspects of the highway development, saying it makes more sense to build the Ocho Rios leg now to maximise on the economic benefit of the North Coast Highway which runs to Negril.
"The government would definitely want to go to Ocho Rios before Williamsfield," said Reid. "(But) the existing contract agreement has not been varied to date."
No dividends
Under the concession agreement "the developer (TJH) shall not be entitled to pay any dividends or make other similar distributions to shareholders, Buoygues Travaux Publics and AFS, until the Phase 1A handover date."
Also Buoygues and AFS will only be entitled to a return on equity of eight per cent should its subsidiary, TJH, not complete Phase 1B, after which it can get 16 per cent on its equity.
"There is motivation for them to do Phase 1B, but building both - Ocho Rios and Williamsfield legs - simultaneously would be too much of an economic strain," explained Reid.
So to accommodate the ambitions of the state without breaching the existing contract, Phase 1B of the highway will be redefined as the next stage of Highway 2000, whether it is going to Williamsfield or Ocho Rios, said Reid.
"The developer has indicated that to go from Spanish Town to Ocho Rios, it would take three years from the start of design to end of construction (in 2010)," said the NROCC executive.
"They would release segments as they go along, just like with 1A, because revenue from the road partially finances itself."
Venezuelan loan
The US$260 million Venezuelan loan will be used to refinance existing highway loans, totalling US$200 million, not including the infrastructure bond raised back in 2001, and will provide NROCC with a chunk of the money it is obligated to put up for financing.
In December 2001, the Government raised US$74 million in the form of a 30-year infrastructure bond at high single-digit interest rate.
But, it is the more costly bank loans secured by the developer from Royal Bank of Trinidad and Tobago (RBTT) US$130 million, and the US$75 million raised by NROCC from an American bank to finance tasks outside the project scope - land acquisition and relocations - running at rates above 12 per cent that will be refinanced.
The remaining US$55 million will be used to cover NROCC's financing obligations on Phase 1B.
"Our commitment for Phase One is 27 per cent; we have to finance that," said Reid.
NROCC, he said, has no plans to go back to the market for funds to acquire land and relocate utilities for the other phases of construction.
Said Reid: "NROCC had to borrow money - US$75 million - for its operating costs, money used to buy lands and finance a number of variations in the project. The US$260 million is to be used to refinance NROCC and the US$130 million bank loan held by the developer."
The refinancing will not only reduce the strain on road revenues currently coming in from the three existing toll plazas - Hunt's Bay, Vineyards and Spanish Town - but it will shorten the time it will take for the developers to get a return on its equity investment, as well as revenue to allocate for repayment of the US$72 million subordinated loan from Government.
b>Highway revenue allocation
Presently, the highway revenue is allocated first towards operation and maintenance costs, which NROCC's Ivan Anderson estimates at around 20 per cent of the revenue, while a significant portion of the remaining 80 per cent goes towards the RBTT loans.
What is left is used as leverage for future financing and eventually repaying the subordinated loan and equity returns to shareholders.
"The rest is split 50/50 for dividends for the equity and the subordinated loan," said Reid. "(But) according to the financial model, those do not start to pay out until eight to 10 years after the start of the project."
That places the repayment start-up between 2010 and 2012.
Under the loan agreement, the Government, through NROCC, loaned TJH US$72 million for its portion of financing for Phase 1A of the project, which represented 27 per cent of the more than US$270 million estimated spend on the completed portion.
The Sandy Bay to Williamsfield run was to cost US$120 million, and NROCC was to have put up US$15.5 million, which would be easily covered by the remaining US$55 million from the Venezuelan loan agreement.
It's still unclear whether NROCC's portion would have to be increased should the US$200 million Ocho Rios leg be prioritised over the Williamsfield segment.
Implied by Reid is that Buoygues and AFS, between them, had put up over US$70 million in equity of the project spend that has amounted to over US$270 million, the rest being $202 million of debt financing.
This contradicts the 'shareholders equity undertaking' agreement signed in November 2001, which stated that the French companies would put up US$20 million for Phase 1A and another US$20.5 million for Phase 1B, a total of US$40.5 million for the entire Phase 1.
It remains unclear what would have increased the entities' equity participation.
Feasibility study
The feasibility study which has been done for the Ocho Rios leg, has whittled down the four routes originally envisaged - two from Bushy park and two from Spanish Town - to one route from Spanish Town to the North Coast.
"Our study shows that if you are going from Spanish Town to Ocho Rios you can do something that works and for much cheaper," said Reid.
"Toll road economics place highways close to existing roads, to attract traffic, or induce motorists who may want to reduce operating cost - there is a capture percentage. On the Bushy Park to Ocho Rios route, we were not picking up any capture from Spanish Town to Linstead."
The routes will ultimately "bypass the gorge, come back on Linstead bypass; bypass Ewarton, come back on Schwallengburg (right above Faith's Pen); bypassing Mount Rosser in the process," said Anderson.
The exits and toll plazas would be placed at three bypasses around Bog Walk Gorge, Mount Rosser and Fern Gully.
Traffic counts show 20,000 vehicles per day between Spanish Town and Dam's Head (Angels) per day, reducing as it moves northward.
Between Dam's head and Bog Walk/Linstead, the count drops to 14,000 vehicles per day;
Linstead and Ewarton, 8,000-9,000 vehicles per day; and
Over the hill into Ocho Rios traffic in the region of 4,000.
"On the Bushy Park route we were looking at 2,000 to 3,000 vehicles per day, plus the terrain over there is very rough," added Reid, "so the costs are higher and the revenue is lower."
camilo.thame@gleanerjm.com