Divestment of Sangster Int'l Airport protracted

By Andrew Green, Staff Reporter

DELAYS encountered in the Sangster International Airport divestment provide a warning of the complexities which can be encountered in the disposal of prime state assets.

Prime Minister P. J. Patterson announced last month that a consortium led by Vancouver Airport Services, had been awarded the concession to operate the airport. That announcement marks the start of what should be the final phase in the airport's divestment, a process which started over a decade ago.

"We are well advanced in developing the institutional arrangements to facilitate the privatisation... and the expansion of the Sangster terminal," chairman of the Airports Authority of Jamaica Cezley Sampson told a press conference in December of 1994. That speech marked the formal start of the divestment process.

But the project had been on the Government's agenda since 1989. It was determined then that a new terminal was needed to handle the growing volume of tourist traffic.

Financing this US$100 million development proved troublesome however. So private participation was sought, though the Government wanted to restrict foreign ownership to 30 per cent of any new venture.

"What the government was asking was not commercially acceptable," said Stephen Wedderburn, Director of special projects and infrastructure at the National Investment Bank of Jamaica (NIBJ). The NIBJ has been working on "a new mandate" for the divestment programme over the past three years.

"The government was trying to restrict foreign ownership to a minority position in the venture," Mr. Wedderburn said. "It didn't go over well with investors."

In a minority role, the foreign partner would have put up its money and borne the investment risk, without gaining effective control of the operation. Talk of majority government participation in a joint-venture company has now been ditched.

"The successful bidding group will be awarded a 30-year concession to develop, manage and operate Sangster International Airport," the NIBJ stated in an April release. Rather than sharing profits in a joint-venture, the successful bidders "will pay an annual concession fee to the Government."

Another sticking point in the early negotiations had been the arrears in landing fees accumulated by Air Jamaica. Its past record of payment of airport charges had been an issue of concern to bidders, Mr. Wedderburn said.

"The private airport operator would not be able to secure debt financing to undertake the proposed development of the airport, without there being a certain level of confidence that airport charges would be collected promptly," said Mr. Wedderburn. The operator needs reassurance that main user of the airport, Air Jamaica, would pay its long-standing fees.

After discussions with the Government last year, Air Jamaica took steps to ensure "prompt" payment of charges at both international airports.

Currently, with a final bidder selected, a new regulatory framework has still to be put in place before the divestment process can be completed, Mr. Wedderburn said.

"It is not unusual for a divestment to take this long," Mr. Wedderburn said. "We expect that by the end of the year we will have finalised an agreement."

Back to Business