No Airport Debt Can Appear On Balance Sheet

July 24, 2015

The cost of the airport construction “must be wholly borne by CCC and the selected developer and sub-contractors” and “no debt should appear” on the Government’s balance sheet, the Entrustment letter says, with the letter also stating that the “continued deterioration of Bermuda’s fiscal situation” is a “cause of significant concern”.

The letter said that the UK and Bermuda Governments “must agree on what measures are required to address the deficiencies that are identified by Deloitte in their assessment report,” and the Bermuda Government “must publish a written and evidence-based assurance that the required measures have been taken, before the Contract can be concluded.”

Earlier this week, Finance Minister Bob Richards said that the Government received the entrustment letter from the British Government for the airport redevelopment project which “removes any potential legal barrier to Bermuda’s engaging with the Canadian Commercial Corporation.”

The Minister said, “This entrustment letter has been a long time coming, but it now includes language that both the UK and Bermuda are content with. It removes any ambiguity as to the authority of the Bermuda Government to engage CCC, which will act as the prime contractor in this project.

“We are now continuing talks with CCC and with Aecon, Canada’s largest public construction and infrastructure development company, towards making ‘the go, no-go’ decision,” the Minister added.

The Opposition has repeatedly expressed concern about the deal, and in response to the Minister’s statement, Shadow Minister of Finance David Burt said, “The OBA’s continued drive to award an unsolicited and untendered project to a Canadian company which will far exceed $1 billion is a slap in the face to good governance.”

The letter from the UK, which is signed by the Director of Overseas Territories, said, “I believe the continued deterioration of Bermuda’s fiscal situation to be a cause of significant concern and taking on board more debt is unlikely to provide a sustainable solution over the longer term.

“However, I have also considered the assurances I have received from the evaluation work undertaken by an independent accounting firm of internationally reputable standing [Deloitte], which assessed whether the project for the redevelopment of the airport represents Value for Money for Bermuda according to the requirements of the Full Business Case under Her Majesty’s Treasury Green Book guidance for appraisal of public spending proposals.

“Subject to the requirements set out in paragraphs 6 and 7, the United Kingdom Government delegates authority to the Bermudian Government to enter into a contract with CCC to redevelop the airport.

“The cost of the construction of the airport must be wholly borne by CCC and the selected developer and sub-contractors. No debt should appear on the balance sheet of the Government of Bermuda that relates to the airport construction.

“The United Kingdom Government and the Government of Bermuda must agree on what measures are required to address the deficiencies that are identified by Deloitte in their assessment report[s].

“The Government of Bermuda must publish a written and evidence-based assurance that the required measures have been taken, before the Contract can be concluded.”

The copy of the letter is below [PDF here]:

airplane click here copy (1)

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Comments (24)

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  1. Vote for Me says:

    The ‘devil is always in the detail’.

    It is virtually impossible for the UK to mandate that ‘no debt related to the Airport Redevelopment can be on the Government Balance Sheet’.

    The reality is that the Bermuda Government will have to provide some assurance that future revenues from all airport related activities will be sufficient to cover all running and debt service costs related to the airport.

    The nature of any such assurances will be examined by the Office of the Auditor General (and the Internal Audit Office in the first instance). They will then have to independently determine if the substance of the transaction requires inclusion in or disclosure on the government balance sheet.

    Notwithstanding any other requirements, any prudent lender will assess the full exposure of the government to any actual or contingent guarantees that may give rise to future payments before granting credit to CCC or any other entity that will fund the airport.

    Whilst many wil not want to hear it, the deal is far from done given the UK conditions.

    Of more note is the UK government comment about concern related to Bermuda’s continued declining fiscal situation.

    • Terry says:

      Spell it out.
      Most trolls have no clue as to what you speak of.

  2. Coffee says:

    Fasten your seatbelts Bermuda , much more turbulence up ahead !

    Bod Richards is very headstrong and wrong on this one . If we were processing ten to twenty thousand passengers a day it(a new airport )would make sense .

    On the other hand $500,000 per annum Bill Hanbury has made some promises which would require a airport twice the size of the one proposed ! Anyway , the BTA will be the sideshow to this airport three ring circus .

  3. Jus' Askin' says:

    No Debt will be on the balance sheets and Nor Will Any PROFITS ;-)

    • hmmm says:

      Nor will any LOSSES

      • Jus' Askin' says:

        No Gains is A Loss. A ‘Loss’ of a Revenue stream for 35 years :-(
        If You have monies coming in and then it doesn’t anymore, that will count as a Loss ;-)

        • hmmm says:

          but you are ignoring the expenses. Revenue is not Net income.

          • Jus' Askin' says:

            There will be a ‘Loss’ because there will be NO Net Income

            • Build a Better Bermuda says:

              There won’t be any net income if we build it, that plus more will have to go to servicing the loan we would need.

            • umok says:

              They should stall the project… This isn’t the smartest move right now. The airport can wait.

    • Build a Better Bermuda says:

      What profits, if we built this ourselves all airport profits, plus money from the government coffers would be needed to pay off the loan and interest. It is tiresome that anybody thinks that we would be seeing any of the revenues from the airport for the next 30 – 40 years in any event

      • Jus' Askin' says:

        See this is where it is tiresome.
        The airport would pay for itself or the loan.
        If You disagree, then ask Yourself Why would CCC sign on, if there is NO Monies to be made?
        With this deal CCC will get a return of 400% by just using current data
        How is that a deal for us?
        We Haven’t Learned YET have we?
        And the people signing these deals will be gone in 35 years, leaving the Young with the burden :-(

        • Um Um Like says:

          What burden? The burden of not having to pay for a new airport??

          • Jus' Askin' says:

            The Burden of running and maintaining it after it is handed over.
            The condition we get it in will be interesting ;-)

        • Build a Better Bermuda says:

          CCC will not need to secure a loan for financing this, so it will cost them $250m and they are on the hook for any costoverruns. The expected contract value for the next 35 years is around $300m, once expenses are removed from the revenues. Should we finance it ourselves, it will cost us still around $250m, we would need a loan, which means we would be paying back that $250m plus the interest. Now with the full weight of history to back me, the will be cost overruns that we will have to cover as well… all told, it will easily stand to cost us in excess of $300m, which means that if we can only expect to generate around $300m, we will also have to dip into the government coffers to to make the required payments.

          Where you come up with a 400% retuern can only be found if you follow the folly of Burt mathematics, that CCC will be making $1b out of this. They won’t, because they will be on the hook for the expenses as well.

  4. San George says:

    Bob Richards International people – get ready.
    Ships are hot and hotels are not. We should be gearing up to host cruise ships – East and Central.

    • Zevon says:

      Um, we are doing that.
      That gets criticised by you lot as well, by the way.

  5. Reality Check says:

    There are two very illuminating sentences in that FCO response.

    Paragraph 4 “…continued deterioration of Bermuda’s fiscal situation … a cause of significant concern … taking on more debt is unlikely to provide a sustainable solution over the longer term.”

    Paragraph 7 (b) : “All financial obligations and commitments arising from the Contract … are the sole responsibility of the Government of Bermuda, unless it has been otherwise agreed with the United Kingdom Government.”

    Clearly, very clearly, almost ominously, the UK is telling Bermuda that they can see that Bermuda has a big fiscal problem. The UK is also, in paragraph 7, telling Bermuda that without the express agreement of the UK, Bermuda stands alone. That Bermuda and Bermuda alone takes the hit if anything goes wrong.

    A powerful message.

    You have a major problem and we are not involved unless you specifically ask us [UK] and invite us to be a working partner.

    In 1968, Bermuda, with the UK’s agreement, was careful to deny the UK any ability at all to intervene in Bermuda’s financial affairs.

    In 2015, the UK Government is warning and reminding.

  6. watching says:

    But Bob said everything was ready to go forward now. This letter doesn’t sound that way.
    Has the Government tidied up everything that was in the Deloitte report? The same report that Government has been hesitant to debate?
    Premier Dunkley? Anything to say?
    Minister Richards?
    Bueller, Bueller…

  7. Just a matter of time says:

    Such a rush by Min Richards to push this no bid contract ahead. Unbelievable. I just want to know what the projected departure taxes and/or profits CCC stand to gain for the next 30 years from taking on all of this risk…. Has this been disclosed? I may have missed it. Can anyone share this? If it hasn’t been disclosed, why don’t we know this information as a country before everything is finalized?

    • Bermudian to the core says:

      The Alaska Hall posse right on cue…when I say jump everyone, jump 1-2-3 jump!

  8. Terry says:

    We had to deceive you.

  9. Alvin Williams says:

    The Buck stops with the permission of the British.

  10. navin johnson says:

    and just out of curiosity but the hospital built under the PLP requires payments of $35,000,000.00 annually adjusted for inflation for the next 30 years right? I thought that was done under a PPP?