#BTColumn – Scotland District’s $256.6m project needs clarity

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY. 

by John Beale

Yes, The Scotland District is in dire need of development. It is also very encouraging to note that the government is finally taking action as stated by the Acting Prime Minister, Santia Bradshaw, and pronouncements of the Minister of Labour and Social Partnership Relations, Colin Jordan and Minister Ryan Straughn in the Ministry of Finance.

All the ministers expressed their satisfaction on the attractive terms that the government was able to borrow from the Export-Import Bank of China for the Scotland District Road Rehabilitation Project.

While we appreciate the importance of developing the Scotland District, we trust that a thorough analysis (including investment possibilities) has been done to justify spending these funds at this time. In addition, has there been a study regarding the cost of road maintenance and the life expectancy of the new roads, given the high rainfall and soil movement- including soil creep and slippage?

Such a large investment with an unknown life expectancy will need other activities to promote faster returns in order to compensate for the shorter life expectancy of the investment. One such example would have been Tom Adam’s “vision” of an East Coast Road running continuously all the way to a Conset Bay and College Savannah which would have attracted more tourists.

The concessional loan in the amount of $256.6 million with interest at 2 per cent per year having a tenure of
20 years and a grace period of five years appears attractive.

However, it should be noted that there is also a Commitment fee of 0.25 per cent per annum on the undisbursed balance. In addition, there is a Management fee of 0.25 per cent of $641,530.00 paid by the first disbursement. However, these fees are quite reasonable.

What is of concern is the announced five-year grace period on debt repayment that is really not technically true. According to the resolution approved by the House of Assembly, the five-year grace period is “from the effective date of the agreement”. It is NOT from when the full loan is drawn down. Likewise, the disbursement period is “48 months (four years) from the effective date
of the agreement.”

It would be appropriate to know what is the total project cost of the project and how long it will take to execute it in a realistic timeframe. Experience has shown that too many government projects are not executed on time and often funds cannot be drawn because the conditions precedent have not been met.

A project like the Scotland District requires time to execute and for the development to mature and generate economic results. Hence there is a significant lag between the signing of a loan agreement and the start and completion of this project.

This project cannot be expected to generate funds to repay interest and debt installments until several years after it is completed. Hence the five-year grace period should NOT start at the signing of the agreement. I also assume that the interest payments during the grace period will be met from some other government source.

It is noted that the governing law is China which I imagine was at the Chinese insistence and is understandable but it would have been better if it could have been in a neutral country such as the US.

The other aspects that need further explanations are:

It appears that the main contractor is a Chinese company, China National Complete Plant Import—Company (COMPLANT) that specialises in construction and engineering.  Once again, I assume this was a condition of the Chinese.

Hopefully our experience has been excellent with this company because they are the main contractor at the Sam Lord’s project.  Will the equipment required for the project also be brought from China and what percentage of the workers will be Bajan?

John Beale is a former Investment Officer at the World Bank group and an International banker.