The Blue Ribbon Panel was appointed by the Minister of Finance, the Hon E.T. (Bob) Richards to carry out an independent review on the Bermuda Airport Redevelopment Project. In this context, the panel was required to render an opinion, subject to the published terms of reference, on whether the proposal is commercially sound and /or commercially reasonable and supportive of the Government's long- term strategic objectives.
The Panel was asked to consider:
1. The Government's strategic objectives of long - term sustainability:
a. Increasing traffic volume and revenue
b. Addressing structural needs of the airport terminal and
c. Improving customer experience
2. If the transaction incentivizes the Concessionaire to support the government's long-term objectives.
3. If on balance, the deal is within the parameters for similar P3 airport concession transactions in the market.
4. If the transaction provides for the Government to share in upside benefits and mitigates downside risks.
Our review has considered several aspects of the transaction which included : valuation, cost and returns; transparency and communications; risk and risk transfer, acceptable returns to debt and equity providers; competitive advantages, fair and unfair; national debt, fiscal deficits and sovereign credit ratings; and suitability of commercial counterparties.
The panel met and interviewed many professionals who have been a part of this transaction and parties who are opposed to the transaction. Our report represents analyses and conclusions on a wide range of questions raised with respect to this project. Some of the questions are as follows:
1. Are there $810mm or $1359mm of hidden costs being incurred on the Airport?
2. Is there a total risk transfer under the Government to Government (G2G) proposal of the cost of construction?
3. Are the gaps identified in the Deloitte Report filled?
4. Is the Negotiated Process better than a Competitive Tender Process?
5. Would the Credit Rating of Bermuda be negatively affected by additional debt?
6. How can this plan be considered commercially viable if the United Kingdom has already gone on record and decided that the Cayman Island proposal failed to deliver value for money?
7. How does the cost of the proposed G2G project compare to other Airport Projects?
8. Is a 30 year term for the contract an appropriate term?
9. Has this proposal been shrouded in a process that lacks transparency?
Here are some highlights of our findings and conclusions:
1. The additional costs noted in question 1 above are based on assumptions that are not generally accepted corporate finance methods, are not supported by several independent experts and do not fully consider both sides of the picture of costs and revenues.
2. The conclusion of the panel as regards to risk and risk transfer is that the risk transfer of the costs of construction in this proposal is better than would normally be achieved, albeit not 100%.
3. In response to question 4 above, the panel concluded that the approach of Government to enter into a negotiated agreement instead of competitive tendering was reasonable.
4. In response to the 30 year term, the panel concluded that this term was reasonable and consistent with similar projects.
5. In response to the question above with respect to the process lacking transparency, the panel's view is that the entire project would have benefitted from much clearer disclosure of the transaction, its terms and the participants at a much earlier stage.
The Panel's findings and conclusions are supported by detailed analysis in our full report which is
.
In summary, the Blue Ribbon Panel has found that this transaction is commercially sound and reasonable, and likely to meet the Government's stated objectives of long term sustainability, increased traffic volume and revenue, while effectively providing for the structural needs for the airport. We have also found that its terms are within the parameters for similar P3 Airport projects and in some cases this project exceeds those norms positively.
In closing, it should be noted that our analysis has revealed the challenges associated with this project. Legitimate concerns have been expressed as to the process, the representations made to the Parliament and the People of Bermuda and the significant opportunity transferred to a private company for an extended period of time.
Respectfully
The Blue Ribbon Panel
Blue Ribbon Panel Contact
Malcolm Butterfield
Phone: ( 441) 236-2538
Cell: (441) 335-2619
Email: mbutterfield@northrock.bm
The attached report: