Business Page   A Berbice bridge is needed but is it a good investment?

Sunday, March 12th, 2006


Last week I noted that this week's column would deal with the scramble to finance the Berbice bridge. During the week, I had to resist numerous pleas of varying intensity to delay the article until certain outstanding issues had been firmed up - "within a week," I was helpfully advised. The real reason became obvious at a press conference held by the Trades Union Congress on Friday last. According to TUC General Secretary, Mr Lincoln Lewis, Mr Winston Brassington, Head of the Privatisation Unit, Executive Director of the National Industrial and Commercial Investments Limited (NICIL) and point man for the bridge, on March 9 sent to the National Insurance Scheme (NIS) a letter enclosing, among other things, an irrevocable special power of attorney and requesting the NIS's co-operation in having the voluminous agreement and four schedules signed one day later.

The agreement would irrevocably commit NIS funds to the equivalent of 20% of the cost of the bridge or close to US$9M. Three types of investment appear to be on offer, namely ordinary shares, preference shares and loans to be secured by a debenture. The proportional breakdown of these types of investment could not be ascertained. The returns on the equity investment will depend in the usual way on making a profit so that if the operation did not fulfil expectations that part of the investment would yield no return. The rate of interest offered on the loan element is also not known.

Anyone aware of or who has experienced the inefficiencies, unreliability and poor service offered by the existing ferry service would instinctively support the construction of a bridge across the Berbice River. The human hours lost, the loss of morale and the disincentive to economic and social activities make the case a compelling one, even if the economics are not entirely convincing. It seems as well that there are still technical issues which have not been fully addressed, but are being ignored because of obstinacy or incompetence, or sacrificed to electoral expediency. A pledge made five years ago to one's supporters, no matter how forgivable, cannot be simply repeated but must be shown to have been delivered, even if partially. There is no such thing as half a bridge, so once begun, surely ended.

Politics trumps engineering  and economics:

Rakesh Latchana, now a partner of Ram & McRae, in a letter to the Stabroek News almost two years ago, suggested a more holistic approach to the construction of bridges across the Demerara and Berbice Rivers. His eminently sensible suggestions - based on usage, practicality and economics and echoed by international consultants and local engineers - included the construction of a fixed bridge across the Demerara River and taking the existing floating bridge to Berbice. That would have solved the problem of inconvenience and congestion whenever the Demerara Harbour Bridge is retracted to allow vessels to pass, and simultaneously provided a bridge for Berbice.

The other issue which appears to be controversial is the location of the bridge on the eastern bank of the Berbice River, with some critics suggesting that the option decided on was influenced by politics rather than engineering, and that New Amsterdam was increasingly being marginalised. Business Page understands that the chosen site is more costly and less sound technically, considerations that do not appear to have received sufficient attention.


It seems clear that with a more open and enlightened approach, proper planning and the establishment of a single publicly-owned bridge company, operating both bridges would have been as assured a success as can be expected. Overall cost would have been less, operational and managerial efficiencies enhanced, unit costs decreased and service quality improved. Instead, the exigencies of elections dictate the adoption of a model that is fraught with uncertainties and leaves the Demerara problem unaddressed.

The technical and policy issues are therefore questionable. What is also worrying is the haste and pressure being used in attempts to corral workers' funds of the National Insurance Scheme and depositors' funds of the New Building Society. Worse, the professionals at the highest level of the NIS and the directors of the NBS are sacrificing their professional obligations and duties to this pressure.

The role of NICIL:

The role of NICIL in the whole process is quite interesting. It describes itself as the agent (unpaid) of the Bridge Company, a function that comes to an end when "financial close" is achieved. The various items of correspondence seen suggests that one of the primary functions of NICIL was the procurement of a separate 20% take-up by the NBS and the NIS, two entities over which the government exercises considerable control. Business Page understands that NICIL has been less than successful with the NBS while the legal action threatened by the TUC against the NIS now places that investment in some considerable doubt.

That the private sector partners in the Berbice Bridge Company Inc take a back seat in promoting the project and raising funds is a novel approach, which sometimes leaves the public sector man experiencing considerable discomfort as when the usually over-prepared Mr Brassington faced parliamentary representatives without his files. Is there such a strict separation of roles that the directors of the company, all insurance people, could not take part in the questioning which Mr Brassington had to face? It would be worrying indeed if this is an attempt to prevent being held responsible for some of the expansive promises that are being touted for the bridge. It is not proper or good for the project or potential investors that there should be this level of ambiguity in the role of the directors in a critical stage of the project.

NBS - old-style approach:

Despite the blocking of my attempts to obtain information officially, information obtained through other sources reflected a pattern of high-handedness, arm-twisting and veiled threats about the NBS's tax exempt status. Mr Brassington tells the NBS what is 'expected' of them; glows about the security of a debenture and the virtues of an investment which will provide an attractive return against a bankable structure; claims that the investments are capable of being sold (company law does not allow for the unrestricted sale of shares); and states vaguely and ambiguously that "insurances will be in place to protect against various risks" and that each institution can derive some comfort that "the major banks and insurance companies are supporting this project." It seems that NBS did not seek clarification of critical terms such as "support" and other ambiguities, or any explanation of how the debenture would be enforced. Is it by a receiver taking possession and selling the bridge?

Maybe to reassure the NBS board, he lets them know that "NIS will not have a director on the Board; there is no intention for NIS to exercise any influence on the company." The directors of the NIS are expected to invest close to G$2B, but yet have no say. Are the directors of the NIS aware of Mr Brassington's rewriting of the principles of corporate legislation whereby equal shareholders do not enjoy equal rights? More importantly, do they accept it?

Making the unlawful lawful:

Under the NBS Act, the investment would be unlawful, but Mr Brassington assures its directors, of whom at least two are lawyers, there will be a `backdoor' amendment without touching the act by allowing the NBS Act through the Berbice Bridge Act to make the investment, "subject to the investment being approved by the Minister." Is there any chance that this Minister would objectively refuse to approve one of his party's major election promises, when Mr Brassington, speaking for the Minister, tells the NBS directors that the Minister is supportive of the NBS's participation?

The consultant retained by the NBS advised against the investment, noting that the projections are overly optimistic, that the investment would contravene the rules and that the "penchant for secrecy and non-disclosure entrenched in the BBCI's shareholders' agreement would collide with the statutory obligation of the Board to report to its members on its activities."

My understanding is that the directors of the society, unwilling to reject outright the overtures by the government, have agreed to invest $350M, considerably less than what Mr Brassington 'expected' and a sum that the directors are willing to 'risk.'

NIS - they forgot:

The Sixth Actuarial Study of the NIS for the years 1999 to 2001 expressed misgivings about the future of the scheme unless urgent remedial action is taken. Close to two years ago the NIS sent recommendations to cabinet for policy decisions on a number of critical issues. Why the Chairman of the NIS who is also Cabinet Secretary cannot get his colleagues to address those recommendations is a mystery, although it is quite possible that the explanation is rather more simple - everyone may have forgotten! It would clearly have been desirable for those recommendations to be addressed promptly so that the Seventh Actuarial Study covering the years 2002-2004 could be approached with less uncertainty and with fewer unresolved issues to consider.

Unwilling to address such critical issues, the government's attempt to have the scheme invest in 30-year securities largely with fixed rates of interest could aggravate an already weak situation. What if the recent significant decline in population continues and the project does not generate sufficient cash to pay dividends and interest? What if the consultant to NBS is right and critical assumptions prove "overly optimistic"? A national social security scheme ought to be treated with the greatest amount of care and de-politicised. But in fact, for the past fourteen years it has been chaired by Dr Roger Luncheon, one of the most political members of this government. The NIS funds were forcibly used to finance the Caricom headquarters. Now it is the bridge. What next? The private sector appears to treat the NIS with benign neglect while the fractured labour movement has largely ignored it.

Memories of John Kerry:

The professionals on the NIS Board are unfortunately no better. TUC representatives were told that Chartered Accountant Mr Maurice Solomon voted against the investment at the level of the scheme's Investment Committee of which he is Chairman, but at the board level turned around and supported it. Memories of US Democratic presidential candidate John Kerry who said he voted for the war before he voted against it! And Mr Paul Cheong who is a director of both the NIS and the Bridge Company did not recuse himself from the NIS board meeting which agreed to support the investment. Is this not a clear conflict that puts the decision of the board in some doubt? Are the NIS directors really prepared to invest close to $2B, without a say in the investment?

Mr Lewis seems more than half right when he states, "This is a betrayal of trust by the people charged with the responsibility of managing our money." His call for resignations has more than reasonable merit.


The threatened action by the TUC potentially has significant adverse consequences for the project. That would be a pity since a bridge is sorely needed. In conceptualising the investment, NICIL appears to have overlooked the different tax statuses of the potential investors. There ought to have been some other sweetener for entities like the NBS and the NIS whose income is already tax exempt.

It would be uncharacteristic for any substantial modifications to be made to the various elements of a project at such a late stage, even though it is worth noting that environmental clearance is outstanding. Having confidently set a completion date with a certain political significance, Mr Brassington will have to adopt a different approach, involving the directors, being more willing to listen to other voices and making the process less political, more professional and transparent. Ironically it is Mr Brassington who should "take comfort in the fact that the project is bankable and has the support of major banks and insurance companies." Replacing the NIS as an investor, should that become necessary, should not be a problem.

Historically, the Privatisation Unit has been far too willing to give away too much. Stakeholders should not leave it to Mr Brassington to ensure that BBCI will not become a closed shop to which only a privileged few have access, while the only purpose to be served by the public is paying exorbitant tolls. Remember this is another monopoly and it cannot be allowed unfettered powers.

(Ed note: This contributor has acted in a pro bono capacity as advisor to the TUC on Social Security matters since 1985.)

Next week: The Business of Elections