Jamaica Highway 2000 Case Study JAMAICA HIGHWAY 2000 CASE STUDY 1 Caribbean Development Bank Jamaica Highway 2000 Case Study i © Caribbean Development Bank 2017 ISBN: 978-976-96037-2-1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or otherwise without the permission of the publisher. Published by: Caribbean Development Bank Printed by: Caribbean Development Bank The views expressed in this book, as well as any errors of commission, or omission, are the sole responsibility of the authors, and do not necessarily reflect the opinion of the Caribbean Development Bank. Jamaica Highway 2000 Case Study Acknowledgements This publication was prepared by the Public-Private Partnerships (PPP) Regional Support Mechanism (RSM) of the Caribbean Development Bank (CDB); and was written by S. Brian Samuel, Head of Regional PPPs, and Albert Gillings, Operations Officer (Civil Engineer). The case study is based on taped interviews with key personnel from public and private sector agencies involved in the project, all of whom are listed in the Bibliography. The document benefited from a review seminar held at CDB as well as inputs from Ivan Anderson, Managing Director, National Road Operating Construction Company Limited (NROCC), Denise Arana, Manager, PPP Unit, Development Bank of Jamaica Limited (DBJ), Guillaume Allain, Managing Director, Trans Jamaican Highway Limited (TJHL) and Kingsley ii Thomas, Consultant; all of whom provided useful comments on the draft. Financial data was provided by NROCC and the Ministry of Finance, Debt Management Branch. Jamaica Highway 2000 Case Study 1. Introduction 1 2. Genesis 3 2.1 An idea is born 3 2.2 Leap of faith 4 3. East-West Highway 5 CONTENTS 3.1 Project team and institutional structure 5 3.2 Prequalification 6 3.3 Toll Road Act 2002 6 3.4 The first bid 7 3.5 Restructuring the project 8 3.6 Best and final offer (BAFO) 8 3.7 Bid award 8 3.8 Project structure and risk allocation 9 3.9 Project financing on the East-West Highway 10 3.10 Traffic levels on the East-West Highway 11 3.11 Refinancing from Multilateral Development Banks 13 3.12 Social and environmental issues 14 iii 3.13 Lessons learned on the East-West Highway 18 4. North-South Link 20 4.1 Challenges of the North-South Link 20 4.2 Mount Rosser Bypass 20 4.3 The Chinese make an offer 20 4.4 The CHEC land deal 21 4.5 Project financing on the North-South Link 22 4.6 The Contractor-General gets involved 23 4.7 Social and environmental issues 23 4.8 Early operating results 25 4.9 Lessons learned on the North-South Link 27 5. Lessons for the Future 28 5.1 Motivations and priorities 28 5.2 Social and environmental safeguards 29 5.3 Financing challenges 29 5.4 Toll rates and willingness to pay 30 5.5 Benefits of Highway 2000 31 5.6 Fiscal impact 32 5.7 Looking back, looking forward 33 5.8 Conclusion: Is Highway 2000 a “good” project? 34 Jamaica Highway 2000 Case Study References 36 TABLES Table 1: Financing from Multilateral Development Banks 14 Table 2: Summary of Land Acquisition for Phase 1A 14 Table 3: Toll Rates on East-West Highway 30 Table 4: Toll Rates on North-South Link 31 Table 5: Total Costs of Highway 2000 33 FIGURES Figure 1: Map of Highway 2000 2 Figure 2: NROCC Organisation Chart 4 Figure 3: Project Structure on the East-West Highway 9 Figure 4: Risk Allocation on the East-West Highway 10 Figure 5: Financing Structure of the East-West Highway 12 Figure 6: Traffic on East-West Highway 2003 – 2017 13 Figure 7: East-West Highway Project Timetable 17 Figure 8: Financing Structure of North-South Link 22 Figure 9: North-South Link Project Timetable 26 iv Figure 10: Traffic on North-South Link 2016-2017 26 Figure 11: Timetable of Phases One and Two 34 Jamaica Highway 2000 Case Study AFD Agence Française de Développement ASF Autoroutes du Sud de la France SA BAFO Best and Final Offers BOOT Build-Own-Operate-Transfer CDB China Development Bank CHEC China Harbour Engineering Company Ltd CINTRA Concesiones de Infraestructuras de Transporte CPI Consumer Price Index DBJ Development Bank of Jamaica EIAs Environmental impact assessments EIB European Investment Bank ABBREVIATIONS FDI Foreign Direct Investment GOJ Government of Jamaica IDB Inter-American Development Bank IFC International Finance Corporation IDF Intensity-Duration-Frequency JIO Jamaican Infrastructure Operator JNSHC Jamaica North-South Highway Company KCT Kingston Container Terminal v KMA Kingston Metropolitan Area MDBs Multilateral Development Banks NCC National Contracts Commission NEPA National Environment and Planning Agency NROCC National Roads Operating and Construction Company Limited OCG Office of the Contractor-General PCAC Portmore Citizens Advisory Committee PPP Public-Private Partnership REOI Request for Expressions of Interest RFQ Request for Qualification RBTT Royal Bank of Trinidad and Tobago Proparco Société de Promotion et de Participation pour la Coopération Economique TJH Trans-Jamaican Highway Ltd Jamaica Highway 2000 Case Study Jamaica Highway 2000 Case Study INTRODUCTION Highway 2000 is a bold, transformative Public-Private Partnership (PPP) that impacts the lives of hundreds of thousands of Jamaican citizens on a daily basis. The first phase, the East-West Highway, was an international tender in 2001, which was won by French contractor Bouygues Travaux Publics in partnership with toll operator Vinci. The second phase, the North-South Link, originated in 2011 CHAPTER 1 from an unsolicited proposal from China Harbour Engineering Company Ltd (CHEC). Long-term funding was provided by regional commercial banks, multilateral development banks and the China Development Bank (CDB); three funding sources with radically different motivations and methods. At a total cost of USD1.3 billion, Highway 2000 remains the largest project ever implemented in Jamaica, and signalled that the country has the capacity to implement large, complex projects of its kind. As further demonstration of the country’s ability to engage in large complex undertakings, the first phase of the Highway was followed in 2003 by the privatisation of Sangster International Airport; and the opening of the North-South Link in March 2016 was followed by the sale of Kingston Container Terminal (KCT) to CMA-CGM, the world’s biggest shipping line. The purpose of this case study is not to compare both phases (Bouygues and CHEC), nor to make judgements as to which phase is “better”. The East-West Highway has been operational for 15 years whilst the North-South Link is still in its infancy; and there are other key differences that make such comparisons spurious. However, we can contrast both phases, and seek to draw lessons of experience 1 from the radically different approaches to project origination, financing and implementation. Jamaica Highway 2000 Case Study 2 Figure 1 Map of Highway 2000 Source: NROCC Jamaica Highway 2000 Case Study GENESIS 2.1 An idea is born Kingston, Jamaica, 1998: Kingsley Thomas, Managing Director of the Development Bank of Jamaica (DBJ), was nurturing an idea; an idea born of a question: If Jamaica was such a small island, why did it take so long to drive anywhere? Most of Jamaica’s roads were vastly inadequate for the traffic levels being experienced daily. The result: gridlock. Traveling CHAPTER 2 between the major urban centres of Jamaica was lengthy, stressful and often dangerous. But what if Jamaica’s cities and towns were connected by a network of fast, modern highways? Imagine the improvement in productivity and economic spinoffs that would result from making it quicker and cheaper to move people and goods within Jamaica? If people didn’t have to spend hours every day just getting to and from work? If commercial and residential developments could be directed away from the overcrowded urban centres of Kingston, Spanish Town and Montego Bay? DBJ commissioned a detailed study on a national highway project, looking into the technical feasibility of the proposed routes, its environmental and social challenges and economic potential. The study was positive on all fronts and concluded that with the right structure and incentives, such a project would attract interest from major toll road operators. In other words: the green light. 3 Highway 2000 was the centrepiece of a group of projects collectively known as the Millennium Projects; including a new population centre in mid-island, sports complex, Milk River Spa, cargo facility at Vernamfield airstrip, four industrial parks and the construction of Highway 2000. These ambitious infrastructure projects were designed to promote growth and stimulate ancillary commercial developments along the transport corridors. The basic premise at the commencement of Highway 2000 was that from any air or sea port in Jamaica, you should be able to get to any residential zone or tourist attraction, within a maximum of one and a half hours driving, each way. Highway 2000 was designed as one single project encompassing two interconnected, four- to six-lane tolled highways under one joint Concession: • Route 1- Kingston to Montego Bay – following the alignment of the old railway line; and • Route 2- Spanish Town to Ocho Rios. The first challenge was getting people to believe. This was in the mid-1990s and Jamaica was in the throes of yet another economic recession; most people couldn’t conceive of Jamaica pulling off such an ambitious project. The multilateral development banks said it wasn’t possible: Jamaicans wouldn’t pay tolls. It was too big, too risky. The project team even took 12 Jamaican private and public sector leaders to Malaysia, to show them what could be accomplished with leadership and vision.