Eastern and Western Paradigms: a Comparative Analysis and Evaluation of Infrastructure Development Models Through the Jamaica Highway 2000 Case Study

Eastern and Western paradigms: A comparative analysis and evaluation of infrastructure development models through the Jamaica Highway 2000 Case Study

a thesis presented to the School of Architecture, Civil and Environmental Engineering of the École Polytechnique Fédérale de Lausanne in partial fulﬁllment of the requirements for the degree of Master of Science in Civil Engineering

by Marc Solsona Bernet (marc.solsonabernet@epﬂ.ch)

under the supervision of:

Dr. Panagiotis Tzieropoulos École Polytechnique Fédérale de Lausanne Laboratory for Intermodality, Transport and Planning (LITEP)

Prof. Raymond E. Levitt Stanford University Global Projects Center

Stanford, California June 28, 2016 Marc Solsona Bernet Eastern and Western paradigms: A comparative analysis and evaluation of infrastructure development models through the Jamaica Highway 2000 Case Study Global Projects Center, June 28, 2016 Supervisors: Dr. Panagiotis Tzieropoulos and Prof. Raymond E. Levitt École Polytechnique Fédérale de Lausanne

Laboratory for Intermodality, Transport and Planning (LITEP) School of Architecture, Civil and Environmental Engineering, ENAC Route Cantonale 1015 and Lausanne Abstract Multilateral infrastructure investments in developing nations are crucial in spurring economic growth and prosperity. While this responsibility has traditionally been undertaken by Western economies, mainly through the World Bank and its affiliates, the last decades have seen an increasing shift of this capital burden towards advanced developing nations. The differences between these two paradigms, with certain limitations, can be exemplified by studying the West’s World Bank Group (WB) and the East’s China Policy Banks (CPB). When CPB lent more money to other developing economies than the WB in 2011, many scholars deliberated the differences between these paradigms and the ensuing consequences for borrower countries. The current perception, which has kindled the hypotheses for this research paper, is that Eastern paradigm projects are financed and delivered faster, but its social, environmental and quality standards are comparatively lower. This research paper is novel in that it contrasts this hypotheses against secondary data in a two-pronged methodology: (1) archival analysis of WB and CPB policies, and (2) case study of the Highway 2000 project in Jamaica. The subsequent analysis and evaluation of both frameworks validates the paper’s hypotheses. Conclusively, three main learning points drawn from this exploration. First, infrastructure development presents a vast array of challenges, and certain projects would be simply not financeable without multilateral institutions or foreign capital. Second, eastern paradigm proves to be funded and delivered faster, but at the expense of transparency and social, environmental and quality standard. Third, borrower countries would need to recognize the subtle and more explicit differences between these models and factor the holistic consequences into its infrastructure development strategies.

iii Résumé Des investissements multilatéraux pour les infrastructures dans les pays en voie de développement sont cruciaux pour stimuler la croissance économique et la prospérité. Bien que cette responsabilité ait été traditionnellement prise par les économies oc- cidentales, principalement par la Banque mondiale et ses affiliés, les dernières décennies ont vu un changement de plus en plus marqué de l’origine de cette sortie de capital. En effet, les financements provenant de pays en voie de développement avancés ont considérablement augmenté - au fur et à mesure que ces pays aient effectué la transition vers une économie de marché. Les différences entre ces deux paradigmes, peuvent être illustrées, avec certaines limitations, par l’étude de la Banque Mondiale (BM) pour l’Ouest et les China Policy Banks (CPB) pour l’Est. Lorsque les CPB ont prêté plus d’argent à d’autres économies en développement que la BM en 2011, des nombreux chercheurs se sont demandés quelles étaient les différences entre ces paradigmes et les conséquences qui en dérivent pour les pays emprunteurs. La perception actuelle , qui a incité l’hypothèse de ce document de recherche est que les projets suivant le paradigme oriental sont financés et livrés plus rapidement, mais leurs standards sociaux, environnementaux et de qualité sont plus faibles. La valeur de cette recherche est donné par le fait qu’elle contraste double- ment ces hypothèses en utilisant des donnés secondaires: (1) Tout d’abord, à travers une analyse des politiques de la BM et des CPB et d’autre part,(2) à travers l’étude du projet Highway 2000 en Jamaïque. À travers de ces deux procédures, on constate que l’hypothèse est validée. Finalement, trois conclusions principales sont tirées de cette exploration: Premièrement, le développement des infrastructures présente de nombreux défis, et certains projets ne seraient simplement pas finançables sans la contribution des institutions multilatérales ou de capitaux étrangers. Deuxièmement, les projets développés en suivant le paradigme oriental sont financés et livrés plus rapidement, mais au détriment de la transparence et des standards sociaux, environnementaux et de qualité. Finalement, les pays emprunteurs doivent reconnaître les différences subtiles et explicites entre ces deux modèles, et tenir en compte la totalité de ces conséquences dans leurs stratégies de planification et développement des infrastructures.

iv Acknowledgements

First and foremost, I would like to thank Raymond E. Levitt, for having welcomed me at the Global Projects Center, opening my vision towards new horizons. This thesis would not have been possible without his guidance, energy, ideas and feedback throughout the whole research. He consistently allowed this paper to be my own work, but steered me in the right direction when needed.

I am really grateful to Panos Tzieropoulos for his warm support since the beginning and for having conducted the extremely difﬁcult task of supervising my research from the distance. He has helped me to focus on the ideas contained in this thesis and pushed me to reach a more formal version of them.

I would also like to extent my gratitude to Michael Bennon for his insightful feedback on this research and in particular, the Jamaican Case Study.

I am thankful to my colleagues at the GPC for the warm and friendly atmosphere. Among them, I would like to particularly thank Soh Young for her interest and valued feedback on the Analysis section, and Rajiv for the hours we have shared both in the ofﬁce and out on the soccer pitch.

I am extremely grateful to the École Polytechnique Fédérale de Lausanne for having supported my studies and research. I’ve been both honored and challenged to be an Excellence Scholar, and I have done my best through my studies and extracurricular activities to pave the path forward.

In addition, I am thankful towards my good friend Ajay, for kindly proofreading and correcting various parts of this research and for our general discussions about life. This also holds for Matteo, for helping me with the French abstract.

Last but not least, I would have never came this far without the unconditional support of my family and closest friends. I also owe much of my gratitude to Jordina for the support and joy she brings. I am greatly indebted to all of them.

Contents

1 Introduction 1 1.1 Background...... 2 1.1.1 A Global Project and its stakeholders...... 11 1.1.2 Infrastructure Procurement and the role of bilateral and multilateral investments...... 14 1.1.3 The eastern and the western paradigms ...... 22 1.2 Research Question, Objectives and Limitations...... 32

2 Literature Review 35 2.1 Inﬂuence of the two paradigms to developing countries ...... 35 2.2 Project Comparison...... 40 2.3 The Case Study Method ...... 45 2.4 Set of Hypotheses...... 50

3 Methodology 51 3.1 Analysis...... 51 3.2 Case Study ...... 53 3.2.1 Criteria in Project Selection ...... 54 3.2.2 Criteria in Project Comparison...... 55 3.2.3 Case selection and composition...... 58 3.2.4 Data Sources ...... 59

4 Analysis 61 4.1 Governance Structure and Decision Process ...... 61 4.1.1 The World Bank...... 61 4.1.2 China Policy Banks...... 65 4.1.3 Comparison and Discussion...... 70 4.2 Social and Environmental Appraisal...... 72 4.2.1 The World Bank...... 73 4.2.2 China Policy Banks...... 75 4.2.3 Comparison and Discussion...... 77 4.3 Overview of Investment Projects...... 81

5 Case Study: Jamaica Highway 2000 85 5.1 Introduction...... 85

vii 5.1.1 Political Context ...... 87 5.1.2 Jamaica Infrastructure...... 89 5.1.3 Economic Context ...... 92 5.1.4 Social Context ...... 93 5.2 Project Description...... 94 5.2.1 Quick Facts ...... 94 5.2.2 Execution...... 95 5.3 Phase 1A/1B - Western Paradigm...... 98 5.3.1 Overview ...... 98 5.3.2 Concession Agreement...... 99 5.3.3 Stakeholders Map ...... 100 5.3.4 Funding Structure ...... 101 5.3.5 Social and Environmental Safeguards ...... 103 5.3.6 Conclusion ...... 107 5.4 Phase 2A - Eastern Paradigm...... 107 5.4.1 Overview ...... 107 5.4.2 Concession Agreement...... 110 5.4.3 Stakeholders Map ...... 111 5.4.4 Funding Structure ...... 112 5.4.5 Social and Environmental Safeguards ...... 113 5.4.6 Conclusion ...... 117 5.5 Comparison and discussion ...... 118 5.5.1 Overview ...... 118 5.5.2 Discussion...... 120 5.5.3 Conclusion ...... 123

6 Conclusions and Further Research 125

Bibliography 129

viii Introduction 1

„If you have roads, you have wealth. — Weng Mengyong (Chinese Vice Minister of Transport)

International Infrastructure investment gained rapid traction as an investment instrument during the 20th century. Historic examples of these initiatives include the two of the most relevant and critical transportation infrastructures that have positively disrupted and later shaped modern world trade: The Suez Canal was constructed and operated by the French Suez Canal Company, while the Panama Canal was originally started by the French and later transferred to Americans, who operated the Canal and adjacent territories until 1999. These investments, often seen as strategic ﬁnancial plays by the investors, are at times viewed with caution and suspicion by the local community and stakeholders.

Today, the demand for infrastructure investment has burgeoned to a point where it continues to outweigh the availability of capital funds. Annually, only US$ 2.7 trillion is invested out of the USS 3.7 trillion needed to support global infrastructure demand (World Economic Forum). Most of this investment is currently undertaken by Governments since private investors typically allocate less than 1% of their portfolio towards this instrument (Clark et al., 2012). Consequently, this shortage in funds has constrained the ability for developing nations to provide reliable and affordable infrastructure, dampening the multiplier effect of these investments and their contribution to socio-economic development.

Naturally, with private actors’ infrastructure investments weightages capped to a minimal, Governments of developing nations have to depend on multilateral institutions for the ﬁnancial support needed. Since the end of World War II, this is a responsibility that has been undertaken by Western economies, mainly through the World Bank Group and its partners. In the past few decades, however, there has been an increasing shift in this capital burden to advanced developing nations (as some of these nations have transitioned from developing economies to market economies). The differences between these two paradigms, with certain limitations, can be exempliﬁed by studying the west’s World Bank Group and the east’s China Policy Banks.

1 This shift has raised scholarly and media attention, questioning the differences between the two paradigms and the consequences for the borrowing countries. This research paper tries to answer these questions by: (1) settling the theoretical basis of the role and tendencies of multilateral institutions in infrastructure funding, (2) conducting a comprehensive state of the art literature review to establish the hypotheses, (3) deﬁning the methodology to contrast those hypotheses, and (4) contrasting the hypotheses through the analysis and evaluation of both the policies and the case study.

Section1 sets the theoretical basis of the research, by deﬁning the different stakeholders involved in a global project, the role played by multilateral institutions in infrastructure funding and the evolution of its tendencies. The research question is formulated and its objectives and limitations are highlighted.

Next, an extensive literature review is conducted along Section2, exploring the research methods, approaches and contributions of scholars who were investigat- ing similar research questions. After reviewing the literature, a set of potential hypotheses regarding the differences between the eastern and the eastern paradigm is established.

Section3 proposes a Methodology to answer the current research question based on a novel combination of the Archival analysis and the Case Study methods, which will be used to contrast the hypotheses set along the research.

Section4 conducts an Analysis and Evaluation of the current governance structure, decision cycle and social and environmental safeguards of western and eastern multilateral institutions, which highlight the bureaucratic differences between the two paradigms.

Section5 tests how these differences translate into project execution, through an Analysis and Evaluation of the Jamaica Highway 2000 case study, a tolled highway project partially developed by western and eastern insitutions. While hypotheses are contrasted along sections4 and5, section6 concludes this exploration and sets the bedrock for future academic research.

1.1 Background

As exposed by Weber and Alfen (2010), the term “infrastructure” was originally used in the military context referring to military assets such as caserns and airﬁelds. This is in concordance with the Oxford English Dictionary’s theory, which also states that the word was imported from French, and is a combination of the Latin preﬁx “Infra”

2 Chapter 1 Introduction meaning “below” and “structure”. NATO was the ﬁrst organism to use this term in a military context after its formation in 1940, and was then adopted by urban planners in its modern civilian sense by 1970.

In fact, a huge variety of definitions have been suggested by a broad spectra of different actors, ranging from national agencies and governments to academia and the financial community. One of the broadest definitions of the concept goes back to Jochimsen (1966), who highlighted infrastructure’s role in the development of a Market Economy, using the words that follow:

“the sum of all material, institutional and personal assets, facilities and conditions available to an economy based on the division of labor and its individual economic units that contribute to realizing the assimilation of factor remuneration, given an expedient allocation of resources. The term material infrastructure stands form the sum of all physical assets, equipment and facilities and the term institutional infrastructure points to the norms and rules, which develop and are set in a society over time; in addition, the term personal infrastructure is used to encompass the number and qualities of people in a market economy.” (Jochimsen, 1966).

Jochimesen has not been the sole author to focus on infrastructure’s role on development, but one of many others. Transportation infrastructures and human development have always been connected. Already at the time of the construction of the Roman Vias, roughly 20 centuries ago, the citizens living in lonely regions experienced disruptive changes in their daily lives thanks to the connection with the Roman Network (Laurence, 2010). The number of visitors resulted in an increase of trade and local activity and important human settlements grew by ports and junctions. Infrastructures marked the peace of development, and played a key role in Roman hegemony and in the creation of the Roman Empire.

Nowadays infrastructure continues to be the necessary organizational backbone of an economy. Munnell (1992), also suggests that “in addition to providing immediate economic stimulus, public infrastructure investment has a signiﬁcant, positive effect on output and growth”.

There has been some debate however in regards to what comes ﬁrst, if development itself or infrastructure investment. Whether this is not fully clariﬁed, what can be completely stated is that without infrastructure, development is not possible (Vassallo Magro and Bartolomé, 2010).

In order to be able to understand the interactions between infrastructure and economic activity, it might be relevant to distinguish the different impacts derived from both infrastructure construction and operation. The former being relevant in a short term scenario, with temporary effects, while the latest being at the long term,

1.1 Background 3 Macroeconomic Short Term

Construction Sectoral Effects

Effects on the Economic Cycle

Effects

Private Sector Productivity

Utilization Regional Effects

Other Effects

Fig. 1.1: Economic impacts derived from Infrastructure investment. Self-prepared with data from Vassallo Magro and Bartolomé (2010).

with a permanent character. Vassallo Magro and Bartolomé (2010), gives a great description of those, which can be summarized in the ﬁgure 1.1:

• Effects during the construction phase of the infrastructure

These effects, taking place in the short term with a temporary character, are associated with the aggregated demand and are consequence of the Public Sector’s decisions with regards to the public policy investment and ﬁnancing. Keynesian models1 allow to assess the effects that infrastructure construction can have to macroeconomic indicators both in the global level (GDP, employment rate, etc) and in the local level, to the different sectors of the economy.

Macroeconomic short term effects These effects respond to Keynesian economics, which state that an increase in public investment produces a growing effect to the aggregated demand, which leads to an increase of the production, employment and rent as well as of ﬁscal revenues from the additional taxes generated by the previous activities.

However, these can also produce an inﬂation increase which leads to negative effects such as a loss of competitiveness produced by the price increase (which has a negative effect on the commercial balance and extensively to the aggregated demand). On the other hand, if the investment implies an increase of public debt

1Keynesian economics are the various theories about how in the short run, and especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation

4 Chapter 1 Introduction (which depends on the ﬁnancing structure used by the Government) the raise on the interest rates could lead to a crowding out effect2.

Within macroeconomic effects, it is also relevant to assess the influence of public spending in budget deficit. In the European Union, member states shall respect the commitments to Stability and Growth agreements signed, namely, that the deficit should not exceed 3% of the GDP and public debt should not exceed 60% of GDP.

Finally, it is possible to quantify those effects thanks to macroeconomic models. Vassallo Magro and Bartolomé (2010), states that by increasing public investment by a 1% of the GDP, the average annual growth of GDP could increase by a 0.5%, average annual employment rate by a 0,28%, which can also be used towards increasing regional cohesion and development (however this is necessarily not the case most of times, reason why infrastructure is objective of consistent political debate).

Sectorial Effects Infrastructure investment can have a great impact among different sectors, which can be successfully quantiﬁed using Input-Output tables, which are an economic model that analyses the interdependence of industries in an economy. The role of Input-Output tables is to demonstrate that the outputs of one industry, are the inputs of another, showing that there exists a correlation among them, and eventually allowing to compute a certain multiplicative effect from the investment on one industry to the others.

This is certainly the case for infrastructures and by extension, the construction sector, where the multiplicative effect could be comprised between 1,8 and 2,0 (Vassallo Magro and Bartolomé, 2010) for a developed country. Which means that a certain investment in infrastructures (namely, construction sector) would have an effect of double its size to the other production sectors.

Effects on the Economic Cycle The economic analysis has traditionally considered public investment as a coun- tereffect to unfavorable economic cycles, so as Governments could increase public spending during recession to help maintain levels of production and employment.

This, however, could not be the case if recession periods were caused by excessive public expenditure and debt. In that case public investment would behave the opposite way, being more active during growth periods and hence enlarging economic cycles. Nonetheless, when private investment ﬁnances infrastructure, public invest-

2Crowding Out effect is argued by some economists to be a phenomenon that occurs when increased government involvement in a sector of the market economy substantially affects the remainder of the market, either on the supply or demand side of the market.

1.1 Background 5 ment can be used as an economic stabilization tool (Vassallo Magro and Bartolomé, 2010).

• Effects during the utilization phase of the infrastructure

Effects on the Economic Cycle In opposite to the effects associated to the aggregate demand and consequence from public sector decisions during the construction phase, those derived from its utilization take place in the mid and long term, and are related to the aggregated offer.

The study of these is quite recent, and models intent to explain the effects of transportation infrastructure construction on private sector productivity and to territory in general. These impacts (unlike the previous) rely on decisions taken by the private sector which will largely determine economic competitiveness.

Effects on Private Sector productivity Aschauer’s endogenous growth models were the ﬁrst to analyze the relationship between infrastructure and growth, at the beginning of the nineties (Vassallo Magro and Bartolomé, 2010). While at ﬁrst it was thought that an increase of public spending had a negative effect on productivity and economic growth, further studies have shown that investments in infrastructure have a markedly positive effect.

Empirical analysis are based on econometric models which consider positive aggregated demand functions, such as Cobb-Douglas3 for the private sector to which the stock of public capital is added as a production factor (in addition to the classical work and private capital). These functions are as follows:

α β γ Yt = At · Lt · Kt · Gt · (1.1)

where Yt is the total production of the private sector (the real value of all goods

produced in a year), Lt is the labor input (the total number of person-hours worked

in a year), Kt is the private capital input (the real value of all machinery, equipment

and buildings), Gt is the public capital input (the real value of public investment),

At is the total factor productivity and α, β, γ are the output elasticities of labor, private capital and public capital, respectively. Usually, these values are constants determined by available technology and the sum of all of them determines whether

3The Cobb-Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs, particularly physical capital and labor, and the amount of output that can be produced by those inputs. Sometimes the term has a more restricted meaning, requiring that the function displays constant returns to scale

6 Chapter 1 Introduction the returns to scale of the production function are constant (α+β+γ = 1), increasing (α + β + γ > 1) or decreasing (α + β + γ < 1).

Regional Effects In regards to the effects that infrastructures can have on the territory, studies shown that transportation infrastructure is the one which correlation is the highest between employment and rent indicators.

Among the various theories used to analyze the relationship between infrastructure development and regional effects, it’s of especial mention the one proposed by Biehl et al. (1986) in which his thesis is that the potential of development of any region is based in four determinant factors: geographic location, agglomeration, sectoral structure and infrastructure. However, the challenge is to quantify those factors through indicators which have to be deﬁned for each case, which allow to stablish relationships of the form:

DPT = f(I, L, A, S) (1.2) where DPT is Development Potential, I is Infrastructure, L is location, A is agglomeration and S is Sectoral Structure.

Other Effects According to Vassallo Magro and Bartolomé (2010), production models only take into account the impact of infrastructure on economic development, but not on transportation in general. It is therefore convenient to add to the traditional analyses the effects derived of the reorganization and improvement of the transportation industry, among others, as a result of infrastructure improvement.

These effects can be classiﬁed as: transportation market effects, life quality effects and other markets and economic agents’ effects. Transportation market effects are understood as the effects that the improvement of transportation infrastructure may have to the private sector productivity and efﬁciency. Savings in time or gas consumption may lead to a sector reorganization and boost multimodality. Or the contrary, and give advantage to a given mode.

Life quality effects can be understood as the improvements to congestion, accident reduction and contamination decrease as well as accessibility increase.

Finally, it is convenient to consider the effects of infrastructure development to other markets and agents, such as the inﬂuence of infrastructure onto companies’ location (transportation hubs usually attract an important number of companies whose

1.1 Background 7 competitive advantage bases on being close to infrastructure, such as warehouses near ports and highways), a great example of it being the application of the Just in Time since Logistics’ Platforms are being exploited.

Some of these effects may also be included in the aforementioned, with this segmentation not being mutually exclusive but intending to be mutually exhaustive.

Infrastructure is also useful for Developing Countries It is clear that without infrastructure, economic growth is not possible. Does the same effect exist for developing countries, however? Is infrastructure equally important for developed and developing countries?

The answer is yes, and it takes even more importance for the later. As an example, in the study from Canning and Bennathan (2000), it is shown that paved roads’ return is much higher (from 3 to 7 times) for Latin American countries such as Peru or Colombia, which were barely connected than in other developed countries. They are not the only ones to support this idea. Olander (2006), estates that reliable, efficient infrastructure is crucial to economic and social development that promotes pro-poor growth. And the OECD is not the solely institution that stands for poverty reduction through infrastructure investment. Ali and Pernia (2003), from the Asian Development Bank, also affirm that public policy reforms and investment in physical infrastructure significantly contribute to the pursuit of socially inclusive development.

From the empiric side, Jedwab and Moradi (2011) studied the Transportation Infrastructure impact on agriculture and development in colonial Ghana, stating that the investment in two railway lines allowed the country to become the world’s largest producer of Cocoa, which attracted migrants to producing areas and the economic surplus drove urbanization. Nowadays Ghana is one of Africa’s most developed countries, performing favourably in indexes of governance, stability, peacefulness and human development.

Also Calderón and Servén (2004) state that infrastructure accumulation may promote growth, presenting an empirical analysis with focus on Latin America. Using GMM estimates of Cobb-Douglas production technology obtained from a large cross- country panel data set, they found positive and signiﬁcant output contributions of three types of infrastructure assets: telecommunications, transport and power. Again referring to Calderón and Servén (2004), aside from the effects of infrastructure development on aggregate income growth, another strand of recent literature has examined its effects on income inequality. The underlying idea is that, under appropriate conditions, infrastructure development can have a positive impact on the income and welfare of the poor over and above its impact on average income,

8 Chapter 1 Introduction hypothesis which is conﬁrmed empirically in the study by (López, 2003).Focusing on Asia, it is interesting to review Donaldson (2010) who uses archival data from colonial India to investigate the impact of India’s vast railroad network using a general equilibrium trade model.

They mention vast literature which proofs that there are good reasons to believe that infrastructure development has a positive impact on the income and welfare of the poor. For example, Ferreira (1995) presents a model of public-private capital complementarity in which expanding public investment reduces inequality. He holds, as already mentioned earlier, that infrastructure helps poorer individuals and underdeveloped areas to get connected to core economic activities, thus allowing them to access additional productive opportunities. In the same direction, research from Jacoby (2000) links the asset value of poor farm areas to the distance to agricultural markets, being the improvements in communication and road services of capital importance for the increase in gains by poor farmers.

Ultimately, Calderón and Servén (2004) also state that infrastructure development can also have a disproportionate impact on the human capital of the poor, and hence on their job opportunities and income prospects which refers not only to education but most importantly to health. A signiﬁcant amount of papers has focused speciﬁcally on the impact of expanding infrastructure services on child and maternal mortality and education attainment and that a better transportation system and a safer road network help arise school attendance.

In any of the cases, by raising labor productivity and lowering production and transaction costs, economic infrastructure (transport, energy, information and communication technology, and drinking water, sanitation and irrigation) enhances economic activity and so contributes to growth, which is essential for poverty reduction and thus inequality reduction.

All these theories, however, have not come without criticism. Infrastructure development is of course linked with Globalization, and Stiglitz (2002) has been the main author raising the point that this might not always be convenient for all the parties. In his book Globalization and its discontents, the author criticizes the role of the IMF and the economic policies of the U.S. Government in globalization, stating that he perceives the approach of the IMF4 to developing countries as a “colonial ruler”.

Along the same lines, Ascher and Krupp (2010) give an excellent overview of which are transportation infrastructure development effects and implications. In their book “Physical Infrastructure Development”, they highlight the four troubling points that they perceived in the huge literature on infrastructure development:

4International Monetary Fund

1.1 Background 9 1. First, the recurrent gaps between infrastructure evaluation and performance, both in developed and developing countries.

2. Second, during past years private sector participation has not been satisfying enough to meet all the investment requirements, nor governed smoothly with remaining risks for both public and private sector.

3. Third, the distributional impacts of burdens and beneﬁts is not as clear as expected, and different designs, ﬁnancing arrangements and fee structure have had different consequences for different regions, sectors and countries. Plus, these outcomes mostly depend on decisions taken during infrastructure planning and operation and thus remain a governance challenge.

4. And last but not least, infrastructure planning and execution are often egre- giously disconnected from the other aspects of planning and policy-making, which are crucial for infrastructure expansion to make sense.

That being said, one may wonder when does infrastructure expansion makes sense. To answer such question, Ascher and Krupp (2010) comment a great study from Canning and Bennathan (2000) in which the contribution of investment in paved roads is estimated, taking into account data for 52 countries over a 40-years period begging in 1960. As they conclude, “infrastructure investment makes sense when it is complementary to the potential for growth in economy because of synergies with human capital investments an investments in other aspects of physical capital, such as factory equipment”. In other words, the effects of new infrastructure spending will depend on the quantity and the quality of the capital stock which is already in place and on institutional and policy factors.

It is therefore clear that transportation infrastructure plays a key role in growth if it is planned, executed and operated comprehensively both from the technical and sociological point of view. But, what does it take to plan, execute and operate successfully? Which are the different actors involved in such a process, and which role does everyone play? In other words, the main challenges derived from any infrastructure project can be segmented in Governance Issues and Financing issues, which are discussed as follow.

Next chapter gives insight in which are the different stakeholders involved in infrastructure development.

10 Chapter 1 Introduction 1.1.1 A Global Project and its stakeholders

As Scott et al. (2011) state, “few, if any, major projects in the modern era rely exclusively on people or resources from a single host country or sponsor. The new strategic environment for such projects is global, technology-enabled, interconnected and dynamic.”

Technological progress has altered organizational structures, and loosely afﬁliated networks of companies working across borders and regions have gained relevance, empowered by the no longer need of staying physically connected.

Indeed, the pace of monumental-scale infrastructure construction projects is on the rise worldwide, with current annual global infrastructure demand pegged at $4 trillion, according to the Rothballer („Rothballer, 2013“).

Some examples can be found in the construction of the Channel Tunnel between England and France, which was a cross-border, public-private partnership among two governments and various firms from the private sector around the world which included legal advisors, financiers, designers, contractors and equipment vendors. The San Francisco-Oakland Bay Bridge is another example of a $7 billion project which involved a unique level of multinational cooperation: The main structural steel for the bridge was fabricated in China. Seismic bearings and temporary detour structures were manufactured by South Korea. Japan forged the world’s first double- cable saddle, which sits atop a 525-foot tower built, again, by the Chinese. The main cable’s bands were produced by the English, while the United States handled about 80 percent of the total manufacturing (MIT Technology Review, 2015).

These trends put in relevance the different challenges encountered when developing a major project, which are no longer technical or ﬁnancial, but also of a governance nature. Scott et al. (2011) give a great overview of Global Projects identifying its features, drivers and challenges based on theory in scholarship on organizations, project management and multinational enterprise.

According to them, these projects are driven mainly for two reasons: The first is the self-interest by firms in “Going Global”, caused by the reduction of coordination costs due to technological progress. In fact, nowadays many services and products are created by an “interdependent network of highly specialized suppliers, manufacturers, and system integrators” in which context Global Projects have emerged. While this is an economic reality, many other motivations can arise in each firm, such as the development of new resources, a global arbitrage opportunity, circumventing regulation or testing new markets (Scott et al., 2011). Coupled with the first, the second reason is based on rationalized modes of organization. Technological progress

1.1 Background 11 has allowed firms to re-structure, sharing its associated benefits and disadvantages with the community, which has resulted in organizations being more similar in form and operation as a result of fast learning and information sharing among them (successful modes of organizations diffuse quickly through an organizational field).

On the challenges side, it is clear that Global Projects confront new types of risks. According to Scott et al. (2011) these risks are due to: Coordination Costs, Complex- ity and Scale, Interdependance, Uncertainty, Time pressure, Dispersion and distance, and Institutional differences. It is trivial to see how coordination, complexity and scale or uncertainty grow as the size and scope of the project grows too. However, it might be relevant to discuss a bit more in depth the role of Coordination costs, dispersion and distance and institutional differences.

Coordination costs are derived from the “synchronization of actions” (Wittenbaum et al., 2002), which include time and resources spent in all kinds of integrative activities from translation to testing and monitoring of the different sub-processes involved in a Global Project. Since these projects involve a greater number of actors, coordination costs are notoriously increased.

Dispersion and distance mostly affect to cross-functional teams when they work globally, in terms of communication quality and effectiveness as well as to work-life balance (in regards to time zone differences). Cultural barriers also play a role, and are referred as Institutional Differences.

Institutional Differences are represented by how individuals think, act and interact in different countries and world regions. Scott et al. (2011) distinguish a comprehensive list which suggests the variety and complexity of dimensions them which contain: Cognition and language, emotional patterns, space time orientation, belief systems and regulatory systems among others. In conclusion, Global Projects are complex, and is therefore relevant to review which stakeholders use to take part in them and how do they impact its ﬁnal outcome.

Stakeholder management is complex, and there is vast literature reviewing the functions and nature of the different actors involved in any project. As Yang and Shen (2014) point out, many researchers have considered stakeholder management to be a key issue, and as a result it has become increasingly professionalized. Nonetheless, while in the manufacturing industry this research has known great success, there is the belief that still exists great room for improvement in the construction industry. One reason for this seems to be the lack of an established systematic framework for project-stakeholder management, which raises two points: Firstly, the multiplicity of tasks and parties involved in a construction project, not only task-wise but also

12 Chapter 1 Introduction time-wise. Different actors take over during different stages of the project. Secondly, the need to draw a different schema for each project.

The deﬁnition of Stakeholder, broad by nature, does not help to synthetize the task. According to Olander (2006), the most commonly used deﬁnition is that formulated by Freeman (1984), which states that the stakeholders are any individual or group who can affect, or is affected by the achievements of an endeavor or corporation. Gathering all those in a schema is not trivial. Olander (2006), distinguishes two different kind of stakeholders, internal and external. Internal Stakeholders are all those in direct contact with project resources, while external stakeholders are all those in direct contact with internal stakeholders, but not with the project itself.

Following Olander (2006) approach, ﬁgure 1.2 intents to extremely synthesize internal stakeholders of an infrastructure construction project.

Fig. 1.2: Internal stakeholders of an infrastructure construction project. Self-prepared.

Overall, the Public Initiative is responsible for identifying public needs and ultimately deciding if they can be covered through infrastructure development. This function is normally undertaken by Governments, Transportation Ministries or any other public organization responsible for the country’s infrastructure, and usually comprises: The promotion of infrastructure development plans (identifying social demands and prioritizing needs), deﬁnition and design of the basic project conditions, monitoring of the bidding process and control of the project execution and operation.

Depending on how the project is ﬁnanced (privately, publicly or mixed), there can be further stakeholders from the private sector (pension funds, private companies) or even developing agencies (The World Bank, IMF) on the side of the Public Initiative. In any case, the Public Initiative is responsible for the bidding process, through which a designer, consultant and a project developer (constructor) are found. In some cases, the design and consulting roles are undertaken by the same actor, who lately supervises that the developer is constructing the project according to the current design.

Designer’s role is to elaborate the plans and documentation of the project respecting their client’s needs. Once the project has been elaborated, the developer will be

1.1 Background 13 responsible for constructing it. Since the client doesn’t necessarily need to be a qual- iﬁed engineer, the role of the consultant is to represent the client (public initiative) on site, so as the developer constructs the project according to the designer’s plans. Due to the correlation between design and execution and the alignment of skills needed in both phases from the theoretical side, it is common that the consultant and designer function is executed by the same actor, however different bidding processes use to take place.

As it is discussed, Infrastructure ﬁnancing is a crucial factor when underlying stakeholder relationships. Ultimately, it is not possible to undertake any project without economic resources (or resources which can lately be converted into economic capital). This is why next chapter discusses different approaches to Financing Infrastructure and their effects to the project overall.

1.1.2 Infrastructure Procurement and the role of bilateral and multilateral investments

As it is seen in the previous sections, quality infrastructure is a key pillar of international competitiveness. Coherent infrastructure networks provide the necessary conditions for international markets, integrate national markets and reduce dis- tances, which overall inﬂuences positively to international trade and economic growth („OECD“). It is not by coincidence, therefore, that most countries with high-quality infrastructure also rank high in the world index for overall competitiveness.

This is not for free, obviously. The Strategic Transport Infrastructure Needs to 2030 („OECD“) concluded that global infrastructure investment needs across land transport (road, rail), telecommunications, electricity and water sector would amount to around $53 Trillion over 2010-2030, which equals to 2.5percent of world’s GDP. And this is not only a global tendency. In 2011, the American Society for Civil Engineers (ASCE) released a study of the funding needs for surface transportation systems in the United States, which indicated that the minimum investment needed to keep the system operable at a level sufﬁcient to meet the nation’s minimal needs would be of $220 Billion/year on average during a 30 year period (Prassas and Roess, 2013).

These are deﬁnitely big investments, which had traditionally been undertaken by the Public Sector, since infrastructure has been seen as a public need to be publicly funded. More recently, however, public sector had been encouraged to take part in some of those investments through a Public-Private collaboration which in some way tried to correct what was understood as a sort of market failure (some public- funded and operated infrastructures where not as performing as desired). These

14 Chapter 1 Introduction Private Equity

Multilateral Development Private Agencies Bilateral

Banks

Sovereign and pension funds Procurement Methods Revenue Dedicated Backed Agency

Traditional System

Public General Public Owned Cor- Obligation poration

Deferred payment

Fig. 1.3: Different procurement methods for Transportation Infrastructure. Self-prepared based on Vassallo Magro and Bartolomé (2010). collaboration needs raised after the ﬁnancial crisis in 2008, after which the Public Sector lost a big part of his economic muscle to invest.

The main argument promoting Public-Private collaboration has been the famous Value for Money5 , which states that in order to get the highest output from an economic investment its performance needs to be optimized. In this case, through private participation in public investments. This movement, initially commenced in the United Kingdom, known as “Private Finance Initiative (PFI)” at the early nineties.

Overall, all the different approaches to infrastructure financing can be identified in the figure 1.3

Public ﬁnancing can be budgetary or non-budgetary. In both of them, the tax-payer is ultimately the responsible for its ﬁnancing.

5"is the term used to assess whether or not an organization has obtained the maximum benefit from the goods and services it acquires and/or provides, within the resources available to it. It not only measures the cost of goods and services, but also takes account of the mix of quality, cost, resource use, fitness for purpose, timeliness and convenience to judge whether or not, when taken together, they constitute good value. Sometimes, achieving VfM may be described in terms of the “three Es” – economy, efficiency and effectiveness"(Imperial College London - Value for Money)

1.1 Background 15 Non-budgetary public ﬁnancing is understood as the method through which Public Institutions are funded by the taxes that they perceive from the users, but not from public budget. Those taxes, however, need to be previously approved by the authority in charge. This used to be the case for AENA (Aeropuertos Españoles y Navegación Aérea) or Aéroports de Paris, which used to be government-owned institutions ﬁnanced through taxes paid by users. Paradoxically, however, these two institutions have become public, however their main stakeholders remain to be their governments.

Budgetary Public Financing is the traditional method through which the Government directly ﬁnances infrastructure. This, however, can be segmented in different sub- methods depending on how and when payments are made: The traditional method, indirect contributions and deferred payment. The traditional method is commonly referred as DB (Design-Build) and DBB (Design-Bid-Build), which are project delivery systems used in the construction industry. Disregarding the differences between DB and DBB, in both cases the client and the contractor agree in a project price before its start, and through which the latest has won the bid (if applicable). The constructor gets paid periodically as the construction of the infrastructure advances accordingly to the initial plan, meaning that the Government will have paid the 100percent of the infrastructure once it is constructed.

Government can also finance infrastructure indirectly through contributions to other public agents, usually created for the conception of a specific project. These agents are normally preferred due to their stronger performance, flexibility and budget freedom (these public agencies are not exposed to as many regulations as the main Government).

The last public financing method is the deferred payment, through which Public Sector pays the infrastructure at a later point in time, normally when it has already been constructed. This can be a good method to postpone obligations and undertake projects disregarding the current financial situation, nevertheless can have negative effects to future generations if not planned accordingly. There exist to main ways to conceptualize a deferred payment. The first is simply a “pay at the end”, in which the whole amount of the project price is paid once it is build. It’s a sort of DB contract which payment is executed at the end. The second is known as “Shadow Toll”, in which the Public Sector pays to the infrastructure operator based on the number of vehicles using a section of a road, often over a twenty to a thirty year period.

The private ﬁnance method is such in which the public budget is not affected at all, and normally responds to a BOT (Build-Operate-Transfer) contract, which is one of the different forms of a concession. In order to keep its completely “private” status, it’s worth mentioning that the concessionaire must assume the risks derived

16 Chapter 1 Introduction from the construction and operation of the infrastructure. In this type of contracts, the concessionaire “leases” the right to construct and operate the infrastructure to the Public Sector, who always remains the owner of the asset. The concessionaire expects to recover the construction costs during the operation phase, and its proﬁt will depend on his ability. Hence, in this case the private sector assumes all the risks.

Despite the advantages of such a system, few projects can be considered profitable without public contributions. This is why Mixt financing methods arise. Most infrastructure projects might not be economically profitable but can still have a high social return, and be therefore of interest for the Public Sector. There can be distinguished two main categories of mixt financing: A concession with a BOT contract with economical contributions from the Public Sector (because revenues from the concessionaire would not be enough) and Public-Private-Partnerships (PPP) – or also known as P3.

The term PPP has different definitions and has not been precisely defined. The movement toward P3 to provide infrastructure is a relatively recent phenomenon, appearing on the world stage in early 1990s and have been approached in different manners by countries such as Great Britain, Australia, Canada, China, India, Spain and many others. According to Commission (2004) “The term public-private- partnership is not defined at Community level. In general, it refers to forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of an infrastructure or the provision of a service”. More specifically, again according to Commission (2004) a contract between Public and Private sector must meet the following specifications to be considered a PPP:

• The relationship of the two parties must be of long duration, involving cooperation between the public partner and the private partner on different aspects of a planned project.

• The project must be ﬁnanced in a mixed manner. Public funds, in some cases rather substantial, must be added to private funds.

• There must be a management integration between the two parties. The economic operator participates at different stages in the project (design, completion, implementation and funding). The public partner concentrates primarily on deﬁning the the objectives to be attained in terms of public interest, quality of services provided and pricing policy, and it takes responsibility for monitoring compliance with these objectives.

1.1 Background 17 • Risks between public and private sector must be shared. The precise distribution of risks is determined case by case, according to the respective ability of the parties concerned to assess, control and cope with this risk.

Apart from the previous, there also exist further deﬁnitions which are a bit more inclusive.Levy (2011), suggested that “the PPP is a relationship between the public and private sectors where a long-term contract permits the public agency to retain full ownership of an infrastructure project –the asset–as well as full oversight of the private sector’s activities in that project while the private entity operates the facility and collects the generated revenue. Some experts argue that there is no partnership in PPP because there is no sharing of business activities, just a straightforward relationship between lessor and lessee”.

That being said, the European Commission also distinguishes between two different types of PPP. Firstly, PPPs of a purely contractual nature, in which the partnership between the public and the private sector is based solely on contractual links. These are the most common type of PPPs, which respond to the different types of concession contracts. Secondly, PPPs of an institutional nature, involving cooperation between the public and the private sector within a distinct entity. This PPPs are not based in a Principal-Agent relationship between the two parties (typical of a contract), but in a joint participation in an entity in charge of managing the infrastructure. This is a lesser common method than the former, and has the disadvantage that conforms a monopoly which hardly stimulates private sector, which used to be the case for French Highways before their privatization, for example (Vassallo Magro and Bartolomé, 2010).

Different types of PPPs (or concessions) can vary, but some of the more frequent are the Build-Operate-Transfer (BOT)6, Design-Build-Operate-Maintain (DBOM)7, Lease-Develop-Operate (LDO)8, among many others.

In addition to those, there might be other types of contracts which may be considered to be “PPPs” too. That’s the case for Joint Ventures or Cooperative Arrangements. Joint Ventures take place when the private and public sectors jointly ﬁnance, own and operate a facility, while cooperative arrangements occur between governments and private entities in an informal manner. An example of this would be Costa

6A private entity builds a project to meet the public agency’s requirements, providing design, construction, ﬁnancing, operation and maintenance during the concession period. The BOT entity collects the revenue generated during the concession period and returns the project to the public agency at the end of the contract period for little or no additional compensation. 7A private entity provides design-build (DB) services to construct a publicly owned facility and assumes operational and maintenance responsibility for a speciﬁc period of time. This approach was developed to ensure that the DB proposal will result in a high-quality project because the DB entity must maintain the facility for x years. 8A private entity leases a facility from a public agency. It then provides capital to renovate, expand, or upgrade the facility and operates it under a contract with the public agency.

18 Chapter 1 Introduction Rica, where the government creates and maintains national parks, while private organizations develop and ﬁnance some touristic programs (Grimsey and Lewis, 2004).

In terms of the effects of such procurement methods and when might them be adequate, Vives et al. (2006) give a great overview in his report entitled “Financial Structuring of Infrastructure Projects in Public-Private Partnerships”, in which the three main factors which have generally had a signiﬁcant impact on the success of projects are presented: Local conditions with high impacts on investment, the modality of the project, and the tools available to mitigate the risks imposed by local conditions.

Based on that, Vives et al. (2006) constructed a framework based on previous experiences which assesses under which conditions should a speciﬁc procurement method be used.

The role of multilateral development Agencies

It has been demonstrated that the role of the public sector in financing infrastructure is key. However, it is not always possible for public initiative to find funding to undertake such projects, which use to be expensive and complex. In other words, if infrastructure is not only a driver of growth for developed countries but a mean to development for underdeveloped ones, how do the latest finance their projects? That is when Development agencies come into play.

As Weber and Alfen (2010) point out, a wide range of development capital may come into consideration depending on the nature of the project, accounting in average for the 10-20 percent of the ﬁnancing capital of a project. Normally, these are incorporated into the overall ﬁnancing structure in various ways such as: Repayable grants, low-interest loans and guarantees. Support programs can be offered both at a national and at an international level by state-owned development banks such as the Japanese Bank for International Cooperation (JBIC) or the Overseas Private Investment Corporation (OPIC).

Overall, development agencies can be segmented into national and international (whether if they provide assistance to a national scope or an international scope) and bilateral or multilateral (when they are funded by one government or by more than one), as shown by table 1.1

Agencies with bilateral funding might act in a national scope, in an international scope or both. Usually every agency with unilateral funding uses to act also in-

1.1 Background 19 Tab. 1.1: Segmentation of Development Agencies. Self prepared.

SCOPE National International Bilateral INITIATIVE X X Multilateral X

ternationally in a higher or smaller level. Some examples of these can be found in state-owned development banks such as Kreditanstalt für Wiederaufbau (KfW) (founded by Germany and acting mostly nationally) or the Japanese Bank for In- ternational Cooperation (founded by Japan and acting in an international scope). USAID is also a great example of a unilateral agency who acts internationally.

On the other hand, multilateral long-term institutions only act internationally. These include institutions such as The World Bank Group and its subsidiaries: the Inter- national Finance Corporation (IFC), the International Bank of Reconstruction and Development (IBRD) and the Asian Development Bank (ADB), among others. There also exists the possibility to use indirect support programs for direct foreign investments, which are offered by international organizations such as the Multilateral Investment Guarantee Agency (MIGA), a subsidiary of the World Bank.

In any case, development agencies are just a part of the whole different actors which contribute to infrastructure procurement besides governments. As seen in ﬁgure 1.3, and according to Kingombe (2011) the main sources of infrastructure procurement besides governments are Public Private Partnerships, Development Agencies (either Bilateral or Multilateral), Private Equities and Investment Banks and Sovereign and Pension Funds.

Public Private Partnerships have already been commented previously, and the interest of private investors in infrastructure development is treated in a later part of this section. In terms of development agencies.

As it has already been pointed out, infrastructure investment does not only draw the attention of Development Agencies, but also of private investors. In fact, infrastructure assets offer a wide variety of risk-return and cash flow profiles. These profiles range from highly conservative bond/fixed income-style asset profiles to investment opportunities that are comparable to private equity (Weber and Alfen, 2010). It is therefore difficult to draw general conclusions about the investment profile of infrastructure investments without making a precise differentiation between the various possible investment types. One of the problems, however, is that there are no reliable benchmarks for infrastructure investments due to the lack of empirical data (historical returns, volatilities, correlations, etc) which are required for the typical statistical models.

20 Chapter 1 Introduction Tab. 1.2: Performance and volatility of infrastructure in comparison with other asset classes. Self-prepared with data from Weber and Alfen (2010).

Infrastructure MSCI9 FTSE 10010 Real Estate JPM11 Annual return (%) 4.2 5.8 7.5 7 3.5 Volatility (%) 7.9 16.2 13.7 7.7 4.4

Nevertheless, all major infrastructure providers and a few independent consultants, along with academic research institutions, have made a laudable effort to assess infrastructure as an asset class with the aim of providing the sufﬁcient tools to develop asset liability management (ALM) studies. For this reason, they have published research about historical performance characteristics of infrastructure assets, usually referring to data from small number of listed indices. These indices have been previously published by banks (which also act as service providers). This research is shown above by table 1.2

In fact, 1.2 shows that Infrastructure is more stable (less volatile) and with lower returns than MSCI or FTSE 100 but is less performing than a typical real estate investment or a JPM stock. This confirms that infrastructure is in fact a performing asset class, but is far from being the advantageous investment as it has been recently advertised (such as his comparatively inelastic demand profile which was supposed to be unaffected by fluctuations in economy, with moderate volatility and stable and foreseeable returns) (Weber and Alfen, 2010).

That being said, the main private investors in infrastructure have been pension funds12, insurance companies, sovereign funds13, foundations and endowments14. What explains their interest is not only the performance of infrastructure as an asset, but its long-term commitment as well as the wide range of social and political beneﬁts in their respective region under certain circumstances, which is of interest to pension funds and insurance companies in particular (Weber and Alfen, 2010).

The market is big, according to Inderst (2009) global private investment in infrastructure could exceed 1 trillion dollars annually, which is comparable to the size of the global real estate investment. The size of the infrastructure market is even bigger, and estimates for the global market size span over 10 to 20 trillion dollars („Global Diversiﬁed Infrastructure Fund of Funds“).

12is a fund established by an employer to facilitate and organize the investment of employees’ retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term. 13is a state-owned investment fund investing in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. Sovereign wealth funds invest globally. 14is an investment fund set up by an institution in which regular withdrawals from the invested capital are used for ongoing operations or other specified purposes. Endowment funds are often used by nonprofits, universities, hospitals and churches.

1.1 Background 21 Some of such investors span Australian, Canadian and European pension funds. For instance, some Australian and Canadian funds have already experience in this asset class, and now allocate 2-20% of their equity in infrastructure. Other investors include: OMERS (Ontario Municipal Employees Retirement System) with total assets of C$ 44B and a target allocation in infrastructure of the 20 percent and Canadian state’s pension reserve plan with assets under management of C$190 Million.

In Europe, always according to Weber and Alfen (2010), investments seem to be much lower though. For example, UK pension plans only allocate 0.8 percent on a weighted basis. In Continental Europe, only a 1.1% of the pension plans have ever invested in infrastructure. Those who have, have allocated an average of 2 percent of its capital. The most active ones seem to be Dutch funds, with C173M under management and allocating 1.8 percent on infrastructure, with a target of a 3 percent. Some other European active funds in the infrastructure scene are the Swedish buffer fund, the Danish ATP and PKA and the Finnish VER.

Even with the small allocations by some players, the private sector is gaining interest in infrastructure as an asset class –not only because its performance per se, but also as an interesting way to diversify their portfolios-, and Della Croce et al. (2011) already predicts that a bigger participation of pension funds to infrastructure investment is the only feasible way to meet investment requirements of about US $50 tn.

However, which have been the trends on infrastructure investment overseas during last years, how do they look like and which are their main actors? Next chapter gives an overview to this question.

1.1.3 The eastern and the western paradigms

Infrastructure Investment overseas is not new. Usually seen as a strategic move for the investor and with certain suspicion by the local community, truth is that signiﬁcant developments overseas used to take place already a century ago. Examples can be found in both of the most relevant transportation infrastructures constructed to date, which have shaped and will continue to shape world trade. These are the Suez Canal and the Panamá Canal.

Suez Canal was constructed and operated by Suez Canal Company (still existent today, GDF Suez) with French private investors being the majority of the stakeholders and Egypt having a significant stake. French – Egyptian relationships began in the Napoleon’s era, and French were interested in a canal that could empower their trade flows with Southeast Asia. The good relationships of French diplomat-and entrepreneur- Ferdinand de Lesseps with Egyptian senior officials were crucial for the Suez Canal Company to obtain a concession which granted their construction

22 Chapter 1 Introduction Tab. 1.3: Main public and private infrastructure development vehicles by the Eastern and the Western. Self-prepared.

West East World Bank Group China Development Bank USAID Public Exim Bank of China OPIC Asian Infrastructure Investment Bank (2016) US Exim Bank Private Foreign Direct Investment Foreign Direct Investment and operation of the canal for 99 years from its opening. The canal was opened under French control on November 1869 (10 years after the start of the works), and operated until its nationalization by Egyptian government in 1956.

Panamá Canal is also a great example of an historical overseas infrastructure development project, both in terms of local spillovers and Governance. The idea of constructing the Canal had always been present, but again the French were the first who undertook the challenge, confident after their success in Suez, and constituting the Société Civile Internationale du Canal Interocéanque du Darien. Construction of the Canal began on 1881. This time, however, the complexity and cost of the whole project was underestimated by far, and the French company went bankrupt when only two fifths of the Canal were constructed. Even though the French were able to renew its concession to Colombia (who controlled Panamanian territory at the time), Panamanian willingness for independency coupled with American military power and interest for the government, as well as a French interest to sell the concession, led to the US helping Panamá obtain independence from Colombia, as well as buying the concession rights from the French. Americans took over the French construction in 1904, once Panamá was independent. Construction was finished in 1913, the canal opened in 1914 and it and its adjoining territories were operated by the United States until 1999. However international investment proved to be key in an early stage, besides treatment of tropical diseases Panamá did not see direct economic benefits derived from the Canal after its handover.

Infrastructure investment overseas continues to be relevant nowadays, both from a development standpoint and an investment one. As numerous authors show and as indicated later in this section, infrastructure development has traditionally been promoted by western countries through multilateral agencies. It’s been during the last decade when the scene has changed by the irruption of advanced development economies, as they have transitioned to Market Economies and have started to invest overseas. These two approaches are deﬁned as Eastern (representing these new economies, mostly exempliﬁed by China) and Western (mostly represented by the United States and Europe) paradigms. Some of the main actors from the two sides are shown in the table 1.3

1.1 Background 23 Tab. 1.4: Selection of ﬁnancial products offered by each institution. Self-prepared.

World OPIC USAID CDB China EXIM Bank Loan X X X X X Grant X X Equity Investments X Guarantees X X X

Both in the Eastern and the Western side, the table is divided into public and private promoted investments. Public investments are those promoted by country’s governments through development agencies (either bilateral or multilateral), while private investments are those promoted by national companies, mostly referred as Foreign Direct Investments. It can be noted that only American agencies (besides the World Bank) have been considered from the western side. Even though there exist several other institutions such as the European Investment Bank (EIB) or the European Bank for Reconstruction and Development (EBRD), these are mostly focused on certain regions within Europe, and not globally. Therefore, the agencies shown by table 1.1 are those with a global focus. From the eastern side, this section shows that it is mainly represented by China.

Therefore, in order to understand the investment trends in infrastructure development is worth looking at both multilateral investments and foreign direct investments by private institutions. When looking at multilateral investments, data are available normally for the total commitment amounts by different institutions. It is important to highlight, though, the different products offered by them, as shown by table 1.4. Most common products are loans, grants, Equity Investments and Guarantees. Overall, the only product offered by all multilateral institutions are Loans, while the China Development Bank is the institutions which offer most products followed by the World Bank.

From the Western side, bilateral development agencies range from the US Export Import Bank (EXIM), to the USAID (United States Agency for International Devel- opment), passing through OPIC (Overseas Private Investment Corporation). The US Export Import Bank is the official export credit agency of the United States federal government that provides a variety of loan, guarantee, and insurance products intended to aid the export of American goods and services, and has supported important projects such as the Pan-American Highway or the Burma Road. The USAID is a government agency responsible for administering civilian foreign aid both in a technical and a financial manner, and has funded infrastructure mostly in Afghanistan and Far East countries through its Economic Growth Program. The OPIC is also a U.S. government’s development finance institution, which mobilizes private capital to help solve critical development challenges.

24 Chapter 1 Introduction The World Bank Group is a multilateral agency, Technically the World Bank is part of the United Nations system but its governance structure is different: each institution in the World Bank Group is owned by its member governments, which subscribe to its basic share capital, with votes proportional to shareholding. Membership gives certain voting rights that are the same for all countries but there are also additional votes which depend on the ﬁnancial contributions to the organization (World Bank). The President of the World Bank is nominated by the President of the United States and elected by the Bank’s Board of Governors. As of 15 November 2009 the United States held 16.4 percent of total votes, Japan 7.9 percent, Germany 4.5 percent, the United Kingdom 4.3 percent, and France 4.3 percent. As changes to the Bank’s Charter require an 85 percent super-majority, the US can block any major change in the Bank’s governing structure (World Bank). Given the data it can completely be stated that The World Bank Group is fully controlled by the United States of America, however it is owned by all the member countries.

From the Chinese side, again Foreign Direct Investments are the ones taken into account to quantify infrastructure development will from the private sector. On the public side, Chinese most relevant institutions are the Chinese Export-Import Bank and the Chinese Development Bank. The Chinese EXIM Bank is subordinated to the State Council and is focused on promoting foreign trade investment as well as development assistance in concessional funding. The China Development Bank is led by a cabinet minister level Governor under direct jurisdiction of the State Council. The bank is primarily responsible for raising funding for large infrastructure projects. It started operating at a national level but once China absorbed an important level of investment, it moved towards overseas investments. In fact, jointly with China Export-Import (Exim) Bank in 2009 it lent more money to other developing countries than the equivalent departments of the World Bank Group (Financial Times, 2011).

On the Multilateral Institutions side, ﬁgure 1.4 shows the commitment amount of this various institutions to infrastructure investments during the last years, in terms of IBRD loans, USAID obligations, OPIC loans, US Exim Bank Project and Structured Finance transactions and Chinese Development Bank data from the Financial Times Research group (Financial Times, 2011).

In fact, data shows that the World Bank Group (IBRD) has always been the most active institution in ﬁnancing terms, contributing much widely than agencies such as USAID or OPIC. From the Chinese side, institutions such as the Chinese Development Bank (CDB) or the China Exim Bank do not publish data on commitment amounts, but according to Financial Times, 2011, together they borrowed to development countries more than the World Bank in 2009.

1.1 Background 25 Fig. 1.4: Commitment amounts to Infrastructure Investment by different institutions. Self- prepared with data from: World Bank, USAID, OPIC, US Exim Bank Financial Times, 2011.

On the other hand, Foreign Direct Investment is used to track private investments overseas. FDI is an investment made by a company or entity based in one country, into a company or entity based in another country. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. According to the OECD, FDI flows record the value of cross-border transactions related to direct investment during a given period of time. These financial flows consist of equity transactions, reinvestment of earnings, and intercompany debt transactions.

In fact, Foreign Direct Investment creates stable and long-lasting links between economies. Even though FDI can reﬂect investments deployed in any industry, segmented data on FDI in the infrastructure sector might be challenging to ﬁnd. Nevertheless, there are some institutions which track these for certain actors. This is the case of the American Enterprise Institute and the Heritage Foundation, for example, which have founded the China Global Investment Tracker in which a data set covering China’s global investment and construction activity is covered.

On the development agencies side, infrastructure development is easier to track, since these institutions use to publish the commitment amount of loans to different projects over time.

Traditionally, multilateral and OECD bilateral assistance have represented the principal external funding source for infrastructure in developing countries for decades (Gutman et al., 2015). Both the World Bank and regional development banks have

26 Chapter 1 Introduction been a key part of that effort. In fact, infrastructure lending represented 47 percent of all global lending in 1980. This amount, however, has ﬂuctuated over time since infrastructure as a target sector for such aid has varied. During late 1990s and early 2000s, infrastructure investment for human development was mainly undertook by regional banks and the private sector, lowering the share of lending by the World Bank to below 30 percent. This trend, however, changed in 2005 when infrastructure’s importance to growth and poverty alleviation received great attention again –partly inﬂuenced by the bank’s Millenium Development Goals- and the consciousness that the role of multilateral assistance was essential.

Indeed, the 1990s witnessed a number of major events having a direct inﬂuence on FDI-private sector investments in Infrastructure. These include the fall of commu- nism, the opening of China, and the radical shift in economic and political regimes in many countries of Latin America which mostly resulted in the elimination of trade barriers and a reduction of restrictions on international capital ﬂows. All these coincided with notable advancements in technology and communication: Globalization was being settled up, corporations were able to control geographically dispersed networks and Emerging Countries could serve as venues for investments (Capital Markets Consultative Group, 2003).

These developments resulted in a surge of trade and financial flows mostly to Emerging Countries, even surpassing private debt flows to become the major source of international capital for them. Interestingly, FDI and Globalization tend to reinforce one another, which has motivated a great number of countries to undertake further liberalization, unlocking foreign investments in sectors that were traditionally closed to foreign investments such as telecommunications and transportation.

The openness to FDI started in mid-seventies, were countries like the United States or the European Union started to discretely invest abroad. At that time, American and European FDI practically accounted for the total share of FDI outﬂows worldwide, as can be seen in ﬁgure 1.5

Along the eighties and nineties, as the European Union was growing, a substantial growth in FDI outﬂows was also registered. It’s interesting to see, that over history most of the FDI have been emitted by Europe, US and Japan. It wasn’t until mid- eighties when developing economies started to see the great value of FDI, and according to the data they continue to see it, since their commitments continue to grow. Chinese evolution is especially disruptive: from practically having a testimonial presence in the worldwide FDI share, it amounted for more than 10 percent on 2015.

1.1 Background 27 Fig. 1.5: Share of FDI outﬂows by country. Self-prepared with United Nations data.

From an absolute value standpoint, trends between China and the USA can be distinguished in ﬁgure 1.6. It was not until early nineties when FDI increased substantially worldwide, and both Japanese and Chinese FDI substantially grew from 2005 in comparison to western economies. It’s especially relevant to study the American and the Chinese tendency, not only because these are the main actors investing in infrastructure overseas (as it is shown below), but also because they represent two different strategies on development and public policy - the Eastern and the Western Paradigms.

As the world’s largest economy, the United States’ FDI have always accounted for the biggest stake among other countries, jointly with the European Union. No one can argue that the US has long been the dominant foreign investor, however in year 2005 experienced a stiff decline due to changes in their corporate tax code (Kurihara, 2007). Again in 2008, US FDI flow declined substantially, in response to the sharpening financial and economic crisis. The only country not to follow this trend was China, who continued to experience sustained growth. Nowadays, the US continues to be the leading outward FDI investor in the world, with total outward FDI flows from developing economies (Kornecki, 2013).

What’s more interesting, however, is to observe Chinese FDI outflows. They took off in the 2000s as a result of the government’s adoption and promotion of a “go global” policy, aimed at fostering their leading national companies worldwide (Davies, 2009). In fact, China’s outward FDI grew significantly in the past decade with the majority of its investment going to developing countries, even though it commenced to target occidental countries in Europe and the US since 2009. According to figure 1-2 and China Business Review , from an annual average of below $3B in 2005, Chinese FDI outflows grew to $20B in 2006, $50B in 2008, $70B in 2010 and accounted for $116B in 2014. This means a sustained growth of a 43percent on average over the last 11 years, reaching a peak growth of a 111 percent in 2008.

28 Chapter 1 Introduction Fig. 1.6: Investment in Transportation Infrastructure by China (mainly CDB and China EXIM) and the World Bank. Self-prepared with data from World Bank and China Investment Tracker.

Not surprisingly, and according to the Financial Times, 2015, China is expected to become one of the world’s biggest overseas investors in 2020, with global offshore assets tripling from $6.4tn now to nearly $20tn by 2020. In barely a decade, Chinese OFDI has gone from virtually nothing to more than $100B a year, launching it into the top three exporters of direct investment globally (just after the US and the European Union). While Europe has largely agreed Chinese investments after the economic recession, most of their portfolio has been based on developing countries and territories with a wide array of resources (such as Australia or Canada). Chinese investments mostly focused on energy and natural resource assets in developing countries, however a shift in strategy has been seen this last years when China has drawn his attention into developed economies, with UK being by far the biggest recipient of Chinese direct investment.

Infrastructure investment in developing countries, however, continues to account for the biggest share in Chinese FDI Stocks. Which can be the implications of such a disruptive change of investment in such a critical sector?

According to the World Bank and the Chinese Investment Tracker, Chinese investments in transportation infrastructure worldwide have been growing signiﬁcantly since 2005 until reaching an impressive $40B, four times bigger than the amount committed in Loans by the World Bank, as shown in 1.7. However a comparison between Chinese FDI and World Bank loans is not ideal, these are the only vari-

1.1 Background 29 Fig. 1.7: Foreign Direct Investment outﬂows. Self-prepared with data from United Nations.

ables available for analysis regarding the assessment of transportation infrastructure investment.

It is important to note that most of the projects of this size are financed through both Equity and Debt. An adequate mix of these leads to a competitive cost of capital. Cost of equity is normally higher than cost of debt, reason why most of the infrastructure projects use to be financed mostly by debt in comparison to equity, and debt to equity ratios of 80/20 have been a common structure (Izaguirre and Kulkarni, 2011). This is relevant because especially at figure 1-3 World Bank loans and FDI are compared. World Bank loans correspond to debt financing, while FDI mostly accounts for Equity. Since the main debt sources from the Chinese side are China Export Import Bank and Chinese Development Bank (which do not publish data on debt commitment), Chinese equity has been compared to US debt (it’s also challenging to find an equity American investment tracker).

Even though the comparison is not as accurate as it could be, it still gives an idea about the main tendencies that have been seen. Furthermore, equity financing uses to be much lower than debt financing, so the difference identified in figure 1-3 would even be smaller than the real difference in infrastructure investment between the two countries. Data is even more surprising when looking only in Africa. According to Financial Times, 2015, China is by far the largest investor in African Infrastructure, with the Export-Import Bank of China having guaranteed $1tn to Africa in the coming decade. If this happens, the investment flows currently deployed by all public and private bodies globally would be dwarfed. This could be part of the Chinese “One Belt, One Road” initiative, which is a development strategy network and framework

30 Chapter 1 Introduction Multilateral Development Banks

United States Regional Development Banks 23% 2% Europe 4% 13%

34% 11% Others 13% China

Arab Co-ordination Group

Fig. 1.8: Sources of funding for African Infrastructure. Self-prepared with data from the The Infrastructure Consortium for Africa (2013). that focuses on connectivity and cooperation among countries primarily in Eurasia. China would be reinforcing his transportation network to support his exports, which account for the 23 percent of the country’s GDP and have experienced a negative tendency during the last years (World Bank) which could have been caused by a lack of competitiveness on the transportation corridor side.

In any case, Africa continues to be open to further investments, since its infrastructure gap is estimated to reduce the continent’s productivity up to a 40 per cent and to cut economic growth by a 2 per cent (Gutman et al., 2015). In fact, ﬁgure 1-4 shows the sources of funding veriﬁably committed by different actors for African Infrastructure in 2012.

Data conﬁrm the huge presence of China, especially when compared with other sources of funding such as Multilateral Development Banks (which include the World Bank Group, the African Development Bank and the European Development Bank) or the United States.

Indeed, to understand the signiﬁcance of China’s development activities and strategies in Africa, it is crucial to ﬁrst understand the historical development models used by traditional donors. As Orr and Kennedy (2008) points out, over the past two decades OECD countries have increasingly moved away from tied aid. This countries have developed norms through the International Monetary Fund and the Paris Club for resolving inter-creditor disputes that occur when states default on debt service obligations, and participated in major debt-relief programs. Though there are many similarities between the practices of Chinese and traditional donors,

1.1 Background 31 the key difference is that China is not a member of OECD, International Monetary Fund or the Paris Club Lenders.

Therefore, while the OECD has set guidelines to coordinate development efforts and international trade involving its member nations, China has few restrictions on its trade with foreign partners. For instance, China requires that Chinese state-owned or formerly state-owned entities participate in project construction. Also, it does not adhere to international social and environmental safeguards, it offers money at low concessional rates and often well below the London interbank offered rate (Orr and Kennedy, 2008).

In conclusion, Chinese investments bring growth to Africa, providing necessary infrastructure to help ﬁlling the development gap in the continent and reducing the dependence of Africans to the West. On the other hand, however, this change raises some questions regarding the alternative ﬁnancing methods used by the Chinese (which involve resource-based contracts and are not subject to international regulations) on whether having a developing region committed to resources can have positive or negative effects.

1.2 Research Question, Objectives and Limitations

All this, poses the following question:

For transportation Infrastructure development, which are the substantial differences between traditional western economies (mostly represented by the United States and the World Bank) and Eastern (represented by China Policy Banks) ? Which are their effects?

• How do Multilateral investments differ between the western paradigm (World Bank) and the eastern paradigm (China Policy Banks), in terms of Project Cycle, Environmental Safeguards and Investment portfolio?

• How do these differences translate to project execution?

• For borrower countries, which are the implications of these differences? Which are the lessons learnt?

The objectives of this research can be summarized as:

• Highlight the differences between the Western and the Eastern Paradigms in transportation infrastructure development.

32 Chapter 1 Introduction • Evaluate how these differences translate into project execution.

And the limitations:

• The underlying objectives of these two actors are different. Where The World Bank Group invests in infrastructure as a mean to end poverty while the China Policy Banks’ objective is to foster Chinese trade and development.

• In addition, the China Policy Banks and the World Bank are at different stages of maturity where the Asian institutions have less than a ﬁfth of the runway that the World Bank has had to ﬁne-tune its policies, regulations, and grounding on social and environmental safeguards.

• China Policy Bank’s non disclosure information policy, makes it impossible to verify whether Bank’s policies (such as environmental or social safeguards) have been applied during project execution or not.

• The fact that this investigation only comprises one Case Study makes it impossible to generalize hypotheses, but only to contrast them through one experience.

1.2 Research Question, Objectives and Limitations 33

Literature Review 2

Experience serves not only to conﬁrm theory, but „differs from it without disturbing it, it leads to new truths which theory only has not been able to reach.

— Jean le Rond d’Alembert (mathematician, mechanician, physicist, philosopher, and music theorist)

A Literature Review is conducted in this section in order to identify the current scholarship on this topic and the main methods used for researchers to answer similar questions. Since this study intents to answer the question by conducting a case study, it is relevant to review two different segments of the literature.

In ﬁrst place, extensive literature has been written regarding the irruption of China in the infrastructure investment market and its potential effects. Study this scholarship in depth is relevant to understand how previous researchers perceive the irruption of China and which can be their effects into the recipient countries from a governance and policy perspective.

Secondly, it is important to review which have been the methods previously used by researchers when conducting studies in which different infrastructure projects were compared. This is relevant to understand which methods exist and how they can suit this research purposes both in terms of context and outcomes.

The novelty of this study lies in the fact that compares speciﬁc projects undertaken by two different actors, and is therefore relevant to review the two trends of the scholarship to connect conclusions.

2.1 Inﬂuence of the two paradigms to developing countries

There exist vast literature treating the topic of foreign investment in infrastructure to developing countries, spanning from famous authors such as Stieglitz or Brautigam

35 to international institutions such as the World Bank or the OECD or even technical papers by locals such as Stellenbosch University.

Much less literature, however, conducts detailed studies comparing the two main trends of investment: Traditional investment by western countries such as Europe or the United States, represented by institutions such as the World Bank and its afﬁliates or multilateral development agencies, and investment by new economies such as Arab Funds or Asia, mostly accounting for China and represented by the Chinese Export Import Bank.

One of the few studies that does so was conducted by Epstein et al. (2008) on behalf of the American Congressional Research Service, in which the Global Inﬂuence of China’s and U.S. Diplomacy, Foreign Aid, Trade, and Investment in the Developing world is compared. In terms of Foreign Direct Investment Overseas, the report states what can be seen in the trends at 1.1.3. American foreign direct investment largely overcomes Chinese, both in terms of ﬂows and Stocks, however the Chinese irruption has been powerful and mostly based in the quest for secure supplies of natural resources. Plus to that, the Asiatic giant is dealing with regimes that still are considered to be unsavory among Western policy makers, such as Sudan, Burma/Myanmar and North Korea which are under economic sanctions by western powers.

The biggest contribution of Epstein et al. (2008) in regards of this study is, however, the public opinion of the citizens among various regions on Chinese and American presence overseas. In Southeast Asia, roughly a 70 percent of the population holds positive views of Chinese investments and ways of doing business in the country while only a 30 percent believed the same for the U.S. In Africa, however, the U.S. are more popular than China. The general perception of the population is that the U.S. foreign policy takes their interests more into account than the Chinese, who is perceived with a more “colonialist” attitude, employing less local labor and contributing less to the local economy by shipping all the machinery from China. Aligned with this, 70 percent of the population declared to believe that Chinese inﬂuence in Africa is growing faster than American, however the United States continue to be more popular than China among citizens. In Latin America, China is seen as a promising trend in contrast with the U.S. which has a bad perception among population especially in countries such as Argentina or Venezuela, being Mexico the solely region where the U.S. are more popular than China. This trend can be due to the fact that China’s growth in the region has been moderate and mostly non-confrontational.

Besides Epstein et al. (2008), is complicated to ﬁnd literature directly comparing the two countries’ investment strategies. Since the western countries are seen as the

36 Chapter 2 Literature Review traditional investors, there are also few recent documents quantifying developing aid and its effects. On the other side, Chinese irruption has left numerous authors writing on the topic. In order to extract conclusions, it is therefore necessary to review research done from both sides. The literature has been summarized in table 2.1 which speciﬁes: the topic of research (whether if it’s the study of western investments in developing countries or vice versa), its geographical scope (the geographical scope of such investments), the research question, the research method as well as the main contributions of each author.

In fact, out of the literature reviewed only one author (Stiglitz, 2002) writes about the influence of western investments to developing countries worldwide, while seven authors (Brautigam, 2011), (Corkin, Burke, et al., 2006), (Moss and Rose, 2006), (Schiere and Rugamba, 2011), (Foster, 2009), (Jenkins and Peters, 2009), (Javier, 2007) write about the Chinese influence. From these, five of them have written about the Chinese effect in Africa, while only two about Latin America.

Even though the literature review has been done based on the number of citations received by each author, this distribution exempliﬁes the whole state of the art, in which much more attention is given to the Chinese irruption and its consequences than to the previous investments by western countries which have “always” been present. In terms of geographical scope, this also applies, since much more interest has been given to the Chinese irruption in Africa than to Latin America or the Far East.

In terms of contributions, from the Western Countries’ side, Stiglitz (2002) is one of the few authors who openly criticized the development promoted by the West, mostly represented by the World Bank, the IMF and various multilateral development agencies such as the Asian Development Bank or the African Development Bank. In the book, Stieglitz conducts an archival analysis based on his own experiences at the World Bank and the IMF to estate that these institutions have largely conducted development assuming a Free Market ideology –following the theory introduced by Adam Smith which states that market forces move the economy to efﬁcient outcomes- . Modern economies, however have proven this ideology true only under certain conditions. In fact, whenever information is imperfect and markets incomplete, which is to say always, and especially in developing countries, then the invisible hand works most imperfectly.

Stiglitz (2002) argues that IMF policies have contributed to low levels of development in Sub-Saharan Africa, among many others, thanks to speciﬁc policies which include ﬁscal austerity, high interest rates, trade liberalization, the liberalization of capital markets and the insistence on the privatization of state assets.

2.1 Inﬂuence of the two paradigms to developing countries 37 Tab. 2.1: Literature review summary for the inﬂuence of developing aid by the two countries. Self-prepared.

Geographical Research Author Topic Research Question Contribution Scope Method Did the policies applied by The World Bank and the IMF used to act assuming a Free Stiglitz Globalization and Archival Worldwide the WB and IMF benefit Market Ideology. This could explain low levels of (2002) its discontents Analysis developing countries? development in Sub-saharan Africa Which are the effects of Chinese investments are welcomed to fill the infrastructure Brautigam Chinese Archival Africa Chinese Development gap. However, further research should be undertaken on its (2011) Development aid Analysis Aid? implications - specially regarding resource based contracts Corkin, How does the entry of Chinese success is attributed to its competitiveness. Its Burke, Chinese interest in Chinese companies in Country Case Africa work Quality is high when country’s standard are high, and et al. Africa Africa impact the local Studies low when country’s standards are low (2006) situation? Which are the Chinese aid is useful to fill the infrastructure gap, but Moss and China Exim Bank in Implications of new Archival further regulations should be envisioned to engage its Rose Africa Africa lending strategies by Analysis standards with other institutions such as the OECD, IMF, (2006) China EXIM Bank? WB, etc Schiere Chinese Construction of A great opportunity for Africa, but to be managed wisely in and How Chinese investments investments and Africa a Project terms of its implications. There’s a long learning process Rugamba integrate to Africa? African integration Database ahead. (2011) Effect of large, unprecedented Quantify the value of Foster Archival China can help Africa, but Africa needs to strengthen the infrastructure Africa Chinese investments in (2009) Analysis rule of law with broader reforms in business regulation projects in Africa by Africa China Which is the implication Jenkins It is necessary to fill the infrastructure gap, but best Literature Review China in Latin Latin of the growing Country Case and Peters practices should be empowered and matched with America America involvement of China in Studies (2009) international standards. Latin America? Cross-

Should Latin America fear Both regions share important weaknesses. Poor corporate Chapter 2 Javier China in Latin Latin comparison of the emergence of this new governance, fragile financial system and misallocation of (2007) America America macroeconomic player? savings. The potential effects have to be taken into account. variables 38 From the Chinese side, there has extensively been written about Chinese presence in both Latin America and Africa. In the African scope, all the authors confirm that the continent is in very much need of foreign investment to fill its infrastructure gap, however further resources should be invested to investigate optimal governance and regulation methods to the new contracts used by China.

Some authors are especially concerned by the deregulation that China Exim bank faces when agreeing contracts with the continent (Foster, 2009) (Moss and Rose, 2006) (Brautigam, 2011), and claim for further ways to incentivize an engagement of China to institutions such as the World Trade Organization, the OECD or the IMF in order to include the Asiatic power in an international regulated framework (Moss and Rose, 2006).

Others argue that Chinese companies face the same challenges as other competitors, and their success is attributed to its competitiveness in terms of overall bidding price, access to cheap capital through Chinese state-owned banks, access to skilled low cost labor, access to cheap building materials through supply chains from China; and political support from the Chinese government channeled through Chinese Embassies and Economic and Commercial Counsels in the respective African countries (Corkin, Burke, et al., 2006). There is also evidence that Chinese quality standards are high when national quality controls proved to be strict, and low when such quality controls are poor or inexistent, reason why Corkin, Burke, et al. (2006) Brautigam (2011) also claim for a homogeneous enforcement of construction standards.

Conclusions are similar for the Latin American Scope. While both Jenkins and Peters (2009) and Javier (2007) agree that Chinese overseas investment will be useful to ﬁll the Latin American infrastructure gap, Javier (2007) emphasizes the fact that both regions share important weaknesses which span from poor governance to a fragile ﬁnancial system or a misallocation of savings. On top of that, states that “the rule of law is weak, corruption is endemic, and education is both poor and very poorly distributed”, factors which do not help absorb foreign investment.

Overall, there is clear consensus in the fact that any investment is welcomed to reach higher development rates in terms of infrastructure development both in Africa and Latin America, but that there is work to be done in terms of homogenization of governance measures to control investment among different actors (both eastern and western), as well as its potential outcomes.

While this is clear, any of these authors address directly the differences between “eastern” and “western development” speciﬁcally, with only Corkin, Burke, et al. (2006) claiming that “Despite widespread perceptions that the quality of work by the Chinese is inferior” and with the general perception that “more governance

2.1 Inﬂuence of the two paradigms to developing countries 39 Fig. 2.1: Quantiﬁcation of the Literature Review in terms of analysis of Western Policies (US) and Eastern Policies (China). Numbering is based on the order shown by 2.1. Self-prepared.

structures” should be undertaken to study resource-based contracts and its impact to the recipient society. This is specifically reflected by figure 2.1, in which the research undertaken by all the scholars from table 2.1 is represented in two dimensions. The first dimension representing the research regarding the effects of infrastructure development by western economies, and the second from eastern economies. In both, points are given depending of the research depth. If the author has only conducted an analysis/overview, the publication will reach 50 points at maximum. If the author has conducted an analysis followed by case studies, punctuation will be higher than 50 but less than 100. Also, if one publication treats both the eastern and the western policies, compunctions are given on both axis. The figure shows that there is an untapped area of research in comparing the two approaches.

It is clear, then, that further research needs to be done in this direction from the practical standpoint. Next section gives an overview of the existent literature in this regard.

2.2 Project Comparison

This section gives an overview of which are the different methods used to compare different infrastructure development projects undertaken by different actors or under distinct circumstances.

40 Chapter 2 Literature Review Again, the need to compare different alternatives or projects can happen in different stages of infrastructure, as well as it can have a technical or a social connotation. In regards of the stages, comparisons can be done during a project’s appraisal, development, execution or operation of the infrastructure. In regards of the connotation, the comparison can be done in technical terms (taking into account technical aspects related to the performance of the construction, overran costs, complexity of execution, number of stakeholders involved, etc.) or in social terms (effect of the project to the local community).

In order to conduct a comprehensive review, all the studied sources have been summarized in the table 2.2. The table speciﬁes the name of the author, as well as the topic of its research, the method used and the relevant contributions of its study. The sources cited at the table have been selected according to their citation index relevance, and while their selection could be more comprehensive, it gives a great overview of the number of scholars who have addressed project comparison during the various stages of a project. At ﬁrst sight, it becomes clear that the phases with more studies are project appraisal and project operation, with project execution and project development having been addressed by less authors. This makes sense, since public initiative has incentives to conduct the higher number of studies possible during the appraisal phase in order to do an informed choice and maximize user’s value, with development and execution phases being less relevant in this sense. Public initiative also has great incentives in studying infrastructure in its operation phase, in order to understand if used appraisal methods had been convenient.

It is also interesting to recognize that the social scope of the projects is mostly addressed by analyses taking part during operation, since it is almost impossible to predict social outcomes for a project in appraisal phase.

On the appraisal side, various methods are identiﬁed to conduct its respective analyses. All Salling and Banister (2009) Iniestra and Gutiérrez (2009) Gühnemann et al. (2012) Dias Jr and Ioannou (1996) Nosoohi and Shetab-Boushehri (2011) conduct studies with a technical connotation. The methods used span from the classical Cost-Beneﬁt Analysis (CBA) and Multicriteria Analysis (MCA) to more complex methods such as the Desirability Model (DM) or the Fuzzy Inference System.

The Cost-Beneﬁt Analysis (CBA), used by Salling and Banister (2009) and Gühne- mann et al. (2012) is a traditional method which compares the advantages and disadvantages of a project, converting the virtual impacts into monetary units such as pollutants, accidents or time savings. The virtues (pros) of a project are contrasted against its deﬁciencies (cons) leading to a set of investment criteria. Salling and Banister (2009), even go a step further on this method by adding a quantitative

2.2 Project Comparison 41 risk analysis using Monte Carlo simulations in order to apply suitable probability distribution functions to uncertain parameters.

The Multi-Criteria Analysis (MCA), or the use of multicriteria approaches for project selection in transportation infrastructure is really common in literature, with several research in the planning area. This studies normally use ranking based approaches techniques or multi-objective optimization procedures as well as different heuristic methodologies. Iniestra and Gutiérrez (2009) give special attention to interde- pendency within transportation projects evaluation (multicriteria techniques can deal with different units, however, they are not suitable to model interdependence relationships of projects sharing a same characteristic), by modelling the multi- objective transportation infrastructure selection problem (MTIPSP) as a constrained multi-objective optimization problem with quadratic objective functions. In the case of Gühnemann et al. (2012), the Multi-Criteria Analysis is combined with the Cost-Beneﬁt Analysis, retaining the strengths of the two methods and creating an initial ranking of projects which is consistent between all candidate investments and has a clear link to policy goals.

Still within the Appraisal, Dias Jr and Ioannou (1996) proposed a Desirability Model (DM) which matches speciﬁc projects with the companies that have the required capabilities, as well as the attractiveness of an infrastructure project to be actively promoted by a given company. Nosoohi and Shetab-Boushehri (2011) propose the utilization of the Fuzzy Inference System, which is an appropriate conceptual framework for ranking and selecting transportation projects.

The development and execution phase are not addressed with the same intensity as other phases in the literature. Only Ugwu et al. (2006) and Verweij and Gerrits (2015) present approaches to assess project comparison in these phases, respectively. Ugwu et al. (2006) propose a Multi-Criteria Analysis and the “additive utility model” in analytical hierarchical process (AHP) to take into account sustainability during the developing phase of transportation infrastructure projects. Verweij and Gerrits (2015), develop a study based on case studies with a further application of a multi- value Qualitative Comparative Analysis (mvQCA) to assess construction performance among various tunneling projects.

Finally, regarding operation phase most of the authors conduct technical analysis with fewer assessing the social impacts of infrastructure. From the technical side, the Case Study method is the most used among all authors, with Verweij and Gerrits (2013) conducting an extensive case study analysis, and concluding that a comparative case-based approach is the most suitable way to study the relationship between context and outcomes in projects. Its study is also combined with a Qualitative Comparative Analysis. Owens et al. (2011), also use the Case Study Method to

42 Chapter 2 Literature Review Tab. 2.2: Literature review summary for the different methods in project comparisons. Self-prepared.

Author Topic Timeline Research Method Scope Contribution Salling and Banister Assessment of large transport The introduction of risk improves Appraisal CBA - DK? Technical (2009) infrastructure projects decision-making Iniestra and Gutiérrez Multicriteria decision on transport Appraisal MCA Technical Consider explicitly all relevant criteria (2009) projects Gühnemann et al. Prioritization of a road infrastructure Inclusion of political objectives within Appraisal MCA, CBA Technical (2012) program the decision Company and project evaluation model Dias Jr and Ioannou Desirability Model for privately promoted infrastructure Appraisal Technical Matches companies and projects (1996) (DM) projects Nosoohi and Conceptual Methodology for Fuzzy Inference Shetab-Boushehri Appraisal Technical The effects of FIS in project selection Transportation Projects selection System (2011) How to take into account sustainability Ugwu et al. (2006) Sustainability in infrastructure projects Development MCA Technical in project appraisal Verweij and Gerrits Comparing construction performance in Case Studies + QCA developed in a single Execution Technical (2015) Tunneling Projects mvQCA infrastructure project. Verweij and Gerrits Comparative analysis of infrastructure Case Studies + QCA across various infrastructure Operation Technical (2013) project evaluation QCA projects. Comparative analysis of large Importance of the comparison of 2.2 Owens et al. (2011) Operation Case Studies Technical transportation projects Projects of similar dimensions.

rjc Comparison Project Interviews + MVA, Chou et al. (2012) Comparison between PPP policies Operation Technical Weights the importance of each factor. CFA Difficulty of developing a common Morisugi (2000) Transportation Project Evaluation Operation Archival Analysis Technical evaluation framework. Proper development of a Social Impact Tilt et al. (2009) Social Impacts of large dam projects Operation SIA Social Assessment. Conflict when developing infrastructure Governance methods to minimize Boudet et al. (2011) Operation Case Studies Social projects conflict. 43 highlight the importance of the comparison of projects of the similar dimensions, with the aim of their research being illustrate a new type of management approach for project managers, which takes into account cost, schedule, design, context and finance.

Along similar lines, Chou et al. (2012) compared the use of public-private partnerships (PPP) policy between high speed rail projects (HSR) and general infrastructure projects. The research data was collected through interviews and analyzed using Mean Value Analysis (MVA) and Conﬁrmatory Factor Analysis (CFA) to calculate the comparative importance and explanation power, respectively, of each of the factors taken into account. At the end, an importance analysis diagram of PPP’s critical success factors was plotted, showing the major drivers to take into account when implementing such a framework.

In more general terms, Morisugi (2000) examines the system and manuals for transportation project evaluation in Japan, highlighting the difﬁculty of developing a common evaluation framework for multi-modal applications due to the high presence of inconsistent points among the key components of the evaluation procedures especially between technical arguments (demand forecasting, value of time, environmental aspects) and social arguments (such as regional development effects).

Finally, both Tilt et al. (2009) and Boudet et al. (2011) conduct comparisons from the social perspective of the projects, using Social Impact Assessment (SIA) case studies respectively. Tilt et al. (2009) conduct a comparison of international case studies and implications for best practice in terms of the social impacts of large dam projects. The paper applies Social Impact Assessment to understand the effects of large dam projects on human communities, concluding that a remarkable assessment contributes to best practices empowering stakeholders. On a different line of study, Boudet et al. (2011) point out the importance of conflict (from the renegotiation of contract terms by project managers to popular protests among consumers of privatized services) avoidance during large infrastructure projects. Through the conduction of 26 case studies, it is concluded that country-level characteristics (such as extent of democracy and rate of international NGO membership are important elements) and local operation conditions are important drivers of conflict. The involvement of one or more international financial institutions, as well as public consultation are found to be associated with conflict too. Overall, the study findings suggest that several of these factors associated with conflict in infrastructure projects can be minimized with careful project design.

From the project comparison standpoint, it can be concluded that the most common way to address studies which comprise more than one project are case studies, usually combined with further methods such as QCA or Fuzzy Inference Systems

44 Chapter 2 Literature Review and taking into account factors such as project size or context when picking them for comparison.

Overall, literature shows that both Latin America and Africa should welcome further overseas investment, but that new governance structures should be envisioned to help recipients manage and optimize the different types of contracts proposed. Also according to literature, any study intending to assess projects performance on an operational phase should use a Case Study Method, taking into account factors such as project size or context when picking the projects to compare.

2.3 The Case Study Method

Case studies are widely used in social sciences (psychology, sociology, political science, anthropology, history and economics) as well as for practice oriented ﬁelds such as urban planning, public policy, public administration, management science, social work and education.

According to Yin (2003), a Case Study is “an empirical inquiry that investigates contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. The Case Study Method is one of the various qualitative research methods of social sciences. To put it in context, each strategy has peculiar advantages and disadvantages, depending on three conditions: The type of research question, the control an investigator has over actual behavioral events and the focus on contemporary as opposed to historical phenomena (Yin, 2003).

Other qualitative research strategies are the Experiment, the Survey, the Archival Analysis or the History, some of them being used by different authors and already mentioned at the previous section. Table 2.3 summarizes these strategies, showing the suitability of each depending on the research question and its context. While some of the research questions are explanatory (i.e. what can be learned from an event), some others follow a line of inquiry, ﬁguring out which are the outcomes of a certain situation.

Experiments are largely used in sciences to recreate situations that can explain certain events, but the technique is certainly not applicable for the research purpose of this study, since infrastructure projects are not replicable. A survey tends to analyze the opinions of the different stakeholders involved in an event, but is shown insufﬁcient to extract conclusions from complex projects when conducted alone. Archival Analysis are advantageous when the research goal is to describe the incidence or prevalence of a phenomenon or when it is to be predictive about certain

2.3 The Case Study Method 45 Tab. 2.3: Relevant situations for different research strategies. Adapted from Yin (2003).

Requires control Focuses on Form of research of behavioral contemporary question events? events? Experiment How, why? X X Who, what, where, Survey how many, how X much? Who, what, where, Archival how many, how Analysis X much? History How, why? Case Study How, why? X

outcomes. Histories use to be the preferred strategy when there is virtually no access or control, normally dealing with the past and when the investigator have to rely solely on primary documents, secondary documents and other cultural artifacts as main sources of evidence. According to Yin (2003), “histories can, of course, be done about contemporary events; in this situation; the strategy begins to overlap with that of the case study”.

Case Study is most largely used to study contemporary events in which relevant behaviors and main outcomes cannot be manipulated, relying on similar techniques as the History (such as access to primary documents, secondary documents and any other sources of evidence) but also adding two sources of evidence not included in the former: direct observation of the events and interviews of the persons being involved in them. Indeed, Case Study main strength is its ability to deal with a full variety of evidence-documents, artifacts, interviews and observations- beyond what might be available in a conventional historical study.

In fact, Case study proved to be the most popular way to assess comparisons between different transportation infrastructure projects among all researchers consulted in the literature review for a good reason. It is not only a technique through which different resources can be combined, but also which allows different types of Case Studies.

From a design perspective, Yin (2003) proposes four basic types of designs for Case Studies which are shown in the figure 2.2, based on a 2 × 2 matrix. It is first shown that for every type of design both the Context and the Case will be discussed. The discontinuous line separating them proves that there is no defined frontier between these, and the boundaries between the case and the context are not likely to be strict. Single case and multiple designs show that there exist different possibilities (conduct just one case study or conducting more than one case study), and even within this possibilities one or various unit of analysis can be studied.

46 Chapter 2 Literature Review Fig. 2.2: Different types of case study design. Adapted from Yin (2003).

This structure leads to the four types of design which are single-case (holistic) designs, single-case (embedded) designs, multiple-case (holistic) designs and multiple-case (embedded) designs.

Again referring to Yin (2003), it is important to have a clear idea about the research structure to be followed before starting data collection. Single-case study, analogous to a single experiment, should be used when it represents a critical case testing a well-formulated theory. The theory should have proposed a set of hypotheses and propositions to be proved by the case, and the single-case is used to determine whether the theory’s propositions are correct or not. A single-case could also be used when it represents an extreme or unique case, in order to capture the outcomes of this speciﬁc situation or as a typical case too, for the same reason.

In an embedded case study, the same case study involves more than one unit of analysis, which means that there are different hypotheses or outcomes to be tested. This can be done in a single case study, or among various cases in order to cross- compare data. In complex situations, embedded multiple-case designs are likely to be used, since they allow to test various parameters across cases for further comparison and analysis. The usage of those, however, poses further questions such

2.3 The Case Study Method 47 Fig. 2.3: The Case Study Method structure.Adapted from Yin (2003).

as which should be the cases to be picked and which the parameters to be observed. In general, the whole procedure of the Case Study Method is shown by ﬁgure 2.3.

Any case writer would start by developing the theory that needs to be proved or tested. The second step comprises the case selection as well as the design of the data collection protocol. Once these are defined, the conduction of case studies can take place. The number of case studies can vary between one and various, depending on the structural lead defining the study. Ideally, individual case reports should be written after every case study, analyzing the defined analysis units. Finally, those reports should allow the scholar to draw cross-case conclusions which have an influence to the theory previously developed, and which help to write cross-case reports which will comprise the whole study.

Not surprisingly, the most relevant item of the whole method structure is case selection. In fact, depending on how cases are selected, outcomes can greatly vary. Gerring (2006), gives an excellent overview on this regard, showing that if the sample of cases is big enough (n > 1000), case selection is usually handled by some version of randomization. In that case, the selected cases are likely to be representative of the overall population on any given variable.

When samples are not that big, Gerring (2006) presents and array of techniques to case selection. All of those, however, assume that if cases are numerically rated, techniques would consist on picking a “typical” case (a case which value is close to the mean of the whole sample), a “diverse” case (when its value is different to the mean value), or an “influential” case (a case with influential configurations of the independent variables), among others. The complete list of techniques presented is: Typical, diverse, extreme, deviant, influential, crucial, pathway, most-similar and most-different. Nevertheless, this cannot be fully applied to infrastructure projects case studies, since every project is unique in its sense and rating them through numeric values could be both complex and inaccurate.

48 Chapter 2 Literature Review Curtis et al. (2000), precisely, focus on the question of sampling in qualitative research, stating that any qualitative research should meet certain sampling requirements. Based on Miles and Huberman (1994), Curtis et al. (2000) propose that sampling strategies can be evaluated in terms of six different “attributes” which can be summarized as follows:

1. The sampling strategy should be relevant to the conceptual framework and the research questions addressed by the research. Meaning that the character of the chosen cases could potentially divert the main research question.

2. The sample should be likely to generate rich information on the type of phenomena which needs to be studied.The selected cases should be able to provide relevant information on the theory to be proved.

3. The sample should enhance the “generalizability” of the ﬁndings.The cases should have been selected wisely enough to extrapolate its results.

4. The sample should produce believable descriptions/explanations.In the sense that sources of information or samples should not be biased, and provide a close vision to reality.

5. Is the sample strategy ethical?In terms of the ethical nature of the relationship between the researcher and the informants.

6. Is the sampling plan feasible?In terms of resource costs of money and time as well as practical accessibility issues.

Furthermore, Curtis et al. (2000) develop a set of criteria which summarizes the previous attributes in a table in which the selected cases should be compared, according to: Sampling parameters, relevance to conceptual framework, potential to generate rich information, analytic generalizability, potential to generate believable explanations, ethics and feasibility.

Overall, it is largely shown that case selection should be aligned with research objectives and that the comparison technique should allow to write cross-case conclusions (Curtis et al., 2000), (Gerring, 2006) (Seawright and Gerring, 2008).

2.3 The Case Study Method 49 2.4 Set of Hypotheses

After the completion of the introduction and the literature review, as well as after the discussion with different scholars and professionals1 (Stanford, 2016) on regards to this topic, the following hypotheses are set :

H.1 Governance Structure and Project Cycle

a) Eastern paradigm decision process is faster: Projects are ﬁnanced faster and delivered faster.

b) Western paradigm decision process is slower: Its projects experience bureaucratic drag.

H.2 Social and Environmental Safeguards

a) Western paradigm projects follow more strict and comprehensive environmental standards.

b) The differences on environmental and social standards compliance are highlighted when borrower country´s standards are low

H.3 Investment Portfolio

a) Eastern paradigm projects seem to be bigger and more focused in riskier countries than eastern paradigm projects

H.4 Construction Quality and longevity

a) Western paradigm projects seem to have fewer quality issues post construction

These research hypotheses are therefore congruent with current scholarly and media opinion that eastern paradigm projects are ﬁnanced and delivered faster, while western paradigm projects are more bureaucratically tedious with delays caused by stringent social and environmental safeguards, layered and slower decision-making process, as well as a general lack of coordination between approval authorities and stakeholders. However, western paradigm projects are believed to have far fewer quality issues or negative externalities post-construction.

1A roundtable featuring relevant scholars and professionals from various prestigious academic, private and multilateral institutions was held by the Stanford Center on Democracy, Development and Rule of Law and the Stanford Global Projects Center at Stanford University in April 2016. The objective was to discuss about the comparison of eastern and western paradigms in Infrastructure development in developing countries

50 Chapter 2 Literature Review Methodology 3

Improvement makes straight roads: but the „crooked roads without Improvement are roads of Genius.

— William Blake (Poet)

This section gives an overview of the methodology followed to answer the document’s research question. After conducting a Literature Review, a set of hypotheses regarding eastern and western paradigms in infrastructure development arose. These hypotheses are tested twice. First, through an archival analysis which compare the World Bank and the China Policy Banks policies in three dimensions (Governance Structure and Decision Process, Social and Environmental Appraisal and Overview of Investment Projects - Investment portfolio). Second, the hypotheses are tested through a Case Study to see if they also translate into project execution. Finally, a set of conclusions is drawn.

In other words, the methodology presented is aligned with the tendencies identiﬁed in the Literature Review2. It starts with an analysis of the current situation (i.e. which factors could derive to certain outcomes – theory development) and then continues with a Case Study which intends to test the research question within available data. A graphic description of the methodology is shown by ﬁgure 3.1:

3.1 Analysis

The function of the Analysis section is to develop the Theory which will be later tested through the Case Studies. The two main agents of analysis, as explained in the introduction are the World Bank Group and the China Development Bank as main drivers of multilateral investment in emerging markets by both the Western and the Eastern paradigms. Within those, table 3.1 shows the different units of analysis and which hypotheses contribute to validate.

51 Literature Review 2

Hypotheses 2.4

Analysis 4

Governance Struc- Social and Environ- Overview of Invest- ture and Deci- mental Appraisal H.2 ment Projects H.3 sion Process H.1

Contrast Hypotheses

Case Study 5

Social and Environ- Project Cycle and Construction Quality mental Safeguards H.2 Decision Process H.1 and LongevityH.4

Contrast Hypotheses

Conclusions 6

Fig. 3.1: Methodology ﬂow diagram. Self-prepared.

Tab. 3.1: Structure of the Analysis section4 and contribution to hypotheses. Self-prepared.

Embedded Unit of Analysis Hypotheses tested

Governance Structure and Project Cycle H.1 Social and Environmental Safeguards H.2a Investment Portfolio H.3

52 Chapter 3 Methodology Fig. 3.2: Followed methodology to conduct the Case Study5. Self-prepared.

Tab. 3.2: Data sources for Eastern and Western Project Development. Self-prepared.

Paradigm Database Institution Data Series

World Bank Western Project The World Bank 1945 − 2016 Database Eastern Aid Data College of William & Mary 1945 − 2016 China The American Enterprise Eastern Investment Institute / The Heritage 2005 − 2016 Tracker Foundation

3.2 Case Study

The Case Study tests the theory developed in the Analysis section. The two main challenges are the case selection and the selection of the units of analysis. The case selection is represented in detail by ﬁgure 3.2 and is composed by the research of projects, project pre-listing, project selection and project comparison (the case study itself). The selection of the unit of analysis is given by the research question.

Indeed, the different parts of the methodology for the conduction of the case study present different challenges, which span from project research to project comparison, passing by project pre-listing using a ﬁltering criteria and project selection through a selection criteria. Ultimately, once a list of potential projects to compare is drafted, access to secondary data will determine the ﬁnal projects to be compared. First and foremost, a solid database is needed in order to look for potential projects to compare. In the case of this study, the different databases consulted are presented in table 3.2

From the western side, the World Bank offers a comprehensive and transparent database of all the projects supported by the institution from its conception back in 1947. By an advanced search, the portal allows to ﬁlter the search by project status, region, sector, product line, lending instrument, themes, goals or environmental category.

On the other hand, obtaining data on Chinese development finance is a major challenge, because official data on the amount of Chinese aid does not exist, and collecting data is difficult due to the often-blurred boundary between investment and

3.2 Case Study 53 Tab. 3.3: Different sets of criteria in project selection. Self-prepared.

Project size Operation time Project Sector Geography

> $500 M > 5 years Transportation Developing Countries

aid, resulting from China’s involvement in large-scale investment projects (which is going to be seen in the analysis chapter). Nevertheless, numerous institutions such as the Financial Times research, the College of William & Mary or the American Enterprise institute have made efforts in collecting Chinese investment data. Some of these sources are disclosed (such as the Financial Times Research), while others are open such as the China Global Investment Tracker or the AidData –Open Data for International Development.

The Aid Data objective is to track Chinese Development Finance to Africa, and its database contains 9684 projects which can be ﬁltered in terms of commitment year, ﬂow type, grace period, status or sector from 1945. On the other hand, the American Enterprise Institute was inaugurated in 2005 and includes 1750 large transactions across energy, real estate, high tech and other industries. The full list of transactions includes the amount, the parent investor, the host country and the sector.

By the combination of these three comprehensive datasets, it is possible to conﬁgure a potential list of transportation infrastructure projects undertaken by the two parties. However, due to the nature of this research project, certain criteria are applied in order to select the potential projects to be compared. These Criteria are speciﬁed as follows.

3.2.1 Criteria in Project Selection

The different sets of criteria applied to the project selection are presented by the table 3.3. These criteria are aligned with the research objective, according to what has been stated in the Literature Review in terms of case selection.

These criteria, respond to the major variables deﬁning an infrastructure project: Its size (the size of the investment), operation time (time that the infrastructure have been operative after its inauguration), sector (whether it is telecommunications, power or transportation) and the geography in where the project have taken place.

Project size is one of the main drivers (if not the main) of a project relevance and complexity. In order to extract relevant conclusions, size has to be signiﬁcant enough to produce a certain impact to the region where it is constructed, in terms of stakeholder involvement and community engagement. Along these lines, the Federal

54 Chapter 3 Methodology Highway Administration deﬁnes Major Projects as projects that are over $500 million in cost, being therefore this amount the downstream constraint to ﬁlter projects.

Operation time is deﬁned as the time period elapsed from the inauguration of the infrastructure to the current date, or in other words, the period of time during which the infrastructure has been fully operative in the delivery of the service for which it has been designed. In order to test the hypotheses set in the analysis, the operation time to be studied has been chosen to be greater than 5 years, since this is the amount of time after which it is possible to evaluate whether a certain infrastructure is delivering the service for which it was designed in an efﬁcient manner.

In terms of the project sector, infrastructure assets can be divided into Transportation, Energy and Utilities, Communications and Social Infrastructure (Morgan Stanley: Andrews and Wahba, 2007). While all of them fall into the category of infrastructure, there exist certain differences from one to another in terms of regulations and market nature, and is therefore more convenient to select one speciﬁc sector to conduct case studies across, especially when it comes to comparatively analyze. This research focuses on transportation, which comprises toll roads/tunnels/bridges, airports, ports, railways and mass transit networks and municipal parking facilities.

Finally, geography is the last set of criteria applied to project selection, and in this case is inherent to the nature of this research, since multilateral infrastructure development projects use to take place in Emerging Markets or development economies. An Emerging Market is a country that has some characteristics of a developed market, but does not meet standards to be a developed market (MSCI, 2014).

The full list (6) of projects considered after applying the ﬁltering criteria can be seen in the appendix (6)

3.2.2 Criteria in Project Comparison

Once all the projects have been selected, the comparison criteria needs to be set. As it is shown in the Literature Review, there can exist different ways to undertake a comparison between two different infrastructure development strategies (Estern - Western).

One strategy, shown by ﬁgure 3.3 corresponds to conduct several case studies independently on both sides. After these case studies, conclusions are stated for each side before writing cross-case conclusions by comparing the ﬁnal conclusions from one side to the other.

3.2 Case Study 55 Fig. 3.3: Final conclusion comparison methodology. Self-prepared.

Fig. 3.4: Individual cross-case comparisons. Self-prepared.

This strategy can be especially relevant for Case Study comparisons in the Infras- tructure sector, since it avoids direct comparisons which can be challenging. Every infrastructure project is different by nature, and is thus difficult to find an exact comparable project. By conducting various case studies and then drawing multiple conclusions, the particularities of every case are diluted and the case selection becomes less relevant as the sample of studied cases grows. This also allows the researcher to avoid singular scenarios (i.e. worst practice/best practice) to affect the final result. On the other hand, this strategy requires a large number of cases to be studied, as well as a sampling strategy which overall aligns the cases compared by the two sides.

The main disadvantage of the ﬁnal conclusion comparison is therefore the need to conduct a great number of case studies by each side, in order not to generalize particular trends. Another approach, which needs less case studies to be conducted, consist in conducting individual cross-case comparisons, as shown by ﬁgure 3.4.

In this case, a solid strategy on how to compare individual cases needs to be set in a consistent and comprehensive manner. Since each project is different by nature, it is impossible to ﬁnd another project which can be completely comparable. Nevertheless, this approach might be convenient when few cases are available or when certain hypotheses need to be tested, which is the case of this research. Therefore, the

56 Chapter 3 Methodology Tab. 3.4: Ranges for the different variables considered for project classiﬁcation. Self- prepared.

Category Geography Size[$ M] Sector

1 1 − 47 500 − 1500 Airports 2 48 − 95 1500 − 2500 Ports 3 96 − 143 2500 − 5000 Rail 4 144 − 189 > 5000 Roads / Bridges

challenge lies on ﬁnding the right projects to be compared. These projects will be selected from the aforementioned list (6).

Different strategies in project evaluation can be set to assess project uniqueness. The strategy proposed consists on classifying the different projects available from the two paradigms in certain ranges, with the potential pairs of projects to be compared being those situated in the same range across different categories. A summary of all the ranges and categories is shown by table 3.4

The number of categories have been defined in concordance with the total number of cases obtained from each sample after classification. Either too many or too less categories would leave the tool inefficient in its own purpose: filter potential projects which are similar enough to be compared.

In terms of sector, the methodology distinguishes the different categories of infrastructure within transportation, namely: airports, ports, rail and roads/bridges, all of them represented by one category. In regards to size, segments are smaller for reduced amounts and a slightly larger for greater amounts. This is due to the higher number of projects on the low end in comparison to the high end.

In what concerns to Geography, each category represents the Ease of Doing Business Ranking of the geographical location of the project. Instead of strict geographical location, ease of doing business index is found to be a more comprehensive and legit measure of the contextual challenges of developing a project in a certain region. As already explained, index classiﬁcation is found to be the more legit way to measure how does project development compares along different geographic locations.

Once all the projects are categorized, a coupling process starts and the projects to be compared are chosen depending on secondary data accessibility, as shown by ﬁgure 3.2. The coupling process has been conducted through a completely trivial VBA code (6) and which pairs those projects belonging to the same range across all three categories.

3.2 Case Study 57 Tab. 3.5: Selected case characteristics in comparison with selection criteria. Self-prepared.

Section Project Size Operation Time Sector Geography

Developing Criteria > $500M > 5 years Transportation Countries Highway $1.1B 0.5 years Transportation Jamaica 2000 Phase 1 - $390M X 10 years Western X Phase 2 - $720M 0.5 yearsX Eastern X

3.2.3 Case selection and composition

Given the methodology applied and the context of study, the most appropriated way to conduct the case study is by the Mutiple Case Studies with embedded unit of analysis composition, as shown by ﬁgure 2.2.

The chosen case is the “Highway 2000 project”, a 230 km Greenfield highway project which took place in Jamaica. In fact, this project does just appear in the Eastern List (6.2) under the name of “North South Link” which refers to Phase 2. After researching the data available, it was discovered that the First part was developed through the Western Paradigm. Indeed, and even though Phase 1 did not meet the filtering criteria size, it was still a really large project with plenty of secondary data accessible. In addition, the fact that both paradigms were developed on the same project on different phases (Jamaica Highway 2000 Phases 1 and 2, respectively) -therefore setting variables unchanged across comparisons, such as economic, political or social context- make this Case Study unique across all the others examples on the list and definitely worth comparing.

Indeed, the Highway 2000 project was divided in two phases. Phase one, developed by western players and phase two developed by eastern players. This is a really exceptional situation, and makes this project a perfect one to compare – contextual situation remains the exact same, and both phases have been completed within the same period and under the same regulations.

Table 3.5 summarizes the selected case characteristics, contrasting them with the selection criteria. The exceptional characteristics of the project and its potential for comparison have been at the expense of the operation time constraint. The biggest part of phase 1 was completed during 2006, however phase 2 was completed in January 2016, with its ﬁrst phase being in operation since 2012. This sets a limitation in terms of assessing construction quality and longevity.

58 Chapter 3 Methodology Tab. 3.6: Case Study structure and contribution to hypotheses. Self-prepared.

Embedded Unit of Analysis Hypotheses tested

Stakeholder structure, funding formula H.1a and project timeline Social and Environmental Safeguards H.2 Further incidences H.4

Tab. 3.7: Number of projects available at each database. Self-prepared.

Paradigm Database Total Projects Projects after ﬁltering

World Bank Project Western 16921 62 Database China Investment Tracker and some Eastern 900 126 additional cases from Aid Data

Finally, the different embedded units of analysis to be tested during the Case Study are shown by 3.6, and are aligned with the previously set hypotheses.

In order to test if eastern financing and execution is faster, one unit of Analysis will study Stakeholder Structure, funding formula and general project timeline. Accord- ing to literature, it should be expected the first phase to have a more complicated stakeholder structure, a more complex financing formula and an extended project timeline. On the other hand, it is expected the western project to have higher environmental and social standards, with less social concerns raised and a more comprehensive environmental plan. This will configure the second unit of analysis. A third unit of analysis could comprise quality of the works and longevity, however construction time and secondary data are not enough to cover this unit of analysis, setting a limitation. Nevertheless, concerns about quality of the works have been included within the social and environmental safeguards analysis, since it could be argued that a lower execution quality also implies a higher environmental impact.

3.2.4 Data Sources

Source of Projects

Tables 3.7 and 3.8 summarize and give further details about the data sources from where the projects have been selected. A ﬁnal list (6) after application the ﬁltering criteria (3.3) is shown in the appendix (6).

Analysis and Case study

3.2 Case Study 59 Tab. 3.8: Number of projects in each rang [Total (Western / Eastern)]. Self-prepared.

Category Geography Size[$ M] Sector 1 20(2/18) 118(57/61) 10(1/9) 2 68(38/30) 25(4/21) 34(3/31) 3 50(17/33) 19(1/18) 62(9/53) 4 50(5/45) 26(0/26) 82(49/33) Total 188 (62/126) 188 (62/126) 188 (62/126)

The analysis and the case study have been done through secondary data, mostly available online either in publications from other researchers or in public webpages such as the China Policy Banks, The World Bank, the Chinese Ministry of Commerce or the various stakeholders involved in the construction project. All the sources are properly cited along both sections.

60 Chapter 3 Methodology Analysis 4

Research is to see what everybody else has seen, „and to think what nobody else has thought.

— Dr. Albert Szent-Gyorgyi Physiologist, Nobel Prize winner

This chapter focuses on the analysis between Western and Chinese infrastructure development strategies schemes by ﬁrst comparing their two main institutions (the World Bank and the Chinese Development Bank) in terms of governance structure, decision processes, environmental and social policies and investments overview.

Secondly, one case study is conducted in order to contrast the conclusions drawn from the ﬁrst analysis.

4.1 Governance Structure and Decision Process

4.1.1 The World Bank

The World Bank Group is the most well-known agency in the development scene. Its ﬁrst institution, the International Bank for Reconstruction and International Development was originally founded in 1945 after the Second World War, in parallel with the International Monetary Fund. Its main goal was to strengthen the power of the corporate sector in Western Europe because of its delicate moment. The Bank focused on making loans to governments in order to rebuild railroads, highways, bridges, ports and other infrastructure. In 1960, the International Finance Corporation (IFC) was founded, providing loans without interest to the recipient countries. The International Centre for Settlement of Investment Disputes (ICSID) was founded in 1965 and works with various governments in order to lower the risk regarding the investment. Finally, the Multilateral Investment Guarantee Agency (MIGA) was founded in 1988 offering services to the private industries in order to provide safety against risks, including political-based ones. The schema above shows the distribution of the World Bank Group and the different institutions.

61 Fig. 4.1: The World Bank Group Governance structure. Self-Prepared

In fact, membership to The World Bank Group is conditioned to the Membership of IMF, and the membership to IBRD is conditioned to the membership to all the other institutions. In terms of loan providing, they work as a comprehensive group and during any loan-lending each of the institutions play a role which can slow down the funding process.

More concretely, each of the organizations has a speciﬁc mission within the bank. IBRD lends to low-and middle-income countries, IDA lends to low-income countries, IFC lends to private sector, MIGA encourages private companies to invest in foreign countries and ICSID helps private investors and foreign countries work out differences when they don’t agree (World Bank).

In addition, the Group offers 6 different types of financing instruments: Investment Project Financing, Development Policy Financing, Program-for-Results, Trust funds and grants, Private sector options and Customized options and risk management. The first two programs provide IBRD loans and IDA credits or grants to guarantee financing. Private sector options are supported by MIGA and IFC.

In terms of operations, according to World Bank, a project begins when a country identiﬁes a need, develops a plan and asks the Bank for a loan. At that point, experts from both the borrowing country and the Bank study the plan carefully. Bank experts assess the impact of the project on country’s economy, environment and future development, as well as further funding sources. Once the bank experts have ﬁnished their assessment, negotiations with the borrowing country take place on

62 Chapter 4 Analysis Fig. 4.2: The World Bank’s decision process. Self-prepared based on Session (2008)) and World Bank. how to implement the strategy. Once an agreement is reached, and the loans are approved, work can begin.

Decision process can be slow, however. As World Bank points out, "the Bank is run like a giant cooperative where its members are shareholders and is operated for the benefit of those using its services. These shareholders are represented by the Board of Governors -usually country ministers- who are the ultimate policymakers and meet once a year at the Bank’s Annual Meetings. In these meetings, all of the Bank’s and IMF governors decide strategic goals and allocation of resources for next year. Since the governors meet once a year, they give specific duties to their Executive Directors, who work on-site at the Bank. The five largest shareholders (France, Germany, Japan, the United Kingdom and the United States) appoint an executive director each, while other member countries are represented by 19 Executive Directors. The Bank’s 24 Executive Directors oversee the Bank’s business, including approving loans and guarantees, new policies, the administrative budget, country assistance strategies, and borrowing and financial decisions."

Speciﬁcally, and according to the World Bank the decision process for a project completion is conducted together by the World Bank and the Borrowing country, and the project cycle is usually long according to commercial standards, lasting over four years from the time it is identiﬁed until it is completed. Figure 4.2 describes the process graphically, in concordance to World Bank and World Bank. In fact, the bank

4.1 Governance Structure and Decision Process 63 uses a framework known as “Project Cycle”, which identiﬁes seven stages along a project timeline. Even before the identiﬁcation, there is an on-going phase known as “Pre-Pipeline” in which the Bank undertakes a number of studies of development issues, commonly referred as Economic Sector Work and used to understand current challenges of the borrower. Key documents in this phase include Poverty Reduction Strategies (PRSPs), Country Assistance Strategies (CAS) and Sector Strategies.

Based on the Economic Sector Work, the Identification phase (Need identification) aims to identify projects that support country’s development goals and is conducted jointly by the borrower country and the Bank. It lasts approximately 1.5 years and comprises pre-feasibility and feasibility studies as well as Identification Mis- sions, which detail key principles and conditions of a project and include technical documents such as the Monthly Operational Summary (MOS) and the Project Identifi- cation document (PID). Once the need is identified, the borrower country formalizes a loan request before entering to the preparation process, which takes place in parallel to the appraisal process by the Bank. During the preparation phase, the borrower country conducts further studies and impact assessments that refine the objectives of the project, while the bank assesses the request in its appraisal phase. Appraisal is sole responsibility of Bank staff, and further evaluates all the produced documents up to date as well as conducts an “appraisal mission” after which a Project Appraisal Document is produced.

When further assessment by the two parties has concluded, a negotiation period of 1 to 2 months takes place. During negotiation, the borrowing country accepts the loan terms and the loan request is send for approval to the Board of Directors. A General Procurement Notice (GPN) is usually issued by the borrowing country at that stage.

Once the loan is approved, the borrowing country is fully responsible for the project implementation, while the Bank’s role at this stage is to monitor and ensure that the loan/credit terms are followed and that procurement is conducted according to the World Bank’s Guidelines.

Finally, at the end of the project an independent evaluation group conducts an audit of the project by analyzing its performance in terms of goal accomplishment in relation to the Economic Sector Work produced. Audit’s reports are then submitted to the executive directors as well as to the borrowers. Since its opening, the Group’s commitments to development projects have steadily increased over years, accounting for $43B on year 2015 and reaching its maximum with $59B on year 2010 (World Bank).

64 Chapter 4 Analysis Tab. 4.1: Board approval procedures of projects. Adapted from Session (2008).

Procedure Project Size

Delegation to Management < $5M >10% of country’s 3 year lending program / Standard Procedure >30% of the current year lending program Streamlined Procedure Other

In terms of loan approval, according to Session (2008) there exist three different types of board approval procedures depending on the project size, shown in table 4.1

Projects supposing loans with less than $5M do not need to be approved by the Board, who has delegated authority to regional management. Projects with a cost of more than 10 percent of the country program in the approved three year lending allocation or 30 percent of the current year lending program are discussed and approved at a Board of Directors meeting. Lending programs are discussed by the Board of Governors once a year. If a loan or a grant does not qualify for the standard procedure, it is placed on the agenda of the board and approved automatically unless an Executive Director requests its discussion.

4.1.2 China Policy Banks

The Banking system in China used to be fully controlled by the People’s Bank of China (PBC), which is the central bank, and used to be the only entity authorized to conduct operations in the country. In the early 80s, already thinking about the role of China in the new globalized economy, the government allowed four state owned specialized banks to enter the market: Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China BOC) and Agricultural Bank of China (ABC), opening up the banking system.

Three more banks were stablished in 1994 to take over the government-directed spending functions, in alignment with Chinese international ambitions, each of those dedicated to a specific purpose. These Policy Banks include the China Development Bank (CDB), responsible for infrastructure financing, the Export-Import Bank of China, responsible for trade financing and the Agricultural Development Bank of China (ADBC) which provides funds for agricultural development projects in rural areas. All these banks used to operate at a domestic level before the irruption of the Chinese “go–out” policy China’s Going Out Policy - Official Press release at the begging of years 2000. It is therefore important to focus the analysis on CDB and Chin Export-Import Bank since these are the entities directly responsible for infrastructure

4.1 Governance Structure and Decision Process 65 Fig. 4.3: Position of China Policy Banks within Chinese governance structure. Self-prepared based on Earth U.S. (2016).

funding and ﬁnancing, often viewed as the Chinese World Bank by occident (New York Times, 2015)

In earlier days Policy Banks were accountable directly to the State Council, but today it is regulated by the China Banking Regulatory Commission and People’s Bank of China, which also have authority for the rest of the banking system. Both the China Banking Regulatory Commission and the People’s Bank of China depend directly on the State Council, which is China’s highest government authority. Other important bodies for overseas investments are the National Development and Reform Commission (NDRC), which is responsible for the administration and planning of the Chinese economy, the Ministry of Commerce (MOFCOM), responsible for formulating strategies for developing domestic and foreign trade and the Ministry of Environmental Protection which supervises and oversees environmental quality issues on a national and local level. The detailed position of the Policy Banks within Chinese governance structure is shown by ﬁgure 4.3.

The China Development Bank was created by the State Council in 1994 to provide ﬁnancing for domestic development, and its current stakeholders are the Ministry of Finance - owning 50.18 percent of shares, Central Huijin Investment Ltd -47.63 percent- (which is a Chinese investment company owned by the government of the People’s Republic of China) and the National Council for Social Security Fund -2.19 percent- (Earth U.S., 2016). As shown by ﬁgure 4.4, the Bank is governed by the General Shareholder’s meeting, which appoints the board of supervisors and the board of directors, from which the Governor of the Bank is the main responsible. The Board of directors manages the different departments of the Bank, such as Policy Research, Business Development, Financial Research, Investment Banking or Project Appraisal among others.

Traditionally, China Development Bank focused on domestic projects. By the end of 2005, less than 4 percent of its outstanding loans went to foreign development projects (McGregor and Yeh, 2006), however with its solid balance sheet, devel-

66 Chapter 4 Analysis Fig. 4.4: Governance structure of the China Development Bank. Self-prepared based on Earth U.S. (2016)

Fig. 4.5: China Export-Import Bank Governance Structure. Adapted from China Export- Import Bank

opment experience and ability to secure low-cost finance, it has become a major financer of global development supporting China’s “Going Out” Policy , and as already shown in figure 1.4 in 2009 and jointly with China Exim Bank they already borrowed more to developing countries than the World Bank, investing heavily in urbanization, railroad, infrastructure, agriculture and energy.

The China Export Import Bank was also created by the State Council in 1994, and facilitates the export and import of Chinese machinery, electronics and equipment by assisting Chinese companies mainly in offshore project contracting and outbound investment (Earth U.S., 2016). One of the main drivers of Chinese exports is transportation infrastructure, and aligned with the “One Silk one Road” Policy, the China Exim bank has also participated in several projects of this kind. The Bank’s governance is shown in ﬁgure 4.5.

The Bank is led by the President, who is directly supervised by the Board of Directors and the Board of Supervisors. Head office departments, representative offices as well as different business branches which are directly accountable to the Chairman. Head office departments comprise all the different departments of a commercial bank (auditing, risk management, legal affairs), business branches refer to the different Chinese branches and representative offices are the four international offices of the bank covering different regions.

4.1 Governance Structure and Decision Process 67 Fig. 4.6: Project Cycle of China Policy Banks. Self-prepared with data from Davies et al. (2008), Kobayashi (2008), Cabria (2013)

Project cycle of China Policy Banks and its loan decision process, based on Davies et al. (2008), Kobayashi (2008), Cabria (2013), is represented by figure 4.6. In the normal procedure, the borrowing country prepares a list of candidate projects susceptible to be financed based on the identified needs after developing its National Strategy. In order to formalize the loan application, the list must be accompanied by (1) a written loan application, (2) an approval by the government, (3) an statement of position issued by the Economic and Commercial Section of the Embassy of PRC in the borrowing country, (4) a feasibility study of the project, (5) commercial agreements between Chinese companies and local companies involved on the project, (6) information of the economic, social and political context of the borrowing country, (7) profiles of all the companies –especially Chinese- and further documentation taking part on the project. Also, the main company undertaking the project must be Chinese.

Once the borrowing country has formalized the loan request, both the China Ministry of Commerce and the China Exim Bank conduct an assessment of the project. In particular, the Ministry of Commerce chooses a project of the list, and the China Exim Bank conducts an appraisal of it and then reports back to the Ministry of Commerce, which is the competent authority within Chinese government. Ministry of Commerce gives an answer regarding its decision within 20 working days if the project size is below $100M (and thus does not need authorization from any other state entity). Aspects such as the objective and necessity, economic and social

68 Chapter 4 Analysis Tab. 4.2: Approval procedures depending on project size. Self-prepared with data from China Ministry of Commerce, Policy on Overseas Investments and McGinty and Wang (2015).

Procedure Project Size Responsible Agency

Approval > $2B State Council and NDRC Approval > $1B NDRC Record Filling > $300M Central NDRC Record Filling > $100M Provincial NDRC

impacts, macroeconomic conditions, implementation capacity or past performance of the Chinese contractor are taken into account when conducting the appraisal.

After the approval of the Ministry of Commerce, the loan agreement is signed between the borrowing country and the lending Chinese Policy Bank (either China Exim or CDB), and the conditions such as interest rates or repayment period are determined by the Chinese Government and not disclosed. The borrowing country is the only responsible for the implementation of the project (borrower capability of project implementation has already been assessed during appraisal phase), with the Chinese side monitoring the project and offering advice if necessary. Once the project is completed, the borrower must pay interest and fees, as well as repay the principal according to the signed agreement. After the project completion, an evaluation is completed to assess project success and implementation performance.

Loan approval itself is done in regards to two dimensions: Project size and project sensitivity. Decision making process in terms of project size is shown by table 4.2. If project size is less than $ 100M, the Ministry of Commerce and the China Exim Bank have the authority to approve it without further authorization. If project size is bigger than $100M, the project has to be ﬁlled in the records of the provincial National Development and Reform Commission (to which the Chinese executing company belong), and if the size is bigger than $300M, records have to be ﬁlled at the central level of the National Development and Reform Commission, however its authorization is still made by the Bank itself.

Projects bigger than $1B need the approval of the National Development and Reform Commission, and loans exceeding the $2B need to be authorized both by the State Council and by the National Development and Reform Commission. In terms of project sensitivity, the Chinese Government deﬁnes sensitive countries and regions as “countries with no diplomatic relations with China, countries subject to international sanctions, countries and regions affected by wars, civil strife, and so forth” (McGinty and Wang, 2015). Table 4.3 shows the different approval procedures to which a loan request might be subject to depending on its sensibility level.

4.1 Governance Structure and Decision Process 69 Tab. 4.3: Approval procedures depending on project sensitivity. Self-prepared with data from China Ministry of Commerce, Policy on Overseas Investments and McGinty and Wang (2015).

Procedure Sensitiveness Responsible Agency

Approval Sensitive MOFCOM Record Filling Non-Sensitive MOFCOM

In fact, for non-sensitive countries it is just required to register the project at the Ministry of Commerce. In the case of sensitive countries, the project needs further approval by the same Ministry. In terms of project cycle and time line for projects approval, the only data disclosed by Chinese Government is that the Ministry of Commerce must decide whether a project is accepted 20 working days after receiving China Exim Bank’s appraisal. According to Wang (2002), China overseas industrial investment by state owned enterprises is even faster to be decided, taking around 40 working days from the State level SOE’s request to the Ministry of Foreign Trade and Economic Corporations’ answer.

4.1.3 Comparison and Discussion

In what concerns to governance structure, it is clear that there exists an important difference between Chinese Policy Banks and the World Bank, not only because the World Bank is owned by different countries but also because China Policy Banks are run under the leadership of the Communist party of China, which differs from occidental standards. At a ﬁrst glimpse, China Policy Banks should be able to make decisions and thus deploy capital faster since, in comparison with the World Bank, they do not need to hold yearly meetings in which the executive board agrees on development goals and budget expenditures for each region. Instead, objectives are deﬁned at a national level and all the entities composing the national structure work on that regard.

This is in fact exemplified while comparing both entities decision process, shown by figure 4.7, in which in red color the differences between Chinese and US While from the loan agreement onwards the project cycle is similar for the two sides –both of them conduct a loan approval, monitor project implementation (specifying that the borrower country is fully responsible for the project execution itself) and complete a full project evaluation – the process is quite different until that point. Firstly, the World Bank invests a considerable amount of efforts in conducting the Pre-Pipeline phase and the need identification phase together with the borrowing country.

This is relevant not only because the Bank has expertise acquired in various countries and ﬁelds, but also because the need identiﬁcation is conducted in parallel, so that

70 Chapter 4 Analysis Fig. 4.7: Comparison of both sides’ decision process. Self-prepared

this expertise can be transmitted to the borrowing country and need identiﬁcation is conducted in a comprehensive way. Nonetheless, the counterargument can also be used, stating that in fact the World Bank can have the soft power to inﬂuence the borrower country to conduct a certain project, while China Policy Banks leave total freedom to the borrower in terms of their strategic goals and means to achieve them.

During the appraisal phase, this difference is also exempliﬁed. While within the World Bank project cycle the borrower country is expected to conduct an assessment in parallel with the lender’s appraisal, China Policy Bank’s project cycle do not expect the borrower country to conduct any further studies rather than the ones already presented with the loan request.

Regarding the loan approval process, Chinese policy is also much more straightforward than the one deﬁned by the World Bank, speciﬁcally in economic terms. While the bank’s project’s decisions are delegated to management for quantities smaller than $5M, Chinese loan proposals can be accepted without even being listed for quantities below $100M. This represents a 20 times difference, and could be an outcome of the more straightforward governance structure of the Chinese side.

Key learnings:

4.1 Governance Structure and Decision Process 71 • Chinese governance structure and project cycle is more comprehensive and to the point. Decisions are taken faster and the strategy is clear among all stakeholders.

• World Bank is slower, projects take over four years, however the need identiﬁ- cation, tracking and implementing process is more comprehensive.

• China gives full responsibility to the borrower country, through a “self-management” of resources policy, while the World Bank tracks the whole process and makes sure that resources are allocated correctly.

Questions posed by these Key learnings:

• Are these differences going to be reﬂected in the projects?

• Is there any data which shows if Chinese resources are misused? Is it a good idea to give developing countries the “freedom” to use aid money? In fact, this issue is addressed by Dreher et al. (2015), who conclude that China’s foreign aid is particularly prone to political capture by political leaders of aid receiving countries

4.2 Social and Environmental Appraisal

Commonly known as safeguard policies among multi development banks, social and environmental appraisals contribute to sustainability and development effectiveness in projects and programs by helping to avoid or mitigate harm to people and the environment.

Social and environmental dimensions have always been important in any civil project, however much more attention has been drawn to this issues in the last decades than it used to capture in the past. Also, international push for a deﬁnition of social and environmental safeguards began with the irruption of nongovernmental organizations (NGOs) in the 1980s.

In fact, both the World Bank and the China Policy Banks have not been exempt of criticism in this regard. According to Institute for Policy Studies , and to The Tistle the World Bank has been criticized for funding various environmentally damaging projects during the 1980s, which have led to a wide range of impacts in borrower countries such as deforestation or displacement of indigenous people. The main concern on the Chinese side is the potential of Chinese ﬁrms to transfer their soft adherence to domestic environmental regulation to construction projects to developing countries. Indeed, in 2009 the China Ministry of Environmental Protection reported

72 Chapter 4 Analysis that “15.5 percent of projects started construction without approval, 9.6 percent of enterprises that were closed for environmental reasons resumed production without permission, and 25 percent of the main sources of pollution were not following environmental policies” (Gallagher et al., 2012). Next section evaluates how the World Bank and China Policy Banks assess social and environmental issues when considering a new investment.

4.2.1 The World Bank

The World Bank projects are governed by Operational Policies, which are conﬁgured to ensure that projects make sense from an economic, ﬁnancial, social and environmental point of view World Bank. All these policies are explained in the Bank’s Operational Manual, which provides guidance on how to comply with them.

According to Group (2012), attention to manage environmental and social impacts has been raised during the 1970s, when the Bank increased its attention to the environmental and social issues derived from the development process, writing its Operational Manual Statements (OMSs) and Operational Policy Notes (OPNs) which were issued by the Ofﬁce of the Senior Vice President. These were lately merged in the publication of the “Operational Manual Statement on Environmental Aspects of World Bank Work” in 1984 which ﬁrst outlined the Bank’s policies and procedures to any aspects of his work which could have environmental implications.

A major bank reorganization in 1987 resulted in Operational Directives gradually replacing Operational Manual Statements, and finally in 1992 it was decided to replace Operational Directives by Operational Policies and Bank Procedures. Later in 1997, the Bank regrouped ten Operational Policies as specific safeguard policies –five environmental, two social, and two legal policies- as shown by figure 4-9. These policies were designed to address both environmental and social issues derived from investment lending projects. Lastly, in 2010 the World Bank’s Independent Evaluation Group undertook an evaluation of the Bank’s safeguard policies, which concluded in a Management Action record in which Management committed to undertake a comprehensive update and consolidation of the Bank’s safeguard policies. These consolidation is still ongoing, with a review including three consultation periods to be done by 2016.

Hence, the current structure is the one shown by ﬁgure 4.8. There currently exist ten environmental, social and legal safeguards policies. Environmental Assessment is considered the umbrella policy for the Bank’s safeguard policies, and speciﬁcally contains a project description, baseline data and all the environmental impacts as well as analysis of alternatives possible to the project, as well as an environmental management plan.

4.2 Social and Environmental Appraisal 73 Fig. 4.8: The World Bank Safeguard system. Adapted from World Bank.

Also, the Bank undertakes environmental screening of each project to understand the type of Environmental Assessment that needs to be undertaken. The project is then classiﬁed in four categories, depending on type, location, sensitivity, scale of the project and nature and magnitude of its potential environmental impacts. According to World Bank these categories are:

• Category A:If a project is likely to have signiﬁcant adverse environmental impacts that are sensitive, diverse or unprecedented. Environmental Assessment for this category analyzes the current alternative and contrasts with further solutions recommending measures to reduce its impact. For this category, the borrower is responsible for preparing an Environmental Impact Assessment.

• Category B:if its potential adverse environmental impacts on human pop- ulations or environmentally important areas are less adverse than those of category A. Usually the scope of the Environmental Assessment is narrower for this kind of projects. The ﬁndings and results of this kind of project are described in the project documentation.

• Category C:When the project is likely to have minimal or no adverse environmental impacts. No further Environmental Assessment action is required beyond screening.

• Category FI:Categorizes a project which involves investment of Bank funds through a ﬁnancial intermediary in subprojects that might result in adverse environmental impacts.

Further Operational Policies such as the Natural Habitats, Forests, etc., treat speciﬁc dimensions within the environmental safeguards. For instance, Natural Habitats ensure that development projects take into account the conservation of biodiversity,

74 Chapter 4 Analysis Fig. 4.9: General environmental Policy Framework. Self-prepared with data from Corpora- tion (2007).

Forests aim to reduce deforestation, Pest Management avoids the use of harmful pesticides, Disputed Areas detail speciﬁc circumstances within the territories where the project takes place and so on.

All these policies are aligned with International Finance Corporation’s Environmental, Health and Safety Guidelines, which are technical reference documents with general and industry-speciﬁc examples of Good International Industry Practice . According to Corporation (2007), the applicability of the EHS guidelines is supposed to be tailored to the risks and hazards of every project, on the basis of the results of an environmental assessment which is carried out according to the Performance Standards for the International Finance Corporation and to Operational Policies 4.01 for the World Bank, as shown by ﬁgure 4.9. In other words, Environmental, Health and Safety General Guidelines are met through the environmental assessment by applying either Operational Policies (if the project is managed by the World Bank) or Performance Standards (if it is by the International Finance Corporation).

Environmental, Health and Safety General Guidelines are widely recognized as International Standards, and adopted as reference for solid-prestigious treaties in the private Project Finance sector and among other international institutions, such as the Equator Principles Equator Principles or the OECD Common Approaches OECD. These guidelines are usually applied during the assessment and implementation phase, they must be established by the borrower country, who is fully responsible and obliged to meet them.

4.2.2 China Policy Banks

China’s relatively new appearance to infrastructure development is largely reﬂected on its environmental and social safeguards. China Policy Banks were focused on national development with soft environmental constraints, with environmental regulations being constantly circumvented, and with 25 percent of the main sources of pollution not operating properly, and international community is obviously con-

4.2 Social and Environmental Appraisal 75 cerned that this trends could continue to happen overseas(Gallagher et al., 2012). In addition to this concern, the majority of Chinese development activity is concentred in environmentally sensitive industries and regions such as mining or infrastructure in developing countries with soft environmental standards.

Similarly to the occidental players, China started to raise attention to environmental practices around 1970s. This attention increase on the topic resulted with a Provisional Law on Environmental protection issued by the State Council, which concluded into the “Law of Environmental Protection of the People’s Republic of China” in 1989, which created a framework for environmental protection and environmental impact assessment, with special focus to Pollution Assessment. Later on 2003, these laws were further strengthened by the Environmental Impact Assessment Law of the People’s Republic of China, which in addition to Pollution Assessment also considered an overall eco-assessment.

After 2007, the State Environmental Protection Administration (SEPA) took a leading role in implementing the EIA. In parallel to State’s initiatives, development banks have also issued environmental guidelines. CDB uses “Guidelines on Environmental Protection Project Development Review” and China Export Import Bank uses “Guide- lines on Environmental and Social Impact Assessment on Loan Projects”, issued after the national law in 2003.

In particular, CDB Guidelines conduct client suitability review, ex-ante EIA and ex- post environmental monitoring. They were publicly disclosed in 2005, and include (1) Guidelines of CDB in Developing and Evaluating Environmental Protection Projects, (2) Guidelines of CDB on Special Loans for Energy-Saving and Emission- reducing Businesses and (3) Working Plan of CDB for Loans to Reduce Pollution and Emissions(Earth and BankTrack, 2015).

According to Earth U.S. (2015), China Ex-Im Bank guidelines highlight six different kinds of policies:

1. Environmental Management Policy: The core of the policy is to avoid environmental pollution and destruction by including environmental protection into the national economic plan, to apply the “three synchronized approach” to construction projects, to integrate the policy into a legal and regulatory framework and to improve the environmental management institution.

2. Environmental Economic Policy: It includes capital investment and ﬁscal advantages for environmental-friendly initiatives.

76 Chapter 4 Analysis Fig. 4.10: China ExIm Bank Environmental Impact Assessment. Self-prepared with data from Gallagher et al. (2012).

3. Environmental Technology Policy: Its purpose is to raise the energy and resources utilization efﬁciency by using technological improvement measures and encouraging corporations to use lowly harm materials during construction.

4. Environmental Industry Policy: Its main objective is to promote the socializa- tion of environmental industry by making environmentally friendly products marketable and standardized.

5. International Cooperation on Environmental Protection: China aims to promote regional and global cooperation to resolve environmental problems.

6. China Ex-Im Bank’s environmental protection policy: States that the Environ- mental Impact Assessment (EIA) must contain four principles: (1) Conduct ante and post EIA and monitor project implementation (2) Base EIA on host country’s environmental standards (3) respect indigenous people’s land and resources rights (4) Solicit public opinion for projects with potential for serious adverse impact on local environment.

In fact, China is making a big effort to adapt to international environmental guidelines, and due to NGO’s pressures China Export Import Bank signed two Mem- orandums of Understanding with the World Bank and the International Finance Corporation. Still, and at ﬁrst glimpse, CDB’s Environmental Impact Assessment is not as comprehensive as The World Bank’s safeguard system, in the sense that the Chinese assessment only proposes the respect to indigenous rights and resources as a “principle”, while the World Bank’s safeguard system comprises nine different operational policies that treat this matter with higher accuracy.

4.2.3 Comparison and Discussion

The comparison of the social and environmental policies by the World Bank and the China Policy Bank is going to be made by contrasting both against international renewed safeguards.

4.2 Social and Environmental Appraisal 77 • Firstly, against a list of internationally agreed upon lending practices (Gallagher et al., 2012)(Equator Principles)

• Secondly, against the United Nations Development Program project level Standards (Programme, 2014)

In order to compare and discuss the social and environmental safeguards used by both entities, it is worth considering a list of common social and environmental guidelines which establish a set of internationally agreed upon lending practices, according to Gallagher et al. (2012) and Equator Principles

These guidelines include (Gallagher et al., 2012):

1. Ex ante EIA: An environmental impact assessment consist in assessing the environmental consequences of a plan, policy, program or project prior to the decision to move forward with the proposed action, and the term EIA is used when applied to concrete projects (Lawrence, 2000)

2. Project Review of the EIA: Consists in aligning the objectives of the project and the objectives of the EIA

3. Industry-Specific Social and Environmental Standards: The project should be in concordance with the industry specific standards. The only entity that publish industry specific standards is the International Finance Corporation (IFC), so those are the ones generally accepted.

4. Ensure compliance with host country environmental laws and regulations: It is the bank’s responsibility to ensure that the project does not violate host country’s environmental laws and regulations.

5. Public consultations with communities affected by the project: The affected community should be a relevant stakeholder during all the process with early access to all information such as EIA.

6. Grievance mechanism: It assesses whether the borrower provides a mechanism to manage concerns during the duration of the project.

7. Independent monitoring and review: According to Equator Principles, an independent social or environmental expert should review the EIA, the project and the consultation process.

78 Chapter 4 Analysis Tab. 4.4: Comparison of Social and environmental safeguards according to internationally agreed upon lending practices. Adapted from Gallagher et al. (2012).

Export- China De- The World Import velopment Bank Bank of Bank (CDB) China Ex - ante EIA X X X Project review of the EIA X X X Industry-speciﬁc and environmental standards X Ensure compliance with host country environmental laws X X X and regulations International law and regulations X Public consultations with communities affected by the X X project Grievance mechanism X Independent monitoring and review X Establishing agreements linked to compliance X X Ex - post EIA X X

8. Establish agreements linked to compliance: The borrower should envision a list of agreements which would lead to the cancellation of the funds if environmental guidelines are not met.

9. Ex-post EIA: Once the project is completed, borrower should conduct a ﬁnal EIA to review the project’s overall impact on society and environment.

All these guidelines are summarized by table 4.4, which also shows whether they are met by World Bank and China Policy Banks.

Secondly, the United Nations Development Program proposes seven standards to be determined during project appraisal (Programme, 2014), which are the following:

1. Biodiversity Conservation and Sustainable Natural Resource Management

2. Climate Change Mitigation and Adaptation

3. Community Health, Safety and Working Conditions

4. Cultural Heritage

5. Displacement and resettlement

4.2 Social and Environmental Appraisal 79 Tab. 4.5: Comparison of social and environmental safeguards according to United Nations Development Program project level Standards (Programme, 2014).

Export- China De- The World Import velopment Bank Bank of Bank (CDB) China Biodiversity X X Climate Change X X X Community Health X Cultural Heritage X Displacement and resettlement X Indigenous Peoples X X X Pollution, Prevention and Resource X X X Technology Policy X Economic Policy X International Cooperation X X

6. Indigenous Peoples

7. Pollution Prevention and Resource Efﬁciency

Even though the World Bank belongs to the United Nations system, the United Nations Development Program and the World Bank are two independent bodies which operate separately, and it therefore makes sense to compare their policies across.

Indeed, table 4.5 summarizes these approaches and contrast them with the approaches proposed by the World Bank, China Development Bank and China Export- Import Bank.

Overall, the World Bank have developed speciﬁc policies (industry speciﬁc social and environmental guidelines applied to relevant projects) that the China Development Bank and the China Export Import Bank do not even mention. Furthermore, World Bank projects also comply with international environmental laws and public consultations, which China Development Bank does not do. Also, both China Policy Banks lack a Grievance mechanism and independent monitoring and review (China Export Import Bank does mention the monitoring of the project implementation, but not by an independent actor).

On the other hand, both China policy banks consider an ex-post Environmental Impact Assessment while the World Bank contemplates post-project evaluation but not speciﬁcally in the Environmental ﬁeld. Also, both China Policy Banks envision technology and economic policies to stimulate the usage of technologies which diminish environmental impact through a technological progression.

80 Chapter 4 Analysis In conclusion, despite the last efforts of China Policy Banks to meet international standards, they remain relatively limited. For instance, both banks have yet to require the adherence to international environmental laws and regulations, grievance mechanisms, or independent review and assessment. These are important tools for addressing public concerns and ensuring transparency through the process. Furthermore, and despite the existence of guidelines, it seems that most of the times the environmental standards applied are the host country’s standards which use to be softer than the former. Also, the fact that the local adherence to domestic environmental laws in China is really soft (only 30 to 40 percent of the mining construction projects went through the EIA procedure in 2004) or the continuous severe impact pollution reported in various cities across China help to rise concern that the weak domestic enforcement could also lead to low environmental practices elsewhere (Gallagher et al., 2012).

Key Learnings:

• World Bank environmental standards are coupled with international requirements. Despite the efforts from Chinese authorities to couple with those, Chinese environmental framework is softer than and not as comprehensive as the western one.

• Previous experiences with the violation of local environmental safeguards in China do not help the international community to be conﬁdent about Chinese responsibility when applying these guidelines to developing countries. In fact, there is a belief that even though guidelines exist, countries standards are applied (which often are lower than international requirements).

Questions posed by these Key Learnings:

• Are these differences going to be reﬂected in the projects?

4.3 Overview of Investment Projects

This section gives an overview of the different investment projects undertaken by both the World Bank and the China Policy Banks according to the consulted databases speciﬁed at table 3.7

In terms of geography, it is seen in ﬁgure 4.11 that the World Bank undertakes less projects and on less riskier regions than the China Policy Banks. That being said, it cannot be stated that China Policy Banks have a clear strategy towards more risky countries, since they seem to have invested consistently among all the risk categories.

4.3 Overview of Investment Projects 81 30 30

20 20 18 17 16 15

Frequency 12 11 11 10 8 7 6 5 3 3 3

1 0 0 0

200 300 400 500 600 700 800 900 1000 Ease of doing Business

Western Eastern

Fig. 4.11: Projects histogram depending on Geography. The borrower’s country position in the ease of doing business ranking is normalized in a scale from 100 to 1000 (i.e. Singapore (1st in the ranking) =100, Eritrea (last in the ranking) =1000). Self-prepared with data from table 3.7.

Nevertheless, it can be stated that in comparison with the World Bank, China Policy Banks are willing to undertake further risks. For instance, 27% of the projects of the China Policy Banks have been undertaken in the two most risky regions (900 and above) versus a 2% (3 out of 62) of WB projects in these categories. More generally, China Policy Banks allocated 62% of its projects to the riskier countries (category 600 and above), versus the 17% of the projects allocated by the World Bank in these categories.

In terms of sector, China Policy Banks also consistently invest more in all categories, in exception of roads. That being said, most of the World Bank projects on the road space are brownfield projects, while most of the China Policy Banks are Greenfield. Eastern bet towards ports and railways seems to be clear, though, and the difference with the projects financed by the two paradigms in those areas is gigantic.

In terms of size, the eastern paradigm not only ﬁnances more, but also bigger projects. While the World Bank focuses mainly on projects on the $1B to $2B range, China Policy Banks have a clear strategy towards undertaking more numerous and biggest projects.

Overall, this section shows that the western paradigms focus on smaller projects (in terms of size) and in less risky countries, while the eastern paradigm has a clear strategy towards riskier and bigger investments.

82 Chapter 4 Analysis Fig. 4.12: Projects histogram depending on the transportation sector they belong to. Self- prepared with data from table 3.7.

36 35

26 25 22

Frequency 20

16 15

10 10 7 6 5 5 5 4 3 1 0 0 0 0 0 0

500 1000 1500 2000 2500 3000 3500 4000 >4000 Investment Size [$ M]

Western Eastern

Fig. 4.13: Projects histogram depending on their investment size. Self-prepared with data from table 3.7.

4.3 Overview of Investment Projects 83

Case Study: Jamaica Highway 5 2000

„The best path through life is the highway. — Henri-Frédéric Amiel (Moral philosopher, poet, and critic.)

This chapter presents the Case Study, verifying if the hypothesis drawn from the theory (Literature Review and Analysis sections) are also present in a real example. The social, economic and political context of Jamaica, as well as the technical details of the project are discussed in sections 5.1 and 5.2.

Indeed, understanding the contextual characteristics before undertaking the analysis is of capital importance to comprehensively contrast hypothesis. Once the project is contextualized, sections 5.2 and 5.3 present the embedded units of analysis for both sides, comprising: Stakeholders map, funding formula and social and environmental safeguards.

Finally, a comparison and a discussion of the two approaches is undertaken at section 5.4 and conclusions and learnings from the case study are drawn on section 5.5

5.1 Introduction

Jamaica Highway 2000 is the centerpiece of a multi-year Millennium Projects Pro- gram initiated by the Government of Jamaica announced by Prime Minister P.J. Patterson in September 1999. The main objective of the projects was to upgrade the country’s infrastructure and assist in providing economic opportunities for growth and the creation of jobs (Anderson, 2005).

Highway 2000 consists of a tolled highway, featuring a four to six lane controlled- access tolled motorway with fully grade separate interchanges and intersection that will cover approximately 230km across the entire island from the Kingston area through the central regions of the island and onto the primary tourism areas surrounding Montego Bay and Ocho Rios. Due to its technical and ﬁnancial complexity, the project was later divided into two phases, part of which have been completed in

85 different stages. Up to date, 113 km have been constructed, and the rest remains to be planned, bided and executed.

Due to its technical and financial complexity, the whole project have been divided into phases 1 and 2. After a bidding process which concluded in 2001, the first phase was awarded to Buygues Travaux Publiques and AutoRoutes de France, who accepted to construct Phases 1A and 1B for a 35-year concession and had preferred right for phase 2. Therefore, Phase 1A and 1B (45km) have been executed by Buygues Travaux Publiques during 2002 and 2006 and 2011 and 2012 respectively. In particular, phase 1B have been constructed thanks to the refinancing of the debt by several Multi Lateral Development Banks (specially IADB, IFC, EIB1 and PROPARCO2).

After having completed Phase 1A, Buygues started the works of Phase 2 at the Mt. Rosser bypass. However, after subsequent cost increases, Buygues did not have the economic solvency to face the project, and the Jamaican Government “transferred” its rights to the China Harbour Engineering Company for a 50 year concession on the exploitation of the highway and 1200 acres of terrain along it for touristic purposes. Therefore, Phase 2A has been constructed by China Harbour Engineering Company (CHEC), which took over one of the ﬁrst phases by BTP and constructed the rest of the phase between January 2013 and January 2016. A general outline of the project is shown by ﬁgure 6.1

All these reasons make this case perfect to contrast the hypothesis regarding western and eastern infrastructure development approaches, given that two different phases of the same project have been developed by eastern and western authors respectively.

Furthermore, they materialize the Jamaican infrastructure investments needs, and the project represents the vision of the Jamaican Government to provide a modern and efﬁcient mode of transportation that links the major towns across Jamaica.

In fact, Jamaica is the third-largest island of the Greater Antilles and is the fourth- largest island country in the Caribbean. With 2.7 million people, is the fourth most populous country in the Caribbean. Almost a million of Jamaicans live in Kingston, its capital and largest city followed by Spanish Town (145000) and Portmore (103000) – which are next to Kingston, Montego Bay (83000) and Mandeville (47000).

1European Investment Bank 2is a Development Financial Institution partly owned by Agence Française de Développement (AFD) and private shareholders from the developed countries and developing nations, according to its website. PROPARCO promotes private investment in developing countries to reach the Millennium Development Goals (MDGs).

86 Chapter 5 Case Study: Jamaica Highway 2000 Fig. 5.1: Jamaican Government Structure. Self-prepared with data from Jamaican Con- sulate.

Previously inhabited by indigenous peoples, the island was in possession of Spain from 1494 to 1655 (under the name of Santiago), when it was conquered by England and given its original name. Under British rule, the country became a leading sugar exporter with a plantation economy highly dependent on slaves imported from Africa later followed by Indian and Chinese impelled labor. The country gained independence from the United Kingdom on August 6th 1962 and remains a Commonwealth realm nowadays, with Queen Elizabeth II as its monarch and head of state. As other commonwealth realms, she appoints –on advice of the Prime Minister of Jamaica- a representative in the country which is the Governor-General of Jamaica, and which has a largely ceremonial role.

5.1.1 Political Context

Jamaica is a representative parliamentary democratic constitutional monarchy. That means that the monarch (in this case the Queen Elizabeth II) is the head of the state, who with the advice of the Prime Minister appoints a Governor to be her representative in the country. The Governor General must have no afﬁliation with any political party. It is important to note that neither the Queen nor the Governor-General have any real authority in conducting the administration of the country and that Real legislative and executive responsibilities rest with the elected representatives of the people. The Governor General, again with the advice of the Prime Minister, appoints six members to constitute the Privy Council. The functions of the Privy Council are limited to advising the Governor-General on the exercise of the royal prerogative of mercy and the discipline of the civil service, local government ofﬁcers, and the police where appeals are made (Jamaican Consulate).

Like in the majority of Parliamentary Democracies, the government functions are divided amongst Legislature, Executive and Judiciary. The Legislature power is

5.1 Introduction 87 represented by the Parliament, which consists of two houses: The Senate and the House of Representatives. The maximum life of the Parliament is of ﬁve years, after which a general election must be held. The Senate is a nominated house made up of 21 senators, thirteen of them appointed by the Governor General by advice of the Prime Minister and the other eight appointed on the advice of the Leader of the Opposition. The senate functions as a review chamber and might also initiate legislation.

The House of Representatives consists of 60 members, and the government in power can only rule if it has support from the majority of these members. The House of Representatives has the power to pass a bill to Law if majority is in favor. Also, the House of Representatives has control over the Government’s Finances, and funds cannot be granted nor taxation levied without its approval.

In 1986, there was established The Ofﬁce of the Contractor General, which is an independent, anti-corruption commission of the Parliament. Its main objective is to ensure that the public sector procurement process delivers value to the tax-payer, is merit based, free from corruption, transparent, impartial, competitive, fair, efﬁcient and effective. Its main functions are the monitoring and investigation of the award of Government contracts, licenses and permits. The Contractor General is appointed by the Governor General, by instrument under the Broad Seal and after consultation with the Prime Minister and the Leader of the Opposition.

The Executive Power is represented by the Prime Minister, who is appointed by the Governor-General when a new Government is elected. The Governor-General appoints as Prime Minister the member of the House of Representatives who in his judgement is best able to command the conﬁdence of the majority of the members of that House. The Prime Minister presides the cabinet, advises the Queen on the appointment of the Governor-General and advises the Governor-General on the appointment of all the members of the Privy Council and on appointments of the Chief Justice, the President of the Court of Appeal and the three services commissions.

The Prime minister presides the Cabinet, which is the center of the system of Government. It initiates Government policies and programs, and consists of the prime minister and not less than 11 other ministers. Not more than four ministers must be appointed by the Senate, and the other should be appointed by the House. Each minister has authority within his ministry, however important matters are brought before the Cabinet for discussion and decision.

In the infrastructure context, it is important to note that the budget debate is opened by the Minister of Finances, who outlines how the various programs and policies

88 Chapter 5 Case Study: Jamaica Highway 2000 of the Government will be ﬁnanced and how the money will be raised. Therefore, decisions on the matter of infrastructures are made by the Minister of Transportation (representing the Ministry of Transport and Mining) as well as by the rest of the Cabinet (speciﬁcally Minister of Finance and the Public Service, Minister of Health and Environment, Minister of Tourism and the Prime Minister).

Historically, the presidency of Jamaica has been disputed among two parties: People’s National Party (5 out of the last 12 presidents) and the Jamaica Labor Party (7 out of the last 12 presidents). The JLP is considered to be conservative, while PNP is more progressive, adopting neoliberalist policies. Along the completion of the project, the power has been held by P.J. Patterson from the PNP (1992 – 2006), Portia Simpson- Miller from the PNP (2006-2007), Bruce Golding from the JLP (2007-2011), Andrew Holness from the JLP (2011-2012) and Portia Simpson-Miller again (2012-2016).

As already stated, the decisions concerning transportation planning are made by the Ministry of Housing, Transport, Water & Works and ultimately approved by the Cabinet. The Ministry releases the “National Transport Policy”, which covers all aspects of transport in Jamaica (Air, water, roads and railways and infrastructure and services).

Besides the National Transport Policy, the Ministry also releases yearly the Ministry’s Operational Plan and the Ministry’s Strategic Business Plan. These, however, are new documents. The ﬁrst National Transport Policy was published in 1996, and before that there was an absence of a cohesive set of policy principles and strategic directions, so the public sector could not identify transportation needs (Pickersgill, 2012). Most recently, the Government of Jamaica mandated the Planning institute of Jamaica the preparation of a comprehensive long-term National Development Plan seeking to place Jamaica in a position to achieve developed country status by 2030. This plan comprised the preparation of thirty one sector plans one of them being the Sector Plan for Transport Force (2009).

5.1.2 Jamaica Infrastructure

This section gives an overview of the Jamaican infrastructure status by giving special importance to the impact of the Highway 2000 project in this context.

Jamaica has a multi-modal transportation system with roadways forming the backbone of the island’s internal transport system. The transportation sector also includes rail, air and maritime transportation, all of them under the responsibility of the Ministry of Transport and Works. It is worth mentioning that the planning of the Vision 2030 Jamaica took place within a context of global economic with likely consequences for Jamaica such as: reduced ﬂows of direct investment, increase

5.1 Introduction 89 on the difﬁculty in sourcing ﬁnancing from global capital markets, reduction of Jamaican exports, and a possible downturn in tourism earnings recession (Force, 2009).

Regarding railway transportation, it is one of the earliest modes of transportation introduced in Jamaica, dating back to the 1880s. However, since the closure of the public passenger and freight transport services of the Jamaican Railway Corporation (JRC) in 1992 railway usage is limited to the activities of private corporations in the island, mainly in the Bauxite sector. Nonetheless, given the 335 km of public railway tracks spanning across the island, a number of entities have expressed interest in restoring freight and passenger services. In 2005 the government entered in negotiations with a Chinese Government company to undertake feasibility studies on the rehabilitation of rail services, but any agreement has been set to date.

As an island, and besides inland transportation, maritime transport has had and will continue to have an important role in the country’s long term development. Inland waterways and short-sea shipping are inexistent in Jamaica, with deep-sea maritime transport completely representing the sector. Indeed, Jamaica has a dominant position as a regional transshipment hub and as a cruise destination. This is in fact indirect consequence of the healthy state of international trade worldwide, as well as the strategic positioning of Jamaica towards important sea trade routes which experienced increase in transshipment trafﬁc, as well as the recent expansion of Panama Canal.

Concerns are raised along these lines, and authorities wonder if the island will upgrade its infrastructure accordingly to the market requirements. The demand for Jamaican maritime facilities is derived from the fact that the country is situated at the center of an 800 million person market (north of Latin America, the Caribbean and North America). Main infrastructures responding to that demand are the four cruise ship facilities, the port of Kingston, Montego Bay, Ocho Rios, Port Antonio, Port Esquivel, Port Kaiser, Port Rhoades, Rio Bueno and Rocky Point (Force, 2009), and future transport plans envision expansion plans and facilities’ optimization.

Even though Government’s vision encompasses sustainable long-term development, rumors are that China Harbour Engineering Company Limited (CHEC) is about to invest around $1.5B on the development of a transshipment port on a couple of mangrove-fringed islands next to Old Harbour. The project is supposed to transform Jamaica into a world-class logistics hub, by words of Francis Kennedy, the president of the Jamaica Chamber of Commerce (CBC, 2014). The port would be placed in an environmentally protected area (Conditional approval for a Bosphere Reserve, by UNESCO), and indeed, Environmentalists and NGOs argue that it would have a devastating impact on a coastal zone with great natural capital. Interestingly, the

90 Chapter 5 Case Study: Jamaica Highway 2000 announcement that CHEC was going to invest in the new port project followed its participation to the Highway 2000 project, and is proof of the strong bet of China for Jamaica as its operation base for their investments in the Caribbean (Foundation and Trust, 2013). The main bet of both Chinese and Jamaican parties is to convert Jamaica as the fourth global logistics hub, following Dubai, Singapore and Rotterdam, and being the logistics hub for the west hemisphere thanks to its strategic location next to the Panamá Canal and close to 800M customers market.

In what concerns to air transportation Jamaica has two international airports located in Kingston (Norman Manley International) and Montego Bay (Sir Donald Sangester International). In addition to those, there are regional airports which cater to internal ﬂights only (Tinson Pen, Port Antonio, Negril and Boscobel). The most concurred airport is Montego Bay, serving the concurrent touristic north coast of the island

The Airports Authority of Jamaica (AAJ) is responsible for the ownership, management and commercial functions of the two international airports as well as the four active domestic aerodromes. The main responsibility of this agency is to oversee the expansion and modernization of facilities at the island’s international and domestic aerodromes. In fact, the upgrading of the airside and the landside facilities at Norman Maley International was recently undertaken under the Airport Reform Improvement Program (ARIP) promoted by the AAJ.

Finally, regarding road transportation, the island has one of the densest road networks in the world comprising 15394 km of paved roadway (Pickersgill, 2012) and 21000 km of roads in total. The network is divided into arterial roads, also called primary or A roads (844 km), secondary or B roads (717 km), tertiary roads (3225 km), urban roads (282 km), parochial roads (10326 km) and 800 bridges on main roads.

From a Policy perspective, there are nine entities under the purview of the Ministry of Transportation and Works (Force, 2009), which are the Island Trafﬁc Authority (ITA), Jamaica Ultimate Tyre Company, Jamaica Urban Transit Company (JUTC), Montego Bay Metro Limited (MBM), National Road Operating and Constructing Company (NROCC), National Works Agency (NWA), Road Maintenance Fund Board (RMFB), Toll Authority and the Transport Authority (TA). These entities work mainly in two ﬁelds; Public Transportation (ITA, JUTC, MBM and TA), and road construction and maintenance of road infrastructure (NROCC, RMFB and NWA). Finally, there are other entities who work with road transportation but are not in the Ministry portfolio. Those include the Jamaica Social Investment Fund (JSIF), the Urban Development Corporation (UDC), Rural Agricultural Development Authority (RADA), Trade Board

5.1 Introduction 91 Limited, Inland Revenue Department (IRD), Parish Councils and the Kingston and St. Andrew Corporation (KSAC).

For instance, the Toll Roads Act, 2002, established the Toll Authority to supervise the operations and maintenance of toll roads (Force, 2009) and the NROCC (which is also the implementing agency for the Highway 2000 project) works in tandem with the Toll Authority to do so. NWA has been responsible for the implementation of a number of roadworks programmes such as the National Road Improvement Programme, the IADB Road Rehabilitation Project, or Overloaded heavy-duty vehicles policy supervision.

On the development side, Highway 2000 supposed the most ambitious project in Jamaican road infrastructure to date. Other major recent road infrastructure projects comprise the Northern Coastal Highway Improvement Project (NCHIP) linking Negril and Port Antonio and started in 1998 by the Government of Jamaica, the European Comission and the IADB. It was developed and designed between 1994 and 1996 against the socio-economic backdrop of a contracting Jamaican economy which was mostly dependent on bauxite, alumina and tourism.

However, the size and scope of Highway 2000 was unprecedented in the island. To contextualize, the latest project (NCHIP) of a comparable scope was more than ten times smaller in size, amounting $85M (Bank, 2010b). In fact, as Fund (2009) points out, “from 2008 to 2013 infrastructure related ﬁxed capital formation grew by 1.2 percent of Jamaican GDP”, with this increase being partly due to the increased expenditure on road infrastructure with Highway 2000 as its main example.

5.1.3 Economic Context

As Bank (2010a) points out, “Jamaica is a middle income country which is charac- terized by an open economy, a narrow export base and a high dependence on the import of goods, specially oil and foodstuffs.”

Jamaican economy was traditionally based on the production of manufactured goods for export (due to the low cost of labor in comparison to close economies such as North America), bauxite (exploited in the island since 1952) and sugar. However, weakness in the financial sector, speculation and lower levels of investment have eroded confidence in the productive sector. Jamaican Government provides incentives to investors (remittance facilities, tax holidays,etc) and free trade zones have stimulated investment in the island, however the country still has a heavy debt-to-GDP ratio which materializes in budget deficit and high U.S. dollar debt obligations.

92 Chapter 5 Case Study: Jamaica Highway 2000 This is one of the reasons why Jamaican government has shifted its strategy towards the provision of services, which nowadays contributes to the 68% of the GDP (Bank, 2010a). Tourism is indeed estimated to account for approximately a quarter of the sector, and even though it is not identiﬁed as a speciﬁc sector in the national accounts, it represents a major source of foreign investment and employment.

Another big bet towards that direction, as already mentioned, is the recent signature of preliminary agreements for the ﬁrst phase of the Jamaican Logistics Hub (JLH) between the Government of Jamaica and China Harbor Engineering Company (CHEC), aiming to position Kingston as the fourth node in the global logistics chain and expecting to generate around ten thousand jobs for Jamaicans as well as Economic zones for multinational companies. Deﬁnitely, a source of economic growth to alleviate the national debt ratio. Up to now, and at the expenses of environmentalists, the preparations for the JLH have favorably affected the country’s credit rating and outlook.

Nevertheless, and according to (Bank, 2010a) there are still important development challenges to be taken into account, ranging from the mentioned Jamaican high public debt constraining growth and development to Jamaican historic high investment-low growth performance (partially explained by natural disasters), corruption, and lack of competitiveness (Jamaica ranks 70th out of 117 countries in the global competitiveness index) among others. It is clear, therefore, that both maritime and road infrastructure will play a key role in Jamaican’s outlook and strategy on consolidating the shift of local economic resources from production to services.

5.1.4 Social Context

A two-party political system has been traditionally present in Jamaica, with power alternating between the People’s National Party (PNP) and the Jamaica Labour Party (JLP), as already mentioned. The country’s unemployment rate is currently estimated at 13.3 percent (Statistical Institute of Jamaica, 2016). However overall numbers seem favorable, foreign investment is widely welcomed as a hope to raise the countries’ salaries since Jamaica currently classiﬁes 105th out of 183 countries in terms of Power Purchasing Parity (World Bank, 2016) and unemployment rate for youth raises about 30 percent.

The Human Development Indicator3 is considered to be high -0.719- (Programme, 2015), which means that in comparison to all the other worldwide countries, Jamaica pertains to the second tier – or between the percentile 50th and 25th - in which its citizens have a longer life expectancy, higher levels of education and higher levels

3The Human Development Index (HDI) is a composite static of life expectancy, education and income per capita indicators, used to Rank countries into four tiers of human development.

5.1 Introduction 93 Tab. 5.1: Quick facts of the Highway 2000 project. Self-prepared.

1A/1B 2A Project Type Green/brown ﬁeld toll road Greenﬁeld toll road Size and Scope 55, 5Km, 4 lanes 61Km, 4 - 6 lanes Delivery Mode DBFOM (PPP) DBFOM (PPP) Location Jamaica Jamaica Cost 390 M 720 M Project Sponsor NROCC NROCC Project Developer Bouygues Travaux Publics CHEC Cons. Start June 2002 January 2013 Cons. End August 2012 January 2016

of income per capita. Jamaica has a Gini coefﬁcient4 of 45.5, considered a medium value and indicating that the distribution of income among households is quite unequal, and so that wealth is not as equally distributed as it could be.

5.2 Project Description

5.2.1 Quick Facts

Jamaica Highway 2000 is a build and operate project for a multi-lane tolled highway, which when fully completed was expected to cost more than $ 1B. As it can be seen in the ﬁgure 5-1 the proposed highway stretches from Kingston to Montego Bay with a spur from Bushy Park to Ocho Rios. From its inception, the project was structured as a PPP to be developed in two phases.

Due to technical and financial complexities, the proposed phases have been subdivided, and up to date two thirds of Phase 1 and half of Phase 2 have been completed. Phase 1 have been completed by Bouygues Travaux Publiques (a French contractor) thanks to the refinancing of The World Bank, the Inter American Development Bank, The International Finance Corporation and Proparco. Phase 2 was initially started by BTP, but due to technical and financial problems it was later assigned to CHEC. A summary of the two phases is shown by table 5.1, and further details regarding execution timeline, stakeholder and financing structure as well as social and environmental safeguards are shown along this section.

Bouygues Travaux Publiques (BTP) is a subsidiary of Bouygues Construction which is part of the Bougyan industrial group headquartered in France and listed in the Paris Stock Exchange. The company was founded in 1952 and in 2015 it had approximately 120000 employees in 100 countries, generating C32.4B in revenue.

4The Gini coefﬁcient is a measure of statistical dispersion intended to represent the income distribution of a nation’s residents, and is the most commonly used measure of inequality. It was developed by the Italian statistician and sociologist Corrado Gini

94 Chapter 5 Case Study: Jamaica Highway 2000 The group specializes in construction, with other subsidiaries specializing in real estate development and telecommunications, and have extensive experience in infrastructure development.

BTP previous experiences to the project in Central and Latin America only comprise the Caucedo Container Terminal in the Dominican Republic on 2001, however the company has extensive experience in highway concessions in Croatia (Istrian Motorway, 1997), Hungary (M5 Motorway, 1996) and France among others.

China Harbour Engineering Company Ltd. (CHEC) is a subsidiary of China Com- munications Construction Company Ltd (CCCC). CCCC is a State owned enterprise, meaning that is ultimately managed and owned by the Administration Commission of the Chinese State Council. The company is mainly engaged in the construction and design of transportation infrastructure and in the port manufacturing business. In addition, CCCC is the largest Mainland China’s infrastructure government owned Enterprise Company listed in the Hong Kong Stock Exchange Market, generating US$ 54.8B in revenue and employing around 100000 people.

CHEC in particular, began its operations in Latin America in 2002, with its first regional project in Panama. Since then, the company has expanded operations by opening offices in Jamaica, Mexico, Bahamas, Venezuela and Colombia. CHEC opened its Jamaican offices officially in April 2010, after having agreed with the Jamaican Government to be the General Contractor under the Ministry of Trans- portation and Works for two main projects: The Palisadoes Shoreline Protection and Rehabilitation Works (US $ 65.5 M) and the all island Jamaica Development Infrastructure Program (US $ 400 M), which included important works such as the Christiana Development Road or the Rio Grande Bridge. Since both these projects were successful, the Jamaican Government relied on CHEC for the North-South link of the Highway 2000 project (CHEC, 2016).

5.2.2 Execution

Overview

Back in 1996, as part of the first National Transport Policy, the Canadian engineering firm Dessau Soprin conducted a first feasibility study for the Highway 2000 project. The project was launched by the Government of Jamaica by the official name of Transjamaican Highway Concession under a Build-Operate-Transfer scheme for the construction, operation and maintenance of the first section of a total of 230km 4-to-6 lane highway that would connect the primary tourism areas surrounding Montego Bay and Ocho Rios with Kingston via Jamaica’s central regions.

5.2 Project Description 95 In 1999, Desseau Soprin was retained as a technical consultant with the mission to pass from the pre-feasibility study to a preliminary design phase. Alongside to Desseau Soprin, there were also retained UBS worburg as the Financial Consultant, CFAS Ltd as a Financial Advisor, Allen & Overy as the legal counselor, and Halcrow as technical advisor. On October a preliminary info notice was released, and seventeen out of sixty seven proposals were considered, and bids were ﬁnally submitted on 2000. Later in 2001 the project was re-organized into phases, due to the technical complexity of executing the 230km at once, especially in terms of ﬁnancing.

Finally in May 2001 the bidding for Phase I started, and the project was divided into phases 1A and 1B. After a two-week evaluation process, Bouygues Travaux Publiques offered the more economically advantageous offer, as well as provided the major portion of the financing for the project. At that point in time, the project had already caught the attention of the IADB. Nevertheless, its participation would take delay the project due to evaluations and further approvals, and government’s pressure to execute paired with favorable commercial lending rates propitiated a fully private financing by Bouygues (which brought the major portion of the financing) and the Multi-Lateral Development Banks not financing the project. The Concession contract was awarded on 13th June 2001, with NROOC being the government company responsible for granting the concession. Buygues Travaux Publiques and AutoRoutes de Franced established Trans Jamaica Highway Limited, and NROOC and TJHL signed the concession implementation the 21st November 2001.

The contract comprised the Finance, Design Build Operate and Maintain for Phase 1A for 35 years, and stipulated that at any time prior to the date falling 36 months after the Phase 1A Long Stop Date the Developer (TJHL) may issue a notice “The Phase 1B Commencement Notice” informing the grantor (NROCC) that it would start to Design, Build, Operate and Maintain Phase 1B. Similarly, on or before the Phase 1B Long Stop Date, the Developer may also issue a notice “the Phase 2A /2B commencement notice “ informing the Grantor that it is willing to enter into a concession agreement with respect to Phase 2A or 2B (NROCC and TJHL, 2001). Hence, by winning the bid in 2001. Buygues Travaux Publiques gained as well the right to develop the whole Highway 2000 project if all the subsequent parts were successfully completed according to the Concession Agreement NROCC and TJHL (2001).

Phase 1A was executed between June 2002 and July 2006. After the completion of phase 1, Multilateral Banks were approached again and accepted to re-ﬁnance the next steps of the project due to a raise of the interest in the market place. As already mentioned, and in order to not delay the start of the project, both the developer and the government looked for commercial lenders to ﬁnance its debt at the start of

96 Chapter 5 Case Study: Jamaica Highway 2000 the project (by segmenting it into phases 1A and 1B instead of executing the whole Phase 1 at once).

While debt-refinancing for Phase 1 was taken place, TJHL signed an agreement to start Phase 2A in May 2007, and works started in Mt. Ross Bypass in June 2007. However, due to unexpected technical difficulties, an increase of costs of the 24% took place in 2008, and the Mt. Rosser section ended up costing 124M. In the meantime, officials from the IADB conducted a phase visit and a report to fund phase 1B, and in December 2009 TJH secured the approval for funding in that regard.

Costs for Phase 2A continued to raise, and the relationship between the two parties was beginning to erode. Buygues and the Jamaican Government were resolving a stalemate which arose owing to what was described as geo-technical problems, detected in a 540-metre stretch within one zone of the Mount Rosser Bypass (Ja- maica Gleaner, 2011). While Ivan Anderson (Managing Director of NROCC) said that the geo-technical risks for Mt. Ross had been totally transferred to the contractor, Bouygues stated that there were some setbacks which could not have been anticipated by an experienced contractor. After the legal advice asked by Anderson, the Sollicitor General stated that BTP was completely responsible for the works, and that new designs should be undertaken under its responsibility. Since CHEC was already present in Jamaica, and the Government was mostly satisﬁed with its performance in the at the time on-going JDIP program, they also agreed on submit a new design proposal to the Jamaican Government, contrary to the will of the Parliament’s opposition which stated that the project should be open to international tender, with the process going through the National Contracts Commission, being subject to scrutiny from the Contractor General.

Following Government’s will, both BTP and CHEC submitted new proposals. CHEC proposal was more convincing to the Government of Jamaica, and both parties agreed that CHEC would refund the full amount invested to date ($120 M) in Mount Rosser segment, and Bouygues would pay China Harbour to complete the section within the zone with geo-technical issues.

At that point, CHEC completely took over Phase 2A of the project, relying the Mt. Rosser designs to the American design company after the overruns and long negotiations (Jamaica Observer, 2011), and after the signature of the Memorandum of Understanding on 2010 and the Concession contract on November 2011, works re started on January 2013.

In February 2011, the works for Phase 1B started by BTP, which after the Multi- lateral ﬁnancing was split into phases 1A, 1B and 1C. Phase 1B was hence completed in August 2012. In November 2011, the Implementation Agreement between

5.2 Project Description 97 JNSHC and CHEC was signed, and works re-started in Mt. Ross in January 2013. Finally, Phase 2A was completed in January 2016. A more detailed description of the construction details of each of the Phases is shown in the appendix6 and summarized by table 6.3.

5.3 Phase 1A/1B - Western Paradigm

5.3.1 Overview

Phase 1A and 1B of the Highway 2000 project was attributed to Bouygues Travaux Publiques after an international competitive bidding was carried out. Following the evaluation and completion of the preliminary approval process, the Cabinet approved the award of the contract to build Highway 2000 to Bouygues Travaux Publiques of France. Five agreements were signed between the two parties to formalize the deal: The Concession, Equity Shareholders, Implementation, Government Procured Debt and Guarantee Agreements.

Phase I was initially planned to be constructed as once, structured as a mixed public/private sector partnership. Due to the ﬁnancial complexity the bidders would not only require equity, debt and export credit agency support but also commercial bank lending which would most probably need to be complemented with funding from multi-lateral sources.

As already mentioned, it was found that both bidders approached the IADBs to seek for that funding, but the preparation of IADB’s dossier would delay the start of the works. After an assessment from the Government of Jamaica, it was decided that there was a general preference for an early start, and so at that point it was decided to break the ﬁrst section into two parts to simplify project complexity and not rely on multi-lateral funding (which would delay project start). Due to this decision and to favorable market commercial rates, the project continued forward without multi-lateral lending at that point.

The project was then re-scoped to call for bidders, who put forward revised proposals for Phase 1A. Phase 1B was supposed to start as soon as further funding would be agreed with IADB.

For a comprehensive assessment of the bids, and with the assistance of the evaluation team comprised by UBS Warburg and CFAS as Financial Advisor, Halcrow as a technical advisor, Steer Davies Gleave as Trafﬁc Advisor and Allan & Overy as Legal concelor, the process was broken into 6 categories: 1) Technical, 2)Trafﬁc, 3)Legal, 4)Economic, 5)Financial, 6)Bidders Approval, and it was concluded that Bouygues

98 Chapter 5 Case Study: Jamaica Highway 2000 Tab. 5.2: Phase 1A Concession characteristics. Self-prepared with data from NROCC and TJHL (2001).

Grantor NROCC Developer TJHL Delivery DBFOM Mode Time 35 years Distance 45 km Other Right of construction of Phases 1B and 2A

Travaux Publiques had offered the most economically advantageous offer (Contractor General, 2007).

BTP and ASF established Trans Jamaica Highway Limited (TJHL), a company which would carry out the construction of the Highway and NROCC was established by the Government of Jamaica to provide oversight for the project.

5.3.2 Concession Agreement

Phase 1A

The Concession Implementation NROCC and TJHL (2001) was signed on November 2001 by the Grantor (NROCC) and BTP (Developer). The Concession stated that the period commenced on the Award Date (2001, November 21) for a thirty-ﬁve year period unless terminated by mutual agreement.

It is a comprehensive document which outlines ﬁnancial and operational obligations of the Grantor (Government of Jamaica) and the Concessionaire (TJHL). The winner of the bid for phase 1 was intended to have preference for completing further phases. Speciﬁcally, the Clause 6 of the Concession Agreement NROCC and TJHL (2001) states the Right of First Refusal in the construction of Phase 1B and Phase 2 –“Right of First Refusal, indicate that once the Developer meets the conditions precedent for the completion of Phase 1 of Highway 2000, it is incumbent upon the Developer within a certain time frame, to declare an intention to undertake the construction of Phase 2” (Contractor General, 2007).

Initially, therefore, it was intended that the developer would construct Phase 1B before starting with Phase 2A. However, in March 2006 the Cabinet gave approval to bring forward Phase 2A of the project, making it permissible for Phase 2 to precede development of Phase 1B. Table 5.2 shows a summary of the concession characteristics:

5.3 Phase 1A/1B - Western Paradigm 99 Tab. 5.3: Phase 1A and 1B Concession characteristics - Amendment of previous concession agreement. Self-prepared with data from NROCC and TJHL (2011).

Grantor NROCC Developer TJHL Delivery DBFOM Mode Time 35 years Distance 55,5 km Other Right of construction of Phases 1C and 2B

Phase 1B

The Concession agreement for Phase 1B NROCC and TJHL (2001), or “Amended and Restated Concession Agreement in respect of the Highway 2000 Project in Jamaica” was signed on January 28th 2011 between the Grantor (NROCC) and the Developer (TJHL).

This amendment considered the previous concession signed on November 2001 NROCC and TJHL (2001) as the Original Concession, which agreed that part 1A was successfully completed. The amendment also refers to the Mount Rosser Bypass Project as the “design, construction, operation, ﬁnancing and maintenance of the Mount Rosser Bypass, which is included in the scope of the Agreement as a section of Phase 1A”.

Finally, the amendment states that for the implementation of the part of the Toll Road formerly known as the “Phase 1B”, the parties have agreed to split such part into two new phases which are respectively named and deﬁned as Phase 1B and Phase 1C. In this regard, the amended concession states that the Developer may issue a notice “Phase 1C commencement Notice” informing the grantor that it will start to design, build, operate and maintain Phase 1C prior to phase 1C Long Stop Date.

5.3.3 Stakeholders Map

This section presents all the key players of the Phases 1A/1B for the Highway 2000 project showing its contractual relationships. The project Grantor is the NROCC, who signed a concession agreement with the concessionaire (TJHL). The two shareholders of TJHL are Bouygues TP (BTP) and Autoroutes du Sud de la France (ASF). Both of them provide all the equity for the project.

Jamaica Infrastructure Operator (JIO) is the responsible entity for toll collection and highway maintenance, under an Operation & Maintenance contract with the concessionaire. Since the concession contract establishes that toll collection and

100 Chapter 5 Case Study: Jamaica Highway 2000 Fig. 5.2: Highway 2000 Project, Phase 1A/1B Stakeholders Map under the contractual structure. Adapted from Anderson (2014).

highway maintenance are responsible of the developer for the concession period, JIO was established and is owned by TJHL.

The concessionaire is the National Road Operating and Construction Company Ltd (NROCC), a state owned enterprise under the control of the Ministry of Transport, Works and Housing which was established with the purpose of implementing High- way 2000. NROCC is the grantor under the concession agreement, and its obligations are guaranteed by the Government of Jamaica.

As it is shown by Figure 5.2, and is explained in more detail in the next section 5.3.4, the concessionaire signed loan facilities agreements with senior lenders who refinanced the project debt. In parallel to the concession, a construction and design contract was signed between the concessionaire and the contractor, Bouygues Travaux Publiques, who executed the designs undertaken by Pell & Frishman. Furthermore, traffic studies, insurance policies and consulting agreements were undertaken by engineering and insurance firms. Both the Contractor and the Operator hold relationships with the banks for its daily operation. Finally, the project is funded thanks to the tolls paid by the motorway users.

5.3.4 Funding Structure

As stated, the funding of the project was secured on the signature of the concession agreement in November 2001. Due to the complexity of the project, even before the start of the bid of Phase 1 both bidders approached the Inter-American Development Bank seeking for support due to the bank’s interest in the project. Nevertheless, the preparation of the IADB’s dossier would have delayed the start of the works and in order to avoid further delays and to simplify the project one of the bidders proposed

5.3 Phase 1A/1B - Western Paradigm 101 Fig. 5.3: Finance plan for the Phase 1A and 1B of the Highway 2000 project. Adapted from Anderson (2014).

to split phase 1 in two parts. The second section was intended to start as soon as further funding would be agreed with IADB.

After the selection of the preferred bidder, and after negotiations, the selected concessionaire was required to provide the major portion of the financing for the project. Specifically, and according to Contractor General (2007) the Concession Agreement stipulated a deadline for financial close in which all the Financing Equity, Commercial Debt, Export Credit Agencies, Supported Debt and Multi-lateral Institutional Debt should be in place.

As shown by Figure 5.3, and according to Contractor General (2007) the total ﬁnanc- ing to be secured by the Concessionaire was approximately US$ 283M (without any guarantee of the Government of Jamaica). This represented 72.5percent of the total project cost for the Phase 1. The other US$ 107M were to be raised with guarantees by the Government of Jamaica through Infrastructure Bonds issued internationally and locally. From the US$ 107M, US$ 92M were expected to contribute to the Phase 1A and US$ 15M to the Phase 1B.

The Government contributed in the form of a subordinated debt. This was to be repaid from the free cash ﬂow following the repayment of the secured senior lenders (commercial debt from the developer side), as well as from the excess cash ﬂows.

Since the project company failed to secure long term financing from the multilateral lenders at a first instance, financing was obtained in form of two bonds which had to be repaid in 2010 and 2011, and which were expected to be refinanced. Nonetheless, there was a shortfall in traffic revenues which dropped around 15% below projections because of an increase of fuel prices and recession. This left NROCC in a complicated position, since it did not receive the funds it needed from the project free cash flow to repay its loans. At that point, and with no available source for revenues, NROCC was forced to borrow more funds from Wachovia Bank in order to repay the amounts due on its bonds. In addition, NROCC also took a US$

102 Chapter 5 Case Study: Jamaica Highway 2000 260M loan guaranteed by the Government of Jamaica from the Banco de Desarrollo Economico y Social (BANDES) which is a Venezuelan state bank.

Nevertheless, and even with these further loans the situation from the project company did not improve. All the Project Company, NROCC and the Government of Jamaica were forced to reﬁnance the bonds which were maturing. Furthermore, the developer was threatening to withdraw from the project which would have led to a Bankruptcy default. If this would have happened, and according to the Concession agreement NROCC and TJHL (2001) the Government would have been forced to take over the project and repay the lenders. Since this would have been an unacceptable situation, the government sought assistance from multilateral institutions at that point.

The IADB had already shown his interest on the project, and followed his advancements from close due to its importance to the Jamaican economic development. Finally, the multilateral ﬁnancing package closed early in February 2011. It consisted of an 18 year amortizing limited recourse loan to the project company of US$ 285M, which replaced the bonds that matured in 2011. The loan have been lend by a syndicate of multilateral and bilateral agencies including the EIB (27%), IADB (27%), IFC (27%), PROPARCO (19%).

The financing package enable TJH to refinance 100% of its existing debt at unparal- leled conditions. The loan lowered the cost of the financing, and the pressure on the project cash flow (and thus on traffic revenues). At the same time, the refinancing provided additional funds for the construction of Phase 1B (or additional 10km to May Pen).

In fact, it would have been really complicated to secure financing for this project outside multilateral sources. At the time, Jamaica was hit particularly hard by the global credit and microeconomic crisis, and the Jamaican Government had just launched a restructuring of its sovereign debt after having agreed with the International Monetary Fund to enter into a Stand-By arrangement. This contextual situation in addition to the traffic risk associated with a project of that scale made really challenging to secure financing, especially at a time were most traditional sources were virtually shut off or severely restricted (Astris Finance, 2011).

5.3.5 Social and Environmental Safeguards

The link between Kingston and May Pen, conforming Phases 1A and 1B of the Highway 2000 project, and its main social and environmental challenges are the relocation for the Portmore ﬁshing community as well as the study of regional

5.3 Phase 1A/1B - Western Paradigm 103 ﬂooding issues. Furthermore, approximately 6 km of the Phase 1B pass through the northern boundary of a PBPA (Portland Bight Protected Area).

Overall, the Inter American Development Bank categorized the Project as Category A according to his Safeguard Compliance Policy (which is aligned with the World Bank’s policies, explained in detail in chapter 4.2.1) mainly based on potential impacts related to: Land acquisition and resettlement (relocation for the Portmore ﬁshing community), impacts to natural habitats (small portion of Phase 1A and the new road in Phase 1B which pass through the PBPA, the mangroves near the Portmore Causeway, and the potential problems by ﬂooding and erosion of the land). These impacts could mostly be avoided or managed by applying existing and readily available standard procedures, which are explained in the following sections.

Overview and Concession

According to the Concession agreement NROCC and TJHL (2001) signed between the grantor (NROCC) and the Developer (TJHL), the developer agreed on following the followings:

• Application to Natural Resources Conservation Authority in compliance with the Natural Resources Regulations.

• Provision of the Environmental Impact Assessment (EIA), which should be delivered for each phase of the toll road. Speciﬁcally, it is stated that the EAI should be comprehensive and include all the potential damage to the physical and social environment and the mitigation measures which will be taken into account to alleviate potential adverse impacts.

• Commitment of Developer to adhere to mitigation measures as recommended in the Strategic Environmental Assessment (SEA).

Furthermore, the Phase 1 Design and Construction Contract between TJHL and BTP stipulates health and safety, social, environmental and labor requirements including environmental protection measures (speciﬁcally treated in the EIA) as well as compliance with health and safety management plans and adherence to Jamaican labor laws, to name some.

104 Chapter 5 Case Study: Jamaica Highway 2000 Legal Framework

Normally, the traditional permitting process in Jamaica relies solely on EIA for projects. However, due to the size and scope of Highway 2000 the process was also extended to include a SEA.

According to Bank (2008) around 25 different pieces of national legislation or policy and six international treaties are relevant for the execution of this project in regards to issues such as natural resources management, mining and industry, heritage resource, land acquisition or resettlement among others. The main environmental, health and safety instruments that monitor those include: Environmental Review and Permitting Process (1997), Natural Resources Conservations and Act Regulations (1999), Air Quality Regulations (2002), Public Health Act (1976), Wildlife Protection Act, Endangered Species, Land Acquisition Act, as well as various speciﬁc environmental, social, and health safety requirements included in the Project contracts. For instance, an example of post-EIA public consultation can be found in Ltd. (2007a)

Compliance with Requirements

Phase 1A

First and foremost, a Strategic Environmental Assessment (SEA) was originally requested in 1999 by the Development Bank of Jamaica (who was responsible for the project implementation at the time, before it shifted to NROCC). The SEA was completed in March 2000.

For Phase 1A, the environmental permit process was completed individually for each of the three sections: The Old Harbor Bypass in April 2002, the segment from Kingston to Bushy Park in June 2002 and the Portmore Causeway in December 2003. These included the preparation of EIAs.

Furthermore, during construction, BTP submitted various monthly environmental reports and inspections held between 2002 and 2006. Up to date, NEPA has not reported any ongoing problems or violations of permit conditions. No sanctions or ﬁnes have been issued by NEPA or NROCC related to Phase 1A neither (Bank, 2008). In addition, Jamaican national law also recognizes workers’ rights of free association. Within this framework, the University and Allied Worker’s Union represented a part of the JIO workers and maintained a dispute with the management of the JIO which resulted in expanded beneﬁts for the toll workers, which are now employed through a subcontractor with higher wages.

5.3 Phase 1A/1B - Western Paradigm 105 As well as in Phase 1B, a Public consultation process took over during the completion of the EIA, with presentations held before, during, and after the completion of the report throughout the country including Montego Bay, Mandeville and Kingston including university groups, the Jamaica Institute of Environmental Professionals, Chambers of Commerce, Parish Councils, etc.

Phase 1B

In alignment with the completion of the SIA the year 1999, an application for an environmental permit for Phase 1B to the NEPA was sent in February 2007, who established that an EIA should be conducted for the highway. Therefore, the EIA process initiated following the NEPA announcement, and concluded in September 2007, and the Environmental Permit was granted by the NEPA on January 2008.

Besides the completion of technical reports in regards to air quality regulations, noise standards, solid waste management, and land acquisition, extensive public consultation was conducted for the entire Phase 1B program. Speciﬁcally, the consultation included: Publication of the terms of reference of the EIA for public review, individual stakeholder meetings (interviewing over 300 people in 20 communities), meetings with various government agencies, information sharing with NGOs and meeting with the Parish Councils. These consultations were followed by public presentations once the EIA was completed, presenting all the ﬁndings and following the regulations for public consultations.

Compliance with IADB Requirements

In addition to Jamaican Government Requirements, the ﬁrst part of the project was also intended to meet the IADB requirements. The overall IADB Safeguard Policies and Directives are really similar to those of the World Bank Group already presented in section 4.2.1. In this case, the policies that apply to this project are Directives B.4 (Other Risks), B.5 (Environmental Assessment), B.6 (Consultations) and B.9 (Natural Habitats and Cultural Sites.

Furthermore, the IADB required as part of its Loan agreement that the borrower and all the portions of the project, would, at all times during the loan agreement: Comply with all applicable environmental, health and safety, social and labor regulatory requirements of The Country of Jamaica, the IADB Policies, the IFC Performance Standards, consult with IDB before approving substantive changes, as well as follow a strict list of recommendations speciﬁed in Bank (2008) which include submission of resettlement plans and strategies to the Executive Board of Directors, waste management strategies, environmental and social management plans, contingency

106 Chapter 5 Case Study: Jamaica Highway 2000 plans, health and safety plans, an updated status report, an agreed noise monitoring, enhancement plans, etc.

5.3.6 Conclusion

Overall, Phases 1A and 1B of the Highway 2000 project seem to be aligned with the pre-conceived hypothesis. In terms of Governance structure and decision process, the project had to be re-scheduled and divided into various phases until it was successfully funded. Furthermore, the IADB’s interest in the project spanned for more than ﬁve years before its participation, and the developer was threatening to withdraw from the project, which would have led to a Bankruptcy default. In addition, BTP started Phase 2A and did not meet budget nor time requirements, which forced the Jamaican Government to accept further proposals.

On the other hand, the Project met various international social and environmental safeguard standards. In addition to Jamaican Standards, all the involved parties were required to meet with IADB and IFC requirements, which led into a transparent process which involved a great number of public consultations and resulted into the successful5 relocation of the Portmore ﬁshing community and application of various environmental safeguards.

5.4 Phase 2A - Eastern Paradigm

5.4.1 Overview

As a winner of the bid for Phase 1, BTP made use of its “Right of Construction” for phase 2A and started executing the phase of the project in June 2007. However, several delays and cost overruns eroded the developer and the Government relationship. In particular, a cost increase of the 24% (raising the cost from $90M to $124M) as well as a delay in the expected completion date took place in 2008.

During 2009 and 2010, BTP and the Jamaican Government discussed over the responsibility of such events, and the Solicitor General ruled in favor of the Jamaican Government, stating that the contractor did not successfully anticipate the geotechnical risks and that it should be completely responsible for the production of a new design proposal to be submitted to the Government.

This coincided with the time when CHEC was starting to expand its business t in Jamaica. The Group was already present in the Caribbean since 2002 when it was

5Successful understood as there have not been any big complaints in the press or legal actions undertaken by any NGO to the project developer nor the Government.

5.4 Phase 2A - Eastern Paradigm 107 awarded a contract for a Container Terinal Development in the Port of Balboa in Panamá and 2004 when it signed a powerful alliance with the Costain Group in Mexico to design and construct the breakwater for a liqueﬁed natural gas (LNG) receipt terminal. While discussions about BTP’s responsibility for Mt. Rosser overruns were being held, CHEC was signing an agreement with the Jamaican Government to be the General Contractor under the Ministry of Transportation and Works and the National Works Agency for the Jamaica Development Infrastructure Programme (JDIP) and the Palisadoes Shoreline Protection Rehabilitation Works. The signature of those agreements preceded the opening of the CHEC ofﬁce in Jamaica, on April 22, 2010.

Since the relationships between the Government of Jamaica and CHEC were eroded, and conﬁdence between the parties diminished after the overruns and long negotiations, the Government decided to extend an invitation to CHEC to submit a new design proposal for the Mt. Rosser bypass and the completion of the rest of the North-South Link of Highway 2000.

After accepting CHEC’s proposal, a Memorandum of Understanding (MOU) was signed in January 2011 between the Government of Jamaica and CHEC. The major provisions of the MOU were: 1) A 50 year concession agreement to be let to CHEC for the Design, Construction, Financing and Operation of all sections of the Highway from Spanish Town to Ocho Rios 2) CHEC would ﬁnance the completion of the Mt. Rosser section of the North-South Link as part of this concession 3)NROCC would be responsible for acquiring all the lands for the construction of the High- way. At that point, CHEC established Jamaica North South Highway Company (JNSHC), a subsidiary company of CHEC which would be responsible for the project development.

In addition to the MOU, a Framework Agreement and an Implementation contract were also signed between the NROCC and JNSHC. In March 2012 the National Contracts Commission gave its no-objection to proceed with the project, which cleared the way for the completion of the negotiations. The concession agreement between the two parties was ﬁnally signed on June 21, 2012. The parties agreed that CHEC would refund to NROCC the full amount invested to date in Mt. Rosser Segment ($120M) in addition to design, build and operate the rest of the North- South Link, which had an estimated cost of $600M to be recovered in a 50 year concession from toll revenues.

This whole process raised several transparency concerns among the Parliament’s opposition and public opinion, who stated that the project should have been opened to international tinder. To address that matter, the Ofﬁce of the Contractor General (OCG) issued an open statement Contractor-General (2012) regarding the proposed

108 Chapter 5 Case Study: Jamaica Highway 2000 highway 2000 as well as the Container Transshipment Hub Projects. In the statement, the OCG states that “wishes to publicly express its grave and serious concerns regarding the Government of Jamaica’s decision to embark upon two multimillion dollar investment projects, against the considered recommendations which have been advanced to the GOJ and its representative ofﬁcers, by the OCG”.

The OCG also states that the two projects were initiated pursuant to the receipt of Unsolicited Proposals. Unsolicited Proposals were agreed on not to form GOJ’s preferred basis for engaging contactors to undertake multi-million dollar investment projects, and on the views of the OCG this receipt conforms a corruption enabling device. Furthermore, it is proved that the GOJ had deliberately bypassed the OCG and concerns are raised on CHEC previous practices in the Caribbean and Latin America (where they were engaged in a similar fashion), including the award of the $400M contract for the Jamaica Development Infrastructure Programme, which was the subject of an OCG Investigation and a GOJ commission Forensic Audit under the main objective of “Determine whether there was any fraudulent transaction or acts of fraud which would have ostensibly occurred between the representatives of the Government of Jamaica and CHEC” (Contractor-General, 2012) during the contract award.

Additionally, the OCG expresses its concern for the financial viability of the CHEC proposal, since it finds that the project is not financially viable in terms of the return on investment over the life of the proposed 50 year toll concession and that CHEC would not recoup the majority of its $ 720M investment on the project. In the same report, it is stated that based on disclosures of the Managing director of NROCC, the project would have relevance in a competitive tender process because it simply cannot be matched by any other entity or person, because according to Contractor-General (2012)

1. “The Results of the Analysis using Steer Davies Gleave 6 revenues projections show that that project would not be viable if it was to be undertaken on commercial terms at available interest rates”.

2. The differences in projected SDG vs CHEC Revenues are about 270% for the period 2015 to 2019.

3. Based on the aforementioned, the project over a 50 years concession could not be undertaken by any other Company but a Chinese Firm given their availability of cash.

6Steer Davies Gleave is a leading independent transportation consultancy, which has been the trafﬁc advisor to NROCC since the year 2000

5.4 Phase 2A - Eastern Paradigm 109 It is also stated that CHEC shown his unwillingness to participate in any competitive tender process, which would reinforce the hypothesis that the project is not com- mercially viable. Therefore, it would not have been possible that the project would have passed through an open-market competitive bidding process, since it would have open up the CHEC proposal to questioning from its fellows in the international market place.

Finally, the Contractor-General (2012) also raises its concerns in regards to the CHEC sub-contracts. Since the development and construction of the North-South Link is packaged and contractually consummated as a strict commercial transaction, it would leave the selection of the subcontractors to be utilized to the sole discretion of CHEC despite the fact that GOJ would be granting a 50 years transaction, which can have important consequences in terms of labor conditions or quality standards.

5.4.2 Concession Agreement

The Concession Agreement NROCC and JNSHC („Concession Agreement in respect of the North-South Highway Project in Jamaica“) between the National Road Operating and Construction Company Limited (NROCC) and Jamaica North South Highway Company Limited (JNSHC) on June 21, 2012. The concession states that the period commenced on the Effective Date for a ﬁfty year period after the earlier of the ﬁnal handover date or the third anniversary of the effective date, unless terminated earlier by mutual agreement.

The concession is a comprehensive document which outlines financial and operational obligations of the Grantor (NROCC) and the Concessionaire (JNSHC). The document states that JNSHC is responsible for the design, build, finance, operation and maintenance of the 68 km conformed by the three sections of the North South Link of the Highway 2000 project for a period of 50 years. On completion of this concession, the roadway will be handed back to the Government of Jamaica at no cost. In addition to the toll revenues generated by traffic, the developer has the right to develop 1200 acres of land along the highway for commercial use. Some other important features of the proposed concession agreement are the following:

• The project consist of a 4-lane highway with all grade-separated interchanges.

• The Government of Jamaica did not make any ﬁnancial investments in the project neither it provided any loan guarantees, revenue guarantees or trafﬁc guarantees for the project.

• The full geotechnical risks were taken by the contractor

110 Chapter 5 Case Study: Jamaica Highway 2000 Tab. 5.4: Phase 2A Concession Characteristics. Self-prepared with data from NROCC and JNSHC („Concession Agreement in respect of the North-South Highway Project in Jamaica“) and Anderson (2014).

Grantor NROCC Developer JNSHC Delivery DBFOM Mode Time 50 years Distance 68 km 1200 acres for commercial development Other along the highway

• The developer was responsible for completing the Mt. Rosser Project and NROOC was refunded around $120M for the expenditure up to date.

A number of conditions precedent (CP) had to be completed before the concession could become fully effective. These CPs were completed on January 28, 2013 and the Concession Agreement became effective this date, which implied that the Highway had to be completed by January 28, 2016. Table 5.4 summarizes the characteristics of the concession agreement.

5.4.3 Stakeholders Map

This section presents all the key players of the Phases 2A for the Highway 2000 project showing its contractual relationships. The project Grantor or concessionaire is the NROCC, who signed a Memorandum of Understanding, a Framework agreement, an implementation contract and a concession agreement with the developer (JNSHC). JNSHC is a subsidiary company of CHEC, who is its unique shareholder.

As shown by figure 5.4, the Highway is operated by the concessionaire, and it was constructed by CHEC who followed the designs of the American engineering firm Aecom. Since China Policy Banks have a non-disclosure policy regarding its information (as already mentioned in the study limitations at section 1.2) it is not possible under which terms the project has been financed and which is the exact contractual relationship between JNSHC and China Development Bank.

It has been disclosed that CHEC has used its own trafﬁc estimates for the project, and Stanley Consultants served as the technical adviser to NROCC during the design and construction of the Highway. This time, the Government of Jamaica has transferred all the risks to the project developer, and therefore has not provided any guarantees for the project. Finally, the project is ﬁnanced thanks to its users tolls.

5.4 Phase 2A - Eastern Paradigm 111 Fig. 5.4: Highway 2000 Project, Phase 2A Stakeholders Map under the contractual structure. Self-prepared with data from Anderson (2014), CHEC Latin America and NROCC (2013).

Fig. 5.5: Finance plan for the Phase 2A. Adapted from Anderson (2014).

5.4.4 Funding Structure

The project was expected to cost $600M in addition to the $120M to be paid to NROCC for the takeover of the Mt. Rosser bypass. The $600M were ﬁnanced by loans from the China Development Bank and from equity provided by CHEC.

In particular, and as shown by ﬁgure 5.5 CHEC provided $144M in Equity (which accounted for the 24% of the project) and the China Development Bank provided $456m in Loans, which accounted for the 76% of the total amount of the project.

It is especially relevant to note that the Government of Jamaica did not make any ﬁnancial investment in the project, and did not provide any loan guarantee, revenue guarantee or trafﬁc guarantee. In return, however, the concession period extends for 50 years (instead of the traditional 35 year structure) and the Developer has the right to exploit 1200 acres of lands along the highway for Housing, Commercial and Touristic uses.

112 Chapter 5 Case Study: Jamaica Highway 2000 This situation makes the deal really attractive for the Government of Jamaica, and some have even described the deal as almost a “gift” from China (Contractor-General, 2012) given the fact that trafﬁc revenues are not estimated to be enough to recoup the investment, and wonder on which might be the reasons why the Chinese would have undertaken such a venture: “Further, the GOJ is unable to provide the OCG with any reason whatsoever, which has driven it to accept the proposal from CHEC, a seeming benefactor, despite the fact that same has not been branded as a gift from the Chinese Government, a concession of any sort, or the deliverables of a Bilateral Agreement between the GOJ and the Chinese Government.” (Contractor-General, 2012)

5.4.5 Social and Environmental Safeguards

Phase 2A consists of the link between Ocho Rios and Spanish town. Since these three phases were executed at different points in time, their Environmental Impact Assessments were also prepared at different time stages.

The main social and environmental challenges for the link between Moneague and Linstead (or Mt. Rosser bypass) were the loss of terrestrial habitat and biodiversity because of the loss of a signiﬁcant part of the existing dry limestone forest, and the modiﬁcation of the physical environment, especially when the highway traverses rolling and irregular terrain at Mount Zion, Schwallenburgh and Faith’s Pen most of which had also been previously mined for bauxite.

Natural Hazard is another of the main environmental challenges of the link, since the section has records of historic ﬂooding at the Moneague and Tadmore groundwater lakes, which is mainly a combination of geology, intense rainfall and topography. These impacts could mostly be avoided or managed by applying existing and readily available standard procedures, which are explained in the following sections.

Overview and Concession

According to the Concession agreement NROCC and JNSHC („Concession Agreement in respect of the North-South Highway Project in Jamaica“) signed between the grantor (NROCC) and the Developer (JNSHC), the developer agreed on:

• Taking all the steps necessary to obtain all the environmental permits required by the National Environmental and Planning Agency and any other relevant governmental or regulatory agency

5.4 Phase 2A - Eastern Paradigm 113 • Relying on the EIA and any other Environmental Documentation, following the completion of the EIA and complying with the permits issued with the EIA.

Furthermore, the concession contract stipulates that the Developer shall be entitled to a payment of, or an adjustment to, the Compensation amount if any provision of the EIA is incorrect or misleading in a material respect. The developer also agrees on complying with social and labor requirements and health and safety plans in adherence to Jamaican labor laws.

Legal Framework

The legal framework applied to the context of this project is the same as described for the Phases 1A and 1B in section 5.3.5

Compliance with Requirements

As with Phase 1, a Strategic Environmental Assessment (SEA) of the Highway 2000 was commissioned in 1999 by the National Bank of Jamaica Ltd as part of the development of the functional planning design. In addition to providing guidelines for design and alignment, the report also recommended further areas of study through Environmental Impact Assessments (EIA) that would support the application for an environmental permit.

Moneague to Linstead

The link between Moneague to Linstead, also known as the Mt. Rosser Bypass was ﬁrst constructed by BTP in 2007 and later on trespassed to CHEC in January 2013. Therefore, the ﬁrst EIA was undertaken by BTP before the start of the works.

According to Ltd. (2007b), an application for a permit for the Mount Rosser Bypass was submitted to the National Environment and Planning Agency (NEPA) in January 2007. NEPA responded in April 2007, stating that an EIA should be conducted on the proposed development. The EIA included: a description of the objectives, and the corridor for development, an identification of the significant environmental issues, an outline of the policies, legislation and regulations, a prediction of the impacts of the development to the environment, an identification of the mitigation actions to minimize those impacts, the design of a monitoring plan, a description of the alternatives considered for the project and the conclusions.

114 Chapter 5 Case Study: Jamaica Highway 2000 Finally, the Environmental Permit was received before the start of works on June 2007. When CHEC took over the section, all the works had been completed instead of the problematic section, and apparently no additional EIA were required since the alignment remained the same.

Ocho Rios to Moneague

CHEC started construction on the link between Ocho Rios and Moneague on October 2013. The Environmental Impact Assessment Ltd. (2012b) was submitted to the NEPA in August 2012, and the application for a permit was made to the NEPA in March 2012, which issued the environmental permit in April 2013, in parallel with the other alignment.

As stated by the Jamaican principles, and in concordance with the previous EIA, Ltd. (2012b) consists of an executive summary, a detailed project description, legal and regulatory considerations, a description of the environment, the identiﬁcation of the potential and cumulative impacts as well as the analysis of alternatives and the mitigation strategies. Finally, the EIA also proposes an environmental management and monitoring programme and sets the basis for the reporting requirements.

Linstead to Spanish Town

CHEC started construction on the link between Linstead and Spanish Town on November 2013. The application for the environmental permit was submitted to the NEPA in March 2012, and by 2013 all EIA and public consultations were completed. NEPA issued the permit in April 2013.

Therefore, the leg was approved for construction and the Environmental permit was issued. Nevertheless, CHEC sought to change the initial sections, which proposed realigned section returns adjacent to the recently constructed Caymanas Country Club Estates (CCCE) housing development and end east of the existing Caymanas Estate intersection with Mandela Highway. These changes triggered the completion of an amendment of the previous EIA, and Ltd. (2012a) was produced in order to support the existing Environmental Permit.

As with Phases 1A and 1B, Public consultations are also given importance in the EIA, however in a much lower scale. For instance, Ltd. (2012b) only mentions that Public Consultations should be the ﬁrst direct involvement of the affected public or community during the EIA, however any strategy is design in order to carry them out.

5.4 Phase 2A - Eastern Paradigm 115 Compliance with other Requirements

In principle, and since the project was funded by the China Development Bank, the project should also follow the social and environmental safeguards proposed by the institution, and described in detail in the section 4.2.2. Since China Policy Banks follow a Non-Disclosure Information Policy, it has been impossible to verify whether the developer complied with those procedures.

Incidences

In regards to the social and environmental safeguards of Phase 2A, there have also been some further incidences which are worth mentioning, and which have a signiﬁcant impact onto the previously set hypothesis. The identiﬁed incidences through secondary data are: labor and worker problems, Quality execution issues and Environmental standards concerns.

In terms of labor worker problems, according to Jamaica Observer, 2014, around 180 workers went on strike during the construction of the North-South link for Highway 2000 in April 2014. The unions demanded that all contractors, foreign and local, should have adhered to the Joint Industrial Council (JIC). The JIC is a decades old convention which allows the two unions to share representational rights on all construction sites in Jamaica. The main unions taking part in the construction, Bustamante Industrial Trade Union (BITU) and the National Workers Union (NWU) were not being recognized as bargaining agents for construction workers.

The North South link of the Highway have also presented execution quality problems. On June 6th, 2016, just six months after its inauguration, a massive landslide followed an intense rain on a section of the North-South Highway leg of Highway 2000 between Unity Valley and Treadways in St. Catherine. The president of the Jamaican Institute of Engineers (JIE), Gary Walters, said that adequate stabilization work would have prevented the embankment failure which caused the massive landslide, and he wonders whether adequate systems are in place to prevent similar events along the roadway. He also stated that the amount of rain that fell last week was not unusual, and this intensity does not usually cause massive landslides like the one which happened. Finally, Walters also stated that even if some sections of the North-South highway link have adequate reinforcement, this has not been done consistently along the entire roadway (Jamaica Gleaner, 2016). This declarations, are also aligned with the concerns raised by Simon Mitchell, professor of Geology at the University of the West Indies. He said that the lack of transparency around the investment and the building project was worrying, but on top of that, “There is a big issue with the middle section of the road and what is going to happen when there is

116 Chapter 5 Case Study: Jamaica Highway 2000 an earthquake? That part of the road is on top of all that. There is real concern as how stable it is. The government showed me the plans that CHEC used and I am still not convinced that the solution is safe”(The Guardian, 2015).

In this case, time proved that Prof. Mitchell was right, and it was not an earthquake but just some average heavy rains which caused a landslide on the middle section of the highway which proved that the section is not as stable as it should be.

The last concerns were regarding the application of the environmental standards. In particular, Jamaica Environment Trust (JET) was threatening to do a battle in court with the National Planning Agency (NEPA) for breaching public consultation guidelines. JET raised concerns on two issues. In ﬁrst place, according to the environmental advocates the public consultation of the impact of a section of the roadway was scheduled to take place days after the thoroughfare was to be launched. Also, advocates said that the consultation was to take place despite serious environmental concerns that were raised in an assessment of the project. In second place, Diana McCoulay, executive director of the JET, stated that a review of the EIA done on the Linstead to Caymanas segment of the highway in St Catherine had shown several failings. In particular, the review showed risks of landslides, ﬂooding, and risks to forests, and claimed for a decision to be taken to assess those risks concurrently with the construction of the road.

Nevertheless, her concerns were not taken into account, and the road was opened in normal conditions. Time has also proven right McCaulay’s statement, since it was exactly a landslide which happened around St. Catherine on June 6th, 2016.

5.4.6 Conclusion

Overall, Phase 2 of the highway has proven the hypothesis regarding eastern paradigms to be right. In short, once CHEC took over, ﬁnancing for Phase 2A was secured quickly and without any risks apparent (directly derived from the project and in the short term) for the Jamaican Government. The project was delivered on schedule and on budget, and no major setbacks were detected on those regards during the construction of the project.

On the other hand, all this comes at the expense of various things. In ﬁrst place, the concession contract spans a period of 50 years and comprises the exploitation of terrains along the highway for touristic purposes. In addition, it also comes at the expense of social and environmental safeguards. Not only the OCG raised its concerns about the feasibility of the project, but several independent experts and NGO’s publicly criticized the opaque bidding process, the incompliance with environmental requirements and the lack of quality of the executed works. All these,

5.4 Phase 2A - Eastern Paradigm 117 proved to be justiﬁed concerns since there have already been unjustiﬁed landslides just 6 month after the opening of the highway, public consultations were not made according to standards during construction period, and workers went on strike.

5.5 Comparison and discussion

This section compares the development procedure of Phases 1A/B (representing the western paradigm) and Phase 2A (representing the eastern paradigm.

To do so, a general overview of the two concession contracts is given in ﬁrst place both by analyzing the general contractual terms and the risk transfer. This is important to set the context and give a glimpse of which might be the direct input that the decision maker is confronted with in a ﬁrst moment. Secondly, all the hypothesis are contrasted by undertaking a comparison in three angles: Governance structure and project cycle, social and environmental safeguards compliance, and quality or post-construction issues.

By this, it is given a sense of how the contractual differences in the concession contract translate into real execution.

5.5.1 Overview

The contractual differences between the concession grantor and the developer are given by the concession contracts NROCC and TJHL (2001) and NROCC and JNSHC („Concession Agreement in respect of the North-South Highway Project in Jamaica“) signed by all the involved parties at the start of the project works.

At ﬁrst, the contractual general terms differences are highlighted. Secondly, a more detailed analysis about the risk transfer in each of the concessions contract is developed. Concerning the contractual general terms, the most notable difference between the two concessions is its length. While for Phase 1 the concession contract spans 35 years, Phase 2 spans for 50 years which not only consider the exploitation and maintenance of the highway, but also the 1200 acres of terrain to be exploited with touristic and commercial purposes.

This difference is, however, due to the distinct price and risk allocation of the two projects. According to Anderson (2005) and as shown by Table 5.5, the developer of Phase 2 (CHEC) accorded to take more risks (both in the ﬁnancing and in the construction) than the developer for the ﬁrst Phase (BTP). In addition, construction cost for Phase 2 was higher than Phase 1, and while the GOJ contributed with 27,5% of the funding for the former, the later was fully funded by the developer. Obviously,

118 Chapter 5 Case Study: Jamaica Highway 2000 Tab. 5.5: Risk allocation comparison between Concession contracts on Phase 1A/B and Phase 2A. Adapted from Anderson (2014).

Phase 1A/B Phase 2A NROCC TJHL NROCC JNSHC Trafﬁc X X Revenue X X Design and Construction X X Access to Lands X X Utility Relocation X X Political Risk X X Change in Law X X Financial Risks X X Termination Risks - Grantor X X Termination Risks - Developer X X Termination Risks X X Outline Design Risks X X the higher the volume of risk transferred to the developer, the longer will be the concession contract, and the higher its ﬁnancial return.

The main contractual points on risk transfer covered in NROCC and TJHL (2001) and NROCC and JNSHC („Concession Agreement in respect of the North-South Highway Project in Jamaica“) correspond to Trafﬁc and Revenue, Design and Construction, Access to Lands, utility relocation, political risks, ﬁnancial risks and termination risks. As mentioned, the concession contract will be more favorable to each of the parties depending on the amount of risk that it is able to transfer.

Obviously, there are some risks which are typical for the developer such as the technical risks derived from design and construction, the prediction of trafﬁc revenues or the operation costs. Similarly, there are some risks unavoidable for the Public Partner, which use to correspond to Changes in law and regulations, Government variation changes (or political risk), government bureaucracy or expropriations.

For the Highway 2000 Project, the GOJ have assumed some of those unavoidable risks in both Phases. For instance, the risk derived from Access to Lands, Utility Relocations, Political will (in case of a change of Government) and Change in law have been assumed by NROCC in Phase 1A/B and in Phase 2. In the same way, both developers have assumed trafﬁc, revenue and design and construction risks in its respective phases.

The main differences are given by ﬁnancial risks, termination risks and outline design risks. In fact, NROCC assumed an important part of the ﬁnancial risk in Phase 1A/B by contributing with the 27.5 percent of the funding structure by infrastructure bunds and loans. This risk was obviously undertaken by the developer on Phase

5.5 Comparison and discussion 119 2A since the NROCC did not provide any loan (nor trafﬁc or revenue guarantee), transferring all the ﬁnancial risks to the developer.

The outline design refers to the design as set out in NROCC and TJHL (2001), which provides the core design and construction requirements, includes the provision of a full and complete design, securing of all approvals, supply of all materials and performance of all work necessary to construct the Toll road. While in the Phase 1A/B the NROCC did not fully transfer this risk to the developer (as it is seen by the 24% cost increase in the Mt. Rosser Bypass), CHEC took responsibility of any of the risks associated with the outline design in its concession agreement.

Finally, the other big difference is made by the allocation of the termination risks, in particular to determine whose liability are the loans when the developer is at fault, the government is at fault or when no one is at fault. To this extent, NROCC (or in this case the GOJ) is liable for the loans if the Grantor is at fault in both phases. However, for Phase 1A/B the NROCC is also liable for the loans if the developer is at fault or when no one is at fault, taking full responsibility. This caused, for example, the developer threat to abandon the project when trafﬁc revenues were below 15% estimations, fact that pushed the GOJ to renegotiate debt ﬁrst with the Venezuelan state bank and later with the Multilateral Institutions. On Phase 2A, the developer took full responsibility of its termination risks at default and when no one is at fault.

In summary, it the Government of Jamaica took much more risks on Phase 1A/B of the project than in Phase 2A. The fact of the GOJ taking this mount of risks at Phase 1 is especially relevant in a project of this nature where the developer is also a construction company which could balance its proﬁts during construction phase with those on the operation phase, decreasing performance. The next section shows how these difference translated into project execution and hypothesis validation.

5.5.2 Discussion

This section shows how the differences highlighted by the concession contract translate into project execution and hypothesis validation by comparing the Governance structure and project cycle, the social and environmental safeguard standards and the construction quality and longevity.

Governance Structure and Project Cycle

The Governance structure and the project cycle are reﬂected by the stakeholder map, funding structure and project outline.

120 Chapter 5 Case Study: Jamaica Highway 2000 Phase 1 was planned to be completed at once. However, the difficulty to finance the project triggered into various delays and re-structuring of the project in three sections. This also pushed the Government of Jamaica to take a considerable amount of risks, by financing the project through infrastructure bonds. Even with the multilateral financing package and the financial effort from the Government of Jamaica, Phase 1 has not still been fully completed as of today, when designs for Phase 1C have not been undertaken yet.

In other words, Phase 1 construction started on June 2002 (with Phase 1A), and it took ten years to complete the section until Phase 1B opened to trafﬁc in August 2012. Objectively, it has taken 10 years to construct around 56 km of highway, and Phase 1 is still uncompleted.

Phase 2 was a complete different story. CHEC’s proposal was accepted with a complete lack of transparency, and the project was not open to international bidding. Even an independent public organism auditing the parliament, the Office of the Contractor General (OCG) released a public communicate stating that the procedure lacked of transparency and raising concerns on the project feasibility. That being said, after the signature of the Memorandum of Understanding in late 2010, the Government of Jamaica did not have to take any responsibility on financial, design or termination risks. The works started promptly in January 2013, and finished on budget and on time in January 2016. For the western paradigm, it has taken 3 years to construct around 55 km of highway (Mt. Rosser was mostly completed in except of the zone of technical conflict).

It is clear then, that this case study validates the first hypothesis. The Eastern paradigm decision process is faster: Projects are financed faster and delivered faster. Western paradigm decision process has been proved to be slower, and its projects experience bureaucratic drag. Which has been proved to be true: IADB interest spanned various years, and when materialized it still involved field visits and various other procedures before closing the re-financing package.

In addition, it can be added that according to this case study, the Eastern Paradigm shows a clear lack of transparency on its developing process, which does not help to raise conﬁdence on various of the local stakeholders.

Social and Environmental safeguards

Social and Environmental safeguards are deﬁned by the compliance of the legal requirements in each of the phases.

5.5 Comparison and discussion 121 Tab. 5.6: Compliance with different environmental standards by the two phases of the Jamaica Highway 2000 project. Self-prepared.

International Standards Jamaican Standards IADB IFC CDB 1A/1B X X X - 2A X - - ?

As shown by table 5.6 both for Phase 1A/B and for Phase 2, the scope and content of the EIA was aligned with the Jamaican standards and the concession agreement. In addition, the EIA were submitted on time and the Environmental Permits were acquired before the start of the works. On paper, both developers complied with all the legal requirements and no major environmental consequences have been notiﬁed to date.

Nevertheless, it has to be said that in addition to Jamaican Standards, the developer of Phase 1A/B also had to comply with international standards by the IADB and the IFC, which involved additional environmental reports to be submitted to the multilateral institutions before the project was presented to the Board of Directors for approval. In theory, in concordance with 4.1.2 Phase 2 should have also followed similar procedures with the CDB. However, since China Policy Banks follow a non- disclosure information policy, this has been impossible to verify.

That being said, and while on paper all the legal procedures have been followed, the execution of Phase 2A have presented some relevant problems in terms of labor and environment. 180 workers went on strike during the construction were claiming further rights for their workers unions, which were not being recognized as bargaining agents in front of CHEC. In addition, the Jamaica Environment Trust (JET) threatened to do a battle in court with the National Planning Agency (NEPA) for two reasons: having breached public consultation deadlines while the EIA were undertaken, and because the EIA done on the Linstead to Caymanas segment showed several failings which triggered important risks such as landslides and ﬂooding among others. These concerns proved to be right, since on June 6th 2016 and just six month after the ofﬁcial opening of the North-South link, a regular rain caused a massive landslide followed on the highway. Various experts agreed that this was due to a lack of execution quality and prevention from the developer of the section.

These also validates the hypothesis regarding environmental and social safeguards. In fact, western paradigm project followed more strict and comprehensive environmental standards which resulted in successful public consultation processes and environmental results. The eastern paradigm have proven to be less strict with environmental safeguards, and even though it has complied with the legal standards settled by the Government of Jamaica, various NGOs initiated legal processes claiming that public consultations where breached. In addition, the EIA proved to be of

122 Chapter 5 Case Study: Jamaica Highway 2000 bad quality, and unjustiﬁed landslides have taken place 6 months after the ofﬁcial opening.

This situation partially validates the hypothesis that differences on environmental and social standards compliance are highlighted when borrower country’s standards are low, since if Jamaica would not have set minimum requirements, it cannot be stated that the eastern paradigm would have completed any environmental study at all (since there is no proof that CDB standards were met).

Construction Quality and Longevity

In addition, the aforementioned situation also proves that eastern paradigm projects have more issues post construction, since it is the unique section that have presented a massive landslide and raised the concerns of various technical experts. This fully validates hypothesis four, which states that western paradigm projects seem to have fewer quality issues post construction.

5.5.3 Conclusion

Overall, table 5.7 shows whether the different research hypothesis have been validated along this evaluation.

Both the analysis and the case study section have proved right the hypotheses H.1. The analysis shows that China Policy Bank’s governance structure is much simpler, and its decision process much more straightforward than those of the World Bank Group. These differences are also translated into project execution, and as shown by the case study, Phase 2A execution and funding was faster, while Phase 1 experienced project re-structuring and delays mainly due to bureaucratic and ﬁnancial complexity. In addition, a worrying lack of transparency has also been proven on the Case Study, with an independent public organism issuing a public statement explaining that the allocation of the project to CHEC was not made according to international standards (it was not opened to international bidding) not complying thus with the Jamaican principles of transparency.

A similar situation happens on the social and environmental standards side. While the analysis of both World Bank’s and China Policy Banks standards shows that the former are more strict and comprehensive than the latter, this difference is also translated to project execution. Even if both developers have complied with Jamaican law’s requirements, the National Environment Planning Agency has been taken to courts by an NGO who complains about irregularities on public consultations and quality of the EIA. In addition, these concerns have proved to be true, since a regular

5.5 Comparison and discussion 123 Tab. 5.7: Research hypothesis validation summary. RT refers to Round Table, as explained in 2.4. LR refers to Literature Review2. Self-prepared.

Validation? Case Hypothesis Source Analysis Study Governance Structure H.1a RT X X and Project Cycle H.1b RT X X Social and Environmental H.2a LR X X Safeguards H.2b LR - - Investment Portfolio H.3 LR X - Construction Quality and Longevity H.4 RT - X

rain recently caused a landslide on the highway, also proving that the quality of the construction is low, and therefore validating hypothesis H.4.

Furthermore, hypothesis H.2b is partially validated. In this case, even if the eastern paradigm have followed all the legal procedures, several environmental and social issues have been raised upon the completion of phase 2. On the other hand, phase 1 has not yet presented any, nor any public institution or NGO has appealed to courts or released a public statement expressing its concern for those issues. While no one can assure (and facts does not seem to conﬁrm) that the eastern paradigm have undertaken any further environmental actions (to comply with CDB’s standards), it can neither be stated that when no local standards are present, any environmental and social safeguards would be undertaken. Hypothesis H.3 on the quality and risk of the investment portfolio, is validated as well on the analysis section, where it is seen that Chinese projects are bigger in size and more numerous on riskier regions.

In summary, the Jamaica highway 2000 case study offers a probable validation for the hypothesis on eastern and western paradigms on infrastructure development. That said, additional research should extend into comparing the policies and processes between a wider variety of counterpart institutions in both regions (i.e. the newly set Asian Infrastructure Fund and the World Bank) as opposed to a singular comparison between China Policy Banks and WB. Additionally, it is imperative to recognize that the China Policy Banks and the WB are at different stages of maturity where the Asian institutions have less than a ﬁfth of the runway that the WB has had to ﬁne-tune its policies, regulations, and grounding on social and environmental safeguards.

124 Chapter 5 Case Study: Jamaica Highway 2000 Conclusions and Further 6 Research

„The best road to progress is Freedom’s road. — John Fitzgerald Kennedy (35th President of the United States of America)

This research has started by framing the basis of infrastructure development: how it is related to economic growth, who are its main stakeholders, who is responsible for it, and how it can be funded. Within this context, the role of multilateral agencies has been described, presenting the change in trends of the last decades, which have seen how the main investment ﬂows into developing nations have shifted from western to eastern economies. The differences between these two paradigms, with certain limitations, have been exempliﬁed by studying the west’s World Bank Group and the east’s China Policy Banks.

When China Policy Banks lent more money than the World bank alone in 2010 to developing nations, scholars and practitioners believed that eastern paradigm projects are ﬁnanced and delivered faster, while western paradigm projects are more bureaucratically tedious with delays caused by stringent social and environmental safeguards, layered and slower decision-making process, as well as a general lack of coordination between approval authorities and stakeholders. However, western paradigm projects are believed to have far fewer quality issues or negative externalities post-construction. Indeed, this has kindled the hypotheses for this research paper.

This hypotheses has been contrasted in a two-pronged methodology. First, against a theoretical framework through an archival analysis on the World Bank and China Policy Bank policies. Second, it has been seen how these differences translate into project execution in the analysis of a case study on the Jamaica Highway 2000 project.

Both contrasts have proved the hypotheses valid. As discussed in the theoretical framework, China Policy Banks’ project cycle is signiﬁcantly shorter than World Bank’s and requires signiﬁcantly less bureaucratic approval processes. Conversely, the World Bank’s social and environmental safeguards are more comprehensive

125 than the standards used by China Policy Banks, which do not always include public consultations, grievance mechanisms or industry-speciﬁc standards.

The Case study framework showed how Phase 1 (western paradigm) passed through a transparent process, which did not trigger environmental nor social red-ﬂags, but unfortunately led to various process re-structuring as well as budget and timeline compromises. Phase 2 (eastern paradigm) was executed within the budget and schedule requirements, but at the expense of transparency, public consultations and social and quality standards.

In summary, these are the three main learning points that fruition from this research:

1. The vast array of challenges that infrastructure development represents, and the importance of multilateral investments: From funding to execution, sophisticated PPP projects require the commitment of all their stakeholders. In addition, it is shown how without multilateral lender or access to international capital markets, projects such as Highway 2000 are simply not ﬁnanceable.

2. The clear differences between the eastern and the western paradigms, both in their policies and in their project execution: Eastern paradigm is proven to be funded and executed faster, with higher risk appetite but at the expense of social, environmental and quality standards.

3. The need for borrower countries to keep those differences in mind when weighting its infrastructure development strategies: The practical implication of this research is that a borrower country would need to recognize the subtle and more explicit differences between the different institutions and factor the holistic consequences into its infrastructure development strategies

Nonetheless, it is imperative to consider the possible limitations to this research. It has to be taken into account that the underlying objectives of these two paradigms are different: where The World Bank Group invests in infrastructure as a mean to end poverty, while the China Policy Banks’ objective is to foster Chinese trade and development. Additionally, it is critical to recognize that the China Policy Banks and the WB are at different stages of maturity, where the Asian institutions have less than a ﬁfth of the time-runway that the WB has had to ﬁne-tune its policies, regulations, and grounding on social and environmental safeguards.

Within this context, future research should envision the comparison of projects developed by two comparable institutions with shared objectives (i.e. the World Bank and the newly founded Asian Infrastructure Investment Bank), as well as

126 Chapter 6 Conclusions and Further Research others with similar maturity stages. Furthermore, a larger set of case studies among different geographies and sectors would help to model concrete conclusions.

As a closing note, beyond the economic argument for infrastructure development lies an inherent moral obligation for any individual or institution to contribute to the betterment of society as a whole. As new infrastructure development models arise in this rapid-ﬁre globalization, academic research should resiliently pave the path forward by democratizing accessibility and ownership of knowledge on the beneﬁts, costs, and limitations of the different infrastructure models for borrower nations. As John Fitzgerald Kennedy popularized, “The best road to progress is Freedom’s road”.

127

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List of Figures

1.1 Economic impacts derived from Infrastructure investment. Self-prepared with data from Vassallo Magro and Bartolomé (2010)...... 4 1.2 Internal stakeholders of an infrastructure construction project. Self- prepared...... 13 1.3 Different procurement methods for Transportation Infrastructure. Self- prepared based on Vassallo Magro and Bartolomé (2010)...... 15 1.4 Commitment amounts to Infrastructure Investment by different institutions. Self-prepared with data from: World Bank, USAID, OPIC, US Exim Bank Financial Times, 2011...... 26 1.5 Share of FDI outﬂows by country. Self-prepared with United Nations data. 28 1.6 Investment in Transportation Infrastructure by China (mainly CDB and China EXIM) and the World Bank. Self-prepared with data from World Bank and China Investment Tracker...... 29 1.7 Foreign Direct Investment outﬂows. Self-prepared with data from United Nations...... 30 1.8 Sources of funding for African Infrastructure. Self-prepared with data from the The Infrastructure Consortium for Africa (2013)...... 31

2.1 Quantiﬁcation of the Literature Review in terms of analysis of Western Policies (US) and Eastern Policies (China). Numbering is based on the order shown by 2.1. Self-prepared...... 40 2.2 Different types of case study design. Adapted from Yin (2003). . . . . 47 2.3 The Case Study Method structure.Adapted from Yin (2003)...... 48

3.1 Methodology ﬂow diagram. Self-prepared...... 52 3.2 Followed methodology to conduct the Case Study5. Self-prepared. . . 53 3.3 Final conclusion comparison methodology. Self-prepared...... 56 3.4 Individual cross-case comparisons. Self-prepared...... 56

4.1 The World Bank Group Governance structure. Self-Prepared ...... 62 4.2 The World Bank’s decision process. Self-prepared based on Session (2008)) and World Bank...... 63 4.3 Position of China Policy Banks within Chinese governance structure. Self-prepared based on Earth U.S. (2016)...... 66

139 4.4 Governance structure of the China Development Bank. Self-prepared based on Earth U.S. (2016) ...... 67 4.5 China Export-Import Bank Governance Structure. Adapted from China Export-Import Bank ...... 67 4.6 Project Cycle of China Policy Banks. Self-prepared with data from Davies et al. (2008), Kobayashi (2008), Cabria (2013)...... 68 4.7 Comparison of both sides’ decision process. Self-prepared ...... 71 4.8 The World Bank Safeguard system. Adapted from World Bank...... 74 4.9 General environmental Policy Framework. Self-prepared with data from Corporation (2007)...... 75 4.10 China ExIm Bank Environmental Impact Assessment. Self-prepared with data from Gallagher et al. (2012)...... 77 4.11 Projects histogram depending on Geography. The borrower’s country position in the ease of doing business ranking is normalized in a scale from 100 to 1000 (i.e. Singapore (1st in the ranking) =100, Eritrea (last in the ranking) =1000). Self-prepared with data from table 3.7. . 82 4.12 Projects histogram depending on the transportation sector they belong to. Self-prepared with data from table 3.7...... 83 4.13 Projects histogram depending on their investment size. Self-prepared with data from table 3.7...... 83

5.1 Jamaican Government Structure. Self-prepared with data from Ja- maican Consulate...... 87 5.2 Highway 2000 Project, Phase 1A/1B Stakeholders Map under the contractual structure. Adapted from Anderson (2014)...... 101 5.3 Finance plan for the Phase 1A and 1B of the Highway 2000 project. Adapted from Anderson (2014)...... 102 5.4 Highway 2000 Project, Phase 2A Stakeholders Map under the contractual structure. Self-prepared with data from Anderson (2014), CHEC Latin America and NROCC (2013)...... 112 5.5 Finance plan for the Phase 2A. Adapted from Anderson (2014). . . . . 112

6.1 Highway 2000 Phases Overview. Self- prepared ...... 150 6.2 Landslide in the North-South Highway on June 9th, 2016. (Jamaica Gleaner, 2016)...... 154 6.3 A section of the Mt. Rosser Bypass, by The Island Journal ...... 154

140 List of Figures List of Tables

1.1 Segmentation of Development Agencies. Self prepared...... 20 1.2 Performance and volatility of infrastructure in comparison with other asset classes. Self-prepared with data from Weber and Alfen (2010). . 21 1.3 Main public and private infrastructure development vehicles by the Eastern and the Western. Self-prepared...... 23 1.4 Selection of ﬁnancial products offered by each institution. Self-prepared. 24

2.1 Literature review summary for the inﬂuence of developing aid by the two countries. Self-prepared...... 38 2.2 Literature review summary for the different methods in project comparisons. Self-prepared...... 43 2.3 Relevant situations for different research strategies. Adapted from Yin (2003)...... 46

3.1 Structure of the Analysis section4 and contribution to hypotheses. Self-prepared...... 52 3.2 Data sources for Eastern and Western Project Development. Self-prepared. 53 3.3 Different sets of criteria in project selection. Self-prepared...... 54 3.4 Ranges for the different variables considered for project classiﬁcation. Self-prepared...... 57 3.5 Selected case characteristics in comparison with selection criteria. Self- prepared...... 58 3.6 Case Study structure and contribution to hypotheses. Self-prepared. . 59 3.7 Number of projects available at each database. Self-prepared...... 59 3.8 Number of projects in each rang [Total (Western / Eastern)]. Self- prepared...... 60

4.1 Board approval procedures of projects. Adapted from Session (2008). . 65 4.2 Approval procedures depending on project size. Self-prepared with data from China Ministry of Commerce, Policy on Overseas Investments and McGinty and Wang (2015)...... 69 4.3 Approval procedures depending on project sensitivity. Self-prepared with data from China Ministry of Commerce, Policy on Overseas Invest- ments and McGinty and Wang (2015)...... 70

141 4.4 Comparison of Social and environmental safeguards according to internationally agreed upon lending practices. Adapted from Gallagher et al. (2012)...... 79 4.5 Comparison of social and environmental safeguards according to United Nations Development Program project level Standards (Programme, 2014)...... 80

5.1 Quick facts of the Highway 2000 project. Self-prepared...... 94 5.2 Phase 1A Concession characteristics. Self-prepared with data from NROCC and TJHL (2001)...... 99 5.3 Phase 1A and 1B Concession characteristics - Amendment of previous concession agreement. Self-prepared with data from NROCC and TJHL (2011)...... 100 5.4 Phase 2A Concession Characteristics. Self-prepared with data from NROCC and JNSHC („Concession Agreement in respect of the North- South Highway Project in Jamaica“) and Anderson (2014)...... 111 5.5 Risk allocation comparison between Concession contracts on Phase 1A/B and Phase 2A. Adapted from Anderson (2014)...... 119 5.6 Compliance with different environmental standards by the two phases of the Jamaica Highway 2000 project. Self-prepared...... 122 5.7 Research hypothesis validation summary. RT refers to Round Table, as explained in 2.4. LR refers to Literature Review2. Self-prepared. . . . 124

6.1 Western Paradigm list of projects considered. Self-elaborated with data ﬁltered from from 3.7 ...... 143 6.2 Eastern Paradigm list of projects considered. Self-elaborated with data ﬁltered from 3.7 ...... 145 6.3 Highway 2000 complete construction phases summary. Self-prepared with data from Anderson (2005), NROCC (2013), NROCC and TJHL (2001), NROCC and TJHL (2011), NROCC and JNSHC („Concession Agreement in respect of the North-South Highway Project in Jamaica“) and Contractor General (2007) ...... 153

142 List of Tables Appendix

Project Lists

Tab. 6.1: Western Paradigm list of projects considered. Self-elaborated with data ﬁltered from from 3.7

Project Name Country Size [$M] Sector Road Sector Project (03) Chile 3229 Roads Second National Railways Project (Zhe-Gan Line) China 1756 Railways Private Infrastructure Finance (IL&FS) Project India 1600 Roads Highway Rehabilitation and Trafﬁc Safety Project Mexico 1560 Roads Railway Project (05) China 1530 Railways Provincial Roads Project Argentina 1500 Roads National Railway Project China 1302 Railways Federal Highway Rehabilitation and Decentralization Brazil 1250 Roads Project Telecommunications Sector Restructuring Project Morocco 1204 Roads Road Sector Development Project Ghana 1191 Roads Railway Project (06) China 1183 Railways Railway Project (07) China 1172 Railways Third National Railway Project China 1166 Railways National Highway (02) Project China 1150 Roads Ports Development and Environment Korea, Rep. 1107 Ports Grain Distribution and Marketing Project China 991 Ports National Highway Project (04) China 952 Roads Mumbai Urban Transport Project India 945 Railways National Highways Rehabilitation and Maintenance Argentina 929 Roads Project National Highway (01) Project China 895 Roads Integrated Roads Program Project Tanzania 871 Roads Federal Roads Modernization Project Mexico 863 Roads Roads and Coastal Shipping Project (02) Mozambique 815 Roads Private Sector Tourism Infrastructure and Egypt 805 Roads Environmental Management Project National Highway Project (03) China 800 Roads Highways Management Project Venezuela 760 Roads Grand Trunk Road Improvement Project India 756 Roads Road Maintenance and Rehabilitation Sector Project Argentina 756 Roads Shanghai - Zhejiang Highway Project China 729 Roads Federal Railways Restructuring and Privatization Brazil 700 Railways Project Jamuna Bridge Bangladesh 696 Roads Hubei Xiaogan-Xiangfan Highway Project China 691 Roads Highway Rehabilitation & Maintenance 2 Project Russia 667 Roads Roads Rehabilitation Project Panama 661 Roads Tri - Provincial Highway Project China 659 Roads Xinjiang Highway Project (02) China 658 Roads Shanghai Metropolitan Transport Project (02) China 657 Roads THIRD NATIONAL HIGHWAYS PROJECT India 650 Roads Northern Border Environment Project Mexico 641 Roads Second Anhui Highway Project China 632 Roads India: Uttar Pradesh State Roads Project India 615 Roads Railway Restructuring Project Morocco 614 Railways Henan Provincial Highway Project (02) China 606 Roads Second State Highway Management Project (Piaui, Brazil 603 Roads Tocantins, Maranhao) ID-2nd Highway Sector Investment Project Indonesia 600 Roads Second Fujian Highway Project China 596 Roads Integrated Roads Project (02) Tanzania 582 Roads EG-AIRPORTS DEVELOPMENT PROJECT Egypt 574 Aviation TOLL ROAD CONCESSION Colombia 572 Roads Highway Sector Project Croatia 568 Roads Guangxi Highway Project China 567 Roads Zhejiang Provincial Highway Project China 559 Roads Inland Waterways Project China 557 Ports Shaanxi Provincial Highway Project (02) China 556 Roads Roads 2 Project Romania 553 Roads Guangzhou City Center Transport Project China 550 Roads Roads 2 Project Poland 540 Roads Second Jiangxi Highway Project China 536 Roads GUJARAT STATE HIGHWAY PROJECT India 533 Roads Hubei Shiman Highway Project China 529 Roads Fujian Provincial Highway Project China 529 Roads Road Rehabilitation and Maintenance Project (03) Bangladesh 529 Roads

144 List of Tables Tab. 6.2: Eastern Paradigm list of projects considered. Self-elaborated with data ﬁltered from 3.7

Project Name Country Size [$M] Sector Houari Boumediene International Airport - New Algeria 910 Airports Passenger Terminal Tissemlit-Boughezoul (Medea) Rail Line Project Algeria 500 Rail Thenia (Boumerdes)-Bordj Bou Arreridj Double Line Algeria 2377 Rail Railway El Affroun (Blida) - Khemis Miliana (Ain Deﬂa) Algeria 2412 Rail Double Line Railway Cherchell Transhipment Port Algeria 3300 Ports East-West Highway Project Algeria 13000 Roads Benguela Railway Track Reconstruction Angola 1830 Rail Lobito Port Ore Terminal Angola 522 Ports Lobito Port Container Terminal Angola 673 Ports Lobito Port Expansion Project Angola 1247 Ports Belgrano Cargas Rail Freight Upgrade Project Argentina 2500 Rail Anketell Point Multi-User Deepwater Port Australia 6328 Ports West Pilbara Iron Ore project Australia 6900 Ports Aminbazar - Azimpur Expressway Project Bangladesh 506 Roads Karnaphuli River Tunnel Project Bangladesh 1157 Roads Dhaka Ashulia Elevated Expressway Bangladesh 1250 Roads Padma Multipurpose Bridge Project Bangladesh 3680 Roads Sonadia Deep Seaport PPP Bangladesh 8000 Ports Waaslandhaven Locks Project Belgium 680 Ports Viru Viru International Airport Expansion Bolivia 500 Airports Rurrenabaque - Riberalta Highway Bolivia 600 Roads Bosnia and Banja Luka-Mlinista Highway - Phase 1 ( Glamocani - Herzegov- 815 Roads AVNOJ) ina Centro-Oeste (Sao Paulo) Railway Project Brazil 2000 Rail Brunei Temburong Bridge Darus- 1600 Roads salam Preah Vihear - Koh Kong Port Road Link Project Cambodia 2300 Roads Windsor - Toronto High Speed Rail Project Canada 2039 Rail Chad East Railway Line Chad 1130 Rail Santiago Metro Line 3 Chile 1570 Rail Autopista al Mar 2 Highway Project Colombia 872 Roads Côte Abidjan Container Terminal (TC2) PPP Project 703 Ports d’Ivoire Danish Railway Network Signalling System (ERTMS) Denmark 3172 Rail Electric Train Project Egypt 700 Rail Second Container Terminal Egypt 760 Ports

List of Tables 145 Alexandria - Cairo - Luxor - Aswan High-Speed Rail Egypt 3000 Rail Project Metro Line 6 Egypt 3500 Rail Alexandria - Cairo - Luxor - Aswan High-Speed Rail Egypt 10000 Rail Project Addis Ababa - Adama (Nazareth) Highway Ethiopia 612 Roads Mekelle-Hara Gebeya-Woldia Railway Project Ethiopia 1500 Rail Libreville (Estuaire) - Port-Gentil (Ogooue-Maritime) Gabon 559 Roads Road Project, Phase I Dunkwa-Awaso Branch, Western Main Line Ghana 1000 Rail Kastelli Airport, Iraklio Development Project Greece 1090 Airports Hong Kong International Airport (HKIA) - Midﬁeld Hong Kong 1145 Airports Concourse Development Project Hong Kong Link Road (HKLR) Hong Kong 3223 Roads Central - Wan Chai Bypass and Island Eastern Hong Kong 4650 Roads Corridor Link Tuen Mun - Chek Lap Kok Link (TM-CLKL) Hong Kong 6000 Roads Shatin - Central Link Project Hong Kong 10300 Rail Hong Kong - Zhuhai - Macau Main Bridge Project Hong Kong 10600 Roads Budapest Freight Bypass - V0 Freight Rail Ring Hungary 1240 Rail Cileunyi-Sumedang-Dawuan (Cisumdawu) Toll Road Indonesia 545 Roads Balikpapan-Samarinda Toll Road PPP Project Indonesia 875 Roads Jakarta Monorail Project Indonesia 1500 Rail Container and Iron-ore Transshipment Port Indonesia 2000 Ports Jakarta (Special City District)-Bandung (West Java) Indonesia 5500 Rail High-Speed Railway PPP Project Jakarta-Surabaya High Speed Railway Line Project Indonesia 12000 Rail Tehran-Isfahan High-speed Railway Iran 2730 Rail Ashdod Southport Terminal Israel 840 Ports Tel Aviv Mass Transit Railway System, Red Line Israel 3000 Rail Jamaica North-South Highway Jamaica 600 Roads Transhipment Hub, Portland Bight Protected Area Jamaica 1500 Ports Jomo Kenyatta International Airport Terminal 3 Kenya 645 Airports Nairobi Northern and Eastern Bypass Kenya 851 Roads Mombasa, Kenya -Kampala, Uganda-Kigali, Rawanda Kenya 5056 Rail Rail Project Phase I Mubarak Al Kabeer Seaport Phase I Kuwait 1100 Ports Boten (Luang Namtha) - Vientiane Rail Project Laos 6280 Rail Ras Ajdir - Emsaad Highway Project Libya 1286 Roads Sebha (Fezzan) - Misrata (Tripolitania) Railway Line Libya 1300 Rail Project Tripoli (Greater Tripoli) - Sirte (Tripolitania) Railway Libya 1700 Rail Line Project

146 List of Tables Gurney Drive-Butterworth Undersea Tunnel Road Malaysia 1660 Roads Project Ibrahim Nasir International Airport Expansion Maldives 800 Airports Project Bamako (Mali) - Dakar (Senegal) Railway Mali 1470 Rail Renovation Project Northern Rail Line Extension, Erdenet - Ovoot - Arts Mongolia 1200 Rail Suuri Rail Line Altanbulag (Selenge)-Ulaanbaatar-Zamyn Uud Mongolia 3500 Roads (Dornogovi) Highway Project Bar-Boljare Highway Montenegro 913 Roads Maputo - Catembe Suspension Bridge Mozambique 700 Roads Interoceanic Grand Canal Project Nicaragua 50000 Ports Abuja - Kaduna Railway Nigeria 874 Rail Lagos Light-Rail Mass Transit (LMRT) - Blue Line Nigeria 1200 Rail Lagos - Ibadan (Oyo) Railway Modernisation Project Nigeria 1490 Rail Lekki Deep Sea Port Project, PPP Nigeria 1650 Ports Ogun State Intercity Railway Line Nigeria 3500 Rail Coastal Railway Project, Calabar - Lagos - Ogun Nigeria 11970 Rail Pakistan Deep Water Container Port (PDWCP) PPP Pakistan 701 Ports Project - Phase I Karachi Light Rail Brown Line Project Pakistan 1270 Rail Lahore Orange Line Metro Pakistan 1600 Rail Gwadar Port Expansion Project Pakistan 1620 Ports Sukkur (Sindh) - Multan (Punjab) Motorway Project Pakistan 2890 Roads Panama Canal Bridge (Atlantic side) Panama 570 Roads Papua New Highlands Highway Upgrading Project 500 Roads Guinea East West Corridor Expressway Project Qatar 1070 Roads New Doha Port Project Qatar 7500 Ports Hamad International Airport Project Qatar 16000 Airports Zarubino Port Cargo Capacity Expansion Project Russia 1000 Ports Lena River Bridge Russia 1700 Roads Yevpatoria Deepwater Port Russia 3000 Ports Kyzyl - Kuragino Railway Line Project Russia 5570 Rail Belkomur Railway Project Russia 5700 Rail Moscow (Central Federal District) - Kazan (Republic Russia 19500 Rail of Tatarstan) High Speed Railway PPP Project São Tomé Deep Sea Trans-shipment Port and 800 Ports Príncipe Saudi King Abdulaziz Port Expansion Project 750 Ports Arabia Saudi Mashaer Railway Project 1770 Rail Arabia

List of Tables 147 Bamako (Mali) - Dakar (Senegal) Railway Senegal 1250 Rail Renovation Project Tuas West Extension Project Singapore 2750 Rail Johannesburg (Gauteng) - Durban (KwaZulu-Natal) South 30000 Rail High-Speed Rail Project Africa Colombo Port Expansion Project Sri Lanka 500 Ports Colombo Outer Circular Highway (OCH) Phase 3 Sri Lanka 510 Roads Hambantota Port Development Project, Phase 2 Sri Lanka 808 Ports New Khartoum International Airport Sudan 1800 Airports Eastern Link (Ostlanken) High-Speed Railway Sweden 4280 Rail Project Taoyuan International Airport MRT Line Taiwan 3600 Rail Njombe-Mtwara Port Railway Track Tanzania 1400 Rail Sino-Thai Rail Development Project Thailand 10640 Rail Nong Khai High-Speed Dual-Track Standard-Gauge Thailand 12000 Rail Railway Trinidad & Transshipment Port and Dry Dock Project 500 Ports Tobago Istanbul-Ankara High Speed Railway Turkey 4100 Rail United Dubai Water Canal Project Arab 545 Ports Emirates United Container Terminal 4 (T4), Jebel Ali Port Arab 1600 Ports Emirates United London Gateway Container Port 2505 Ports Kingdom United Pulaski Skyway Bridge Upgrade Project 1800 Roads States Angren, Tashkent - Pap, Namangan Railroad Uzbekistan 1900 Rail Puerto Cabello Container Terminal Project Venezuela 520 Ports Tinaco (Cojedes) - Anaco (Anzoategui) Railway Line Venezuela 7500 Rail Project Ha Noi (City) Urban Metro Line 2A (Cat Linh - Ha Vietnam 868 Rail Dong) Noi Bai (Ha Noi (City)) - Lao Cai, Four-lane Highway Vietnam 1460 Roads Project Thanh pho Ho Chi Minh (city) - Can Tho (city) Rail Vietnam 3600 Rail Link Aden Container Terminal Expansion and Deepening Yemen 507 Ports Project Simon Mwansa Kapwepwe International Airport Zambia 522 Airports

148 List of Tables Code for project coupling

Sub Coupling()

Z = 0

For i =2 To 127 For j = 2 To 57

If Hoja6.Cells(i, 7) = Hoja7.Cells(j, 7) And Hoja6.Cells(i, 8) = Hoja7.Cells(j, 8) And Hoja6.Cells(i, 9) = Hoja7.Cells(j, 9) Then

Z = Z + 1

For x = 1 To 9 Hoja8.Cells(Z, x) = Hoja6.Cells(i, x)

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Z = Z + 1

For k = 1 To 9

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End I f

Next j Next i

End Sub

Highway 2000 Construction Details

Phase 1A

Phase 1A corresponds to the ﬁrst phase of the Highway 2000 project, and it was executed between 2002 and 2006. This phase includes a 39km highway section which consists of:

List of Tables 149 Fig. 6.1: Highway 2000 Phases Overview. Self- prepared List of Tables 150 • The duplication of the Old Harbor Bypass

• The construction of a four-lane highway between Bushy Park and Kingston

• The construction of a new six-lane road between Kingston and Portmore

Phase 1A was opened in sections in September 2003, December 2004 and July 2006, including the operation of tollbooths along the highway.

Phase 1B

Phase 1B corresponds to the next phase of Highway 2000, which was subdivided into Phase 1B-I and Phase 1B-II (or Phase 1C). Phase 1B consists of:

• 10.5 km of new road construction

• Construction of a 140m bridge over Rio Minho

• Tool booths and facilities

• 16 crossings

Phase 1B was opened to trafﬁc in August 2012.

Phase 2A

Phase 2A corresponds to the second stage of Highway 2000, which was ﬁrst executed by BTP and then taken over by China Harbour Engineering Company (CHEC) in January 2013. Phase 2A consists of („Concession Agreement in respect of the North-South Highway Project in Jamaica“):

• Section 1 – Linstead to Spanish Town (27 km)

– Section 1 shall be constructed as a divided four-lane carriageway

– Interchanges are proposed at the intersections with Caymanas, Angels Link Road, Wakeﬁeld Road and Linstead Bypass

– The Developer shall construct a main toll plaza at a location agreed by both Parties, and operate the highway under a closed system

List of Tables 151 • Section 2 – Mount Rosser Bypass, Moneague to Linstead (19 km)

– Section 2 shall be constructed as a divided four-lane carriageway to the same design standards as the Existing Road Section (the one developed already by BTP)

– The Developer shall operate the highway under a closed system.

• Section 3 – Moneague to Mamee Bay in Ocho Rios (22 km)

– Section 3 shall be constructed as a divided four-lane carriageway

– Interchanges are proposed at the intersection with the A1 Road in the vicinity of Lydford

– A roundabout is proposed at the intersection with the North Coast High- way at Mammee Bay

– The Developer shall construct a main toll plaza at a location agreed by both Parties and operate the highway under a closed system

Phases 1C and 2B

This phases are envisaged to be completed at a later stage.

In conclusion, table 6.3 summarizes each of the phases by its prize, distance, and completion dates.

Pictures

152 List of Tables Tab. 6.3: Highway 2000 complete construction phases summary. Self-prepared with data from Anderson (2005), NROCC (2013), NROCC and TJHL (2001), NROCC and TJHL (2011), NROCC and JNSHC („Concession Agreement in respect of the North-South Highway Project in Jamaica“) and Contractor General (2007)

Price Phase Origin Destination Start Date End Date Partial Total Km Bushy Park Sandy Bay June 2002 February 2004 13 1A Kingston Bushy Park June 2002 December 2004 390 21 Portmore Causeway Dyke Road June 2002 July 2006 11 1B Sandy Bay May Pen February 2011 August 2012 105 10,5 1C May Pen Mandeville - - - - 27,5 Ocho Rios Moneague November 2013 January 2016 22 2A Moneague Linstead June 2007 / January 2013 August 2014 120 720 19 Linstead Spanish Town October 2013 January 2016 27 2B Mandeville Montego Bay - - - - 68 ito Tables of List 153 Fig. 6.2: Landslide in the North-South Highway on June 9th, 2016. (Jamaica Gleaner, 2016)

Fig. 6.3: A section of the Mt. Rosser Bypass, by The Island Journal

154 List of Tables List of Tables 155