Changes in NMIA bid conditions said spurring investor interest
Published:Tuesday | March 7, 2017 | 12:00 AMNeville Graham
Denise Gallimore, manager for public-private participation and privatisation at the Development Bank of Jamaica (DBJ), is crediting changes in the project structure for the renewed and heightened interest in the proposed divestment of the Norman Manley International Airport, (NMIA).
Gallimore also said previous prequalified bidders from the first privatisation effort two years ago are lining up alongside other prospective investors to participate in the eventual tender.
The NMIA concession, she insists, is a good deal that has been made better.
"Having the previous pre-qualified bidders remain in the process along with others indicates that the asset at its core is good. Just the fundamentals, once tweaked, will make it more attractive," Gallimore told Gleaner Business on the sidelines of the DBJ Infrastructure Conference that wrapped up Tuesday in Kingston.
The 2015 move to negotiate a long-term concession agreement hit a snag, with none of the pre-qualified bidders following through with an offer.
State-owned DBJ, which is handling the divestment, said the Government "reviewed all aspects of the transaction and gathered market feedback to determine the most competitive project structure".
According to Gallimore, the main changes include: a longer concession term, a capital investment programme in line with safety and level of service requirements, and a reduction in the upfront concession fee.
Back in 2015, five investors were prequalified to bid for the airport. Reports then indicated that the winning bidder would be required to invest around US$134 million in expansion works, including the runway extension.
The current plan calls for around US$110 million of capital investment, including the runway. Under the new programme, the runway is projected to cost US$51 million, down from US$76 million.
The first divestment effort tried to sell a 25-year concession with the possibility of a five-year extension. The present arrangement extends that period and, according to Gallimore, makes a better business case.
"What the Government decided is that in this round, we will just make the concession 30 years. This will allow investors to have more time to get returns on their business deals," she said.
On the subject of the capital works and capital programme that the selected concessionaire will be required to undertake, Gallimore said the first privatisation effort required a 500-metre extension of the existing runway. She says 500 metres was considered the strategic length of the extension to make the airport competitive in accommodating larger aircraft. But that has now changed.
The current requirement is more in line with international safety requirements, rather than just strategic requirements. The runway currently spans 2,716 metres, or 8,910 feet.
STRATEGIC ALLIANCES
"As it stands now, 300 metres is considered the minimum for safety reasons and the concession agreement will require the concessionaire to make those other extensions as is required by international standards," Gallimore said, adding that the concessionaire can choose to extend the runway further if it suits them.
"The 300 metres is a strategic minimum. The concessionaire may choose to make further extensions based on the strategic alliances that they can form to bring in these larger aircraft," Gallimore said.
The concession fee has been reduced from US$20 million to US$5 million.
Gallimore said the previous requirement was just a way of ensuring "skin in the game", but that it proved to be a bugbear. She said the reduced fee will affect the final agreement with the concessionaire.
"The concession model is a quid pro quo so if you are taking US$20 million up front, then you are looking for a smaller share of revenue over the lifetime of the project. If you take US$5 million, then you are looking at an increased share of revenue over the lifetime of the project," she said.
On Monday, the first day of the conference, IFC investment officer Darryl Davis also told Gleaner Business there was heightened interest in NMIA.
A new request for qualifications, or RFQ, was issued last month.
"We've seen good interest in that there have been, so far, 100 pull-downs of the RFQ information," Davis said.
Indications are, according to our sources, that an Argentinian group called Cedicor has once again stepped forward; Jamaican conglomerate Jamaica Producers is working with a group of investors out of Punta Cana in the Dominican Republic; a Korean group is joining forces with GK Capital; A-Port, a South American group that is a subsidiary of Zurich International, is looking to get back to the table, and China Harbour Engineering Company is said to be working through an outfit called W Airports to make a bid.