THE HOYOS FILE: Breaking up may be hard to do

Pat Hoyos ,

Added 04 June 2016

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In the silence that has followed Dr Dennis Lowe’s announcement  – in the House of Assembly at the end of the recent no-confidence debate – of the Government’s decision to unceremoniously dump Cahill Energy and its revolutionary plan to bring gasification to Barbados, some questions remain begging to be answered.

They revolve around possible exit costs with regard to the various Cahill agreements allegedly signed by the Government, and the overall economics of the proposed Andrews waste-to-electricity plant.

Last June, Opposition leader Mia Mottley, in her reply to the Budget Speech, said that a firm named Jacob Securities had produced a confidential information memorandum (CIM), which contained information that would be required by a prospective purchaser of Cahill Energy. 

The CIM, she said, stated that the Barbados Government had signed two contracts, one to cover implementation and the other to cover the purchase of power from the plant. These contracts had bound Barbados to a deal which would give Cahill Energy the exclusive right to all waste-to-energy plants in Barbados, an exemption from all taxation, and a waiver of import duties on waste tyres, until the year 2048.

Since the signing of the document, the technology which Cahill planned on bringing to Barbados was deemed to be unsuitable for creating electricity using municipal garbage by a company called Air Products, which shut down two side-by-side projects it was building at Teeside in the United Kingdom. Air Products said it was taking a charge of US$1 billion rather than continue to plough money into trying to make the technology work. Talk about a no-confidence vote.

Perhaps if Cahill Energy decides to sue the Barbados Government, this point could be used in an effort to make the contract signed with Barbados null and void, or whatever the legal term for it might be. At present, no one is saying anything about where this matter is headed.

As for the Andrews waste-to-energy factory, another knowledgeable person has drawn my attention to a few simple sums that may be summarised as follows: First, Barbados is simply not producing enough sugar now to warrant the building of a new super-factory that was supposed to run on bagasse with “top ups” from the river tamarind plant; and second, that Portvale, the lone sugar factory, has been operating well below capacity for some time, and, in fact, had to close last year before all the canes reaped were crushed, because it did not make sense to keep the doors open for so few arrivals. So cut cane was ploughed back into the ground. Can you imagine?

In fact, said this sugar industry insider: “In my opinion, [Andrews] should go the same way as Cahill. I cannot think of any grower that sees any sense in that project going ahead.”

He said that this year’s sugar crop will end up producing around 6 000 tonnes of cane, which would fetch a price of around $1 000 per tonne. Contrast this, he suggested, with Minister of Agriculture Dr. David Estwick’s estimate, which he said had been given back in 2012, that it was costing $4 100 per tonne to make sugar.

If you applied the 2012 cost to turning 6 000 tonnes of sugar cane into processed sugar, that could mean the country losing $18 million ($24 million in production costs less $6 million in sales revenue).

Therefore, my correspondent argues, building a new factory at Andrews for a reported $400 million “seems to be putting the cart before the horse”.

According to my industry insider: “The large majority of interests in the sugar industry agree that Portvale should be serviced and repaired and continue to be used since it had a original capacity of 120 tonnes per hour.”

Portvale, he said, has the ability to grind cane for the next five years while efforts are made to increase the number of tons being harvested.

He concluded: “Hopefully, we can have another grass roots movement to force the Government into putting a halt to this project, and that the new factory will not be built at this point.” 

I don’t think the pun was intended. Well, so much for the rational thinkers. Having read the NATION’s summary of the Auditor General’s findings with regard to the contract signed for the building of the new Barbados Water Authority (BWA) headquarters, I must let you know that I don’t expect either Cahill or the Andrews project to disappear gently into that good night.

I have the impression instead that when the Dolittle administration woos you to enter into a sweetheart deal they don’t just bring roses to your front door but have a champagne-filled limo waiting around the corner too.

In fact, I would suggest that how not to do a deal with the private sector is fully explained in that story.

For example: Giving the contractor an MOU containing exclusive rights a week before it actually entered negotiations on the project and 15 months before actually signing the final agreement; giving a $5 million plus VAT “mobilisation fee” to said contractor without stating how it was to be repaid; then subsequently agreeing on a repayment plan which was “disadvantageous” to the BWA in that “it allowed the contractor the option of completing the repayment of [the] $5 million plus VAT in approximately 15 years, whereas the BWA is scheduled to make lease payments to the preferred bidder/landlord totalling more than $65 million in approximately 13 years,” wrote Auditor General Leigh Trotman.

So the contractor could repay the BWA the mobilisation fee long after after it got all its money in from the lease.

In addition, he noted, the interest on the $5 million was set at 2.5 per cent, while the bonds raised by the BWA to finance the project are costing it 8.25 per cent in interest per year.

Therefore, said the Auditor General: “In effect, the BWA, in its lease payments, would be paying an interest rate of at least 8.25 per cent, while providing a loan to the contractor at 2.5 per cent.”

Yes, my friends, when the Government woos the private sector, it doesn’t only show up with roses, champagne and a limousine; it also takes you to Paris on a private jet for the weekend. And once the deal is signed, the terms are so in favour of the private sector that breaking up may be very hard to do.

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