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By By Carla Bridglal
Story Created: Oct 23, 2012 at 11:42 PM ECT Story Updated: Oct 23, 2012 at 11:42 PM ECT The build-own-lease-transfer (BOLT) model of public/private partnership investment in Tobago has recently come under fire from Prime Minister Kamla Persad-Bissessar. In her contribution recently during the budget debate in the House of Representatives, at Tower D, Waterfront Centre, Port of Spain, Persad-Bissessar singled out two BOLT projects underway in Tobago spearheaded under the Tobago House of Assembly (THA) for allegedly being in contravention of the THA Act. But experts in the field are defending the system as being tested, tried and true. "It is not a new model and is quite workable; it's quite unfortunate it is being bandied about like this," says Peter Forde, an engineer and BOLT consultant who was a former director of the London Street Project Company Ltd, a subsidiary of Republic Bank that specialises in BOLT project financing. The system of financing government projects is not unique to Trinidad and Tobago. The World Bank definition of BOLT or the Build-Operate-Transfer model as it is also called, is a form of Public/Private Partnership investment where the public sector grantor (government) grants to a private company the right to develop and operate a facility or system for a certain period (the "Concession Period"), in what would traditionally be a public sector project. The operator finances, owns and constructs the facility or system and operates it commercially for the concession period, after which the facility is transferred to the authority "This type of financing was popular in the 1980s and 1990s in the UK, for example, when it was difficult to get public projects going because the state did not have the funding...It is typically used for revenue generating facilities like hospitals where revenue generated from use of the facilities would repay the investment. With a government project that does not generate revenue it is a different concept-considered from the point of view of savings," Forde told the Business Express in a telephone interview last week. As a local example, he cited the Ministry of Works and Infrastructure Building in Port of Spain as a good example. "The government was paying rent in several various locations in Port of Spain in the early 1990s and when you look at the rent they were paying, they could have owned their own building over the long term. So they came up with a model to work out the savings they would get from not having to pay the rent and that savings would be used to paying a lease over the long term, and at
Trinidad and Tobago Unit Trust Corporation Head Office Building. so the government may have to do some damage control to instil confidence in the arrangements again. THA Chief Secretary Orville London has maintained that the tendering process for the projects was above board and transparent.the end of the lease term the building is owned by the lessee--it is owned by the person paying the lease." he said. the Sangre Grande Police Divisional Headquarters." he explained. I wouldn't say because of this controversy you would paint a broad brushstroke on all BOLT structures. If that is the government you have to be comfortable with the borrower and the structure of the deal. but she said the Act stated that approvals must be granted by the Finance Minister before the THA borrows sums by way of term loans for the purpose of capital investment. You are going to own the building. The contracts for the projects were negotiated under conditions according to BOLT. "You must ensure you get value for money. so you want to ensure that it is built properly. "For any financier. These are some of the safeguards one must consider when you go this direction." he said. Ironically. you have to assess any deal on its own merit and based on the creditworthiness of the underlying borrower. and the Trinidad and Tobago National Library Building. bank or investor. BOLT projects are one of the main forms of public/private collaborations the government has been promoting in the budget. I can . She then said the two projects should be stopped pending further investigations into the contracts. Forde notes that it is important to exercise some necessary precautions in pursuing a model like this. and the Prime Minister has no right to call for the projects to be halted or probed. Other BOLT projects include the San Fernando Police Divisional Headquarters. That goes with everyone and every deal you give: loans must satisfy certain criteria. Persad-Bissessar alleged that there were some inconsistencies in the tendering process for two multi-million dollar THA projects-the $250 million Bacolet Aquatic Centre and $143 million Milshirv THA Administration complex-in contravention of the THA Act. you are going to own the asset. "This is a model that has been tried and tested over the years and now it is virtually getting a bad name. You must control the standards and the cost. Forde said the way BOLT was being portrayed could be making the financial community a little nervous. RBC Financial (Caribbean) Group Economist Marla Dukharan said last week while she was not clear on the group's financial structure.
• Value for money considerations. • Size of building 82. parties to the transaction – the THA and Rahael Holdings Ltd as well as sundry commentators in the various media.954 sf over three floors and potential excess space. This project. • Suitability of location for Offices dealing with Agriculture and Marine Affairs. which has the potential of becoming another "Signature Tobago building" within the Tobago landscape – very much like the "Victor E Bruce Financial Complex" in Scarborough. are as follows: • The purchase and lease back of the parcel of land on which the Complex is to be built. Piggott-." Former Works and Transport Minister Arnold Piggott has defended the BOLT concept in construction as an "acceptable model" for local conditions over many years. Some of the issues. • Capital cost of the building being $143 million.imagine it would be on the merits and demerits of each individual structure. has attracted comments from several quarters. • Procurement procedures for the "BOLT" concept • Reversion of the leased land and Handover of the building at the expiration of the 20 year Office rental by the THA.61 psf) over 20 years culminating with overall payment of $310 million.asked if questions raised about BOLT arrangements in the sister island could have the effect of holding back development. taxes and assessments on the premises to be paid by the THA.3 million (equivalent to $15.a Tobagonian and former banker-. Following is Piggott's full statement: Much has been said within the public domain about the proposed execution of a construction project of the Shirvan Administrative Office Complex. In a statement last week. Tobago. • The merit/demerit of THA paying a monthly rent of just under $1. • Rates. which will be for use by the Tobago House of Assembly (THA) using the "BOLT" concept. including Officials on both sides of the divide. known also as the "MILSHIRV" development at Shirvan Road. which seem to be engaging the minds. . • The term of the Lease from THA to MILSHIRV – 199 years and the annual rents – peppercorn of $10.
Without being privy to the Official and/or commercial agreements of this transaction. Clearly a private sector developer under the "BOLT" in his quest to raise the money must have an Asset to secure funding especially of such a Capital sum of $143 million required for construction and related services. when at minimum a 50 years lease must be guaranteed to the lender? It is respectfully submitted that a covenant in the Lease providing for reversion of the lease at the expiration of the 20 years rental period makes conversation about a 199 year lease a non-issue. What then can be the injury or disadvantage to the ultimate owner -THA of granting a 199-year lease. by way of Mortgage-backed Securities or indeed contributions by a wide variety of lenders in a consortium. such a "BOLT" project with guaranteed tenancy. with consequential Project Management and oversight experience. provides for an ideal development vehicle. I wish to proffer in my professional capacity some words which may bring some clarity to a project of this nature and more specifically some financial. Perhaps worth repeating is that the acronym "BOLT" means Build-Own. The key in this "BOLT" concept is that the chosen developer must possess the requisite construction/project management expertise. managerial perhaps even legal arrangements pertinent to "BOLT". very much like that which was established by a major Financial Institution in managing some "BOLT" projects in Port of Spain some years ago. a known delivery track record and the ability to mobilize large amounts of Capital/financing/money to fund the project to expeditious conclusion and risk-free to the ultimate owner. As a born and bred Tobagonian. Now with a highly liquid banking system and in circumstances where there is a dearth of Investment opportunities. A "Sale and Lease back" of the land on which a Complex is to be built facilitates/accommodates the security to be pledged for obtaining construction financing. by way of a Bond. And a 199-year Lease from the THA to MILSHIRV as the developer with a widely established nominal $10 annual "peppercorn" rental serves only as both a commercial and legal requirement in that any Lender will insist that a Borrower must secure funding with Freehold land or if Leasehold. the term of the Lease must be at least five years longer than the lending period and an option to renew for a further twenty-five years in this case. This is not unusual. as well as a major highway as a toll road or indeed a Rapid Rail system. a former banker. . Such projects may include an Office Complex/Block. Operate-Lease Transfer as it may relate to 'built infrastructure' in terms of major projects. It is important to bring to the forefront that funding for major projects can be raised by way of traditional Mortgage Loan. it may be instructive to view the implications of that which certain commentators may be presuming to be irregularities and even suggestions of complicit behaviour in the making. it is axiomatic that a "BOLT" developer must establish a Special Purpose Company (not a Special Purpose State Enterprise) to hold the property. In this context.
Research suggests that the "BOLT" concept is a legitimate mechanism to access funding for capital works. Any such analysis must take into consideration the "time value of money. Clearly if prior to completion. all other things being equal. who frolic like we say in Tobago. Here lease rents were fixed then at $5 per square foot over 20 years. an astute executive will allocate space to other THA Divisions. providing for a range of employment opportunities. human. Arrangements for this project seem to satisfy conditions of accountability and transparency in every respect. It provides for constant lease rentals over fixed periods as was evidenced in the models of Works and Transport Head Office and NALIS. In all of the circumstances therefore. it is private money that a Developer will be bringing to the Project. This brings me to the issues of the proposed so-called excess capacity and size of the complex at 82. OR is it to focus on the finished product and its advantages of social development and employment opportunities. in the "BOLT" concept. Readers will appreciate that end use of any property will always rest with the Executive decision of the THA.954 square feet over three floors and suitability of location for offices dealing with Agriculture and Marine Affairs. It increases investor confidence. Surely the merit/demerit of the THA paying a monthly rent of just under $1. the latter being standard requirements in most Lease rental agreements. taxes and assessments on the premises when built. what is the better good? Is it a futile. Whereas there is need for more rigid procurement procedures where public money. especially for human resource development in Tobago."Treasury funds" are being spent directly for State infrastructure. One is tempted to ask. The "BOLT" concept has been an acceptable model for local conditions for many years. "in washing their feet and just jumping into everything"." Understandingly the cost outcome of the project would be much less if funded by the Treasury. complete with all the managerial. culminating with overall payments of $310 million can be comparable and easily justifiable when measured against the reality of the cost of long term mortgage funding or any standard loan repayment schedule. one wonders where is the evidence to impugn the character and credibility of the players in this transaction. financial and material resources. . Perhaps some of the comments coming out of the "differently-informed" personalities in Tobago. but be more dispassionate in their utterances.3 million for the duration of 20 years.61 per square foot can be reasonably benchmarked against the monthly mortgage payment. it is determined that there is extra space available.Certainly the proposed "BOLT" project in Tobago is supportive of government's quest for Public Private Partnership (PPP) arrangements to stimulating growth. thus widening the scope for investors. The suggested monthly rental of $15. useless commentary about the duration of proposed lease and that the ultimate owner will be required to pay the rates.every topic should be less contentious and less disparaging.
THA gets complete ownership upon expiration of the lease.Questions may be asked as to whether such voices are meant to stymie significant development works in Tobago with its spin-off benefits and are these voices meant to deny Tobago's eventual acquisition of valuable infrastructural assets? Finally. . apart from having full use of the new Administrative Complex for the duration of the Lease.
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