The Ministry of Finance and Planning (MOFP) — now the Ministry of Finance and Public Service — has indicated that it is entirely the decision of Cabinet as to whether or not debt associated with entities to be divested will be absorbed by the government or not.
The statement comes alongside commitments to the International Monetary Fund (IMF) to reduce such assignments of debt — a promise which has apparently slowed down the divestment process of several government-owned assets.
The latest of these is the Norman Manley International Airport (NMIA), where bidders have been advised that debt owed by the entity will have to be serviced out of revenues.
In a response to the Jamaica Observer, the Finance Ministry said that the GoJ/MOFP is “not considering the absorption of the debts of the NMIA. There is a dedicated fund for debt servicing and this will be retained by the parent, the Airports Authority of Jamaica, for the liquidation of the current debts of the NMIA”.
The dedicated fund referred to is an Airport Improvement Fee (AIF) per departing international passenger for both airports was set under the Airport (Economic) Regulation Act of 2002 (AERA) to carry out and support the Capital Development Programmes for the airport.
Future concessionaires will not have immediate access to these funds, although they themselves were expected to pour some US$500 million into further upgrades.
The AIF is for the primary purpose of repaying existing senior loans which were used for financing previous capital investments at NMIA and Sangster International Airport (SIA) according to the Information Memorandum, issued by the GOJ for the NMIA.
“The GoJ has committed all future proceeds from the AIF to be used solely for the repayment of existing debt raised to finance the capital improvements of the airport for the past 10 years. Thus, no proceeds from the AIF should be assumed to pass through to the concessionaire for financing of future capital investments or for any other purposes,” the memorandum stated.
To date, the AAJ has invested approximately US$136 million in the upgrading of NMIA, including construction of a new departure terminal, a cargo terminal, and airside improvements.
As a continuous benchmark, the GOJ is committed to capping the total loan value of all new user-funded public-private partnerships at three per cent of GDP over the period of the four-year programme.
Costs associated with divestment operations or liquidation of public entities, such as cancellation of existing contracts or severance payments to workers will be allocated to current and capital expenditures.
However, any other assignment of debt would have to be approved, a process which can be prolonged, lengthening the negotiating process. For the NMIA, there will be no consideration.
For other entities, according to the Finance Ministry, in accordance with the privatisation policy which governs the GOJ’s divestment activities, it is expected that the proceeds from any divestment will settle any outstanding obligations. Cabinet approves the final privatisation terms.
Notably, the long process of Cabinet approval saw a negotiating period of three years for Michael Lee-Chin’s Portland Private Equity/AIC Caribbean Fund (PPE/AIC) which was selected as preferred bidder for Wallenford Coffee estates in September 2013.
The final decision to assume approximately $2.5 billion owed by Wallenford allowed the deal to be concluded in 2015.
Negotiations are also drawn out for the divestment of the sale of the assets of the Cocoa Industry Board — in which Portland Equity was also selected as preferred bidder. The Ministry of Finance told the Business Observer that negotiations are still ongoing. “No consideration has been given to the MOFP assuming any liability of the entity,” the ministry stated.
In February, a consultant associated with the bidding process for the NMIA told theBusiness Observer that the high level of indebtedness was one factor which turned suitors away.
He stated, “NMIA as at March 2015 had an operating profit of US$718,000 and a net loss (after financing) of US$2.3 million; in 2014 the operating loss was US$500,000 and net loss of US$5 million. Accumulated loss as at 2015 was US$22 million with liabilities of about US$150 million.”
Requests to the NMIA and the Development Bank of Jamaica for clarification were not answered up to press time, with the DBJ referring the request to NMIA and also noting that audited financials would not be available until approved by Cabinet. The DBJ houses the government’s divestment unit.
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