Jamaica Highway 2000 Case Study
Lenders have direct agreements with the project development company TJH (including step-in rights), without recourse to the Government. The Grantor NROCC is financed by equity subscriptions from the Government of Jamaica, and loans from bond holders and commercial banks. Figure 4 Risk Allocation on the East-West Highway NROCC BOUYGUES Traffic a Revenue a Design & Construction
10
Access to lands
a
Utility Relocation
a
Political Risk
a
Change in Law
a
Subordinated Capital
a
Standby Equity
a
Termination Risks - Grantor
a
Termination Risks - Developer
a
Termination Risks - No Fault
a
Outline Design Risks
a
Foreseeable
Source: NROCC
This project structure for the East-West Highway is shown in Figure 3 (consultants relate to the initial commercial financing only, not the 2011 refinancing).
The heart of any PPP is the risk allocation: the sharing of risks between the private operator and the Government. This is shown in Figure 4.
Most of the project risks remain with the Government; apart from the key risks of traffic/ revenue and design/construction.
3.9 Project financing on the East-West Highway
Bouygues had won the bid; now came the hard part: finding finance. For such a large, ambitious project this would pose unique challenges; primarily the reliability of the revenue projections: would Jamaican motorists be willing to pay tolls? In addition, there were major social and environmental issues to be investigated and ameliorated, which would take time.
However, the Concession Agreement called for financial close within twelve months of commercial close, and the Multilateral Development Banks (MDBs) needed time to complete their due diligence – see Section 3.11. Bridging loans were utilised to start the project. Subsequently Bouygues and NROCC both approached the Royal Bank of Trinidad and Tobago (RBTT), who agreed to fund the project in two bonds totalling USD130 million, issued in 2004.