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St Lucia’s financial mismanagement ‘worst than we had initially thought’, says finance minister Pierre

By Caribbean News Global contributor

CASTRIES, St Lucia – In a statement to the House of Assembly, Tuesday, prime minister Philip J Pierre, minister for finance, economic development and the youth economy, in addition to accounting for the first 100-days noted: The reckless financial mismanagement of our country during the last administration is worst than we had initially thought.”

In so doing, prime minister Pierre announced that he is in “possession of a draft bill that will lead to the appointment of a Special Prosecutor” the “immediate action and changes to correct some of the wrongs that had been committed against the citizens of our country,” indebted and badly managed before COVID-19, and the need to “observe the rules by which our country is supposed to be governed.”

The way we have started is a fine indication of where we are determined to be before this administration has reached the halfway mark of its first term. It also underscores our sworn commitment, regardless of circumstances, always to put the Saint Lucian people first … including institutional changes,” Pierre stated.

St Lucia government celebrates 100 days in office: ‘We have delivered to the country’

Financial mismanagement

“The reckless financial mismanagement of our country during the last administration is worst than we had initially thought. Under the last administration, Saint Lucia had been left on the edge of a financial cliff, which requires prudent financial management if we are to avoid falling into a financial abyss.

“The former government even before the advent of the COVID-19 pandemic had already placed the country in a financial mess. The situation was worsened by the COVID-19 pandemic. The Saint Lucia economy was highly indebted and badly managed before COVID-19.

“The economy of Saint Lucia experienced a negative 23 percent decline, the highest in the region. Saint Lucia borrowed the most in the Eastern Caribbean Monetary Authority and presently has the highest debt portfolio in the OECS Monetary Authority Debt servicing accounts for 31 percent of total revenue”.

The minister for finance re-counted the state of the finances of Saint Lucia as of July 31, 2021, (EC$):

  • Public debt: $3.932 billion
  • Local payables:$154 million
  • Design finance contracts: $184.5 million (5years’ repayment)
  • Other commitments not accounted for unpaid land acquisition $60 million
  • Due to the University of West Indies: $27 million
  • Other balances due by the ministry of economic development indebted for work done under the Constituency Development Programme (CDP): $4.18 million, (even if the grant allocation by the Taiwanese was provided to cover CDP payments.)

COVID-19 borrowings

“The United Workers Party (UWP) government received five loans totalling $323.8 million from four existing international creditors. As of July 31, 2021, the former government has used $301 million meaning that of the COVID-19 borrowings this government only benefitted from $19 million of these loans,” the prime minister reported: “Government is able to draw down on a $10 million US loan from the Republic of Taiwan”, found a situation where government expenses have to be financed from revenue, rollover financing, bond financing, and treasury bills,” he explained, “for the last three months and before the next budget cycle begins, (April 1, 2022) we have no access to institutional lending as was available to the last government.

Hewanorra International Airport Redevelopment Project

In August 2021, the cabinet of ministers of Saint Lucia appointed a Committee to review the HIA Redevelopment Project and to offer recommendations related to the Project’s scope and financing arrangements to identify fiscal space for reallocation to other priority projects of the government submitted an interim report containing initial findings, critical issues which have been observed during the review, and urgent recommendations.

The following is the text as presented by prime minister Pierre in the House of Assembly Tuesday, November 16, 2021:

“The Committee found that the Saint Lucia Air & Seaports Authority (SLASPA) entered into a construction contract with the Taiwan-based firm Overseas Engineering & Construction Co. Ltd (OECC) for the execution of the Redevelopment of the Terminal Building of HIA.

The selection of OECC was solely determined by the political directorate, devoid of competitive bidding. By letter dated February 20th, 2019, to the general manager of SLASPA with such instructions.

SLASPA also engaged the Florida-based Architectural firm CBRE/HEERY previously named Heery – S&G [comprised of Heery International Company, a Georgian Corporation, and Sequeira & Gavarrette (S&G) Inc, a Florida Corporation wholly owned by Heery International Company]. Heery – S&G formed part of the Consortium with Asphalt & Mining (A&M) when SLAPSA attempted to pursue the airport redevelopment utilizing a Design Finance Build model in 2010. The A&M Consortium was paid US$2,125,256,000 or approx. EC$5.738 million for the intellectual property rights to the airport designs.

These same designs were used and modified by the current architects, CBRE/HEERY who were again engaged at a contract price of approx. US$15.9 million or EC$42.9 million. It is important to note that an addendum to this contract with an amended Scope of Services and cost was signed by the chairman of SLASPA on July 23, 2021 (one working day before the last general elections).

Executive Consulting & Management Services Inc (ECMS) was retained by Contract Agreement dated July 19, 2018, to November 30, 2020, to provide the project coordination services at a contract price of US$770,650 or EC$2.08 million ECMS was further retained by Contract Agreement dated December 1, 2020, to May 30, 2023, at an additional contract price of US$733,500.00 or EC$1.98 million.

The firm of Amicus Legal which was retained as SLASPA’s External Counsel was paid an additional EC$1.689 million for vetting of the loan agreements relating to the project.

The original site for the new terminal was north of the existing terminal. However, the existing project site is further northwest and appears to be premised on the integration of the Desert Star Holdings (DSH) racetrack and new seaport development.

The new terminal will therefore be accessible from the La Ressource Road thereby requiring new road construction which is outside the scope of the OECC.

The project is expected to be executed in 5 packages:

  • Foundation package
  • Shell + Mechanical, Electrical, Plumbing, and Fire Protection (MEPF) package
  • Interior Package
  • Landside Package
  • Airside Package

The effective project start date was September 11, 2020, with a planned duration of thirty (30) months. Construction commenced on November 23, 2020.

Considering an initial budgeted project cost of US$175 million or EC$472.5 million, the then administration secured loan financing from the Exim Bank of Taiwan of US$100 million in 2018 and from a consortium of commercial banks of $US75 million in 2020. Additionally, the World Bank’s CATCOP loan financing of US$45 million or EC$121.5 million was contracted in May 2020 for airfield projects. Separate and apart from the HIA Terminal Building and the World Bank’s CATCOP component, there are enabling works and other master plan projects related to HIA. The full costing and financing information for those are not yet available to the Committee. Consequently, the total cost to the government of the entire HIA Capital Improvement Program (CIP) remains unclear.

Based on the information and documentation presented, the Committee found some critical contractual and administrative issues such as:

  • The absence of a peer review and structured project dossier for the Project;
  • The Project was not comprehensively appraised at its commencement;
  • The contract price for the Project (US$130.7 million) is not fixed and was based on preliminary rather than detailed designs; and
  • Sole source procurement was adopted rather than competitive procurement of architectural and engineering (A&E) as well as contractor services.

The prevailing administrative and contractual issues expose SLAPSA and the Government of Saint Lucia (GOSL) to significant risks, particularly project cost escalation. The expenditure to date is approximately US$31.8 million or EC$85.86 million. In fact, OECC claimed that the likely cost overruns up to the shell phase of the project will be approximately US$42 million or EC$113.4 million. Under Rough Order of Magnitude (ROM) scenarios, a continuation of the Project under its current track can cause the Project cost to range between US$220 million (5.0 percent of GDP) to US$245 million (5.6 percent of GDP).

A worsening of project execution from its current track can cause the Project to end up costing approximately US$400 million (9.1 percent of GDP), a little more than double the initial ROM costing of US$175 million (4.0 percent of GDP). The realization of any one of these scenarios can potentially push up the country’s debt to GDP ratio.

The project is behind schedule with 10 percent completion when it should be about 40 percent complete. The rate of progress analysis indicates that the project is delayed by nine (9) months as of September 2021. Project delays are due to factors relating to the impact of COVID-19 and an ongoing impasse between CBRE/HEERY and OECC on the Phase 2 Shell package.

Should the existing impasse with the Shell Package become protracted, the Project risks encountering disruption costs including those related to arbitration and litigation as specified in the Contract. Further, poorly written contracts, namely those for CBRE/HEERY, ECMS, and the OECC, blur critical roles and responsibilities especially those for project management.

It can be concluded that the interests of the taxpayers have not been adequately protected. The government of Saint Lucia who has guaranteed the project. SLASPA has also provided the contractor with a guarantee to cover cost overruns with no limits for the construction of the project.

This is dangerous and if it is allowed to continue, could potentially result in a financial predicament for SLASPA, as the project cost can increase by more than 100 percent.

“The five options proposed for review are:

  • Do nothing. Complete the terminal using the current design and determine the overall cost.
  • Scale down existing design to obtain a single structure by removing components including the elevated roadway and third floor with VIP lounges.
  • Use the design from 2010 with the construction of the terminal in the car park, north of the existing terminal, and demolition of the existing terminal.
  • Keep the existing terminal and incorporate it into the expansion. Create a connector and use the existing terminal for arrivals and the new scaled-down (along vertical plane) terminal for departures. leaving room for future expansion if required. piling would have already been in place.
  • Determine what could be salvaged from the ongoing foundation works and relocate the new terminal further towards the east.”

Prime minister Pierre advised that his government “awaits the final report of the HIA committee, but in the meantime will include the identification of various value engineering options to ensure that the monies of the taxpayers were not squandered.”

The times are challenging but there is reason for optimism,” prime minister Pierre noted: “There are many investors keen to do business in Saint Lucia because of the openness and trust they have found in this Saint Lucia Labour Party (SLP) administration.”

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