By NEIL HARTNELL
Tribune Business Editor
AN ALARMED Inter-American Development Bank (IDB) is providing $13 million in retroactive financing to prevent a "cash flow shortfall" from bringing the New Providence Road Improvement Project to a temporary halt, as this would leave Nassau's roads in a "worse" condition than when the project began.
A report on a proposed $65 million IDB loan, necessary to provide the financing to complete the project, said that without bridging a $77 million 'funding gap', the civil works budget would be "depleted" as of this month. And the urgency of the situation also prompted the Bank to waive loan approval criteria contained in its so-called Country Strategy Financial Envelope.
With some 72.21 per cent of the New Providence Road Improvement Project's civil works budget disbursed by November 30, 2011, the IDB document, was replete with "reputational risk to the bank [IDB]" references if the project was allowed to drag on much longer, impacting commuters, businesses and the wider Bahamian economy.
The report, which has been obtained by Tribune Business, also acknowledged the negative impact the extensive roadworks have had on multiple Bahamian-owned businesses amid "a prolonged recession".
It said it was "in the best interest" of whichever government was elected at the upcoming general election to bring the New Providence Road Improvement Project "to a quick and efficient end".
The IDB report indicated that its total lending to the Bahamas with respect to the New Providence Road Improvement Project might even exceed the $206 million figure previously provided by Prime Minister Hubert Ingraham to the House of Assembly.
Noting that it had provided initial financing of $62 million when the project was first conceived in 2001, the IDB said this was supplemented by a further $100 million loan in May 2008, giving an "amalgamated budget of $162 million". Now, the proposed $65 million loan would, on the surface, taking the Bahamas' total borrowing from the IDB for just this project to $227 million.
"As at November 30, 2011, the project was 75 per cent complete, and 95 per cent of the project time had elapsed," the IDB report revealed. "Some 72.21 per cent of the civil works budget was disbursed, leaving a balance of $16.587 million.
"The project team found the works to be well advanced considering the challenges, and following an analysis of pending works and earned contractor value determined that funding for civil works would be depleted by March 2012, and that supplemental financing in the total amount of $77 million was required."
With the IDB providing $65 million, the $12 million balance of the $77 million will be provided by the Bahamian taxpayer through the Government.
The report said the IDB would "recognise" the Government's expenses on the New Providence Road Improvement Project from February 15, 2012, provided these were incurred in accordance with the contract signed with the main contractor, Argentinean firm Jose Cartellones Civiles (JCCC).
And, to prevent the project being held up by any financing shortfall while the IDB loan was approved, the document added: "Retroactive financing is contemplated up to the amount of $13 million to facilitate continued seamless implementation of the [New Providence Road Improvement Project] with this proposed project.
"Retroactive financing is justified so as to mitigate the reputational risk to the Bank by averting a shortfall in cash flow, leaving the country's road and transportation network worse than before the intervention of the Bank, and because the developmental objective of the operation would not be realised without a sensible, tailored response to the cash flow in the context of earned monthly value of the contractor and the unexpended budget amount."
The IDB report said the "overall final cost" of the New Providence Road Improvement Project's construction works was $190.905 million, a price tag that included environmental works at the Big Pond Recreational Park.
And, with an extra $5 million set to be incurred in engineering and supervision fees due to the extended project completion time, the IDB said the total cost was now pegged at $195.905 million. Subtracting JCCC's original $119 million contract from the latter figure gave the $77 million 'funding gap'.
Noting the implications for its own protocols, the IDB report disclosed that its financing contribution to the proposed $77 million 'bridge' had risen from $50 million to $65 million. The Government, according to the document, had originally been sent to kick-in $27 million, but this has now dropped to the agreed $12 million.
"The increased request from $50 million to $65 million will exceed the Country Strategy Financial Envelope for approval by $1 million," the IDB said.
"This is justified given the reputational risk to the Bank, considering the protracted and difficult impact the widespread unfinished road rehabilitation works has had on the Bahamian economy in a prolonged recession."
The IDB report, though, warned that the increased loan was no panacea for completing the New Providence Road Improvement Project. It said the scope of works could yet further increase if an "unknown maze of underground utilities" was found on road sections yet to be excavated.
Acknowledging that with the "the pervasive nature of road closures and disruptions to the general public there is an attendant reputational risk for the Bank and the Government alike", the IDB said it had helped to hire a public relations specialist to "maintain a positive perception" of the project.
But the report also warned: "Any spike in the price of oil is expected to impact the construction index which will hike construction cost. To mitigate this, the Government of the Bahamas will finalise the negotiation of an addendum to the contract, leveraging liquation damages to amend the basis of the inflation formula to hedge against a spike in oil prices."
Noting that the New Providence Road Improvement Project was designed to make New Providence traffic flows more efficient, the IDB said Nassau experienced "inordinate traffic congestion" as a result of resident traffic and that generated by cruise ship passengers.
"Automobile ownership rates are rising dramatically, and 85 per cent of the workforce commutes by car to work," the IDB report said.
"In addition, four vessels normally arrive at Nassau Harbor within three hours and discharge thousands of tourists who leave the docks on tour via a fleet of taxis and small buses ,which compete for space on the network.
"This congestion is now further exacerbated by the reduced capacity of the main road network caused by the widespread, unfinished rehabilitation roadworks being financed by the IDB, which now requires supplemental financing to complete the figurative 'last mile'."
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