Cheddi Jagan International Airport Corporation racks up heavy losses; questions about where the income goes: Part 2 – Airport Extension

In July last year under the caption ‘No such thing as a free chow mein’ I wrote critically of the process leading up to the decision to undertake a proposed expansion project at the Cheddi Jagan International Airport. Let us recall that the Minister of Public Works and Communication Robeson Benn had explained that “we [meaning the government] had to enter into an agreement because we had a very narrow window in September where a Chinese Vice Premier came to the Caribbean with several billion dollars to fund projects and it was the only opportunity we had then to fund this undertaking.” What follows in this column shows how dangerously absurd it was to make such a multi-million US dollar contract for an even more absurdly outlandish project. Because of the substantial expenditure to which the Government of Guyana is committing the taxpayers of this country, I will begin by outlining the provisions of the contract for the extension of Cheddi Jagan International Airport and will follow this up with a review of the government Concessional Loan Agreement signed between the Government of Guyana and Export-Import Bank of China (EXIM).

Pre-Budget construction contract
This contract between the Ministry of Public Works and Communications and China Harbour Engineering Company Ltd of Beijing China (CHEC) was signed on November 11, 2011, that is seventeen days before general elections. Signing on behalf of the Ministry of Public Works and Communications was its Permanent Secretary Mr Balraj Balram. The contract price is US$138,000,000. But that price “excludes all taxes, duties, royalties and fees of all kinds imposed by the Guyana governmental and statutory authorities.” Moreover the entire exchange risk under the contract is borne by the Government of Guyana.

I am not sure this contract was read carefully in the ministry since it states that it was CHEC that submitted a proposal and that the government accepted it. Practice and common sense would have suggested that such a proposal should have been examined with caution and scepticism but apparently this was not done by Mr Benn’s ministry.

The contract document laid in the National Assembly states that included in the contract are Forms and Appendices Conditions of Contract (Parts I and II) FIDIC 1999 Design Build to be subsequently amended and agreed to be applicable to Extension of Cheddi Jagan International Airport, Guyana. Apart from the fact that this is neither proper English ‒ the ruling language of the contract ‒ nor any Chinese, the question arises whether there is a final contract since the November 11, 2011 contract is subject to other agreements being in place. Maybe the new information czar Mr Charles Ramson would be kind enough to tell us what role he played in the drafting of this contract and the advice he offered in relation to matters to be agreed subsequently.

The contract also states that the conditions of contract applying to this contract shall be those issued by an international organisation called FIDIC for Conditions of Contract for Plant and Design – Build (Yellow Book), printed in 1999. Now trying to get a copy of this Yellow Book has turned out to be impossible, with two letters and several telephone calls to Mr Balram being met with the discourtesy characteristic of so many government offices and public officials. Sadly this is just another case of our parliamentarians not doing their work, since either their finance persons or any one of the battery of lawyers would have picked up on this.

Now let us see what the Scope of Work to be done is for US$138,000,000. This has to be qualified by noting that Clause 3 (page 15) contains its own twelve tasks to be carried out under the contract while on page 34 under Description of Project there is another set of tasks arranged under C. Scope. Now I would think that a contract for the most modest construction would be designed and written more clearly and strictly, concerns which appear to have eluded Mr Balram.

Works to be performed
1. Extend primary runway by 1,066.8 metres to reach a total length of 3,336.8 metres.

2. Provide turning area at end of extension.

3. Install navigation facilities, such as lighting.

4. Provide a service vehicle lane as well as emergency facilities such as firefighting systems.

5. Design for New Car Park, Internal Road Area and Handing Equipment Area. (Apparently Guyanese are not competent to design a car park!)

6. Mark the position of new Cargo Area and Fuel farm in Layout Drawings. (Again, we in Guyana need to pay to mark a position!)

7. Build new two-story terminal building west of existing terminal. The new building will consist of a terminal building and departure lounges/gates with eight loading bridges and arrival concourse.

8. Expand parking apron; and

9. Rebuild and expand the taxiway linking the parking apron.

What the contract specifically excludes or requires the government to do.

1. Construct Car Park, Internal Roads and Handling Equipment Area.

2. Design and construction of new cargo area and Fuel farm for which the layout is to be done by CHEC.

3. Provide the sand and other fill material to the contractor for free. If the distance from material source to the project site is more than 12 km, the transportation fee will be increased according to actual distance. The government is responsible for the quantity, quality and timely supply of the abovementioned sand and other fill material for which failure will entitle CHEC to claim expense and time extension.

4. Removal of existing terminal, existing cargo store and containers, new cargo area, new fuel farm, existing LLZ removing or renewing; outside access road and any other work not specifically included in the scope of work to be done by CHEC. The government has to finish the removal of existing terminal, existing cargo store and containers on CHEC’s requirement.

5. Provide to CHEC a temporary construction yard for free.

6. Rain or shine, the government guarantees CHEC ten hours work per day, seven days per week for the thirty-two months’ duration of the contract.

7. Assist the CHEC ‒ at no cost to the company and free of all duties and taxes – in obtaining all the necessary permits, licences or approvals from relevant authorities, including vessels, cars and vehicles, GPS frequency, mobile phone, internet, materials, equipment, tools, medicines, etc.

8. Permit CHEC to import 60% of Chinese labour for non-technical work and 100% for work requiring professional and technical personnel and to issue work permits for such persons free of charge. CHEC is only required to provide and maintain all necessary accommodation and welfare facilities for Chinese staff and labour.

9. Pay the full Contract Price of US$138 million so that CHEC bears no taxes, duties, royalties and fees imposed by the central or any local government and statutory authorities. What is incredible is that a Permanent Secretary considers himself competent and vested with the powers to waive taxes of any magnitude. For a former Auditor General (ag) to act in this manner is unimaginable.

10. The government is required to make to CHEC an advance payment of 15% of the total contract price which is US$20,700,000. CHEC in return, to guarantee its performance grants a Performance Security issued by EXIM Bank of China of 10% of the contract price which is equivalent to US$13,800,000.

While an appendix to the contract states the percentage of retention is 10%, there is a limit of 5% of the contract sum for retention monies. It is worth noting too that the Government of Guyana has abandoned the Arbitration Act of Guyana in favour of the Arbitration Rules of the England and Wales and agreed with CHEC that any arbitration has to take place in England with a single arbitrator.

What is amazing is that the government has more obligations under the contract than CHEC and accordingly failure by the government to carry out its obligations in a timely manner not only extends the contract period, but in many cases clears CHEC of any responsibility for any poor work or delays on its part. Quite frankly I would have been less shocked if the contract was written in Mandarin or some other language of China.

Minister Benn may be very competent at knocking down stalls and arranging sandbags, but he is clearly challenged when it comes to handling large projects.

Business Page supports the extension of the runway of the CJIA but strongly believes that the only thing golden about the fleece which Guyana is being handed is the US$138 million price tag. If this contract was grossed up for all the costs and tax remissions to be borne by Guyana it will probably exceed US$250 million. The contract has to be re-negotiated by sensible and suitably competent individuals. The indications are that the contract includes grossly inflated costs. I will pursue this aspect of the contract next week.

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