Is This the Right Time for The HIA Expansion Project?
Multiple administrations of St. Lucia have proposed an expansion of the Hewanorra International Airport. The current government recently commenced construction work and has a “great marketing” website but no cost-benefit analysis. Why is this project still a top priority in amidst of the most significant worldwide economic downturn particularly of the tourism industry. “The Hewanorra International Airport Project is a USD $175 million investment to re-develop St. Lucia’s international airport into an unmatched operation with significant enhancements to present facilities and major improvements to customer experience.”
The Economic and Resilience Plan “The Government of Saint Lucia is allocating approximately $548.0 million to the COVID-19 recovery effort, equivalent to an estimated 10.9 percent of GDP.” It is critical to note that 73% ($396M) of this $548 million is for “Unrolling of an ambitious portfolio of public sector capital projects and private sector shovel ready projects.” The majority of this COVID-19 recovery spending is directed to the HIA expansion project. Does the PM and Ministry of Finance truly believe that this investment provides maximum benefit for St. Lucia or is it simply for his personal interest and his like-minded tourism-only colleagues?
Analysis of Airport Expansion
A cost benefit analysis is a process for estimating all the costs involved and the possible profits to be derived from a business proposal. Has a Cost Benefit Analysis (CBA) of the ongoing Hewanorra airport expansion been completed? If so, which of the costs and benefits were included in this analysis. What framework was used to assess the economic impact this airport expansion project?
A Cost Benefit Analysis typically comprises of four steps:
- The project and the baseline scenarios are defined. If project alternatives exist, all relevant alternatives are defined.
- The effects of the project are identified.
3. Each effect is quantified.
4. Where possible, effects are monetized
It is also critical to avoid the following:
· Ignoring negative effects
· Overestimating positive effects
· Double-counting employment benefits.
For a project of this magnitude, the Government of Saint Lucia should have had a CBA done — and this should be made available in the public domain. Justification of this project can be outweighed versus other alternatives and scenarios.
Borrowing and Payback Period
St. Lucia has borrowed a considerable amount of money for this project which is a significant burden on the economy particularly if the projected tourism arrival figures are not achieved. “US$100 million loan on behalf of the Saint Lucia Air and Sea Ports Authority from the Export-Import Bank of the Republic of China (Taiwan), to cover the cost of modernizing Hewanorra International Airport. Loan payments to start after a grace period of five years; interest to be paid twice a year during the grace period in the amount of US$2,195,000 and thereafter at the six month London Inter-Bank Offered Rate plus 1.5 percent annually; loan to be repayable over a period of 20 years from the date of the first disbursement on the loan inclusive of a five-year grace period.”
From the Prime Minister’s analysis last year he speculated that “the loan from Taiwan could be paid off in 11 years if visitor arrivals at the airport averaged 500,000; the revenue generated after would be debt free.” However with projected stay-over arrivals for 2020 (likely below 200,000) significantly below our 2019 figures (420,000), what is the new pay-back period? The revenue from the $35 USD Airport Development Charge is directly proportional to the number of passengers and any shortfall due to the massive drop in tourism figures must be made up by the St. Lucian taxpayers.
Also it is critical to note that this payback period quoted here is only a fraction of the overall cost of the HIA expansion and the pay-back period is likely to be multiple decades if ever. This would decimate our precarious economic position resulting in significant debt burden for generations. Also is there a planned payback period for the Pearl of the Caribbean Project where we have had only a couple of races at the Royal St. Lucia Turf Club. These projects will be a chokehold on our economy for decades thanks to the Allen Chastanet government.
HIA Airport Expansion Completion Date
Has the government provided any details on the revised project dates or updated project costs? It’s obvious that the project timeline from Minister of Tourism Dominic Fedee in January 2019 is inaccurate. “Construction of the new terminal is slated to begin early this year with the goal of having a fully-functional facility by the end of 2020.” Will this project to take as long as the St. Jude’s Reconstruction Project which has been ongoing under multiple administrations for over a decade. The government is betting a significant fraction of our very limited economic resources on a project where the current outlook is shaky at best. Work finally begun on the project in June 2020 including the closure of the Drag Racing site and a proposed new Drag Racing site at further cost to the government.
However, since we have a Prime Minister who states that tourism is the only way forward for St. Lucia, we will continue to have our limited funds disproportionally spent on tourism at the expense of any other industry. “You cannot easily replace tourism. There is no other industry available to us that generates the foreign exchange, jobs and linkages to other sectors of the country.”
St. Lucia’s GDP is projected to be roughly the same in 2022 as it was in 2016 and the Allen Chastanet government will have a smaller GDP at the end of their 5 year term than they started with on June 6th 2016. Has there even been a St. Lucian Government which had a smaller GDP at the end of their term than when they started? Is this reflective of a clueless Ministry of Finance who does not even know whom the Minister is?
Please reach out to stlucia.analyser@gmail.com with any suggested topics for future articles.
