In 2017 I wrote a case study on Jamaica's Highway 2000 toll road project for the Caribbean Development Bank (CDB). The first phase of this transformative US$1.3-billion project, the east-west leg connecting Kingston with the dormitory community of Portmore, was a runaway success — traffic jumped to around 50,000 to 60,000 vehicles per day immediately upon opening in 2006. Everyone was happy; toll road users, the Government, and the investors (a consortium of Bouygues Travaux Publics and Vinci as operating partner). So far, so good.
Bouygues held a right of first refusal on Phase 2 from Kingston to Ocho Rios. Compared to Phase 1, this was a significantly higher mountain to climb, both geographically and financially. Jamaica's toll roads are structured as public–private partnerships (PPPs), meaning it is the private investor who finances most of the project, not the Government. This was a tough ask: The cost of building the north-south leg of the highway was twice the east-west, in virgin, mountainous terrain, and with one-fifth the traffic. Bouygues passed on the 'opportunity'.
Who, then, could build the the north-south leg of Highway 2000?
In 2012 China Harbour Engineering Company (CHEC) submitted an unsolicited proposal to the Government offering to build the north-south highway on substantially the same PPP terms as had just been turned down by Bouygues.
How could they do that? If it was unprofitable for one, wouldn't it be unprofitable for all? Well, that depends on how you define profit. And, in this regard, as in so many others, China is unique.
In researching the case study, CDB colleague Albert Gillings and I interviewed Lu Qin, CHEC's then head of operations in Jamaica, in their big, empty headquarters near May Pen. An intelligent, urbane man, he welcomed us into his office by performing the ancient Chinese tea ritual, slowly brewing and serving us tea in fine porcelain cups. Only after that was finished and cleared away did we get down to business. I put it to him:
"Mr Lu, the North-South Highway cost twice as much as the East-West, with one-fifth the traffic. Anyone can do the calculations: Revenue from tolls won't even pay your operating costs, let alone contribute to capital. This is a 50-year concession, how do you plan to make a profit?"
He smiled serenely and gave an answer pregnant with Chinese wisdom, which should be emblazoned across the skies of every Caribbean country:
"Mr Samuel, when your civilisation is 5,000 years old, what does it matter, to lose money for 50 years?"
Wow. Right then I wished I had another cup of tea, to pause and take in what I'd just heard. So simple, so wise, so true.
But CHEC didn't rely on Chinese wisdom alone. In case such a laconic approach didn't secure the financial returns that CHEC required, a late feature was added to the 50-year concession: Land.
It was obvious that toll revenues would not be sufficient to ensure viability; therefore CHEC suggested an incentive mechanism that was common in China — commercial development on lands adjacent to the highway. The deal that was ultimately struck gives CHEC access to 1,200 acres of Government-owned lands along the highway, under certain conditions.
While escorting us out, Lu noticed me looking at the empty offices:
"Don't worry, Mr Samuel, we will fill them. Very soon."
And they did; including the north-south leg of Highway 2000, CHEC has picked up virtually every single large-scale road contract in Jamaica, US$1.7 billion in all: See table
Unsurprisingly, this mop-up by CHEC has not gone down well in certain quarters of Jamaica, chiefly among its contractors. In 2017, the Incorporated Masterbuilders Association of Jamaica filed a complaint with the Fair Trading Commission: "Chinese firms operating in Jamaica are agents of the Chinese Government. So we are actually bidding against the Chinese Government, and there's no way we could compete against them successfully."
Valid points, or just sour grapes? That is open to debate, but what is not open to debate is that in any large tender, Chinese contractors in general, and CHEC in particular, are hard to beat. They are technically competent, offer a complete package including financing, and are low-cost. How do they manage to bid so low? That's another matter, altogether.
S Brian Samuel is a consultant in public–private partnerships (PPPs). He served some 20 years at International Finance Corporation, a member of the World Bank Group, and later as head of PPPs at Caribbean Development Bank. Send comments to the Jamaica Observer or email@example.com.
- We welcome reader comments on the top stories of the day. Some comments may be republished on the website or in the newspaper; email addresses will not be published.
- Please understand that comments are moderated and it is not always possible to publish all that have been submitted. We will, however, try to publish comments that are representative of all received.
- We ask that comments are civil and free of libellous or hateful material. Also please stick to the topic under discussion.
- Please do not write in block capitals since this makes your comment hard to read.
- Please don't use the comments to advertise. However, our advertising department can be more than accommodating if emailed: firstname.lastname@example.org.
- If readers wish to report offensive comments, suggest a correction or share a story then please email: email@example.com.