The Cayman Islands Government is once again considering using a capital project funding method called private financing initiative.
Leader of Government Business McKeeva Bush said the government was exploring PFI as part of its general debt management strategy.
‘This relates to partnering with the private sector to progress infrastructure projects without incurring significant debts along the way,’ he said.
Mr. Bush explained that using the private financing initiative for capital projects would stimulate the economy and provide the needed infrastructure without upfront government funding.
Projects that the government would pursue using the private financing initiative include: the cruise berthing docks; a new cargo port; the airport redevelopment; road construction; schools; and waste management, Mr. Bush said.
‘In addition, we will explore whether PFIs can assist with any of the existing projects, such as the government administration building or the existing schools in progress.’
Mr. Bush said the government is inviting bids for potential private financing initiative partners for the projects he listed.
‘We must be innovative in finding solutions,’ he said. ‘The days when walking into a bank for financing was the only approach are long gone. We must embrace other solution to achieve our objectives.’
In May 2003, former Minister of Works Linford Pierson proposed using PFI to fund the building of the new government accommodation building.
Under that proposal, a developer would have constructed the building, provided maintenance and assumed all construction risks. The government would have had to sign a long-term lease agreement – as long as 25 years or more – after which it would have assumed ownership of the building.
One key benefit of using a private financing initiative scheme, which was used extensively in the UK in the 1990s, is that it allows the large capital funding for a project to be recorded ‘off balance sheet’. In Cayman’s case, it would allow the government to build major infrastructure projects without directly borrowing for them. This would help keep the government’s annual debt service ratio below 10 per cent of annual revenues as required by the Public Finance and Management Law.
In October 2003, Former Auditor General Nigel Esdaile produced a special report on the private financing initiative proposal for the government administration project. One of the major concerns he raised in the report was that the CI$8 to CI$8.5 million annual payments due under the private financing initiative might have limited the government’s ability to commence other future projects.
Mr. Esdaile also raised the point about whether the rolled up cost of the building over the long run would represent value for money.
Cabinet put the government accommodation project using the private financing initiative on hold in November 2003.
The 2005 report of the Standing Public Accounts Committee on Mr. Esdaile’s report suggested the project was put on hold because of cash flow problems in being able to service the $8.5 million of annual costs associated with the private financing initiative arrangement.
Auditor General Dan Duguay says that if government is going to pursue the private financing initiative again, his office would have the same concerns as Mr. Esdaile, and that he would likely remind government of those concerns.
‘PFI is not necessarily a bad thing, but it does have to be a good deal,’ Mr. Duguay said, adding that getting around the accounting aspects of an infrastructure project should only be part of reason why a private financing initiative arrangement is used.