Fifty percent par value should be the offer!
The government is making a mess of the situation with the Berbice River Bridge. In attempting to satisfy a long-standing commitment by the Alliance for Change to reduce the tolls on the said bridge the government is making a big blunder.
The bridge tolls do not need reducing. The bridge tolls are reasonable. If people can spend five to six thousand dollars in petrol to go on a joy ride across the Berbice River Bridge, they can very well pay the $2200 that is charged for the toll.
If they had to travel by ferry they would have lost time and it would have cost them the same money. There is no need to reduce the bridge toll. Admittedly the people in Berbice want to cross free, but there is nothing like a free crossing. The population of Berbice and the projected traffic across the bridge can never justify the sort of rates to cross the Berbice River Bridge that are charged for crossing the Demerara Harbour Bridge. It was the AFC with their nonsense that created expectations that government has the power to facilitate a reduction of the tolls.
The tolls are not the problem. The problem is the ownership of the Bridge. Even if government buys out the shareholding of the Bridge it will have to charge the same tolls that are presently charged or saddle the treasury with a massive amount of transfers.
The issue that should preoccupy the government therefore should not be the tolls. That is irrelevant. The tolls should not be reduced if the Bridge is to remain a profitable concern. The Bridge should be making money not having to subsidize tolls. It is better to subsidize food for poor people than for the persons with cars to cross the Berbice River Bridge
.
The government is also wasting its time in trying to introduce competition as a means of applying pressure to the Bridge Company to agree to a subsidized toll. The water taxis that the government proposes to introduce for school children and the elderly will not provide any competition to the Bridge Company. It will not reduce their traffic because right now the Transport and Harbours Department runs a scheduled service catering for school children and passengers.
The government should move away from this preoccupation with tolls and concentrate on the financial model of the Bridge which effectively uses state funds to provide benefits to private companies. A handful of private companies have invested far less than the State but their investment is in equity (shares) while the bulk of the State investment is in debt. This allows a small grouping of private shareholders to exercise disproportionate control over the Bridge Company. The financial model is flawed and this is what the government should be dismantling, not the toll structure.
The private investors have a guaranteed rate of return of 23% and they will receive it for 21 years after which the Bridge will revert to the State. This twenty one year period means that if the rate of return is satisfied the private investors would have received at the end of the concession period, five times what they invested. This is better than finding oil.
The Bridge Company says however that it is not making money, that is incurring losses and therefore it has not been able to pay dividends to its ordinary shareholders. They are also asking for the concession period to be extended from 21 years to fifty years. But why are they asking for this? If they are not making money, why extend the concession period. Their argument is that it will help resolve cash flow problems and eventually allow for the Bridge to make a profit.
This makes no sense. How will extending the concession period allow for a resolution of cash flow problems when in eight years the Bridge is alleged to have lost money?
The public has to ask themselves this question. If you are an investor in the Bridge and you have not earned a cent in dividends over the past eight years, why do you want to continue with your investment for another forty two years?
There is a simple solution to this whole matter. Seeing that the Bridge is losing money, the government should offer to buy out the shareholders at 50% of the face value of their shares. This will allow them to cut their losses and walk away from the deal with something rather than risk losing everything.
The investment by the ordinary shareholders is small relative to the debt. The ordinary shareholders can even walk away from their investment. In other words, they can sell their shares for $1 like what the Royal Bank of Canada and Barclays Bank did years ago.
Now, that is what the government should be doing. Not worrying about a toll reduction. The toll reduction is not going to increase the vehicular traffic across the Berbice Bridge. There is not the level of economic activity to increase the traffic crossing the Bridge, not now, not in the near future.