Prob­a­bly the most dan­ger­ous man­date un­der the West­min­is­ter sys­tem is to have a Prime Min­is­ter is­sue an in­struc­tion to “get it done”. Giv­en that every min­is­ter in Gov­ern­ment owes their po­si­tion to the au­thor­i­ty of the Prime Min­is­ter, “get it done” with­out the prop­er frame­works and gov­er­nance struc­tures in place is a sure way to end up with mis­man­age­ment, waste and cor­rup­tion.

T&T has ex­pe­ri­enced many ver­sions of this in the past. The on­ly way that then na­tion­al crude oil re­fin­ery Petrotrin would have be­come in­volved in a nat­ur­al gas-to-liq­uids project was if the po­lit­i­cal lead­er­ship of the day in­struct­ed to “get it done”. The same is­sue would have im­pact­ed the re­fin­ery up­grade pro­gramme and even more so the idea that both of these projects be un­der­tak­en al­most con­cur­rent­ly. The end re­sult was, in­stead of the ini­tial talk of a sec­ond re­fin­ery, the coun­try now has none.

The gas-to -liq­uids plant was a joint ven­ture with a tech­ni­cal part­ner, the re­fin­ery up­grade was fi­nanced through debt. Nei­ther ap­proach pro­vid­ed any mea­sure of suc­cess and the fun­da­men­tal rea­son be­ing an ab­sence of gov­er­nance and struc­ture.

The temp­ta­tion for these po­lit­i­cal­ly charged and lega­cy-defin­ing projects, is to en­sure that on­ly the op­er­a­tives loy­al to the leader be en­gaged. It is a way to guar­an­tee own­er­ship and lega­cy if the out­come is suc­cess­ful. The prob­lem is that such an ap­proach usu­al­ly guar­an­tees that the project will fail be­cause the nec­es­sary ob­jec­tive feed­back loop that guides prop­er de­ci­sion mak­ing is miss­ing. The fur­ther one goes down this road, the greater the risks of blind spots and gov­er­nance fail­ures.

I write this cau­tion­ary tale giv­en that we are em­bark­ing on the most ex­ten­sive and most cost­ly de­vel­op­men­tal project in the coun­try’s his­to­ry. As T&T con­tem­plates the am­bi­tious Glob­al Hub Ini­tia­tive our gov­er­nance frame­work be­comes a crit­i­cal con­straint and suc­cess fac­tor. Giv­en the state of the na­tion’s fi­nances these projects can­not oc­cur with­out pub­lic pri­vate part­ner­ships (PPPs). It should be not­ed that our coun­try’s PPP track record re­veals a con­sis­tent fail­ure. Yes, some op­er­a­tional as­sets have been de­liv­ered, but the risks, costs and fis­cal bur­den have re­mained stub­born­ly with the State.

Even the Wa­ter­front project, which is the foun­da­tion around which much of the ex­pan­sion will be built, was done as a debt in­stru­ment guar­an­teed by the Gov­ern­ment rather than any type of PPP in­volv­ing a trans­fer of risk.

PPP Ex­pe­ri­ence

T&T’s PPP type projects over the years have clus­tered in pow­er gen­er­a­tion, wa­ter de­sali­na­tion, gov­ern­ment build­ings and so­cial hous­ing. The 2024 In­fra­scope as­sess­ment ranks us at 21st of 26 in Latin Amer­i­ca and the Caribbean with a score of 33 out of 100. In­fra­scope is a “bench­mark­ing tool” that mea­sures a coun­try’s ca­pac­i­ty to im­ple­ment sus­tain­able, im­pact-dri­ven and ef­fi­cient PPPs in key in­fra­struc­ture sec­tors. Our rank­ing clas­si­fied us as hav­ing “nascent” in­fra­struc­ture readi­ness. Phys­i­cal de­liv­ery has been rea­son­able. Gov­er­nance out­comes have been poor.

The Ox­ford Busi­ness Group (OBG) has high­light­ed that com­pared with oth­er Caribbean coun­tries like Ja­maica, T&T’s PPP frame­work is de­scribed as “rel­a­tive­ly un­der­de­vel­oped” and large­ly lim­it­ed his­tor­i­cal­ly to util­i­ties-type projects. Even as PPPs start to ap­pear in more sec­tors, OBG notes the coun­try “still lacks a clear reg­u­la­to­ry frame­work” for PPPs. They note that: T&T has some PPP ex­pe­ri­ence and a pol­i­cy unit in the Min­istry of Fi­nance, but its rules and frame­work are not yet at the lev­el of re­gion­al lead­ers.

The bot­tom line as­sess­ment of our cur­rent state is that some projects get built, oth­ers are just talked about. When some­thing is built, the risk re­mains with gov­ern­ment and fis­cal bur­dens ac­cu­mu­late. Crit­i­cal­ly, T&T has no ex­pe­ri­ence with the com­plex trans­port and lo­gis­tics PPPs the Glob­al Hub Ini­tia­tive re­quires, no toll roads, no port con­ces­sions, no tran­sit sys­tems where de­mand fore­cast­ing and rev­enue risk al­lo­ca­tion be­come para­mount.

Ja­maica’s Blue­print

Last wee,k I used Bar­ba­dos to high­light a risk that we should try to avoid. This week I am go­ing to use Ja­maica to high­light a process that we need to em­u­late. Ja­maica’s High­way 2000 (The Trans Ja­maica High­way) demon­strates what ro­bust PPP gov­er­nance de­liv­ers. The gov­er­nance ar­chi­tec­ture was con­struct­ed de­lib­er­ate­ly, un­der­stand­ing that in­sti­tu­tion­al qual­i­ty de­ter­mines whether PPPs trans­fer risk or mere­ly dis­guise pub­lic bor­row­ing.

First, Ja­maica cre­at­ed a spe­cialised grantor en­ti­ty with sin­gu­lar fo­cus. The Na­tion­al Road Op­er­at­ing and Con­struct­ing Com­pa­ny ex­ist­ed for one pur­pose: procur­ing, con­tract­ing and man­ag­ing high­way con­ces­sions. NROCC held le­gal ti­tle to land, could is­sue its own bonds to fund gov­ern­ment’s cap­i­tal con­tri­bu­tion and pro­vid­ed con­ti­nu­ity across po­lit­i­cal cy­cles. In­ter­na­tion­al in­vestors con­tract­ed with an in­sti­tu­tion pos­sess­ing statu­to­ry au­thor­i­ty to bind gov­ern­ment across elec­toral cy­cles. We are not talk­ing about UDE­COTT here.

Sec­ond, risk al­lo­ca­tion was con­trac­tu­al­ly pre­cise. Tran­s­Ja­maican High­way bore con­struc­tion, op­er­at­ing and traf­fic rev­enue risk un­der a 35-year con­ces­sion. Gov­ern­ment re­tained land ac­qui­si­tion and spec­i­fied ter­mi­na­tion li­a­bil­i­ties. The con­ces­sion de­tailed ter­mi­na­tion pay­ment for­mu­las, toll in­dex­a­tion (linked to in­fla­tion and ex­change rates), and debt ser­vice re­serve ac­counts. Lenders could mod­el worst case sce­nar­ios be­cause bank­a­bil­i­ty means quan­tifi­able, con­trac­tu­al­ly al­lo­cat­ed risk.

Just as an aside, I have men­tioned over and over and over again the role of a de­vel­oped cap­i­tal mar­ket in good gov­er­nance. When the Gov­ern­ment of Ja­maica of­fers a con­ces­sion where the toll is in­dexed to in­fla­tion and ex­change rates, the Gov­ern­ment has to man­age its eco­nom­ic poli­cies to­ward trans­par­ent ex­change rate sta­bil­i­ty and us­ing in­ter­est rate pol­i­cy to man­age in­fla­tion risks. Every­thing be­comes re­in­forc­ing lead­ing even­tu­al­ly to a Bank of Ja­maica that is in­de­pen­dent in law.

This type of mar­ket dri­ven-gov­er­nance frame­work leads to the bet­ter struc­tures and ac­count­abil­i­ties. It is a vast­ly dif­fer­ent ap­proach from a Min­is­ter of Fi­nance man­dat­ing the Cen­tral Bank to do X or Y be­cause it is po­lit­i­cal­ly ex­pe­di­ent to do so.

If we want to go down a par­tic­u­lar part of de­vel­op­ment, then we have to take all the ac­tions that are con­sis­tent with that path. It is the on­ly way to achieve the en­vi­sioned re­sult. Hav­ing peo­ple around who un­der­stand this up­front is al­so use­ful.

Com­ing back to Ja­maica, the third pil­lar in Ja­maica’s PPP jour­ney was that mul­ti­lat­er­al banks func­tioned as gov­er­nance part­ners. When the IFC and Propar­co took eq­ui­ty stakes along­side the op­er­a­tor and con­ces­sion­ers, Bouygues and Vin­ci, they im­posed en­vi­ron­men­tal, so­cial and pro­cure­ment stan­dards meet­ing in­ter­na­tion­al norms while pro­vid­ing po­lit­i­cal risk in­sur­ance through in­sti­tu­tion­al in­volve­ment.

Fourth, cap­i­tal mar­kets evo­lu­tion was struc­tured in­ten­tion­al­ly. Ini­tial com­mer­cial bank fi­nanc­ing gave way to cheap­er mul­ti­lat­er­al loans once op­er­a­tional. In 2020, Tran­s­Ja­maican is­sued US$225m in notes at an in­ter­est rate and rat­ing that was above the soverign cred­it rat­ing of Ja­maica. This does not hap­pen with­out a ro­bust gov­er­nance frame­work.

Then, the Gov­ern­ment of Ja­maica sold 80 per cent of eq­ui­ty on the Ja­maica Stock Ex­change in their largest ini­tial pub­lic of­fer­ing. The high­way evolved from fis­cal im­pos­si­bil­i­ty to a pub­licly list­ed com­pa­ny held by do­mes­tic in­vestors.

In­sti­tu­tion­al Deficit

Set Ja­maica’s gov­er­nance ar­chi­tec­ture against Trinidad’s in­sti­tu­tion­al land­scape and gaps be­come stark. T&T op­er­ates on a Cab­i­net-ap­proved PPP Pol­i­cy from 2012, not a PPP Act with statu­to­ry force. No pub­lic reg­istry ex­ists for PPP con­tracts or oblig­a­tions. The 2023 World Bank as­sess­ment found PPP li­a­bil­i­ties are not sys­tem­at­i­cal­ly record­ed in na­tion­al ac­counts and dis­clo­sure is min­i­mal.

The Min­istry of Fi­nance PPP Unit op­er­ates in an ad­vi­so­ry ca­pac­i­ty. There is a seem­ing lack of project prepa­ra­tion ca­pa­bil­i­ty, sys­tem­at­ic val­ue for mon­ey method­olo­gies or au­thor­i­ty-en­forc­ing stan­dards. A Cen­tral Bank 2019 study not­ed in­sti­tu­tion­al PPP knowl­edge re­mains thin. The In­fra­scope as­sess­ment is harsh­er: the PPP Unit has “lim­it­ed func­tion­al­i­ty and pub­lic ac­tiv­i­ty”. If there have been im­prove­ments since then, the pub­lic should be so ad­vised.

More fun­da­men­tal­ly, T&T lacks clear grantor ar­chi­tec­ture. NID­CO han­dles trans­port in­fra­struc­ture. UDe­COTT man­ages ur­ban de­vel­op­ment. NIPDEC over­sees fa­cil­i­ties. These en­ti­ties have over­lap­ping man­dates and none in the way that is re­quired. Frag­men­ta­tion cre­ates in­vestor con­fu­sion and en­ables poor­ly struc­tured deals to pro­ceed with­out ad­e­quate scruti­ny. Risk man­age­ment and fis­cal trans­paren­cy are par­tic­u­lar­ly weak and, in the past, when risks ma­te­ri­alise the State ab­sorbs loss­es with lim­it­ed pub­lic ac­count­ing.

The Glob­al Hub Ini­tia­tive en­vi­sions trans­form­ing T&T in­to a lo­gis­tics and ser­vices hub through mas­sive in­fra­struc­ture in­vest­ment. The blue­print states de­liv­er­ing this scale “on-bal­ance sheet” is fis­cal­ly im­pos­si­ble. Pub­lic pri­vate part­ner­ships are pre­sent­ed as the fi­nanc­ing so­lu­tion.

This is cor­rect in prin­ci­ple but dif­fi­cult in prac­tice un­less we rapid­ly im­prove our cur­rent ca­pac­i­ty. Ja­maica spent years prepar­ing High­way 2000. De­vel­op­ment banks fund­ed ex­ten­sive stud­ies, NROCC was es­tab­lished with statu­to­ry au­thor­i­ty, and risk ma­tri­ces were stress test­ed be­fore ten­der­ing.

T&T has adopt­ed a dif­fer­ent, po­lit­i­cal­ly ex­pe­di­ent ap­proach: an­nounce projects, ap­point con­sul­tants, ne­go­ti­ate un­der time pres­sure, sign deals with risk al­lo­ca­tion shaped by fis­cal con­straints.

Po­lit­i­cal­ly it may be nec­es­sary to do it this way. But there are now huge gaps that quick­ly need to be filled.

Ian Nar­ine is a fi­nan­cial con­sul­tant who un­der­stands that a part­ner­ship with­out risk shar­ing is not a part­ner­ship. Please send your com­ments to ian@ian­nar­ine.com