Jan 2006 Financial News

Chavez to lend $19b to Jamaica

Jan 03, 2006

The Venezuelan government is finalising a loan of up to US$300 million (J$19.2 billion) to Jamaica, which the Patterson administration hopes will put it in a position to jump-start the Ocho Rios leg of Highway 2000, as well as finance a major island-wide road repair project, government sources say.
"The deal is for between US$250-US$300 million," an administration official told the Observer. "It should be settled early in the new year. The technical details are being straightened out."

Part of the issue in structuring the deal, officials say, is to ensure that it is done in such a way that it does not spook the international money markets that had been concerned over Jamaica's debt ratio, which had caused a downgrading of the country by rating agencies. "That's a key issue," said an administration official.

Neither finance minister Omar Davies nor Highway 2000 officials were available yesterday for comment.

Patterson first discussed the idea of the loan with Venezuelan president Hugo Chavez in August, when Chavez came to Jamaica to sign the PetroCaribe Oil Accord with Caribbean leaders.

Under that pact, Venezuela supplies oil - in Jamaica's case up to 20 million barrels a day - with the recipient having to pay cash for 60 per cent of the purchase. The remaining 40 per cent is converted to long-term loans, at interest as low as one per cent, to be used for development projects. Jamaica is projected to save between US$180 million and US$200 million a year under PetroCaribe.

But government officials stressed that the loan now being finalised is separate from the PetroCaribe agreement benefit, although it too would be at "extremely soft rates".

Critically for the administration, the money would place it in a position to exert pressure on Bouygues, the French construction company that is developing Highway 2000, to treat with urgency the spur of the tolled expressway from Bushy Park, St Catherine, on the island's south coast, to Ocho Rios, a major tourist resort, on the north shore.

The Ocho Rios spur, along with the highway's link from Mandeville - in south-central Jamaica - to Montego Bay on the northwest coast, was to be the second phase of the 236-kilometre project, and was not planned for construction until much later in this decade.

At present, Bouygues' subsidiary, TransJamaican Highway is concentrating on a new six-lane bridge over the Kingston Harbour, linking the capital with Portmore, a dormitory city just west of Kingston. This new causeway is to be completed in June. Under the Highway 2000 schedule, it is to be followed by a 38-kilometre stretch of the express from where it now ends in Sandy Bay, Clarendon, to Williamsfield.

However, Bouygues, which has a 35-year concession to operate the highway, has been slow in raising the financing for the Sandy Bay/Williamsfield leg, which could push back the timetable for this segment of the project, as well as the Ocho Rios and Montego Bay segments, government sources say.

However, the Ocho Rios leg has become an increasing priority for the government. At present, the main route between that town and Kingston is via a narrow gorge - over a river spanned by a single lane, stone bridge built by Spanish colonists nearly 400 years ago - and over a mountain with sheer drops. This route has proven itself increasingly dangerous during recent hurricanes, when the gorge flooded trapping motorists. Boulders which fell from the hillside onto roadway have also proven hazardous.

"The government, and particularly Prime Minister (PJ) Patterson, really wants an alternative route and the Highway 2000 project is the answer," said the Observer source.

The Venezuelan loan, administration sources say, would allow the government to have cash for on-lending the highway developers, allowing Bouygues to write down some of the higher-cost commercial debt it has taken on for the project.

"This would make the existing leg of the highway more viable and give the government more muscle with which to push Bouygues, or entice another developer to the project," according to the government source.

It was not clear how any such financing deal would be structured, but the government, under the terms of the highway agreement, loaned Bouygues about US$107 million - about 26 per cent of the value of the initial phase of the express - from cash mostly raised on the local market.

Bouygues has right of first refusal on the second phase of the highway, but the government could, if the company fails to meet certain conditions, relating to timing and financing, assign the project to another developer.

"There are others who are showing interest," the administration official insisted.

The Jamaica Observer
Observer Reporter
Tuesday, January 03, 2006
http://www.jamaicaobserver.com/news/html/20060102T230000-0500_95862_OBS_CHAVEZ_TO_LEND____B.asp