In the last few weeks, the Honorable Alden McLaughlin, announced that additional funding for the construction of the proposed cruise berthing facility had been secured, with Disney Cruise Lines agreeing to invest in the development.
Disney now joins Royal Caribbean (owners of the world’s largest cruise ships) and Carnival (the world’s largest cruise line company), which have already inked agreements with the Cayman Islands Government (CIG).
But what are these agreements? In return for their investment, the three cruise companies have secured the exclusive use of the berths on set days. Essentially, their upfront funding of the port construction means they can dock for the next 25 years with certainty.
This is fantastic news for the people of the Cayman Islands. The financing model means that we can guarantee that the Grand Cayman will continue to be one of the most-visited destinations for cruise passengers in the Caribbean, securing the jobs of thousands of Caymanians and protecting the enormous revenue generated by these visitors.
The finance deal – transferring risk and protecting the public purse
This government has always been clear that it will not use using taxpayer’s money to finance the construction of the port upfront. Not only is government spending constrained by the terms of the agreed Framework for Fiscal Responsibility, but the intention was always to transfer the risks associated with this kind of infrastructure project onto others.
It is for this reason that the government opted for a funding arrangement based on what is known as the ‘Design, Build, Finance, Maintain’ (DBFM) model.
Under this model the successful bidder finances the design and construction of the piers and retain responsibility for the maintenance and operating costs for the next 25 years.
The company that constructs the port will be paid back via the cruise companies which have paid to secure their access to the berths.
In turn, the cruise company will get their money back via the passenger fees. Passenger fees will continue to be levied in the future. At present, some of that fee is used to pay the tender companies but in future that money will go back to the cruise companies. Since the cruise companies include the passenger fees in the price of each passengers ticket, essentially, cruise passengers will be paying for the construction of the port over a 25 year period.
No loans, no bonds, no debts.
The port will continue to be operated and managed by the Port Authority and throughout the entire period the government will retain ownership of the piers. The people will not be losing control of the port.
This model also allows the government to transfer the two key risks associated with this infrastructure project: the design and construction risks would be transferred to the construction contractor meaning that they would be responsible for any overspend were it to happen; and the risk that the construction does not yield a return is passed onto the cruise companies which must send their cruise ships to Grand Cayman in order to recoup their investment.
The cruise companies therefore ‘have skin in the game’: if they want to get their money back they have to call on and bring their passengers to the Cayman Islands!
A unique deal
The deal that the cruise companies have signed up to is not just fantastic for all those who rely on cruise tourism, it is also unique. The government has always been clear that the proposed berthing facility must benefit Caymanians and their businesses and therefore CIG has insisted from the outset that the project would not include any upland development. This is a first – nowhere else have the cruise companies agreed to finance a berthing facility that does not include upland development.
This means that we get the best of both worlds: not only do we gain a modern berthing facility that allows us to keep pace with our competitors, but Caymanian businesses which profit from cruise can continue to reap maximum rewards as passengers seamlessly walk off ships into downtown George Town to shop, eat and spend their money.
This is an incredible deal for the Cayman Islands and we urge you all to show your support and get behind the port.
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