The second quarter of 2016 brought the Holness administration’s first full Budget to Parliament, tested the government’s resolve to maintain IMF programme discipline while managing the expectations of an electorate that had voted for change, and moved the Kingston Container Terminal to the cusp of its long-anticipated transfer to private management. The convergence of these milestones with accelerating renewable energy procurement marked the quarter as one of meaningful transition across multiple infrastructure fronts simultaneously.
Key Highlights
- Finance Minister Audley Shaw presents FY2016-17 Budget maintaining IMF EFF primary surplus target; capital expenditure envelope remains tightly constrained by fiscal framework.
- Kingston Container Terminal operational handover to Kingston Freeport Terminal Limited scheduled for July 1, 2016; all transition workstreams on track for completion.
- Office of Utilities Regulation advances renewable energy procurement round; bid evaluations underway for utility-scale wind and solar projects under new competitive framework.
- National Works Agency commences new IDB-financed road rehabilitation tranche covering eastern and central parishes; contract award follows 2015 procurement.
- Tourism spring shoulder season maintains positive trajectory; JTB data shows continued growth in stopover arrivals and cruise passenger calls.
- LNG project: government announces restructured procurement approach; earlier RFP process formally superseded as administration seeks to introduce natural gas through alternative commercial structures.
The FY2016-17 Budget: EFF Discipline in the Final Year
Finance Minister Audley Shaw’s presentation of the FY2016-17 Budget to the House of Representatives in late April 2016 represented the Holness government’s first major policy statement on the fiscal trajectory it intended to maintain. The budget preserved the primary surplus target required by the IMF Extended Fund Facility at 7.5 percent of GDP, a figure that left minimal room for the kind of growth-oriented spending that the JLP had implied during the election campaign. Shaw framed the continued fiscal discipline as a necessary foundation for the post-EFF era — establishing credibility with international markets and the Fund so that the successor framework would benefit from the goodwill accumulated during the programme years.
The capital expenditure envelope in the budget remained dominated by multilateral-financed programmes, with the domestically financed component compressed to the minimum required to maintain the road fund, urban drainage and emergency response capacity. The Ministry of Economic Growth and Job Creation’s allocation reflected the political priority the administration placed on infrastructure, but the absolute figures were constrained by the fiscal arithmetic. Shaw’s supplementary message to infrastructure-dependent constituencies was that the post-EFF period, beginning in 2017, would see the reintroduction of domestically financed capital investment at a scale the current framework did not permit.
The IMF’s twelfth quarterly review — the final review before the programme’s May 2017 scheduled conclusion — was being prepared during the quarter. Preliminary discussions between Shaw’s team and the Fund indicated that Jamaica remained in compliance with all quantitative performance criteria, a finding that, if confirmed by the Board, would position the government for a clean exit from the EFF and the transition to a successor domestic fiscal framework. The question of what that framework would look like — whether it would maintain the primary surplus discipline or allow some fiscal relaxation in support of growth — was already generating debate within the economics community and the political sphere.
Kingston Container Terminal: Final Preparations for KFTL
The final weeks before the July 1, 2016 operational handover of the Kingston Container Terminal to Kingston Freeport Terminal Limited were consumed with the closing details of a transition that had been planned since the June 2015 concession signing. The joint Port Authority of Jamaica-KFTL transition committee was completing the last of the operational readiness checklist: final equipment inspections, completion of staff secondment and redundancy arrangements, confirmation that IT billing and cargo management systems could transfer without disruption to shipping line customers, and the ceremonial preparations for a public handover event.
The Port Authority’s commercial management of KCT through the transition period had maintained volume at broadly stable levels, providing KFTL with an operational baseline to work from. The incoming concessionaire had recruited its initial management team — a combination of experienced port operators, CMA CGM commercial staff and Jamaican logistics professionals — and had begun establishing the vendor relationships and maintenance contracts it would need from day one of operation. The thirty-year concession represented the most significant private infrastructure management commitment in Jamaican port history, and both the government and the concessionaire understood the symbolic as well as practical importance of a smooth handover.
The strategic rationale for the concession — attracting long-term private capital to upgrade terminal equipment and operating systems, leveraging CMA CGM’s global network to maintain and grow transshipment volumes, and removing the terminal’s operational risk from the public sector balance sheet — remained as articulated when the concession was structured. The medium-term test of those rationales would come in the first few years of KFTL’s operation, as the new management’s investment programme and commercial performance against the contractual volume and service benchmarks became assessable.
Renewable Energy: Competitive Procurement Advances
The Office of Utilities Regulation’s competitive procurement process for utility-scale renewable energy generation capacity advanced during the second quarter, with bid evaluations underway for both wind and solar photovoltaic projects. The procurement followed the Electricity Act framework and the integrated resource plan updates that the Jamaica Public Service Company had submitted, which identified renewable energy as the least-cost generation option for a significant portion of the island’s new capacity requirements over the coming decade. International renewable energy prices had fallen dramatically since the mid-2000s, with utility-scale solar PV in particular now competitive with or cheaper than new heavy fuel oil generation on a levelised cost basis.
The bids received for the renewable energy round attracted participation from international developers with Caribbean and Latin American experience as well as Jamaican entities. The OUR’s evaluation criteria covered not only the proposed tariff but the technical credibility of the generation plan, the financial capacity of the proponent and the grid integration arrangements required to accommodate variable output from wind and solar on the island’s transmission system. JPS’s system operator team was involved in the technical assessment, given the operational implications of integrating variable renewable generation into a small grid with limited interconnection and storage capacity.
The government’s position was that renewable energy deployment would advance regardless of the outcome of the LNG process — the two technologies addressed different parts of the generation portfolio, with renewables providing zero-fuel-cost base generation and LNG providing dispatchable gas-fired capacity. The interaction between the two would shape Jamaica’s long-term generation mix and electricity cost trajectory in ways that the current planning cycle was only beginning to model. For ordinary consumers, the metric that mattered was the electricity bill: both the LNG and renewable energy programmes were justified internally and to the public on the basis of delivering lower costs than continued dependence on heavy fuel oil.
LNG: Procurement Restructured
The Holness government announced during the second quarter that it was restructuring the approach to the LNG procurement, formally superseding the request for proposals that the PNP administration had issued in 2014 and through which no preferred developer had been selected. The new administration’s energy minister indicated that the market had changed sufficiently since 2014 — both in terms of global LNG pricing and in terms of the available technology options for a floating storage and regasification unit at Old Harbour Bay — to warrant a fresh commercial approach. The government would engage directly with parties that had demonstrated credible interest in the Jamaican market rather than running a formal procurement competition from scratch.
The restructuring reflected in part the sustained low global oil price environment that had made the economics of gas-to-power projects more complicated than they appeared in 2013-14 when the procurement was designed. The argument for gas had rested on the assumption that oil prices would remain high enough to make heavy fuel oil generation significantly more expensive than gas generation — but with Brent crude at forty to fifty dollars per barrel, the differential had narrowed. The government maintained that the long-term case for gas remained sound and that locking in competitively priced gas supply would benefit consumers over the project’s full life even if short-term economics were less compelling than in the high-oil-price environment.
Road Infrastructure: Eastern Parish Tranche Commences
The National Works Agency commenced work on a new IDB-financed road rehabilitation tranche targeting the eastern and central parishes during the second quarter, following contract awards that had concluded the procurement begun in 2015. The tranche covered sections of the main A3 and A4 roads in St Mary, Portland and St Thomas, parishes that had received less intensive treatment under previous rounds of the IDB programme than the western corridor that had been the focus of works since 2013. The contract packages involved local and regional contractors who had mobilised to sites in the May-June 2016 period, with construction scheduled to run through 2017.
The tourism-related road network in the eastern parishes — the approach routes to the Blue Mountains, the road serving Port Antonio and the coastal road through St Thomas — had been identified in multiple assessments as among the worst-maintained arterials on the island, reflecting the historical concentration of both political attention and commercial tourism investment in the north coast. The new Ministry of Economic Growth and Job Creation indicated that the eastern parish programme was a priority for the incoming administration, both because of the genuine road condition deficit and because the eastern parishes represented areas of political vulnerability for the JLP that infrastructure visibility could help address.
Tourism: Shoulder Season and Sector Expansion
The spring shoulder season of 2016 saw Jamaican tourism continue the growth trajectory of the preceding two years, with the Jamaica Tourist Board reporting positive year-on-year comparisons for stopover arrivals in April, May and June. The cruise passenger segment also performed well, with the Falmouth Cruise Pier — completed in 2011 and purpose-built for Oasis-class vessels — handling its scheduled call rotations and generating visitor expenditure across the north coast corridor. The pier’s economic multiplier effect, while debated in terms of the actual spend per passenger relative to stopover visitors, was recognised as a significant contributor to economic activity in Trelawny and the broader northwest corridor.
Hotel investment continued in the quarter, with Sandals Resorts announcing expansion plans for its Montego Bay and Negril properties and international hotel groups examining new development sites along the north coast. The government’s investment promotion agency, JAMPRO, was marketing the tourism investment opportunity to Asian investors in addition to the traditional North American and European hotel brands, reflecting the changing global capital flows in the sector. Chinese hotel investment in the Caribbean had been growing, and Jamaica’s combination of established tourism infrastructure, English-language environment and improving macroeconomic outlook made it a plausible candidate for consideration alongside existing investments in Bahamas and other markets.
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