The first quarter of 2018 brought closure to Jamaica’s 2017-18 winter tourism season on record total arrivals, the formal signing of the long-anticipated liquefied natural gas supply and power generation agreements that would finally move the island’s gas-to-power project from negotiation to implementation, and a continuing steady performance under the domestic fiscal management framework. For an island that had spent much of the preceding five years in the constrained posture of fiscal adjustment, the convergence of these positive developments offered a cautious optimism about the infrastructure trajectory of the post-EFF years.
Key Highlights
- 2017-18 winter tourism season closes on record full-season stopover arrivals; year-on-year growth accelerated by displaced visitors from hurricane-damaged Caribbean destinations and sustained airlift expansion.
- LNG gas-to-power agreements formally signed with New Fortress Energy; the New York-based developer will supply liquefied natural gas via a floating storage unit at Old Harbour Bay and support new gas-fired generation capacity.
- IMF Precautionary SBA third review completed; Jamaica maintains compliance with fiscal targets and structural benchmarks through December 2017 assessment period.
- FY2018-19 Budget presented by Finance Minister Shaw; modest increase in capital allocation reflects continued post-EFF normalisation of infrastructure investment.
- World Bank central parish road rehabilitation programme in active construction; Manchester, Clarendon and St Catherine arterials under works.
- Renewable energy second procurement round launched; OUR issues request for proposals for additional utility-scale wind and solar capacity.
Record Tourism Season: The Hurricane Dividend Materialises
The 2017-18 winter tourism season closed at the end of March 2018 as the strongest on record for the combined winter-season stopover arrivals metric, with the Jamaica Tourist Board’s final data confirming growth that exceeded the previous winter record by a substantial margin. The components of this exceptional performance were multiple: continued expansion of airlift from North American source markets, driven by route additions and frequency increases that had been building since 2015; the sustained positive impression created by Jamaica’s strong product delivery in recent seasons; and the targeted displacement demand from travellers whose original Caribbean destinations had been damaged or disrupted by the 2017 hurricane season.
Montego Bay’s resort corridor was the primary beneficiary of the surge, with the major all-inclusive properties reporting occupancy levels through January and February that exceeded anything in their recent history. Negril and Ocho Rios also posted strong performance, and the Kingston market benefited from increased business and government travel as Jamaica’s improving economic reputation attracted more international commercial engagement. The total stopover arrival figure for the calendar year 2017, adding the strong summer to the exceptional winter bookings, placed 2017 as the best year in recorded Jamaican tourism history by total arrivals.
The infrastructure implications of the tourism surge were becoming apparent. Sangster International Airport was processing throughput volumes during peak weeks that created congestion at ground transportation links, in baggage handling areas and at the domestic connector facilities. The Airports Authority’s terminal expansion studies, which had been proceeding at a measured pace during the adjustment years, were being reprioritised in response to the operational evidence that the existing terminal was approaching or at functional capacity during peak periods. Any expansion decision, however, would involve a capital investment of hundreds of millions of dollars and a development timeline of at least three to five years, placing any new terminal capacity in a medium-term rather than immediate timeframe.
LNG Agreements Signed: Gas-to-Power Project Formally Launched
The formal signing of the LNG supply and power generation framework agreements with New Fortress Energy during the first quarter of 2018 brought to a conclusion a procurement and negotiation process that had begun with the 2014 request for proposals and had consumed the better part of four years in commercial discussion. New Fortress Energy, a New York-based energy developer with experience in small-scale LNG supply and power generation in Caribbean and Central American markets, had emerged as the preferred partner through the government’s restructured commercial engagement approach and had worked with the Ministry of Energy and the Petroleum Corporation of Jamaica to develop a project structure that satisfied the government’s value-for-money requirements.
The agreed structure provided for a floating storage and regasification unit to be located at Old Harbour Bay on Jamaica’s south coast, at the site that had been identified in the original LNG master plan as the preferred location for gas import infrastructure. The FSRU would receive LNG cargoes from international supply sources, regasify the fuel and deliver it as natural gas into the generation facility to be built adjacent to the storage unit. New Fortress Energy would supply the LNG on a contracted basis and would also develop and operate new gas-fired generation capacity, with JPS purchasing the electricity under a power purchase agreement approved by the OUR.
The timeline from agreement signing to first gas depended on the procurement and delivery of the FSRU, the construction of the gas-fired generation plant and the completion of the pipeline and interconnection infrastructure that would connect the Old Harbour Bay facility to the JPS grid. New Fortress Energy projected first gas delivery within approximately twelve to eighteen months of agreement signing — an ambitious but achievable timeline if the procurement and regulatory processes moved without major delays. For the government, which had been promising electricity consumers that cheaper gas-fired generation was coming since 2013, the concrete timeline was a significant political and commercial commitment.
The Office of Utilities Regulation’s approval of the power purchase agreement terms was required before the arrangements could take full legal and commercial effect, and the OUR was engaged in the review process through the quarter. The regulatory framework for natural gas supply and storage in Jamaica was relatively undeveloped — gas was a new energy source for the island — and the legal and institutional arrangements governing the FSRU’s operation and the gas supply contracts would need to be developed alongside the project’s physical implementation. These regulatory development workstreams were in progress in parallel with the commercial documentation.
FY2018-19 Budget: Continued Post-EFF Normalisation
Finance Minister Shaw presented the FY2018-19 Budget to Parliament in March 2018, the second budget under the Fiscal Responsibility Act framework. The budget continued the pattern established in FY2017-18: maintaining the primary surplus at a level consistent with debt reduction, while modestly increasing the capital expenditure allocation above EFF-era levels. The capital budget allocation for FY2018-19 was approximately ten percent above the FY2017-18 level in nominal terms, allowing the National Works Agency, the NHT and other capital-spending agencies to programme somewhat more activity than in the preceding year. In real terms, adjusted for inflation, the increase was more modest, but the direction of travel was clear: the post-EFF fiscal normalisation was allowing a gradual reintroduction of domestically financed capital investment.
The budget’s macroeconomic framework assumed continued GDP growth of two to three percent — modest by the standards of faster-growing developing economies but consistent with Jamaica’s structural constraints — and a primary surplus that would allow debt-to-GDP to fall below 100 percent by 2020 if the trajectory was maintained. The IMF Precautionary SBA’s third review, completing in February 2018, had confirmed that Jamaica was on the projected trajectory, providing the external validation that supported the budget framework’s credibility with financial markets.
Renewable Energy: Second Procurement Round Launched
The Office of Utilities Regulation launched the second competitive procurement round for utility-scale renewable energy during the first quarter, issuing a request for proposals for additional wind and solar capacity. The round was designed to add to the approximately eighty megawatts commissioned under the first round and move Jamaica further along its trajectory toward the thirty percent renewable electricity target. The RFP structure drew on the lessons of the first round: the evaluation criteria were refined to better capture project delivery risk and grid integration requirements, and the tariff benchmarks used in the evaluation reflected the further decline in renewable equipment costs that had occurred since 2016.
International renewable energy developers with experience in the Caribbean and similar small island systems were expected to bid, alongside Jamaican entities. The OUR’s timeline called for evaluation and award within the 2018 calendar year, with the awarded projects expected to achieve commissioning by 2020. The interaction between the renewable energy programme and the LNG gas-to-power project was becoming an active consideration in the system planning: the combination of variable solar and wind generation with dispatchable gas-fired capacity — which could be ramped up quickly to cover solar and wind output reductions — would deliver both the lowest-cost baseload electricity and the flexibility the grid required to accommodate high renewable penetration. This complementarity was a key argument for pursuing both technologies simultaneously.
Road and Port Infrastructure: Ongoing Programmes
The World Bank central parish road rehabilitation programme continued in active construction through the first quarter, with works in Manchester and Clarendon proceeding on schedule. The National Works Agency’s project management team was managing concurrent contracts across multiple sites, maintaining supervision and quality assurance processes that drew on the operational lessons accumulated through the IDB western and eastern parish programmes. KFTL’s second set of new ship-to-shore cranes was being commissioned at the Kingston Container Terminal, completing the initial crane modernisation programme and bringing the terminal’s handling equipment profile into alignment with the new generation of post-Panamax container vessels calling at the port.
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