The second quarter of 2018 marked the transition of Jamaica’s gas-to-power project from contractual commitment to physical implementation, as New Fortress Energy advanced the procurement of the floating storage and regasification unit that would anchor the Old Harbour Bay energy facility. The concurrent award of the second round of utility-scale renewable energy contracts ensured that Jamaica’s electricity generation evolution was progressing on multiple technology fronts simultaneously, while the spring tourism season maintained its steady growth trajectory and the fiscal management framework delivered another compliant quarter under the Fiscal Responsibility Act.
Key Highlights
- New Fortress Energy confirms FSRU vessel secured and in transit preparation; Old Harbour Bay site development works commence as the gas-to-power project advances from contract to construction phase.
- Office of Utilities Regulation awards second round of renewable energy contracts; additional solar and wind capacity totalling approximately 100 MW selected from competitive bidding process.
- Spring tourism season maintains positive trajectory; JTB data shows continued year-on-year growth in stopover arrivals despite the natural moderation after the hurricane-boosted 2017-18 winter peak.
- IMF Precautionary SBA fourth review completed satisfactorily; debt-to-GDP ratio on track to fall below 105 percent by end of fiscal year 2018-19.
- World Bank central parish road rehabilitation programme reaches mid-point; Manchester arterials substantially complete, works advancing in Clarendon and St Catherine.
- National Housing Trust commences new affordable housing scheme in St Catherine; NHT pipeline reflects expanded capital allocation in FY2018-19 budget.
LNG: From Contract to Construction
New Fortress Energy’s confirmation during the second quarter that the floating storage and regasification unit had been secured and was being prepared for delivery to Jamaica represented the transition of the gas-to-power project from commercial paperwork to visible physical implementation. The FSRU — a converted LNG carrier equipped with regasification equipment that would allow it to receive LNG cargoes from supply vessels and convert the liquefied gas to pipeline-quality natural gas — was a technically complex vessel whose procurement had required the identification of an available unit in the global market for such assets and its adaptation for the conditions and specifications of the Old Harbour Bay installation.
Site development works at Old Harbour Bay commenced during the quarter, with civil engineering contractors beginning the preparation of the marine and onshore infrastructure that would support the FSRU’s permanent moorage and the pipeline connections to the adjacent generation facility. The site preparation works required marine dredging to establish the FSRU’s berth at the required depth, construction of mooring structures, and onshore earthworks to prepare the generation plant footprint. Environmental management was a significant consideration in the site works, given the coastal ecology of the Old Harbour Bay area and the regulatory requirements of the National Environment and Planning Agency.
For JPS and the system operator, the approaching gas supply created planning requirements around the retirement or repurposing of older heavy fuel oil generation capacity that gas would displace. The utility was developing a long-term generation fleet plan that mapped the transition from the current HFO-dominated mix to a future portfolio combining gas-fired baseload, renewable variable generation and residual oil-fired peaking capacity. The transition would need to be managed carefully to avoid any period of inadequate generation reserve during the commissioning of new capacity and the retirement of old plant. JPS’s regulatory obligations required the OUR’s approval for any material changes to the generation fleet, ensuring that the transition plan was subject to independent scrutiny.
Renewable Energy Round Two: Additional 100 MW Awarded
The Office of Utilities Regulation’s second competitive round for utility-scale renewable energy produced awards totalling approximately one hundred megawatts of additional wind and solar capacity during the second quarter, with contracts signed with the selected developers following the completion of bid evaluation. The awarded tariffs in the second round were materially lower than the first round’s tariffs, reflecting the continued global decline in solar panel and wind turbine costs that had made renewable energy increasingly competitive with conventional generation. The tariff reduction confirmed that Jamaica was procuring renewable capacity at internationally competitive prices, a finding that had implications for the government’s electricity cost reduction narrative.
Combined with the approximately eighty megawatts commissioned under the first round, the second round awards would bring Jamaica’s total utility-scale renewable generation capacity toward one hundred eighty megawatts when the new projects were commissioned, targeted for 2020. This level would represent approximately eighteen percent of the island’s total installed generation capacity — still short of the thirty percent by 2030 target, but on a trajectory that the government’s energy planning projected could be reached with a third procurement round later in the decade. The complementarity of the renewable capacity with the forthcoming gas-fired generation was the key system planning consideration: gas would provide the despatchable backup that made high renewable penetration operationally manageable on a small isolated grid.
Tourism: Maintaining Growth After the Hurricane Boost
The spring shoulder season of 2018 continued the positive arrivals trend, though with some natural moderation from the extraordinary heights of the hurricane-displacement-boosted 2017-18 winter. The Jamaica Tourist Board’s data for April through June showed continued year-on-year growth in stopover arrivals, reflecting the structural improvement in Jamaica’s market position that had been building since 2013 rather than relying entirely on the anomalous displacement demand of the preceding winter. The Montego Bay corridor maintained high occupancies relative to historical averages, and the emerging tourism markets in Portland and the Blue Mountains corridor were generating increasing visitor interest that the JTB was actively promoting in niche travel publications and adventure travel platforms.
The hotel development pipeline continued to advance in parallel with the arrivals growth. Sandals’ expansion plans in Montego Bay and Negril were progressing through permitting and early construction, Hyatt was developing a new property in the Rose Hall corridor, and several boutique hotel projects in Kingston were completing or approaching completion. The collective expansion of room inventory, while adding to the island’s capacity to accommodate future demand growth, also created short-term pressure on occupancy rates as new supply entered the market ahead of the full absorption of the hurricane-displacement demand. Hotel operators were monitoring the supply-demand balance carefully, adjusting pricing strategies to maintain revenue per available room at acceptable levels as the competitive environment evolved.
Road Infrastructure: Central Parish Works Advancing
The World Bank-financed central parish road rehabilitation programme reached its midpoint during the second quarter, with the Manchester component of the programme reaching substantial completion on its major contract packages. Works on the main A2 through Manchester — the mountain road connecting Mandeville to Kingston via the interior — had materially improved pavement quality on a corridor that was an important commercial artery as well as a major commuter route between the island’s second city and the capital. The Clarendon packages were in active construction, and the St Catherine component had begun mobilisation on the contract packages that would address some of the worst-condition arterials in the parish that lay outside the Highway 2000 network.
The National Works Agency’s maintenance programme, funded through the Road Maintenance Fund and supplemented by the capital budget allocation, was providing routine patching and drainage maintenance across the national network between the larger rehabilitation interventions. The gap between maintenance funding and the full maintenance requirement of the network remained a structural challenge: the NWA’s technical assessments consistently showed that the available budget covered routine maintenance adequately but was insufficient to address the growing backlog of resurfacing and structural repairs on secondary routes that had not received attention in the previous decade’s fiscal-constrained investment environment.
Housing: NHT Schemes and Private Sector Development
The National Housing Trust commenced construction of a new affordable housing scheme in St Catherine during the second quarter, adding to its active pipeline of NHT-built schemes across multiple parishes. The St Catherine project, located in the Greater Portmore area that had been a focus of housing development since the 1980s, was designed to provide two- and three-bedroom units to NHT contributors at subsidised mortgage rates. The Trust’s capacity to fund new construction from its accumulated levy revenues and from its own capital market borrowing made it one of the few agencies in the Jamaican public sector able to maintain a meaningful construction programme through the fiscal consolidation years, and its pipeline for FY2018-19 reflected the modestly increased budgetary supplement provided in the March budget.
Private sector housing development was also active in the quarter, with several residential developments in the Greater Kingston area targeting the middle-income segment that the NHT’s subsidised product did not reach. The real estate market had benefited from the declining interest rate environment that the improved macroeconomic outlook had supported, with mortgage rates falling from the double-digit levels of the adjustment years toward the single digits that made ownership more accessible to a broader segment of the formal workforce. Construction sector activity — both residential and commercial — was one of the components of GDP growth that the government pointed to as evidence that the post-EFF period was producing the economic dynamism that the adjustment had been intended to enable.
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