Published On: Tue, May 29th, 2018

How the causeway suddenly became ten percent more expensive

Causeway Bridge - 20131226 MGP

PHILIPSBURG – Five companies submitted a bid for the construction of the causeway bridge across the Simpson Bay lagoon. The most expensive bid of $39.445 million by Volker Construction International won. But when the St. Maarten Harbor Holding Company (SMHHC) presented the project during a presentation about the bond issue the price had inexplicably gone up to $43.5 million.

This appears from the petition the Public Prosecutor’s Office submitted to the Common Court of Justice in its quest to obtain permission for a civil inquiry into the management at the harbor companies.

The tender and financing of the causeway did not only attract the attention of the prosecutor’s office in St. Maarten. The National Public Prosecutor’s Office for Financial, Economic and Environmental Offences in the Netherlands has started an investigation into the role of Volker Construction International in this project. This office submitted a request for legal assistance in 2017. On June 6, searches were done at the Standard Trust Company and – on June 8 – in several offices of the harbor group of companies, like that of the Simpson Bay Lagoon Authority Corporation.

According to the petition, Volker Construction submitted two bids for the causeway project – one more expensive than the other. In the first evaluation of the tender, the more expensive design ended behind all other bids. The cost price difference with other designs was considered significant while the difference in design was not significant.

But when the tender was thereafter re-evaluated, the more expensive design from Volker Construction suddenly came into the picture. It was considered the best design and got the highest marks.

“This is at least remarkable,” the prosecutor’s office says in the petition. “It should at least be examined whether the more expensive design by Volker Construction has been completely executed and up to what point this design diverges from the Request for Proposals, a document put together by Lievense Engineers and the SMHHC.”

The prosecutor’s office wants to investigate why the more expensive design suddenly got such high marks. “There is also no explanation as to why the winning bid became 10 percent more expensive after it had been selected.”

Among the factors that were used to evaluate the bids, design and cost represented 25 percent of the assessment. “It seems that the bridge, without architectural features, became 10 percent more expensive in the project phase.”

The financing of the causeway project is also a point of interest for the prosecutor’s office. The SMHHC took a 20-year bond issue worth $150 million and used $100 million to refinance existing loans. The remaining $50 million was used to finance the construction of the causeway.

The bond issue is based on a so-called balloon-repayment schedule. This means that repayments at the beginning of the loan are low, but that they will be significantly higher towards the end of the 20-year term.

The interest rate on the loan is 5 percent – lower than the conditions for the existing loans. This lowered the interest burden for the harbor – on its existing loans – by $2 million per year. But the $50 million loan for the causeway caused the total interest burden to increase.

“This way the SMHHC took on a heavy and risky financial burden for the future,” the petition states.

That the harbor intends to cover these higher costs by increasing container fees and fees on the supply of fuel is, according to the petition, risky. “These are variable revenues that can be influenced politically. The increase of these fees makes St. Maarten a more expensive and from a financial point of view less attractive vacation destination – also for the cruise and yachting industry.”

And there is yet another sore point. Since the harbor took the bond issue, its equity fell to 25 percent of its balance sheet total. “For a company like SMHHC a minimum of 50 percent equity is desirable and financially healthy,” the petition states.

After losses the harbor sustained in 2015 and 2016, its equity has evaporated completely. The prosecutor’s office says in the petition that the moment could arrive when the harbor has to refinance its loans again. “It is questionable whether this is even possible against the same favorable conditions as the bond issue. This means that the interest burden will increase further or that the company becomes unable to meet its financial obligations. This could have disastrous consequences; and the question remains whether the SMHHC will be able to bear the maintenance costs for the causeway bridge.”

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Photo caption: The bridge across the Simpson Bay Lagoon could cause St. Maarten lots of headaches in the future. Photo Milton Pieters.