4.0         PROJECT IMPLEMENTATION

4.1         Management Arrangements

4.1.1      Both the OGC Gateway Team and Atkins have commented on the limited capacity in St Helena to manage a project of this size.  Both have recommended that DFID takes a clear lead in project implementation. The proposed management arrangements take this recommendation into account.  DFID will remain fully engaged throughout the project, while developing capacity within SHG to manage properly the airport and air service concession contracts.

4.1.2      The project will be managed in the UK by a specially constituted Access Team within the DFID Overseas Territories Department.  On St Helena , an Access Project Management Unit (PMU) will be established for the sole purpose of delivering the airport and air services.  This will be headed by the PMU Project Manager, who will be recruited by DFID specifically for this role.

4.1.3      The PMU will have direct access to consultancy support (particularly in the areas of procurement of the DBO contractor, construction supervision and procurement of air services).  The PMU will work closely with St Helena Development Board and Access Team, and will also have access to DFID OTD advisory support.

4.1.4      Management arrangements are summarised in Figures 4.1 and 4.2. The composition and role of the various bodies are summarised in Annex C.

Figure 4.1                  Management of Access Project

Figure 4.2               Management of Tourism Development

4.1.5      The Development Board, with representation from both SHG and the private sector, will oversee a wide range of issues outside the direct provision of air services (i.e. policy and legislation, inward investment, immigration, taxation, access to finance, tourism marketing etc.).  The aim will be to ensure that St Helena exploits fully the opportunities provided by air access. The Development Board will ensure the participation of all local stakeholders.

4.1.6      The DFID Project Officer will be the OTD Engineering and Infrastructure Adviser, reporting through the DFID Programme Manager for St Helena to the Head of OTD. The Project Officer in St Helena will be the St Helena Access Project Manager. For accountability purposes, the DFID Project Officer will take the lead in all matters relating to the project, in consultation with the SHG Project Officer. All financial decisions will require DFID consultation.

4.1.7      The DBO contractor will be responsible for operation and maintenance of the airport for a period of ten years following completion of construction.  Air services will be provided through a five-year concession agreement. Both concessions will be reviewed periodically and re-tendered to ensure that they remain competitive and responsive to market demands.  Although all contracts will be let by SHG, DFID will support procurement and provide close monitoring. 

4.1.8      SHG, in collaboration with ASSI and DFID, will put in place suitable structures for regulation, monitoring and periodic re-tendering of the contracts.

4.2         Timing

4.2.1      A detailed timeline is given in Annex G. Procuring appropriate technical assistance, preparing the output specification and tender documentation is expected to take six months from a decision to proceed.  Procurement of the DBO contractor will take a further 14 months, with construction not likely to commence before late 2006.  Construction of the runway and ancillary infrastructure is expected to take up to three and a half years, with full operations commencing in early 2010. 

4.3         Inputs

 Table 4.1                Project Costs

4.3.1      Table 4.1 summarises project costs. Table 4.2 provides a projected cash flow, which is shown graphically in Figure 4.3. All costs are estimated in 2004 prices. It is not possible to provide a meaningful estimate of inflation in project costs over the course of the project. To a large extent it will depend on the country of origin of the DBO and air service contractors.  If, as is likely, these are South Africa based, then inflationary trends could be more than compensated for by changes in the exchange rate.  For example, over the years between 1998 and 2003, South African inflation amounted to approximately 40%, while the Rand depreciated by nearly 48% against the UK pound. 

4.3.2      For illustrative purposes, if an inflation rate of 2.5% were adopted, the total amount in cash prices would be ██████.

Table 4.2                Project Expenditure

4.3.2      A project budget is appended in Annex H.

Figure 4.3               Expenditure Profile (constant 2005 prices)

[Figure 4.3 has been removed as it contains information that could prejudice future procurement]

4.4         Contracting and Procurement

4.4.1      The adoption of a DBO approach for the airport is to ensure timely delivery of the aerodrome, with key risks transferred to the private sector and a seamless movement into operation, with no costs arising from interface risks.  It is estimated that the adoption of this approach will result in a premium of approximately ██████ above the tender price that could be expected under a traditional procurement approach, but that the benefits of transferring risk to the private sector will outweigh this.

4.4.2      Once a DBO contract is signed, a significant proportion of the risk of additional capital costs will fall to the contractor. Many conventional Design and Build contracts overrun through lack of clear scope, inadequate basic information, latent defects and client changes or poor project management. The DBO approach is designed to eliminate these risks.

4.4.3      The ability to set out and stick to a procurement timetable will also have significant advantages. The overall net cost of a six-month delay in procurement is estimated to be ██████, i.e. the additional cost of supporting SHG as a result of delayed economic growth, so there is scope for incorporating a financial incentive into the DBO contract for early completion. Similarly, it is possible to build in punitive arrangements for over-runs of cost and time.

4.4.4      Procurement will be via an international invitation to submit expressions of interest (EOI). An invitation to tender (ITT) will be issued to short-listed consortia and, based on the responses, invitations to negotiate (ITN) issued to one or two consortia, leading to best and final offer (BAFO). This process is expected to take up to a year. Legal advice has been sought in regard to the status of the European Procurement Procedures in the Overseas Territories . It is unclear from this whether there is a legal requirement to follow European Procurement Procedures. However, in the interests of best practice, and to avoid any possible challenges, it is the intention to let all contracts through the Official Journal of the European Union (OJEU).

4.4.5      Scheduled air services are likely to be procured though a concession agreement with an existing air service provider, based on exclusive rights over a single route.  This would not affect the ability of other airlines to operate services to different destinations, though this may have implications on negotiation of the concession. ██████. A charter operation is a possible alternative in the event of low take-up.

4.4.6      Contracts for the DBO consortia and the Air Service Provider will be let by SHG, though it is likely that some form of guarantee will be required from HMG.

4.5         Accounting

4.5.1      Concession contracts with the airport DBO contractor and the air service provider, and some consultancy support to the Development Board, will be funded through an estimated ████████. in Financial Aid.  SHG will make payments against certified invoices, and seek reimbursement from DFID through Crown Agents.   Consultancy support to the PMU and DFID Access Team will be contracted directly by DFID using Technical Co-operation funds. 

4.5.2      Accounting procedures for the DBO consortia and the Air Service Provider elements will be governed by the financial orders of SHG.  

4.5.3      SHG fees, charges, taxation regime and legislative environment relating to inward investment are currently being studied as part of an independent Fiscal Review.  The review will also assess SHG accounting and auditing systems. Recommendations from this review will be incorporated into audit procedures for this project. In addition, given that the contracts for this project will be of a considerably greater scale than anything previously let by SHG, it is recommended that the project is subjected to independent annual audits.

4.5.4      DFID procedures will be followed for DFID-procured technical assistance.

4.6         Monitoring

4.6.1      The Supervising Engineer will prepare monthly progress reports providing a regular record of airport capital expenditure and achievements.

4.6.2      The DFID-appointed PMU Project Manager will issue quarterly progress reports detailing all project related expenditure to the Development Board, ExCo and DFID.

4.6.3      OGC Gateway Reviews will be conducted at key stages in project implementation.

4.6.4      Formal DFID Output to Purpose Reviews will be conducted jointly with SHG, at annual intervals during project implementation. A comprehensive DFID Project Completion Report will be required at the end of the project.

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