Infrastructure is defined as ‘the whole of road, rail and waterways, ports, airports, electrical installations, cables, etc.’ This is a broad term that involves many essential matters that an entrepreneur needs to run his business.
As it involves such essential matters, namely the basic needs of an entrepreneur, they are often regulated. This means that laws and regulations are available that determine how and on the basis of what conditions infrastructure is made available, who can use it and on the basis of what conditions (price). In this article some striking features of this regulation and the availability of infrastructure are discussed, so entrepreneurs in Bonaire know what to take into account in this regard.
Electricity and drinking water
In a previous article in the ‘Bonaire in Business’ series we discussed the regulation of electricity and drinking water. If follows from the Electricity and Drinking Water Act that as an entrepreneur you are entitled to a connection at a fair price. In this context the supervisory authority, the Authority for Consumer and Markets (ACM), published the connection tariffs that are applicable as of 1 July 2017. This shows that a fixed tariff applies to standard connections, plus a surcharge per meter if the connection is located more than 25 meters from the network. This offers clarity and certainty.
It is expected that the ACM will later also determine the fixed and variable distribution tariffs. These should reflect the actual costs of the production of electricity and drinking water on Bonaire, as a result of which you enjoy protection as an entrepreneur. It is, however, not a guarantee for low tariffs because the costs of the production and distribution of electricity and drinking water on Bonaire are high. The law does offer the possibility for the Minister of Economic Affairs, or the Minister of Infrastructure and the Environment, to grant a subsidy to keep electricity and drinking water affordable. It is not clear yet if this will actually happen and what the effect on the tariffs will be.
Telecommunications is also a regulated service where a concession can be granted to parties who intend to offer these services. The Telecommunications Act BES contains guarantees in order to ensure that everybody can have a connection and can use telecommunications facilities. Further conditions are imposed in the granted concessions in order that these facilities operate well and are affordable.
Lately much attention has been paid to the question how Bonaire can best stand out and develop in the area of the use and assurance of logistical facilities, e.g. the construction of a seaport, the further development of the airport and the improvement of the road network.
In this respect surveys were conducted and are still underway that examine how a seaport can be realized and if the realization and operation are commercially responsible. This way the frequently heard demand to reduce the international transportation costs from and to Bonaire and to generate more commercial activity would be met. The realization of a seaport requires a consideration between commercial, ecological and entrepreneurial interests and must therefore be prepared carefully.
Basically the investments for the construction of the port are made by the government after which a concession is granted to an operator for the operation of the port and to ensure that the requirements imposed by the government are met. This way the operation is placed ‘remotely’. The operator pays a concession fee, which usually consists of a fixed and a variable component. Hence, the government is able to earn back the investments made and the society on Bonaire benefits if the operation yields positive results. The granting of a concession often takes place through the organization of a call for bids in the course of which several parties have the possibility of submitting a competitive offer for the conditions of the concession. This way it is guaranteed that the best party is selected in an accurate and transparent manner. The entrepreneurial climate can only take advantage of this.
For governments, the costs involved with the construction and maintenance of the road network often take a considerable part of their budget. This sometimes causes a cut back on the expenses in this regard. As a result the condition of the road network deteriorates and the accessibility decreases. Although the government is and remains liable for damages due to the bad condition of the road network (road authority liability), it is often a difficult and time-consuming affair to recover the damages.
From a legal perspective there are often creative ways to construct new roads or to renovate existing roads, without the government having to immediately have a lot of resources available. An example is the use of a so-called DBFM contract. This is a contract where the contractor provides for the design, the build, the finance and the maintenance. The client (the government) pays the contractor an ‘availability fee’ after the road has been constructed. This fee is adjusted if the road does not comply with the requirements imposed (e.g. overdue maintenance, holes, closed too long for maintenance). This way the contractor is motivated to construct a good road and to ensure that during the stipulated term (often 20 years) the road complies with all requirements. The contactor provides for the (pre-) financing of the construction costs and receives an amount – through the availability fee – that covers the costs of the financing of the construction, the maintenance, and a profit and risk mark-up. The big advantage is that the contractor is responsible for the functionality of the road and must at its sole discretion determine what design and what way of construction is most suitable for it. The government does not need to incur a lot of costs all in once and can spread the payments over a long period as a result of which the pressure on the budget reduces. This way large connecting roads are constructed in Aruba. Entrepreneurs immediately benefit of this and the costs for the government are controlled.
A good infrastructure is a necessary condition for entrepreneurs in order to run a business. Legislation and regulations contain rules to regulate these sectors.
Logistical connections are an area of attention on Bonaire. A start was made with the creation of a plan for the development of a new seaport and there are also possibilities to improve the road network on Bonaire without requiring large investments. This bodes well for the future in the area of infrastructure.
Tom Peeters is an experienced and specialized real estate lawyer and head of our Bonaire office. He regularly publishes about project development, sustainable energy projects, cooperative structures and (public) procurement. Via this blog he shares his knowledge about these and other legal topics that concern entrepreneurs in Bonaire.