Second Berth Blues

Nancy King at the Cape Breton Post has been trying to pin down the component costs for the CBRM’s second cruise ship berth. King FOIPOPed the NS Department of Municipal Affairs asking for the breakdown of costs submitted by the CBRM in its request for provincial funding. The answer to her question proved less black and white and more grey:

CB Post photo showing redacted documents.

 

The information was withheld on the grounds that it was “advice” to a minister. King asked the CBRM for an “informal” breakdown of the costs, which she received, for some reason, from Christina Lamey, the mayor’s “political” spokesperson who probably shouldn’t field such questions but does because she just does, okay?

Lamey told King in an email that “geotechnical work, permitting, engineering design, construction oversight, tender preparation, Joan Harriss Cruise Pavilion design and renovations and capital repairs to the existing berth are estimated to cost about $1.9 million of the $20 million total project cost.”

Lamey said “the construction phase, site-specific dredging, land-based bollards construction and site modifications make up the remaining $18.1 million of the budget.”

I don’t see “property acquisition” in there anywhere, although the project, as originally conceived, requires the CBRM to buy land from local businessman Jerry Nickerson and a due diligence report on the project by the consulting firm CPCS (about which, more later) noted that the CBRM had budgeted $1.5 million for the purchase. (Lamey did say that the CBRM had not begun expropriation procedures related to the property.)

Engineering and construction work is expected to take “14-18 months” with a goal of “having construction completed by peak cruise season in 2018, the fall.” Lamey says construction should go to tender in January 2018. This is in keeping with the timeline announced in January 2017, when the Post reported that:

Engineering and construction work is expected to take 14-18 months. The goal is to have the construction completed as early as Celtic Colours 2018 if weather co-operates, CBRM Mayor Cecil Clarke said, but it will be able to accept ships in time for the 2019 season.

But these numbers don’t really add up — if you announce a second berth project in January 2017 and say that engineering and construction should take 14 to 18 months, what you’re saying is that engineering and construction should be completed between January and June 2018.

If you then say you hope the project will be completed by October 2018 (which is when Celtic Colours happens), you’re now putting the period to completion at 21 months.

If you end by saying it will certainly be in operation for the 2019 cruise season (which begins in May) you have now put completion at 28 months, or twice your opening estimate.

 

Due diligence?

But fuzzy details are a hallmark of this project, as highlighted in the aforementioned CPCS report, prepared for the federal and provincial governments and released in January 2017 to coincide with the funding announcement:

The primary risk we see with the project relates to the potential for cost overruns. The project cost estimates are based on Class D engineering estimates and are not supported by detailed geotechnical, bathymetric, environmental studies, and are also three years old. The acquisition of the Nickerson Property — necessary for the project development — is another challenge and potential risk.

The risks associated with the Nickerson property — besides the fact that the CBRM has budgeted $1.5 million for it and Nickerson is reported to want $6 million — include potential environmental remediation issues. These issues have been assessed and are known to the CBRM and Nickerson, but are not considered fit for public consumption. King tried earlier to get a copy of the assessment from the CBRM and was turned down.

 

15534-P1 Sydney Cruise Berth

 

CPCS decided the second berth project had merit (the more cynical among us — i.e. me — would say that’s because CPCS was hired to find that the second berth had merit) despite the potential cost overruns (which will be borne solely by the CBRM) and the fact that the thing is unlikely ever to pay for itself. The report posited two imaginary future scenarios, both of which require us to believe cruise industry data which claims that 95% of passengers and 95% of crew disembark from every vessel that visits Sydney and they all spend money.

In the lower-end scenario, you must then believe that the new berth will result in six new visits each year and 16 additional berths (vessels that can dock and pay berthage fees rather than anchoring).

Throw in some magical realism about the direct and indirect GDP this represents and you still don’t get a figure that makes investing $20 million in a second berth look reasonable:

…by discounting the impacts over a 30 year period, we estimate the present value of the total direct GDP impact to be $14.4 million while the present value of the total direct + indirect GDP impact to be $19.9 million.

Thirty years to break even?

That obviously wouldn’t do, so CPCS tried a sunnier approach, using all the same industry data but adding some additional “facts” from a 2014 report done for the Port of Sydney by a consulting firm with close ties to the cruise industry, Bermello, Ajamil & Partners, Inc or “ba” as they style themselves:

sydney-cruise-market-assessment-final-report-1142014

 

By incorporating ba’s “most optimistic ‘vessel deployment’ projections” into their calculations, CPCS managed to gin up its passenger/crew estimates. A little direct and indirect GDP fairy dust, and voila! Better numbers:

The discounted present value of the total direct GDP impact to be $35.2 million while the present value of the total direct + indirect GDP impact to be $47.9 million [sic].

I like to think that sentence is so disjointed because the analyst writing it was convulsed with laughter.

So to recap: the CBRM will pay Jerry Nickerson $1.5 million to $6 million for his property, the second berth will be completed in 14 to 28 months and its direct and indirect economic impact over 30 years will be somewhere between $20 million and $48 million.

That is some ballpark.

 

 

 

 

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