From the vantage point of his desk, Opposition spokesman David Burt can create his own reality, but from the office of the Ministry of Finance, we have to concern ourselves with the real world as it presents itself to us, rather than as we would like it to be.

In the annual government budget presentation, we separate the numbers between two sets of accounts: the current account and the capital account. This is done to ease public understanding, but both current and capital accounts are both components of the same source: the Consolidated Fund — aka the Treasury.

Any analysis that is based solely on the current account to make a point about a massive capital expenditure such as our airport, either in the form of repairs/renovations or to build a new terminal, is fatally flawed. Capital expenditures are, after all, recorded in the capital account.

But this is exactly what Mr Burt has done in a recent opinion on the subject, and it calls into question his technical understanding of government finance.

Before we deal with Mr Burt's numbers, look at the long-term options for airport redevelopment. There are four basic options:

1, EBA — Maintain, repair, patch up (the “Expensive Band-Aid” approach)

2, DB — Borrow the money and put out to tender to Design and Build

3, DBFOM — Put out to tender to Design, Build, Finance, Operate and Maintain

4, G2G — Bilateral Government to Government approach to DBFOM

The 30-year cost of each option is shown below in the graph.

Mr Burt, who has spent many months criticising the Government's plan, without coming up with a coherent plan of his own, appears to favour the first option: the EBA option, or as I have called it, the “Expensive Band-Aid” option.

That option is not going to work. More importantly, that option will not be cheap, costing about $490 million, nominally, over 30 years. Such an approach exposes our sole gateway to an interminably long period of construction. Visitors will arrive and depart through a construction site.

It also risks total outages from failure of the present facility owing to age-related issues or hurricanes. This airport is our lifeblood and we cannot afford to take such risks.

The cost of this approach will directly affect our national debt, as this cannot be financed off balance sheet — a significant difference with the G2G approach that the government has chosen. For more detailed information on these options go to the government portal at gov.bm.

Simply put, the cost combined with the risks of this approach makes it unfeasible — it does not work.

Now to Mr Burt's numbers. As mentioned earlier, one cannot properly analyse a capital project without taking the capital account into consideration, yet this is what Mr Burt has done. His calculations are incomplete at best. He has completely, and conveniently, excluded the capital spending that will surely be needed to keep the airport operational. Those expenditures are captured in the “Expensive Band-Aid” option mentioned above.

Additionally, Mr Burt has included the airport infrastructure charge of $6.1 million in his revenue figures. This is playing fast and loose with the numbers because proceeds of the AIC are restricted for capital improvement only. If he includes the AIC, he should show the capital expenses involved with the project.

It should be borne in mind that the present level of departure taxes was raised at the same time as the AIC. Both actions were taken in anticipation of the transaction that we are now about to close. They were both required to prepare the ground for Bermuda to be able to have the cash flow to finance a new terminal. So to present and say that the airport is making a “profit” is misleading. Before these new taxes, the Department of Airport Operations was about breaking even — not taking into account capital repairs, etc.

Under the Burt “Expensive Band-Aid” approach, the Government would need to borrow $184 million to finance urgent, near-term maintenance and improvements in the first two years, and would be required to pay for maintenance costs under this option.

We estimate this would be $5 million per year based on historical experience, while our technical advisers estimate a 5 per cent per year escalation because of the ageing of the facility. Taking these realities into account, Mr Burt's mythical “profits” turn into millions of extra dollars of costs to the Treasury with barely anything to show for it.

Mr Burt complains about exemptions from payroll taxes and work permit fees as though the Government is earning those revenues from the DAO now. It is not. The Government does not charge fees and taxes to itself, so there will be no loss of revenues on these items. As the G2G arrangement is a type of joint venture, it stands to reason that such taxes and fees would not be appropriate in this case.

It should be noted that while the Government's cash flow on current account will be negative after the transaction, it will no longer need to incur capital expenditures to maintain, repair or replace major components of the airport — we will have a brand new terminal. These “avoided” expenditures are not captured in Mr Burt's presentation.

Mr Burt's statement that Aecon will “earn a taxpayer-guaranteed return of 16 per cent”, is false. The agreement, preliminarily, calls for a “target internal rate of return of between 15 per cent and 16 per cent”. This is a statement of intent on the part of the investors. They still, in practice, have to earn that profit: it is nowhere “guaranteed” by anyone, certainly not by the Bermuda Government.

Mr Burt's statement that “if inflation were considered, this number would easily exceed $1 billion of additional debt” is totally wrong. In financial calculations, when considering the value of cash flow over a period of time, the proper methodology is to discount the flow of cash over time, not escalate it. It is called a present value calculation, and that is the calculation that the Government has used in the attendant graph to properly evaluate the various options.

Additionally, Mr Burt's estimation of the cost of the airport quango is inflated. We would make sure the airport quango is operated more prudently than he wants people to think. In any case, his party has called for a new airport authority that carries all sorts of costly connotations.

Mr Burt is quite dismissive of the jobs that will be created by this project. But construction and retail jobs, in addition to new administrative jobs, will be created at Project Co, a company led by Aecon and other investors, and at the airport quango. There also will be enhanced concessionaire opportunities throughout the terminal. These are the facts.

In conclusion, this government has earned its strong reputation for financial prudence by cutting government spending, increasing revenues and reducing the deficit inherited from the former government. This project is likewise an example of sound fiscal management by applying economic stimulus and job creation while always keeping in mind what is best for Bermuda.

The airport redevelopment project is an investment in Bermuda today and over the long term. The cost over 30 years is shown in the graph in the G2G option where we build a new air terminal, without an increase in public debt. It is a sophisticated and risk-averse strategy.

To propose the “Expensive Band-Aid” approach, as Mr Burt does, not only shows no vision, but it exposes Bermuda to the real risk of crippling overruns that would have to be borne by the taxpayer and also risks closure of our gateway to the world from the next Fabian-type storm.

We have to be smarter and better than that, for Bermuda's sake.

• Bob Richards is the Deputy Premier, Minister of Finance and MP for Devonshire East (Constituency 11)