The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Warnings that the Bahamas Oil Refining Company’s (BORCO) cash flow might be “materially affected” if Freeport’s expiring investment incentives are not renewed were yesterday said to underscore how the city risked becoming “a lame duck”.

BORCO’s New York Stock Exchange (NYSE) listed parent, Buckeye Partners, listed the potential 2015 expiration of Freeport’s real property tax exemption among the ‘material risk factors’ facing its business in the 10-K annual report filed with the Securities & Exchange Commission (SEC).

Buckeye Partners warned: “BORCO is currently exempt from income and property tax in the Bahamas pursuant to concessions granted under the Hawksbill Creek Agreement between the Government of the Bahamas and the Grand Bahama Port Authority.

“BORCO’s exemption from Bahamian taxation pursuant to the Hawksbill Creek Agreement is scheduled to expire in 2015. While we anticipate that the Bahamian governmental authorities will extend the concessions under the Hawksbill Creek Agreement, if [they] do not extend the concessions or BORCO’s tax status in the Bahamas were to otherwise change, such that BORCO has more tax liability than we anticipate, our cash flow could be materially adversely affected.”

BORCO currently occupies a 500-acre site, featuring more than 80 storage tanks, and the value of its real estate holdings exposes it to a multi-million dollar real property tax bill should Freeport’s exemption from the tax not be renewed.

Fred Smith QC, the Callenders & Co attorney and partner, yesterday told Tribune Business that the warning from BORCO and its parent further underlined the “critical urgency” with which the 2015 uncertainty needed to be addressed.

Mr Smith, who is secretary/attorney to the committee formed by the Grand Bahama Port Authority (GBPA) to negotiate with the Government, said any failure to extend the expiring incentives would cause businesses and investment to “flee” Freeport.

“It demonstrates how fundamental to Freeport’s future is a co-operative and respectful relationship, which should exist, between licensees, the Grand Bahama Port Authority and the central government,” Mr Smith told Tribune Business.

“The urgency [over the 2015 incentives] is critical, because Freeport will be a lame, and certainly a dead duck, if the few businesses we have flee if there’s a failure to extend the tax exemptions past 2015.”

Tribune Business has confirmed that, to-date, little to no talks have taken place between the Government and the Port Authority over the expiring real property tax and other investment incentives.

With 2015 just 10 months away, there has been no dialogue between the two sides apart from acknowledgements and initial correspondence exchanged between the two parties.

Tribune Business understands that the last communication, sent by Dr Michael Darville, minister for Grand Bahama, on the Government’s behalf, indicated it was establishing its own negotiating committee in response to the Port Authority’s own. But nothing further has been heard from the Christie administration.

This is fuelling unconfirmed speculation, relayed to Tribune Business, that the Government is planning to use the 2015 expiring investment incentives as leverage to force the Port Authority’s owners, the Hayward and St George families, to exit via a sale of their interests.

While neither confirming this, or commenting directly on this, Mr Smith said yesterday: “If that is the case, I am ashamed of the Government for trying to hold Freeport and its 60,000 residents hostage for the Haywards and St Georges’ actions.

“That would be a tragedy for any government to do that to the Bahamian residents of Freeport.”

Mr Smith urged the Government and Port Authority to extend Freeport’s real property tax break and other incentives to 2054, when the Hawksbill Creek Agreement comes to an end.

“I would extend the Government to extend all the tax exemption provisions until 2054,” he told Tribune Business, “so we don’t have to further re-negotiate with successive governments.

“Freeport has, unfortunately, failed miserably in the anticipated boom, and business needs certainty for the future.

“Given Freeport’s historical economic doldrums, any government that establishes the long-term benefits of investing in Freeport would garner votes to return MPs to Parliament. It would provide investors with better opportunities than exist in the rest of the Bahamas.”

Mr Smith’s comments thus echo those made to Tribune Business earlier this week by Kevin Seymour, the former PricewaterhouseCoopers (PwC) Bahamas accountant, who likened the expiring incentives to “the damocles sword hanging over Freeport’s investment environment”.

“Freeport is a unique animal in the Bahamas, and we don’t have to make apologies for the Hawksbill Creek Agreement; it’s already signed,” Mr Seymour told Tribune Business.

“One of the things causing us great angst in Grand Bahama is that, come 2015, there’s two key provisions that fall away.”

Mr Seymour, who is also chairman of the Grand Bahama Chamber of Commerce’s ethics and legislative committee, said of the expiring incentives: “That has been like the damocles sword over the investment environment in Grand Bahama, as it’s creating a level of uncertainty.

“We are challenging the Government and Grand Bahama Port Authority to quickly address this issue so we can promote Freeport as the ideal place to do business.

“With that sword over our heads, we cannot do that. Uncertainty with any sort of situation is not a good thing.”