The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent QC has backed an alternative route to “devolution” of the Grand Bahama Port Authority’s (GBPA) quasi-governmental powers, while agreeing that Freeport should not be “the feudal preserve of two families”.

Fred Smith, the Callender’s & Co attorney and partner, backing the intent but not the method suggested by the Grand Bahama Chamber of Commerce, told Tribune Business there was “no need to reinvent the wheel”.

The Chamber’s recent paper, ‘The Future of Freeport - 2015 and Beyond’, had called for the GBPA’s quasi-governmental and regulatory powers to be transferred to an independent trust, but Mr Smith said the Hawksbill Creek Agreement already provided a different mechanism to achieve this effect.

He explained that the 1968 amendments to Freeport’s founding agreement called for these powers to be devolved to a Public Authority, which would manage Freeport for the benefit of all stakeholders.

Calling for such an arrangement to be triggered, the well-known QC also urged that the ‘Public Authority’ be a public company, which was listed and traded on global stock exchanges.

Recalling how the GBPA’s original parent, Intercontinental Diversified Corporation (IDC), was just such a public company, Mr Smith suggested that the ‘Public Authority’s’ capitalisation be dealt with as part of negotiations over Freeport’s investment incentives that expire in August 2015.

The Freeport-based added that he would be “shocked” if the Government, GBPA and the latter’s 3,500 licensees were unable to come to a satisfactory agreement in these talks.

“I would encourage a devolution of power from the Port Authority, being the regulatory authority for Freeport, and the creation of the Public Authority, as envisioned by the 1968 Hawksbill Creek Agreement amendment, which provides for a transfer arrangement which would, in effect, pass over government administration and oversight to the Public Authority,” Mr Smith told Tribune Business.

Explaining that the Public Authority was a different entity to the existing Freeport District Council, the local government body, he added: “Under the transfer agreement, it is envisioned that licensees, foreign and Bahamian, landowners and everyone that has an economic and social stake in Freeport, will be able to participate in its effective governance and development, so it is not the feudal preserve of two families, the St Georges and Haywards.”

Mr Smith’s words carry extra weight in relation to the GBPA, the 2015 ‘investment incentive’ negotiations and Freeport’s future development and governance, because he acted as the Port’s external counsel for several decades.

But whether the GBPA’s two ownership families would agree to the solution proposed by either Mr Smith or the Chamber is uncertain and, probably, unlikely, given that the regulatory/quasi-governmental functions are effectively the ‘source of their power’.

However, the expiration of Freeport’s Business Licence and real property tax exemptions next August effectively gives the Government an opportunity to push for such a scenario in return for their renewal.

Tribune Business sources have suggested that the Christie administration intends to do just that, exploiting the leverage the 2015 negotiations give it to push for the GBPA ownership/Freeport development scenarios that it wants.

In particular, were the Government to push for real property tax to be imposed in Freeport, the ‘biggest losers’ would be the Haywards and St Georges, and Hutchison Whampoa. This is because they jointly own 50 per cent of the equity in Freeport’s biggest landowner, the Grand Bahama Development Company (DEVCO).

And the Chamber, in its paper, said devolving Freeport’s regulatory powers to an independent trust would eliminate perceived conflicts of interest, “minimise investor risk” and boost transparency/accountability in the city’s governance.

The trust would be majority-owned by the GBPA’s existing 3,500 business licensees, and the Chamber paper said such a move would eliminate the perceived ‘conflict of interest’ that exists as a result of its dual role as regulator and owner of Freeport’s key infrastructure, and major profit-producing, assets.

“The creation of Port Group Ltd (PGL) and its joint venture partners [Hutchison Whampoa chiefly], and the divestment and transfer of assets from GBPA, has created an inherent conflict of interest between regulator/administrator (GBPA) and asset holder (PGL) as it relates to regulating the municipal services provided by PGL and its joint venture partners,” the Grand Bahama Chamber paper said.

“GBPA often acts in the best interest of the asset holder and its partners at the expense of the consumers and other GBPA licensees.

“The sale of municipal assets without the promulgation of necessary regulations has limited GBPA’s ability to properly perform its obligations under the HCA (Hawksbill Creek Agreement). This lack of transparency has turned off potential investors and stymied growth.”

Tribune Business understands that both the GBPA’s owners and management have been less than pleased with the Chamber’s recommendations, and their public release.

However, Mr Smith said the preferred route to ‘regulatory devolution’ was through the Hawksbill Creek Agreement’s existing ‘road map’.

“I do not support a trust,” he told Tribune Business. “We don’t have to reinvent the wheel here.

“If we are going to promote the rule of law and respect for the spirit and intent of the Hawksbill Creek Agreement, we should follow what was provided for. We should not abandon the Hawksbill Creek Agreement.”

Mr Smith also called for any ‘Public Authority’ to be established as a publicly traded company.

“Freeport was not conceived as a private development,” he told this newspaper. “It was always a publicly traded company, IDC. Frankly, the Public Authority should also be a publicly traded entity.”

Asked by Tribune Business how the ‘Public Authority’ could be capitalised and given assets, given that the GBPA is effectively a ‘regulatory shell’, Mr Smith said this issue would have to be addressed in the 2015 negotiations.

“Provision would have to be made to capitalise the Public Authority, and that may very well be part of the quid pro quo between the Government and Port Group Ltd,” Mr Smith said.

“Over the years, both FNM and PLP have given approvals for transferring assets from the Port Authority companies to Port Group Ltd and Hutchison.”

To maximise the benefits from the 2015 negotiations, Mr Smith suggested that the ‘status quo’ could be extended or maintained beyond August next year to ensure a successful agreement without deadline pressures.

“It would shock me if a sensible agreement isn’t arrived at between the Government, Port Group and the licensees,” he told Tribune Business.

“It would be a complete failure of reason. There is no question that the incentives should be extended.”

Mr Smith said the only unresolved issue was what the beneficiaries of such incentives would give in return.