By NEIL HARTNELL
Tribune Business Editor
Hutchison Whampoa wants “certainty” that Freeport’s expiring investment incentives will be extended before committing to the $250 million Container Port expansion and other potential projects, it was revealed yesterday.
Obie Wilchcombe, minister of tourism, in updating the House of Assembly on the Government’s meeting with the Hong Kong-based conglomerate last week, also took a thinly-veiled swipe at the Grand Bahama Port Authority’s (GBPA) “loss of visionary leadership”.
Disclosing that Hutchison Whampoa shared “some” of the Government’s concerns, Mr Wilchcombe confirmed that the Christie administration wants a greater role in Freeport’s governance and to extract more tax revenues from the city.
While not going into specifics, Mr Wilchcombe’s comments will likely send a ‘chill down the spine’ of the GBPA’s 3,500 business licensees, not to mention Freeport’s 60,000 residents, most of whom do not want to be governed by Nassau.
And, equally concerning for potential Freeport investors, Mr Wilchcombe said Hutchison Whampoa told the Government at their London meeting that they had yet to earn “a satisfactory return” on their $1 billion investment in Freeport.
Given that Hutchison Whampoa is the largest investor in the city, via assets such as the Freeport Container Port and Grand Lucayan Resort, plus its 50/50 partnership with the GBPA Group in several key infrastructure assets, the dissatisfaction with its own performance may give others pause for thought.
Mr Wilchcombe told the House of Assembly that top executives from Hutchison’s two groups, Hutchison Port Holdings and CK Property Holdings, wanted clarity over what the Government planned to do with Freeport’s expiring ‘tax breaks’ before undertaking further projects in Grand Bahama.
“In committing to further investment in Grand Bahama, including the Phase V expansion of the Container Port, in pursuing the development of a logistics centre and the development of their extensive real estate holdings, Hutchison Port Holdings and CK Property Holdings indicated that such further investment would require certainty on the extension of the expiring real property tax, capital gains and income concessions,” the Minister for Tourism said.
Hutchison’s two umbrella groups are thus no different from any other investor in wanting business climate certainty, a demand that echoes the cries of multiple Freeport-based businesses.
It is now less than two months to the February 5, 2016, expiration of Freeport’s real property tax, capital gains and income tax exemptions, and among the issues discussed in London was the “timely completion” of the Government’s review of the issue.
Hutchison Whampoa would be the greatest loser if the Government elects not to renew the real property tax exemption, as it is Freeport’s landowner via its 50/50 joint venture partnership with Port Group Ltd, the GBPA affiliate, in the Grand Bahama Development Company (DEVCO).
The Christie administration has yet to reveal whether it intends to renew these incentives, and many observers believe it will attempt to make this conditional on obtaining certain concessions from the GBPA and its shareholder families.
Mr Wilchcombe’s address yesterday said the Government wants greater control over Freeport’s governance and administration, implying that it wants the GBPA to relinquish at least some of its quasi-governmental powers to Nassau.
The Government may also use the ‘renewal’ to force the Hayward and St George families to sell the GBPA and its Port Group Ltd affiliate, and Tribune Business understands that part of its agenda at the London meeting was to try and interest Hutchison Whampoa in becoming the purchaser.
Mr Wilchcombe said Prime Minister Perry Christie and his team had emphasised “the need for a paradigm shift in the governance of Freeport” when they met Hutchison Whampoa.
This, he added, was necessary given both Freeport and Grand Bahama’s moribund economy, and the “loss of strong/visionary leadership at the Grand Bahama Port Authority”.
The Minister added: “We pointed out that it was important in this context for the Government to forge a strong partnership with the Hutchison Group in arresting this situation, and in maintaining a dynamic environment in which private investments would flourish and sufficient revenues generated to adequately meet public expenditure requirements, as was not now the case.
“While stressing the need for greater Government involvement in governance and regulation, and a stronger partnership between Government and Freeport licensees, we pointed to the requirement for greater efficiency and flexibility on the part of both Government and the Grand Bahama Port Authority in ensuring Freeport’s competitive edge with the rest of the world in ever-changing circumstances.”
Mr Wilchcombe said the two Hutchison groups told the Government they “shared some of the same concerns”, as they had yet to earn the necessary investment returns and were continuing to finance the Grand Lucayan’s substantial losses.
“They had invested $1 billion in Freeport and had not realised a satisfactory return on their investment,” he said. “Their hotels, particularly, were sustaining heavy losses.
“Nevertheless, they kept meeting the shortfall and kept the hotels opened without laying off staff. The Lighthouse Point hotel was being renovated for opening this winter season.
“They indicated that more airlift and marketing was needed to make the properties profitable, notwithstanding the major efforts being made in this regard by the Ministry of Tourism. The cost of operating the Hutchison properties were also adversely affected by the high cost of labour in Freeport.”
Mr Wilchcombe said “revitalisation” of the GBPA, and its licensing and regulatory functions, was among the issues discussed with the two Hutchison groups at their meeting.
Other topics included an “early start” to the $250 million Container Port expansion, plus “plans and initiatives to reinvigorate” Hutchison Whampoa’s hotel, casino and real estate assets.
Hutchison is also seeking partners to develop the Sea/Air Business Centre, the site earmarked as a logistics/distribution/transhipment hub for Grand Bahama.
Upgrades to Grand Bahama International Airport, in which Hutchison has a 50 per cent equity stake via another Port Group Ltd joint venture, were also discussed.
Mr Wilchcombe said these were designed to facilitate a “public-private partnership in its ownership and operation”, although he did not go into detail.
The Government and Hutchison also seem to have discussed at length Carnival Cruise Lines’ proposal for its own private cruise port in eastern Grand Bahama, and the removal of a potential obstacle to these plans.
Hutchison, through the Freeport Harbour Company, has exclusivity over the development of cruise ports in Grand Bahama.
Mr Wilchcombe said the Government discussed with it an “agreement for waiver of the exclusivity between Freeport Harbour Company and the Government in relation to cruise ports, offshore cruise moorings in Grand Bahama”.