The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Calls for the Government to reclaim regulatory authority over Freeport have been branded “a pie in the sky idea”, given the existing legal barriers to such a move.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that this particular recommendation by the Hawksbill Creek Agreement Review Committee “will only work” if backed by 80 per cent of Grand Bahama Port Authority (GBPA) licensees.

Given that most Freeport businesses are likely opposed to the Government regaining regulatory and administrative control over Freeport, Mr Smith said the Christie administration had to overcome a significant legal impediment to achieve its objective.

The Prime Minister, in unveiling the Committee’s recommendations to the House of Assembly last week, said it had called for “certain regulation” to be transferred from the GBPA to the relevant government agencies.

He suggested that this would involve the Utilities Regulation and Competition Authority (URCA) taking over utilities (energy, cable TV) regulation in Freeport, while issues such as environmental supervision and airport charges/fees would be placed under government agencies/ministries.

However, such a transfer of regulatory responsibility requires that changes be made to the Hawksbill Creek Agreement.

And the Agreement’s language stipulates that any amendment has be approved by 80 per cent of GBPA licensees.

Mr Smith told Tribune Business that “it will be a cold day in hell before” there are sufficient GBPA licensees to give effect to the Committee’s recommendation.

But, K P Turnquest, the Opposition’s deputy leader, said he believed many licensees may consent to URCA taking over utilities regulation in Freeport.

He explained that there was a perceived lack of transparency in the GBPA’s regulatory affairs, given that it currently - or previously - owned a number of utility and public service-type entities in Freeport.

The Port Authority, in some instances, has been regulating itself, and the Prime Minister alluded to this potential ‘conflict of interest’ last week.

“No longer can an entity like GBPA be licensor and licensee, regulator and investor with no rights of appeal by licensees, without inherent conflicts and varying levels of dissatisfaction,” Mr Christie said.

However, Mr Turnquest, a former Grand Bahama Chamber of Commerce president, agreed that it was unlikely that GBPA licensees would let the Government reclaim much more than Freeport’s utility regulation.

Rather than vest these functions with Nassau, the east Grand Bahama MP instead called for another key element of the Hawksbill Creek Agreement to be fulfilled.

This requires the GBPA’s quasi-governmental powers to be devolved to a local government-type authority should the Port be sold - another of the Christie administration’s stated objectives.

This authority’s creation, though, appears not to have been included in the Committee’s recommendations, based on the Prime Minister’s report to Parliament.

Mr Smith told Tribune Business that the Government was clearly using the expiration of Freeport’s tax exemptions “as leverage” to muscle its way into greater control over the city’s regulation and development.

“It will be a cold day in hell before the licensees of the GBPA let Nassau take over administrative and regulatory control of Freeport,” he told this newspaper.

“We would be treated just like all the other Family Islands; as colonies of Nassau, and we would be a stranger in our own home.

“Right now, Freeporters enjoy hands on, direct access, working with the Port Authority”.

Asked about the implications of the ‘80 per cent licensee’ threshold for the Committee’s recommendation, Mr Smith replied: “It’s a pie in the sky idea by Nassau to think that 80 per cent of licensees are going to give up the opportunity to control and manage their own affairs.

“That objective by the Government, and recommendation by the Committee, will only work if 80 per cent of licensees agree to amend the Hawksbill Creek Agreement.

“It is not something that can be imposed upon us or simply agreed by the Government and Port Authority,” he added.

“This is a tripartite public-private partnership (PPP) arrangement with the licensees, and it’s high time the Government recognised the importance of the licensees. We will not sit back and have our rights trampled upon.”

Mr Smith, too, backed Mr Turnquest’s preference for following the Hawksbill Creek Agreement’s guidelines and create a local government-type authority to assume the GBPA’s powers.

“If the Government and Port Authority wish to enter into sensible negotiations for a transfer instrument,” Mr Smith said, “and create a local authority to assume the functions of the Port Authority, so we can remain the one-stop shop responsible for our own affairs, I am sure a majority of the licensees would be prepared to enter into those discussions.”

He argued that the central government already exercised regulatory control over Freeport, but had done this “silently; through the back door” via agencies such as the Investments Board, Immigration and exchange control.

“That is why Freeport has been stifled for so long,” Mr Smith told Tribune Business. “Freeport has been choked to death by stifling the Port Authority and making them give power to Nassau.”

The Government could, though, seek to do an end-run around the Hawksbill Creek Agreement by trying to override it with new legislation.

Previous governments have done this, as with the Hawksbill Creek Grand Bahama (Deep Water Harbour and Industrial Area) (Extension of Tax Exemption period) Act 1993. However, such a move would raise the prospect of a protracted legal battle in the courts.

Mr Turnquest, meanwhile, agreed that “it’s very difficult to achieve” the level of regulatory reclamation recommended by the Hawksbill Creek Agreement Review Committee.

“Off the cuff, I’d say it’s not likely to happen for several reasons, not least of which is the control of a significant portion of licensees by the Port companies and its owners,” he added.

The east Grand Bahama MP, though, suggested that many of the GBPA’s 3,500 licensees “would agree” that URCA should assume responsibility for communications, water and energy regulation within the Port area.

“One of the issues we’ve had over the years is that there’s no transparency with these utilities,” Mr Turnquest told Tribune Business.

“There’s been this feeling among a lot of Grand Bahamians that the relationship between regulator and regulated has been a little too close, and that there is a non-transparent relationship.”

He added that several utilities and public service-type entities in Freeport were part-owned or controlled by the GBPA and its shareholders, and their interests lay in maximising profits through fee and dividend income.

Mr Turnquest, though, backed the devolution of the GBPA’s regulatory powers to a local government entity rather than the Government.

Calling on all sides to follow the procedures set out in the Hawksbill Creek Agreement, he told Tribune Business: “If we can have the fulfillment of the agreement as written and intended, I believe that would resolve a lot of the issues that have arisen with respect to the Port Authority in regard to regulation and the licensees.”

The GBPA itself gave an upbeat response to the Prime Minister’s address, arguing that the Committee had made “a compelling case” for a 20-year extension of Freeport’s expiring real property tax, capital gains and income tax exemptions.

“A substantial extension of the concessions is required to preserve existing jobs and unlock opportunities to create new jobs through expansion projects in the Port Area, as well as overall new investment in Grand Bahama,” the GBPA said.

“Meaningful dialogue and collaboration with central government in the development and regulation of Freeport has always been supported and encouraged by GBPA and its shareholders.

“We therefore look forward to progressing our negotiations with central government with a view to eliminating, as early as possible, the continuing uncertainty regarding the future of those expiring tax concessions.”

Well-placed Tribune Business sources, though, have revealed that the GBPA’s owners - the Hayward and St George families - are reeling with shock over the Government’s “aggressive” approach to get them to sell.

The Christie administration has been using the February 4 expiration of the tax exemptions as one ‘hook’ to encourage the families to exit.

And the Government has further increased the pressure on the GBPA’s owners by arguing that the Port owes it around $100 million to cover its Budgetary shortfalls in Freeport.

The Hawksbill Creek Agreement clause that mandates the GBPA, if government revenues from Freeport are less than its expenditure in the city in any given year, to make good the difference plus pay a sum equivalent to 25 per cent on top.

This raises immediate questions as to whether the Government has been forcing the GBPA to live up to its obligations under the Hawksbill Creek Agreement.

Still, Mr Christie made clear last week that the Government wants new GBPA ownership, in the form of an investor with the deep pockets and vision necessary to revitalise Freeport.

The Committee recommended that in return for the 20-year extension of the expiring tax breaks, the GBPA’s current owners must exit within one year of that occurring.

It also called for the Government to gain an equity stake (plus Board seats) in the GBPA and its Port Group Ltd affiliate, with the value determined by the renewed tax exemptions’ worth plus any monies owed to the Public Treasury and Freeport’s maintenance.

The equity stake recommendation, though, revives questions surrounding the 7.5 per cent GBPA stake that the Government is already supposed to own.

Legal documents dating from the Hayward-St George battle that ended over five years ago cofirm that, as recently as 2006, the GBPA’s annual returns list the Treasurer of the Bahamas as owning 162,973 ordinary shares.

Thus the Committee’s recommendation threatens to ‘open up the can of worms’ over what happened to those shares, and whether the Government already owns a GBPA equity stake.

The Government is extending Freeport’s expiring investment incentives for a further three months, until May 4, 2016, to give it more time to decide whether it will accept all or some of the committee’s recommendations.