The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday warned not to agree any “side deals” with Freeport’s largest investors at the expense of all other businesses, should it ultimately decide not to renew the city’s expiring tax breaks long-term.

K P Turnquest, speaking after Prime Minister Perry Christie said the Government would again seek a six-month extension for the exemptions (see other article on Page 1B), expressed concern that the situation created an opportunity for the administration to strike deals with individual investors.

In particular, he warned the Government not to “sacrifice” the rest of Freeport’s private sector in its eagerness to close an agreement with Hutchison Whampoa and Mediterranean Shipping Company (MSC) for the Freeport Container Port’s expansion.

Expressing concern that some investors might be treated more favourably than others, especially if the Government elected not to renew the tax exemptions long-term, the FNM’s deputy leader also warned against overplaying the leverage it has with the Grand Bahama Port Authority (GBPA).

Tribune Business sources have suggested the Christie administration has been using the February 4 expiration of the real property tax, capital gains and income tax exemptions as one ‘hook’ to encourage the Hayward and St George families to sell the GBPA.

Yet Mr Turnquest questioned whether the Government is “using a mallet to kill an ant”.

With the Government set to move for a second six-month extension for the exemptions next week, Mr Turnquest said: “One of the things that I don’t think most of us will support is any kind of side deal.

“In the event they don’t get the concessions from the Port Authority they want, any side deal will work to the detriment of the business community. What is done must not only be fair, but be seen to be fair.

“It can’t be a situation where the biggest and most wealthy among us benefit at the expense of the weakest.”

Mr Turnquest added that “we can all be fairly confident that the Government is very anxious to get that deal [the Container Port] done.

“So whatever it takes to get that deal done, they’re going to be hard-pressed not to do that. It’s just a matter of ensuring the rest of do not suffer for that benefit.”

Most observers believe that the Government has little choice but to renew Freeport’s expiring investment incentives for the long-term, although it will likely attach commitments and terms that other parties must fulfill.

The renewal is likely because the largest private investor in Freeport, Hutchison Whampoa, has already told the Government that it will not commit to further investment in the city until it has certainty that the expiring investment incentives will be renewed.

The Government’s approach will also have been encouraged by McKinsey, its international consultants, whose findings effectively make it imperative that the Government extend those incentives if Freeport is to remain a viable and sustainable economy.

Tribune Business exclusively revealed last week how McKinsey had warned the Christie administration that up to 1,100 jobs could be lost in Freeport if it were to ‘trade off’ employment for $80-$100 million in extra revenue generated by allowing those incentives to ‘sunset’.

Tribune Business understands the Prime Minister is driving for a ‘one-time’ solution that achieves all the Government’s objectives for Freeport, which include the Grand Bahama Port Authority’s (GBPA) sale to new investors and the return of its quasi-governmental powers to Nassau.

Sources familiar with developments have suggested the Government’s pace in relation to Freeport has quickened in recent weeks, and that Mr Christie wants to make a major announcement imminently in relation to the city - something he effectively confirmed in the House of Assembly yesterday.

Tribune Business, meanwhile, understands that the Government has been increasing the pressure on the GBPA’s owners to sell 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.

But Fred Smith QC, the Callenders & Co partner, said he had been informed by successive GBPA chief financial officers that this clause had never been acted on, as the Government’s revenues from Freeport always exceeded its spending.

However, Tribune Business sources have suggested the Government has Hutchison Whampoa “lined up” as a buyer for the GBPA. And, should it purchase the Port, its regulatory and governance powers would likely be returned to Nassau.

Mr Turnquest, though, urged the Government to be cautious in its Freeport strategy.

“I know the Government is trying to use this leverage to create a certain scenario, the exit of the current shareholders of the GBPA, but they must not use a mallet to kill an ant,” he told Tribune Business.

The former Grand Bahama Chamber of Commerce president also warned that a majority of Freeport’s 3,500 licensees and residents would not want the Government to take over the city’s management from the GBPA.

And Mr Turnquest questioned why the Government had again left Freeport “in limbo” until the bitter end by announcing another six-month extension to the expiring incentives with one week left before they ‘sunset’.

“It will really again be the 11th hour before the future of Freeport is known by the people most impacted by it,” he told Tribune Business.