The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Freeport-based QC yesterday warned that the Government’s agreement with the Grand Bahama Port Authority (GBPA) threatens to “create a conflict” between the latter and its licensees over discriminatory tax treatment.

Fred Smith QC, the Callenders & Co attorney and partner, told Tribune Business that the Memorandum of Understanding (MoU) signed by the Christie administration and the GBPA threatened to ‘blur the difference’ between the latter’s dual roles as a private developer and quasi-governmental authority.

These roles are supposed to function separately, or be ‘Chinese walled’ from one another, but Mr Smith said the preferential tax treatment granted to the GBPA and its subsidiaries threatened to eliminate this distinction.

As a result, he “guaranteed” that a Judicial Review action will be launched in the Supreme Court over the MoU, and invited the GBPA’s 3,500 licensees to join him as plaintiffs.

The controversy relates to the MoU wording that suggests the GBPA and its affiliates, especially Freeport’s two largest landholding companies, the Grand Bahama Development Company (DEVCO) and Freeport Commercial and Industrial (FCI), have been granted ‘special treatment’ when it comes to real property tax.

Clause 5.1 of the MoU appears to grant the GBPA and its subsidiary companies a blanket renewal of all Freeport’s expiring investment incentives for another 20 years, including the real property tax exemption.

Yet the Prime Minister announced that all other foreign-owned, undeveloped land in the Port area that is greater than five acres in size will be subjected to the tax.

And all other GBPA licensees, both current and future, will not receive a ‘blanket exemption’ like the GBPA and its affiliates, but instead apply for them on an individual, case-by-case and performance basis.

Describing these MoU provisions as “discriminatory”, Mr Smith, a former external counsel for the GBPA, said: “What you have to remember is that the Port Group of Companies have two roles - a private investment company with local government authority.

“There should not be a conflation of that relationship. In Freeport, licensees have been encouraging the separation, as it were, of the powers belonging to a private developer and public administrator.

“Now, discrimination in favour of the GBPA and Port Group is going to create a conflict between licensees and the Port as a private developer,” he told Tribune Business, “giving the Port Group of Companies and Hutchison preferential tax breaks compared to other current and future licensees.”

Then, in comments that will come as no surprise to an already-Judicial Review weary Attorney General’s Office, Mr Smith warned that bringing similar legal action over the MoU was only a matter of time.

“I guarantee that Fred Smith, and hopefully other licensees, will seek to Judicially Review the MoU because it discriminates against ordinary licensees,” he added.

“Once again, the Port Group and Hutchison, in secretive collaboration with the Government, are taking advantage of licensees.”

Mr Smith also agreed that the MoU was effectively an amendment to the Hawksbill Creek Agreement without actually saying so, and amounted to an effort to circumvent Freeport’s founding agreement and the stipulation that 80 per cent of GBPA licensees must approve any changes.

“They are going to respect the Hawksbill Creek more in the breach than the observance,” he told Tribune Business.

In return for receiving a blanket renewal of Freeport’s expiring real property tax, income and capital gains tax exemptions for a further 20 years, it appears that DEVCO (50 per cent owned and management controlled by Hutchison/CK Property Holdings) and Freeport Commercial and Industrial only have to produce masterplans for their holdings within the next 12 months.

While the Government has likely opted for such a ‘blanket’ extension to incentivise Hutchison to proceed with the $300 million Container Port expansion, and provide a waiver to facilitate Carnival’s cruise port, several observers believe it has given up its key leverage over the GBPA’s owners in doing so.

Kwasi Thompson, the Freeport-based FNM senator, yesterday became the latest person to suggest that the MoU was being promoted as something it was not.

And, in particular, he suggested it would not force the GBPA and its owners, the Hayward and St George families, to live up to their governmental and developmental responsibilities.

“The Prime Minister’s remarks to Parliament were a gross overstatement of what is actually in the MoU,” Mr Thompson said. “The MoU extends the tax concessions for 20 years in consideration of mostly vague statements with no timelines, no details or specifics, and no penalties or incentives to comply.

“What is also most egregious is there are performance checkpoints for everyone else except the major party to the agreement, which is the Port Authority and its companies. They have been given a blanket extension. They are really the party that needs the five-year performance checkpoints.

“The Government has agreed to continue the status quo for the GBPA and its companies for what, in many cases, amounts to nothing more than a promise to collaborate or enter into further discussions.”

Mr Thompson also lamented the absence of timelines, and the vague wording, surrounding the GBPA’s commitment to collaborate with the Government on creating an investment promotion agency, arguing that it already had this obligation.

“The Government has also stated that real property tax exemptions may not be extended for non-Bahamians who own undeveloped land as an incentive to develop the land,” the FNM senator added.

“However, it has essentially approved the extension for the non-Bahamian company that owns the largest amount of undeveloped land, and who has been the main problem in land sales. The PLP has again missed the point. There is no incentive for DEVCO to begin to develop their land or even offer their land at discounted prices.”

Mr Thompson said the MoU ought to have committed DEVCO to provide land at discounted prices for the Government’s housing programme.

Instead, he argued: “The MoU is a vague list of possibilities which have no timelines, no penalties and no incentives whatsoever for the Port Authority to change the status quo. The MoU in and of itself does not offer hope; only more unanswered questions.”