The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s deal with the Grand Bahama Port Authority (GBPA) “makes no sense” because it has gained just “nebulous promises” in return for foregoing potentially $2 billion in taxes.

Greg Moss, the Marco City MP, told Tribune Business that the two sides’ Memorandum of Understanding (MoU) had effectively maintained Freeport’s inadequate, existing ‘status quo’ for another 20 years.

The United Democratic Party (UDP) leader questioned the effectiveness of the Government’s negotiating team, saying it had gained nothing “near the value” of what it was conceding in annual revenues.

He added that the Government already possessed most of what it claimed the MoU has delivered, via the 1968 agreement with the GBPA over the Benguet Consolidated merger.

Mr Moss also scoffed at the GBPA’s possible purchase by Mediterranean Shipping Company (MSC), warning that Freeport’s governance was being handed “to a shipping company”.

And he warned that the proposed Carnival cruise port for eastern Grand Bahama would provide few benefits for Bahamian entrepreneurs and businesses, citing the example of the company’s facilities in Turks & Caicos.

“The MoU that the Government has signed is conspicuous in the absence of any reference to the near $100 million per annum it has foregone to obtain the nebulous, imperfect and unbinding promises the Port Authority has made in return,” Mr Moss told Tribune Business.

“That is the most important point: It is conspicuous in the absence of any reference to the amount of tax the Government is going to forego in return for these promises by the Port Authority.”

The taxes referred to by Mr Moss are primarily real property tax. The Prime Minister, in unveiling the MoU, said the Government planned to impose that tax on all foreign-owned, undeveloped landholdings in the Port area that are greater than five acres in size.

However, Mr Christie confirmed that the GBPA and all its affiliate companies will receive a ‘blanket’ 20-year renewal of all Freeport’s recently expired investment incentives - including real property tax.

That means the city’s two largest landholders - Freeport Commercial and Industrial and the Grand Bahama Development Company (DEVCO), the latter of which is 50 per cent owned and managed by Hutchison Whampoa/C K Property Holdings - will not be paying any real property tax on their main assets.

Several Freeport-based businessman and attorneys have told Tribune Business that the ‘blanket’ exemption for the GBPA and Hutchison/C K Property Holdings is contrary to the recommendation of the Government’s own Hawksbill Creek Agreement Review Committee.

They have also argued that by granting this concession, the Government has given up its main ‘leverage’ source over both the GBPA’s owners and Hutchison/C K Property Holdings.

As a result, there is minimal pressure for the St Georges and Haywards to exit, and no incentive for Hutchison/C K Property Holdings to proactively develop DEVCO’s 74,000 acres.

The Government’s first consultants, McKinsey & Company, estimated the real property tax exemption as amounting to a total $60-$80 million ‘tax break’ for Freeport-based businesses - chiefly DEVCO and the GBPA.

The Ministry of Grand Bahama, meanwhile, put this figure at $101 million. It broke this down into $30 million worth of real property tax from developed land, and $71 million on undeveloped land, with DEVCO contributing some $85 million of this. The $16 million balance was to come from the GBPA and its Port Group Ltd affiliate.

Mr Moss himself told Tribune Business that the real property tax concession could amount to $100 million per annum in foregone tax revenue.

“At the end of the day, what the Government gets in return for foregoing $2 billion over 20 years makes no sense,” he said.

“Most of the concessions it claims it got in return is what it already has from the Benguet agreement in 1968. We have membership on the Board, have a right to see what they’re [the GBPA] doing.....”

The Government took a 7.5 per cent equity stake in the GBPA in return for approving its merger with Benguet in 1968.

While subsequent documents show that the GBPA re-acquired that shareholding in the early 1970s for around $8 million, the strong suspicion is that the Public Treasury’s accounts never received the bulk of that price.

As a result, the Government still technically holds that 7.5 per cent stake, and the GBPA’s annual returns have continued to show the Treasury as a shareholder.

Hence Mr Moss’s suggestion that the Government already has what it has touted in the MoU - an equity stake in the GBPA, coupled with corresponding Board seats.

Summing up what the MoU means in practical terms, the Marco City MP told Tribune Business: “You’re talking about taking the city of Freeport, the last private colony in an independent Commonwealth, and leaving you as you are for another 20 years.

“This makes absolutely no sense. We’re talking about an island desperately needing an economic stimulus, where $50 million would be life changing for the island and Commonwealth as a whole.

“You’re giving all that up without anything near the equivalent of that value being brought to the city of Freeport, the Commonwealth and the Government.”

Mr Moss also pointed out that the MoU did nothing to address the fate of the Royal Oasis, which has been closed for 12 years, or the deteriorating International Bazaar.

He thus becomes the latest opposition politician, alongside Grand Bahama colleagues such as K P Turnquest and Kwasi Thompson, to suggest that the MoU is much less than the Government is promoting it to be.

In particular, all three have expressed misgivings that the real property tax exemption lets DEVCO (and its owners) “off the hook” in terms of living up to their development obligations.

And, as a result, the MoU has done little to spur economic growth in Freeport over both the short and long-term - especially since many of the commitments it contains seem vague and non-binding.

Hutchison/C K Property Holdings lobbied the Government heavily against imposing real property tax on their Freeport-based real estate interests, warning that they would not undertake the $300 million Container Port expansion or other investments unless the exemption was renewed on existing terms.

It appears likely that the Christie administration traded-off its real property tax ‘leverage’ in return for both the Container Port and a waiver of Freeport Harbour Company’s (FHC) cruise port exclusivity on Grand Bahama.

The latter move appears designed to pave the way for Carnival’s proposed private port in the eastern part of the island.

Mr Moss, though, warned that such a facility was unlikely to result in major economic benefits for Bahamians.

“We saw what happened in the Turks & Caicos with Carnival,” he said. “The terminal became nothing more than an extension of the cruise ship... In Turks & Caicos, it does not benefit the locals because they’re not able to have structures and businesses on that property.

“It’s what we’re now talking about doing in east Grand Bahama, and we’re talking about doing the same for the city of Freeport: Taking what’s wrong in Bimini and expanding it writ large for the city of Freeport.”

Mr Moss said he was increasingly eager to debate the MoU in the House of Assembly, and he is likely to soon get his wish, given that its contents are bound to feature in Wednesday’s Budget debate.

“I am very concerned and beyond disappointed with the Christie government,” he told Tribune Business, “and equally concerned about the silence of the FNM on this.

“I’m looking forward to a vibrant and vigorous debate on what’s going on in the city of Freeport. We’re looking forward to the debate in the House, so the people of the Bahamas can see what is really going on.”