The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fears were raised last night that the Government’s Heads of Agreement with Baha Mar’s new owner may have exposed taxpayers to a multi-million dollar infrastructure bill, after it waived obligations imposed on the original developer.

An attorney with experience in drafting Heads of Agreement transactions, speaking on condition of anonymity, drew Tribune Business’s attention to clauses 1.6 and 1.15 of Chow Tai Fook Enterprises (CTFE’s) Heads of Agreement.

Read together, they appear to release the Hong Kong-based conglomerate from any obligation to finance infrastructure upgrades outside the Baha Mar development campus - a condition that was imposed on previous developer, Sarkis Izmirlian.

Clause 1.6 required Mr Izmirlian to “fund..... all public infrastructure costs outside the boundaries of the project necessary for a world-class resort, in addition to providing for waste treatment or back-up electric power and water desalination facilities to the extent needed for the project”.

But clause 1.15 of the new Heads of Agreement, in confirming that “the investments and obligations referenced in 1.6 were not completed by” Mr Izmirlian, adds the caveat that they “are not an obligation assumed by the project company [CTFE] hereunder”.

The attorney said CTFE’s ‘release’ from any obligation to finance public infrastructure upgrades essential to Baha Mar’s smooth functioning seemed to imply that the Bahamian public, and taxpayers, will now be required to pick up the bill.

Although the Government is seeking to outsource the New Providence landfill’s management and remediation to private capital and operators, the Heads of Agreement with CTFE still commits it to extensive energy and water and sewerage upgrades.

Bahamas Power & Light (BPL) has to “address reliable and consistent supply of electricity on the island of New Providence, which will include the ability to meet the requirements of the project”.

This involves the installation “of all supporting infrastructure necessary to support secure and dependable electricity supplies to the project, without the need for unusual load-shedding or other interruption in electricity supply to the project”.

This must be completed by December 31, 2017, which could well prove a tall order for the Government and BEC/BPL, given that both are cash-strapped, and based on the utility’s past performance.

Finally, in the list of extensive infrastructure commitments that the next government will be bound by, the Christie administration has pledged to complete a waste treatment facility from the Water & Sewerage Corporation - also by December 31, 2017.

Both BPL and Water & Sewerage are taxpayer-owned entities currently incurring multi-million dollar annual losses, which raises major questions as to how these upgrades will be paid for.

“It’s almost like we’re going to have to go cap in hand to the World Bank to borrow money to put this infrastructure in place,” the attorney told Tribune Business.

“This is absolutely terrible. We’ve now got to put in place the electricity capacity to satisfy a resort with 3,500 rooms. What happens in the summer months when that hotel is fully occupied? This is crazy.”

The attorney also questioned why the Heads of Agreement had not been tabled and discussed in Parliament prior to its dissolution, although the deal was only signed off on April 25 - four days after Baha Mar’s ‘soft opening’.

‘Heads of Agreement’ has often been employed by the Government of the day as a device to circumvent parliamentary scrutiny, and approval, of major investment deals.

Tribune Business’s attorney source also pointed out that much remained unknown about the Baha Mar deal, given that the Heads of Terms between the Government and China Export-Import Bank for the construction completion remain sealed by Order of the Supreme Court.

Other key documents, such as the ‘asset transfer agreement’ for the sale of Baha Mar’s assets by the Deloitte & Touche receivers to the China Export-Import Bank’s Perfect Luck vehicle, have also not been disclosed.

The share purchase agreement (SPA) between Perfect Luck and CTFE for Baha Mar’s final sale has also remained confidential, as has the September 9, 2016, Hotels Encouragement Act agreement granted to Perfect Luck.

The latter agreement sets out the value and worth of investment incentives and tax breaks granted for Baha Mar’s construction completion, along with the items and equipment that will enjoy such concessions. Perfect Luck’s Hotels Encouragement Act agreement will be inherited by CTFE.

Elsewhere, Baha Mar’s casino tax incentives appear designed to at least partly cover the initial operating losses incurred by the $4.2 billion development’s new owner.

The April 25 deal struck with the Christie administration states that the casino tax incentives are based on the developer incurring “acquisition consideration, pre-opening expenditures and operating losses and capital spending of at least $2 billion”.

The Heads of Agreement also reveals that the Government has written-off $10.75 million in gaming taxes owed by Baha Mar’s previous developer, Sarkis Izmirlian, as a result of the former ownership structure’s liquidation.

The Government has also released CTFE from having to construct an additional 425 rooms, as Mr Izmirlian left the development at 3,025 rooms rather than the obligated 3,450.

Dr Hubert Minnis, the FNM leader, yesterday described CTFEs Heads of Agreement with CTFE as a “brazen theft of our country’s assets”, pointing to “hundreds of millions in waived VAT taxes”.

However, a Tribune Business comparison of the CTFE deal with Mr Izmirlian’s 2011 Heads of Agreement shows that the new one is heavily based on the former - the one approved by a Cabinet of which Dr Minnis was part of.

CTFE’s agreement has been altered to take account of Baha Mar’s recent history and circumstances, and the current atmosphere surrounding the project, as well as VAT - which did not exist in 2011.

The casino tax structure in CTFE’s agreement is exactly the same as Mr Izmirlian’s, with $5 million to be deducted from Baha Mar’s annual license and monitoring fee, set at $100,000 per thousand square feet of casino floor, for a 21-year period.

And CTFE will also be entitled to a 50 per cent reduction of gaming tax revenue in excess of $20 million, for which the rate is set at 10 per cent.

CTFE has also been given the ability to apply for 300 work permits for senior management and technical positions, although this number is set to reduce to 200 after 18 months. The latter number is the same as that granted to Mr Izmirlian.

On the marketing side, the Government has agreed to contribute $4 million per annum, for a total of $32 million, over an eight-year period towards CTFE’s Baha Mar marketing activities. Again, this is the same deal as Mr Izmirlian.

While the Government was said to have already committed $16 million for “co-operative marketing” of Baha Mar, it and CTFE have now each committed $10 million to “reintroduce to the marketplace” the resort and Cable Beach once the construction is largely complete.

That is less than the $20 million the Government and Mr Izmirlian each agreed to contribute.