By NEIL HARTNELL
Tribune Business Editor
The Government’s $65m Grand Lucayan purchase was yesterday branded “economic suicide” by a Freeport-based QC, who warned: “The Bahamian people will pay dearly for decades.”
Fred Smith QC, the outspoken Callenders & Co attorney and partner, told Tribune Business that the Government’s move to take ownership of Freeport’s anchor property was “a fool’s errand” that threatened to “bleed” the already cash-strapped Public Treasury.
He questioned why the Government felt it would fare better than current owner, Hutchison Whampoa, one of the world’s largest and wealthiest companies, and former buyer, the Wynn Group, which “wouldn’t touch it with a ten-foot pole”.
Mr Smith argued that instead of buying the Grand Lucayan, the Government should focus on reviving Freeport’s wider economy through the elimination of “red tape” and liberalising investment and Immigration policies.
And, rather than the 20-year tax breaks extension handed to the Grand Bahama Port Authority (GBPA) and Hutchison by the former government, he urged the Minnis administration to hold Freeport’s two largest investors accountable for their commitments under the Hawksbill Creek Agreement and Freeport Act.
Describing the Government’s decision to sign the sales agreement with Hutchison as “disastrous”, Mr Smith told Tribune Business: “It’s economic suicide. It is a decision that that will plague the taxpayers in the rest of the Bahamas for decades. It will bleed the Treasury.
“So now the Government suddenly has buckets of money to risk on what has so far been a catastrophic and failed business venture. The irony is that the cost of buying the hotel, repairing it and operating it, and the eventual operational and capital loss, when it is picked up for a pittance by a bottom feeder developer, will be paid for mostly by Bahamian taxpayers outside of Freeport.”
Mr Smith said the city’s tax-free status, VAT excepted, meant that any losses stemming from the Government’s Grand Lucayan deal would be borne by persons outside Freeport.
“The taxpayers in the rest of the Bahamas should oppose this and demand full details of this transaction,” he told Tribune Business. “This is a complete fool’s errand. I challenge the Government to give us their budget, business plan and exit strategy. I’m not concerned because I know they have none.
“They’re able to be so callous with the people’s money because it’s not their own. This is all to try and make the FNM look good for the taxpayer. This is not the economic medicine Freeport needs.”
The Prime Minister has promised to provide full details on the Grand Lucayan purchase, which is scheduled to close by September 11, and way forward when Parliament returns next month.
The Government is seeking to limit Bahamian taxpayer exposure, and the potential loss to the Treasury, by declining to renovate and re-open Breaker’s Cay - one of the three Grand Lucayan properties, and the one likely to need most work.
Dr Hubert Minnis, though, indicated that his administration is mulling whether to invest in renovating and re-opening the 400-room former Memories property in a bid to add additional room inventory to the still-open 196-room Lighthouse Pointe complex.
Besides making the Grand Lucayan more attractive for potential group business, refurbishing and re-opening that property could also make the resort more attractive to buyers and obtain a higher purchase price for the Government in any sale.
Michael Scott, the Hotel Corporation’s chairman, and who is in line to head the Board of the special purpose vehicle (SPV) to buy and own the Grand Lucayan, told Tribune Business earlier this week that the Government does not intend to finance repairs and restoration that could add up to $100m to its Grand Lucayan costs.
It is hoping to quickly find a buyer to minimise any losses, with Mr Scott describing the strategy thus: “It’s a quasi bail-out. Buy, stabilise, keep some of the property open, keep some people employed and look for qualified investors with a plan and vision for restoration of the resort as the micro centre of Freeport.”
But Mr Smith, lamenting the absence of a detailed strategy, told Tribune Business: “We have a right to know every detail about this suicidal economic transaction.
“If one of the most successful companies in the world, Hutchison, couldn’t turn a profit in decades, and a private developer such as Paul Wynn, who just broke ground in celebration with the government for a $100m development in Nassau, wouldn’t touch it with a 10-foot pole, why do the FNM politicians and bureaucrats think that they can do any better?
“This is a fool’s errand and the people of the Bahamas will pay dearly for it for decades.”
The Government’s position is that it cannot afford for the Grand Lucayan to completely close, as Hutchison Whampoa had been threatening to do, given that this would likely result in the total shutdown of the Lucayan Strip area - shuttering remaining businesses and causing lay-offs at Port Lucaya Marketplace in particular.
But Mr Smith yesterday argued that the Government needed to focus on the bigger picture when it came to reviving Grand Bahama and Freeport’s economy, not just the Grand Lucayan.
“Instead of making the necessary dramatic changes when they were elected to resurrect Freeport’s economy, the FNM have remained mired in the same old failed and unsuccessful tactics and policies of the PLP,” the well-known QC charged.
“They have remained stuck in the red tape-like political control of the economy. The FNM has failed to liberalise the investment or immigration environment; they have failed to hold the Port Group of Companies and Hutchison accountable for their commitments under the Hawksbill Creek Agreement and Freeport Act.”
Wynn Group, which withdrew from its acquisition bid last month, estimated that up to $55m may be required to repair and re-open the Grand Lucayan’s closed sections. With pre-opening costs of $8-$9m, and an estimated $25m needed to rebuild airlift and for marketing support, the total cost involved was likely to exceed $150m when the purchase price is included.
Mr Smith’s comments are likely to strike a chord with the many Bahamians who remember the multi-million dollar losses incurred by the Pindling administration’s Hotel Corporation in an era when the Government owned and ran hotels.
Resorts are extremely capital intensive, and the Government’s exposure would likely go well beyond $150m - money it will never recover - if it sought to re-open the resort and was forced to hold it for years if no buyer emerged. CK Property Holdings/Hutchison Whampoa is understood to have lost between $10-$20m per year at the Grand Lucayan on average.