The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Opposition MPs yesterday urged that “ordinary Bahamians” be given an opportunity to directly own shares in the company being created to manage this nation’s multi-million dollar carbon credits and their trading.

Kwasi Thompson, the Free National Movement’s (FNM) finance spokesman, told the House of Assembly during the debate on the Carbon Credit Trading Bill that permitting this would enable Bahamians to truly “see some benefit from their natural resources” as the Government moves to monetise the country’s so-called “carbon sinks”.

His fellow MP, St Ann’s Adrian White, added that Bahamians were likely to be questioning “why don’t we get a piece of our pie” after the Prime Minister unveiled a structure for Bahamas-domiciled Carbon Management Ltd that currently provides for no direct ownership by local retail and institutional investors.

Carbon Management, which will be charged with raising the $50m-$60m required to map all The Bahamas’ blue carbon assets such as mangroves and seabeds, gives Bahamians indirect ownership via the Government’s 49 percent equity stake in the company. Unspecified non-governmental organisations (NGOs) will hold a 2 percent stake, with the remaining 49 percent held by the firm’s operating/management partner, Beneath The Waves.

With a Heads of Agreement with Beneath The Waves already concluded, Philip Davis QC said the Government will receive 85 percent of Carbon Management’s “upstream” revenues with Beneath The Waves gaining the remaining 15 percent. He added that the Government would, via its equity stake, receive 49 percent of Carbon Management’s “downstream” revenues associated with the trading of Bahamian blue carbon credits on the secondary market.

However, both Mr Thompson and Mr White queried why Bahamians are seemingly not being given an opportunity to directly own shares in Carbon Management, suggesting that the Government should have embraced the Arawak Port Development Company (APD) model where a collective 20 percent equity interest was sold to the public via an initial public offering (IPO).

Mr Thompson, ex-minister of state for finance, focused “on the ability of the ordinary Bahamian to own a piece of that management company and to own a piece of the sovereign wealth fund” that will own The Bahamas’ blue carbon credit assets to be sold, then traded, on registered stock exchanges.

“If we’re trying to ensure ordinary Bahamians benefit from the natural resources of our country, then we should be able to buy into ownership of that management company,” Mr Thompson argued. “I would have preferred that the management company have more Bahamian ownership, and the ordinary Bahamian be able to purchase shares in the management company.

“This is an innovation that is first in the world, so the potential of this is tremendous. If the potential of all of this is tremendous, Bahamians ought to have an opportunity to purchase a piece of that company; all Bahamians. So my mother, who is a teacher, could take her $500 and buy into this world changing, innovative company. All of us should have this opportunity. That’s a prime opportunity for Bahamians to take.”

Alfred Sears QC, minister of works, pointed out that Bahamians would “have a feeling of profiting from their assets” through the Government’s 49 percent ownership interest in Carbon Management. And he added that there was nothing to stop Bahamians buying the country’s carbon credits themselves, whether though a pooled investment vehicle such as a mutual fund or other entity.

Mr Thompson responded by saying “let’s do both” by allowing Bahamians to own shares in Carbon Management directly while the Government held its own stake separately “at the same time”. He added: “We should ensure there are not just a few Bahamians getting the benefit from this.”

Mr White, meanwhile, said there was nothing to suggest Beneath The Waves was prepared to sell a portion of its stake to Bahamian investors via an IPO. “I think you’re going to hear Bahamian investors say: ‘Why don’t I get a piece of our pie? It’s our pie, so we need to own all the ingredients in our pie’,” he added.

However, Bahamian ownership via an IPO may be better timed for when Carbon Management Ltd has built up an operational and financial performance track record rather than in its embryonic start-up stage.

Mr Thompson, meanwhile, suggested that Carbon Management should be 100 percent Bahamian-owned with Beneath The Waves group instead receiving just a management fee and other agreed compensation. However, given the extent of the capital raising and mapping work required of the latter, as well as the need to verify and certify the value of The Bahamas’ carbon recycling assets, Beneath The Waves is certainly entitled to just reward.

And hiring the group without giving it any ‘skin in the game’ in the shape of a 49 percent equity stake could be fraught with risk as it would have no incentive to stick around and could exit at a moment’s notice. Mr Davis yesterday said Beneath The Waves’ 15 percent management fee was “the most attractive of all offers received”.

It is unclear, though, why the Government decided to review what the Prime Minister described as “three unsolicited offers” to be its carbon credit manager rather than stage a formal Request for Proposal (RFP) bidding process that sets out what it wants. In the absence of such guidelines, it could have been comparing offers that were substantially different in nature.

A Cabinet committee, headed by Ryan Pinder, the attorney general, “was also tasked with advising Cabinet on the management and monetising framework for the carbon credits, and was responsible for analysing three unsolicited proposals from entities proposing to manage our carbon credits and be appointed as the project management company for the carbon credits”.

Mr Davis said Beneath The Waves, which was founded in 2013 as a non-profit focused on Marine Protected Areas, threatened species, deep sea conservation and blue carbon, was selected “for several compelling reasons” that include its ten-year history in The Bahamas doing shark research and its identification of “what is now considered to be the largest seagrass meadow in the world in Bahamian waters”.

Research has already been completed on that 5,000 square kilometre seagrass plot, and the findings are due to be submitted to Vera, the environmental verification group, for certification of its potential blue carbon credit value. To monetise this asset, and turn it into a tradable commodity where revenue from the carbon credits’ sale will be first used to safeguard the country’s environment, Beneath The Waves is working with several Bahamian financial services professionals.

Mr Davis named Anthony Ferguson, CFAL’s (Colina Financial Advisors) president, and Antoine Bastian, Genesis Fund Services’ chief, as two principals who will help lead efforts to “financially engineer and structure the carbon credits and to create a network to effectively market, sell and monetise carbon credits”.

Describing Beneath The Waves’ 15 percent management fee as “a very attractive rate” compared to the rival offers, the Prime Minister added: “This Heads of Agreement ensures that the Government not only receives 85 percent of any potential revenue, but we also receive 49 percent of the management company’s downstream revenue from fees and any other revenue derived by the management company by the sale of carbon credits in the secondary markets.

“To restate that point in another way, the Government will directly receive 85 percent of the initial revenue generated but the revenue earning potential does not end there. The Government will also jointly own 49 percent of the management company itself, in conjunction with Beneath the Waves and local NGOs, and will be entitled to its share of revenues from activities related to that enterprise.

“Essentially, the Government is vertically integrated in all revenue streams in the primary and secondary capital markets, thereby maximising any financial benefit for the people of The Bahamas. This kind of agreement and the level of government equity participation is unprecedented in The Bahamas.” Mr Davis said The Bahamas’ seagrass and mangrove must be reverified every five years for carbon credit purposes.