The Tribune

Neither side backing down as Davis aims to go to arbitration

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Grand Bahama Port Authority (GBPA) yesterday blasted the Government’s huge payment demand as ill-founded by arguing that Freeport’s $200m annual tax revenues far exceed what government invests in the city.

Freeport’s quasi-governmental authority, hitting back at the Davis administration’s $357m reimbursement claim, promised to “robustly defend” itself and its owners against such a demand and voiced optimism that it will be “firmly” defeated both in arbitration and, potentially, in the court system if required.

In a statement that will likely further escalate the reignited battle with the Government, the GBPA accused it of making the demand “to force” the Hayward and St George families to sell their respective 50 percent equity ownership interests after they rejected its offer to buy them out at a price which was under-valued or at “a considerable discount” compared to what they feel the business is worth.

And, warning that a very public dispute between Nassau and Freeport will “prove hugely damaging” to the latter’s economy and investor confidence, just as Grand Bahama is poised to enjoy a $2bn investment pipeline, the GBPA sought to turn the tables on the Government as to who is to blame for the city and wider island’s ills.

Prime Minister Philip Davis KC, at the weekend, tried to pin all the blame on the GBPA, the two families and its executive management, but Freeport’s quasi-governmental authority accused the Government of “systematically handcuffing” it by preventing it from acting as a “one-stop shop” investment approvals process and thus placing it at a competitive disadvantage versus other free trade zones.

Instead, it argued that Freeport’s tax contribution to the Public Treasury could have been much greater if the Hawksbill Creek Agreement had been allowed to function as originally intended, which would have been “magically transformative” for both the island and wider Bahamas.

While Mr Davis argued that Bahamian taxpayers have been “subsidising” the Hayward and St George families’ profits, on the grounds that the GBPA has not been living up to its infrastructure and development obligations, the latter countered by arguing its shareholders have themselves been funding Freeport’s management “from their own pocket to the tune of many millions of dollars each year”.

With neither side backing down over the Government’s demand that the GBPA pay $357m to reimburse it for providing public services in Freeport whose costs exceed tax revenues generated by the city, Tribune Business understands that the Prime Minister also met this weekend with members from Freeport’s private sector to reassure that he will not interfere with their rights under the Hawksbill Creek Agreement.

Well-placed sources, speaking on condition of anonymity, said representatives from companies including the Freeport Container Port and Polymers International were told that their tax breaks and investment incentives are secure with Mr Davis delivering a message that something must change to ensure Freeport reverses its recent decline as hostilities between the Government and GBPA hit new heights.

“The Grand Bahama Port Authority does not agree that it owes the sum of $357m as claimed by the Government of The Baha- mas,” the GBPA said. “We reject and will robustly defend against this claim, which we firmly believe will be defeated. The city of Freeport, our licensees and the people of Grand Bahama can rest assured that the Port Authority is determined to do everything in its power to protect our mutual interests.

“In the 70 years of the Hawksbill Creek Agreement – through six government administrations – no claim of this kind has ever been brought against the Port Authority, and for very good reason. As such, we believe it is important that public understands why this is happening.”

The GBPA argued that the Government is using the payment demand, and threat of arbitration, to achieve by force what it failed to do by persuasion in the belief the GBPA and its shareholders will be unable to pay if a ruling goes against them. If that occurs, they may then be compelled to sell.

“This claim came on the heels of a recent proposal by government to purchase the whole Port group (which owns the Port Authority) from its current shareholders at a considerable discount - a proposal that was carefully considered in good faith, but ultimately declined,” Freeport’s quasi-governmental authority argued.

“Having been disappointed in its attempt to purchase the Port group outright, it appears the Government is attempting to force its desired out- come by other means. This unfortunate turn of events will no doubt prove hugely damaging to the economy of Freeport and devastating to investor confidence in Grand Bahama and The Bahamas as a whole.

“It comes just as Grand Bahama is on the cusp of a resurgence with $2bn in new investment already being developed, the vast majority brought to the island by the Port Authority, making it the fastest growing economy in The Bahamas,” it added.

“The sad prospect of investors being potentially discouraged from investing if they feel that their money and property may no longer be safe harms no one more than the thousands of regular hard-working Bahamians whose livelihoods and families depend on the city of Freeport. Foreign Direct investment will likewise suffer, if investors fear a stable jurisdiction within which property rights and freedom from government coercion is not guaranteed.”

Then, attacking the foundations of the Government’s claim, the GBPA asserted: “The Port Authority and its licensees, and the residents of the Port area, collectively already pay to the Government in taxes more than $200k annually. This is far more than the central government has ever invested in Freeport in a single year.”

The Prime Minister’s Office, responding to the GBPA release last night, countered by sticking to its position that Free- port’s quasi-governmental authority is not living up to its obligations under the Hawksbill Creek Agreement which has forced the Government - via the Bahamian taxpayer - to step in and incur costs totalling hundreds of millions of dollars that must now be reimbursed.

Accusing the GBPA and its owners of seeking to “muddy the waters”, it added: “The Grand Bahama Port Authority has distinct obligations under the Hawksbill Creek Agreement. Those obligations have not been met, and suffering in Freeport is widespread.

“The people of The Bahamas have been paying the bill for services that are legally the responsibility of the Port Authority. Acting under the law, the Government is seeking reimbursement on behalf of the Bahamian people.”

The Prime Minister’s Office confirmed that the PricewaterhouseCoopers (PwC) accounting firm helped determine that the Government was owed $357m by the GBPA for the financial years 2018 to 2022, based in clause 1(5) (c ) of the Hawksbill Creek Agreement.

This, it said, “requires the Port Authority to reimburse the Government within 30 days of the presentation of a detailed account of the costs associated with providing services and infrastructure which are the legal responsibility of GBPA... Attempts to distract or muddy the waters do not change the legal obligations of the Port Authority. The people of The Bahamas cannot bear their burdens any longer”.

The GBPA, though, sought to blame Freeport’s economic woes on the Government. “The Port Authority has been systematically handcuffed by central government policies and legislation over decades that prevent the Port Authority from being the one-stop-shop that the Hawksbill Creek Agreement intended, and which other international ‘free port’ areas around the world enjoy,” it argued.

“As a result, ease of doing business in the Port area has been severely eroded, which has reduced its competitive advantage and the continuing loss of opportunity for The Bahamas has been enormous.

“Freeport’s tax contribution to the central government could have been much greater still if government worked with Port Authority rather than against it. Such a partner- ship would be magically transformative and benefit The Bahamas as a whole.”

The GBPA continued: “As it stands, the share-holders have found it necessary to regularly subsidise the Port Authority in the management of the city from their own pockets to the tune of many millions of dollars each year. Despite this, the economy and standard of living in the Port area remains better than the central government managed areas of West End and East Grand Bahama.

“This claim has sadly created uncertainty for the investment climate of Grand Bahama, which has the potential to undermine the economy as it is just beginning its resurrection from a series of devastating hurricanes, most recently, the hugely destructive Dorian, as well as the COVID-19 pandemic.

“Central government’s co-operation is required. Continued hostility towards the shareholders of the Port Authority is counter-productive and unnecessary. Again, we urge central government to withdraw its unjustified claim and let us jointly resolve the issues in good faith. This is what the residents, licensees and investors in the Port Area deserve.”