The Tribune

• Proceedings not launched yet despite signal

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

FREEPORT’S governing authority yesterday warned that the Government’s latest bid to collect on allegedly outstanding expenses does “not inspire confidence” in the city and its $1.5bn investment “pipeline”.

The Grand Bahama Port Authority (GBPA) hit back at disclosures by Fred Mitchell, minister of foreign affairs, that the Davis administration plans to take its claim for the reimbursement of costs incurred in providing public services and infrastructure in Freeport to arbitration even though Tribune Business can reveal such proceedings have yet to formally launch.

Well-placed sources, while confirming that the Government has signalled its intention to place the dispute with the GBPA into arbitration, revealed that it has yet to file such an action and the associated paperwork.

One contact, revealing that the Government and GBPA have been exchanging “letters back and forth” on the matter, said: “What has happened is that the Government sent a letter; the Attorney General [Ryan Pinder KC] sent a letter to the Port saying ‘this is how we understand it happens if we go down this road’” of arbitration.

“They haven’t filed or initiated proceedings,” the contact said of the Government. “They’re position is: ‘We haven’t got into arbitration, but we’re still focused on going down this road if you don’t agree with these things’.”

The Government is demanding that the GBPA reimburse it for costs incurred in providing public services in Freeport over and above what it has earned in tax revenues from the city. However, Freeport’s quasi-governmental authority last June hit back by arguing that the sums sought by the Government are “contested” and “it is yet to be satisfied” the claims are supported by credible evidence.

However, based on Mr Mitchell’s comments it may just be a matter of time before formal arbitration proceedings are launched that would pit the Government against Freeport’s governing and regulatory authority. Under the terms of the Hawksbill Creek Agreement, the city’s founding treaty, several sources suggested the arbitration seat will be London rather than The Bahamas or New York.

Mr Mitchell’s interview with government-owned ZNS TV did not make clear whether he was speaking as a Cabinet minister or PLP chairman. However, he indicated the Government has grown frustrated with the GBPA’s owners, the Hayward and St George families, and has “withdrawn” an offer to buy them out and take over Freeport’s governance and interests in key assets such as Freeport Harbour Company.

“You know that various promises were made by the Prime Minister to advance his position that the share- holders might want to divest,” Mr Mitchell said. “I’m afraid that that offer has now been withdrawn by the Government.

“I think the Prime Minister is at the point where the dynamic must [be] to move the project along, to Bahamianise fully the city, and to bring the city into conformity with the rest of the growth which is going on in our country.”

Philip Davis KC said in late November 2023 that “the Government itself is willing to step to the plate to acquire the Port, and we’ve made that known to the families as well”. The Government had been speaking to both the St George and Hayward families, and their representatives, about its willingness to acquire the GBPA for months.

This seems to be the offer that Mr Mitchell was refer- ring to, but the minister said the Prime Minister has now moved towards initiating arbitration proceedings against the GBPA over the expenses dispute.

“There was an agreement on how the Government was to be compensated for the services which it provides to the city,” Mr Mitchell told ZNS, refer- ring to the Hawksbill Creek Agreement. “There was an agreement that when there was a dispute to take the matter to arbitration.

“The Government has decided that since we cannot get the minds on it that’s the way to move forward. So the Prime Minister is in discussion with the lawyers on how to take that forward.” Mr Mitch- ell seemed to concede that the Government’s public attacks on the GBPA and the Haywards/St Georges had not worked, as they were “not going to respond favourably”, hence the move towards arbitration.

Tribune Business revealed in late November 2023 that the Government planned to use its financial claims against the GBPA as leverage to squeeze the families if it was unable to achieve a smooth sale. The Davis administration had invoked sections in the Hawksbill Creek Agreement that stipulate the GBPA must reimburse it if the cost of providing public services in Freeport exceeds the city’s tax revenues.

This newspaper said then that the dispute may be put into arbitration if the two sides are unable to resolve their differences, with the Government believing that the Hayward and St George families will be unable to pay what is allegedly owed if proceedings go in their favour.

The GBPA, in its response to Mr Mitch- ell’s comments yesterday, lamented the Government’s seeming decision to turn towards arbitration and legal proceedings - as opposed to dialogue and negotiations - to resolve the dispute. It added that such a move threatened to deter, and undermine, “further investment” in Freeport that could turn around the city’s still-struggling economy.

“The GBPA is disappointed by the latest turn of events, as highlighted in a recent news report, regard- ing the Government’s claim for expenses for government administration of the City of Freeport under the Hawksbill Creek Agreement,” the GBPA said. “Our doors have always been and remain open for constructive dialogue with the Government to resolve these matters in the best interests of Freeport.

“We do not believe that legal proceedings would be appropriate, nor in the spirit of the mutually beneficial partnership between the GBPA, the Government our licensees and

the residents of Freeport. It does not inspire confidence or encourage further investment in the Port area, of which there is currently in excess of $1.5bn in the pipeline.

“We therefore invite the Government to engage in the process to resolve questions concerning its claims, in accordance with the parties’ obligations under the Memorandum of Understanding (MoU) executed between the parties in 2016.

“The Port Authority has always sought to fulfill its obligations as a responsible corporate citizen and remains committed to constructive dialogue with the Government to resolve this and any other matter that pertain to the interests of Freeport and its residents.” The MoU referenced by the GBPA calls for dialogue and negotiation before any recourse to the courts.

Latrae Rahming, the Prime Minister’s communications director, told Tribune Business yesterday that he was unable to comment because he had “not been briefed on those discussions” involving the GBPA, arbitration or Mr Mitchell’s comments.

However, the arbitration move raises questions about the strength of the Government’s position and especially whether it has a suitable investor waiting in the background - such as a Mediterranean Shipping Company (MSC) - to acquire assets such as the two families’ 50 percent interests in Freeport Harbour Company and Grand Bahama Development Company (DevCO). Its latest step suggests it may not.

Mr Davis told the House of Assembly in late June as he wrapped up the 2023- 2024 Budget debate that the Government has “begun to invoice” the GBPA for “reimbursement” of unspecified costs incurred in providing public services in Freeport over and above the tax income generated by the city.

He argued that the Government was justified in seeking repayment under section one, sub-clause five, of the Hawksbill Creek Agreement, which stipulates that it can seek payment from the GBPA for providing“certain activities and services” if the costs involved exceed certain tax streams.

“It’s important to note there’s a provision in the Hawksbill Creek Agreement that specifies that the cost borne by the

Government for certain activities and services provided are to be reimbursed by the Grand Bahama Port Authority for amounts in excess of Customs duties and emergency taxes collected,” Mr Davis said.

“My government has begun to invoice the Port Authority for these reimbursable expenses, as calculated by an independent accounting firm. To date, the Port Authority has not provided reimbursement in connection with any of these invoices.”

However, the Hawksbill Creek Agreement clause referred to by the Prime Minister may not be all it seems. It was last amended in 1960, when Freeport was five years-old, the city’s development very much in its infancy, and the only revenues earned by the Public Treasury at the time from the Port area were Customs duties.

While it indeed stipulates that the Government should not spend any more in the Port area than it earns in revenues, and that any excess costs over and above the latter should be reimbursed by the GBPA, that clause has not been amended to account for either the Freeport of today or multiple taxes that have been added since then.

Thus VAT, departure taxes and a host of other revenue streams are not factored into the calculation of whether the Government is spending more than it is earning in Freeport. And the accounting firm hired by the Government, thought to be Pricewaterhouse-Coopers (PwC), has been given a remit to include all the Government’s costs in its billings, even though the clause in question only refers to covering expenses associated with police, Cus- toms and Immigration.

Thus, while all the Government’s tax and revenue streams are not covered by the Hawksbill Creek Agreement clause, the invoices are also seeking to recover expenses for public services it fails to mention such as education, social services and health. Millions of dollars are involved, but it is likely that the GBPA will contest the Government’s figures given the lack of a detailed accounting or breakdown of the numbers.