The Tribune

Carey Leonard continues his series looking at the detrimental effects of Chinese investment in the Bahamas with an examination of the Agreement for Waiver Exclusivity . . .

ON May 3, 2016, Freeport Harbour Company Ltd (a company over which CK Hutchison has management control) executed an Agreement for Waiver of Exclusivity (“the Waiver Agreement”) with the Bahamas Government.

When the Prime Minister made his presentation to the House of Assembly six days later he said: “The Government has also executed a Waiver of Exclusivity Agreement with Freeport Harbour Company Ltd (controlled by Hutchison) with respect to the operation of cruise ports on Grand Bahama.” What is significant is that he said nothing further about the Waiver Agreement.

Indeed, the Waiver Agreement was not tabled, even though it was announced with a Memorandum of Understanding (MOU) between the Grand Bahama Port Authority, the Grand Bahama Development Company, Freeport Commercial and Industrial and Freeport Harbour Company. The Prime Minister, right after mentioning the MOU and the Waiver Agreement, went on to say “I now lay a copy of the MOU on the Table of the House”. He never mentioned the Waiver Agreement again in his entire presentation.

The MOU was posted on the Hawksbill Creek Review website - but not the Waiver Agreement.

So what is this Waiver Agreement all about and what, if it is ever implemented, will be its effect?

Some brief history. The Waiver Agreement is about an agreement made between the Bahamas Government and Freeport Harbour Company (FHC) in June ,1994, which gave FHC the exclusive right to own and operate cruise ports, offshore cruise moorings and container ports on Grand Bahama Island.

At the time Edward St George, Chairman of the Grand Bahama Development Company, was in negotiations to bring Hutchison Whampoa, now CK Hutchison and Cheung Kong Property (“Hutchison”), to Grand Bahama. Even in 1994, Hutchison was a huge multi-billion dollar conglomerate with annual profits, after taxes, in billions of dollars and Mr St George probably felt that such a well-financed body could afford to put much needed capital into Grand Bahama to stimulate the economy.

Hutchison wanted to construct and operate a container port in Freeport Harbour as the location was a perfect fit for their needs at that time. There was a problem though: Freeport Harbour needed to be enlarged, and a considerable portion of the existing harbour needed to be dredged to a much greater depth to accommodate the larger container ships since the expansion of the Panama Canal was completed last year (post-Panamax).

The cost to dredge the existing portions of Freeport Harbour was considerable and, as it is privately owned, this cost had to be funded privately, ie at no cost to the Public Treasury, no Government funds. Borrowing the very large sums involved was not going to be easy unless Freeport Harbour had a major shareholder like Hutchison in which banks could see assets thousands of times greater than the money to be borrowed.

Mr St George had somehow managed to persuade Hutchison to purchase a 50 per cent interest in Freeport Harbour, thus guaranteeing the availability of the necessary funds for the harbour dredging.

Naturally, there were certain conditions which Hutchison wanted satisfied before it would close on such a deal. One of those was the Exclusivity.

Presumably (as Cabinet minutes are not available to the public), considering the number of new jobs, the large investment that would be spent in the Bahamas and an agreement that a new cruise ship terminal would be built in return, the government agreed to the Exclusivity.

The result was that, within two years, the harbour was dredged, the Container Port was constructed, hundreds of new jobs were created and within six years a new Cruise Ship terminal had been constructed and opened. Better still was the fact that the increased depth of Freeport Harbour allowed for the establishment of the Grand Bahama Shipyard, which created hundreds of new jobs for Bahamians, and, the rental of several (ten) houses and apartments from Bahamian owners to accommodate the specialists brought in for each unique job.

So the granting of the waiver caused well over a billion dollars of investment and the creation of hundreds of new jobs (many of them well paid) for Bahamians.

Many things have changed since 1994. Cruise Ship Lines have, over the years, had many complaints from passengers about one thing or another with respect to a visit to the ports of Nassau and Freeport. Transportation has been an almost constant complaint, along, to a much lesser extent, with a lack of things to do in the port of call. At the same time they have had much fewer complaints on stops to out islands where the cruise line controls everything.

Carnival Cruise Line has pioneered the cruise line controlled destination, and wants to set up one on the virgin land in East Grand Bahama, but cannot do so unless the Hutchison controlled FHC agrees to waive its right to exclusivity of cruise ship ports on Grand Bahama.

Carnival has been talking about its own private port for upwards of 10 years. Rumour had it that they would construct one in the Williams Town area. However, for whatever reason, according to the Government, Carnival has decided on untouched land in Eastern Grand Bahama. No doubt that is a much cheaper route to go.

The Waiver Agreement

The Government and FHC (controlled by Hutchison) have agreed that FHC will waive its exclusivity for the Carnival port outside Freeport Harbour (“the Carnival Project”), and from time to time when requested by Government, agree to further waivers (“Additional Waiver”) to facilitate other developments (“Further Development”) on Grand Bahama.

Such an agreement comes at a price. FHC (read controlled by Hutchison) has agreed to do this for compensation. Clause 2.1(iv) of the Waiver Agreement states

“in the event of any Additional Waiver to facilitate Further Development (other than the Project), FHC agrees to share the consideration received by FHC in connection with each Additional Waiver with the Government on a fifty-fifty per cent (50%) basis in each instance and shall pay such to the Government its 50% portion annually, commencing on the commencement date of the operations of such Further Development or the date on which the consideration is first received by FHC (if later) and ending on 3rd August 2054 or the date of the termination of the Additional Waiver, whichever occurs later.”

The earlier Clause of the Waiver Agreement calls for FHC (controlled by Hutchison) to pay the Government $800,000 per annum for a period of 20 years starting from the date of Commencement of Commercial Operations of the Carnival Project.

It would appear that Carnival will pay FHC a sum greater than $800,000 per year as compensation for not calling in Freeport Harbour.

Why would Hutchison cause FHC to lose revenue and jobs for Bahamians?

Why would Hutchison be so keen to enter into a business losing agreement, an agreement that will cost Bahamians their jobs, mostly indirect jobs?

The answer can be found in Clauses (G) and (H) of the Waiver Agreement. Clause (G) says:

“The Government has agreed that (i) no real property tax shall be charged or imposed in respect of any real property owned by FHC (Hutchison), the Grand Bahama Company Limited and/or Freeport Development Company Limited (the “FHC Group”) on Grand Bahama Island for a period of 20 years commencing on 4th May 2016; and (ii) no taxes on capital gains, capital appreciation or earnings shall be levied against the FHC Group or any member of the FHC Group for a period of twenty (20) years commencing on the 4th day of May 2016; and ...”

So FHC (Hutchison) gives up business that puts many Bahamians’ jobs at risk, more likely will put many Bahamians, such as those providing tours to Carnival’s passengers, taxi drivers, waitresses and bar tenders, etc out of work, in order to save millions of Real Property Tax payments on undeveloped property like the 740-acre SeaAir Business Centre property that thousands pass every day on their way to and from the Shipyard, the Container Port, Bahama Rock and Eight Mile Rock.

Vital functions

It is unlikely that Government would charge Real Property Tax on the airport or the harbour as they perform such important and vital public transportation functions.

However, the Government almost certainly would have charged Real Property Tax on the SeaAir Business Centre that Hutchison was supposed to have developed over the last 20 years or so.

This is property on which Hutchison pays no Service Charges thus getting a free ride, with respect to the maintenance of the roads in Freeport. These are the very roads that help them make money (CK Hutchison makes a net profit after taxes of about $100 million per week) over which they get access free.

Other businesses like PharmaChem, Polymers and Bahamian Brewery and all the smaller land owning businesses shoulder the cost of maintaining the roads and other infrastructure.

Yes, the big multi-billion dollar Chinese conglomerate takes and takes from the Bahamas and the Bahamian people.

Clause (H) of the Waiver Agreement is even more telling. It says:

“Subject to satisfaction of the conditions more particularly described and set out in a Memorandum of Understanding between inter alia the Government and The Grand Bahama Development Company Limited (“DevCo”) executed contemporaneously herewith, the Government agrees that (i) no real property tax shall be charged or imposed on or in respect of any real property owned by DevCo on Grand Bahama island for a period of twenty (20) years commencing on the 4th day of May 2016; and (2) no taxes on capital gains, capital appreciation or earnings shall be levied against DevCo for a period of twenty (20) years commencing on the 4th May 2016.”

So the price of the Waiver of Exclusivity comes at a heavy price to Bahamians and the multi-billion dollar Chinese conglomerate Hutchison is the clear beneficiary.

The Grand Bahama (Port Area) Investment Incentives Act, 2016 states:

“That the Hutchison companies, including DevCo, shall be entitled to the benefit of concessions of no real property tax and no capital gains, etc., for a period of twenty years from the 4th day of May, 2016 subject to fulfillment of their respective obligations under any existing agreement with the Government.”

So the big, mega-rich Chinese company that controls some 70,000 acres of undeveloped land on Grand Bahama island, the one that pays nothing to maintain the upkeep of those 70,000 acres, gets an exemption.

What did Hutchison give in return for saving millions of Real Property Tax a year? Nothing really, as they are compensated by Carnival or any other group that wishes an exemption from FHC’s (Hutchison) exclusivity. If they have less business in the harbour they can lay a few people off and reduce the overheads.

What did the Bahamian government give in return for Carnival to be able to build its cruise port?

A great deal, as they have let the Chinese Hutchison conglomerate out of any real need to either sell out or develop over 100 square miles of Bahamian land. That is an area nearly the size of the entire island of New Providence, the bulk of which Hutchison can sit on and speculate with, at the detriment of all Bahamians.

In addition, when Carnival moves out of Freeport, all those Bahamian-owned taxis, tour operators and others will see a dramatic loss of revenue and will, no doubt have to lay off Bahamians, all the while FHC (Hutchison) gets paid by Carnival.

Once again Bahamians are suffering because of Chinese investment. There is certainly no upside to the Waiver Agreement for Bahamians.

• Carey Leonard is a commercial lawyer and an associate in the law firm of Callenders & Co, Freeport.