The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A 20-year extension of Freeport’s expiring investment incentives should only be granted if the Grand Bahama Port Authority’s (GBPA) owners both agree to sell and give the Government an equity stake in the company, the latter’s advisers have recommended.

Prime Minister Perry Christie yesterday said these conditions were part of the ‘trade-off’ suggested by the Government-appointed Hawksbill Creek Agreement Review Committee, which is proposing fundamental changes to Freeport’s governance and regulatory regime in return for maintaining the taxation ‘status quo’.

Addressing the House of Assembly, Mr Christie detailed a 12-strong package of recommendations submitted to his administration, which include defined timelines for action by the GBPA and Grand Bahama Development Company (DevCo).

The Committee has recommended that “within one year” of Freeport’s tax breaks being extended, the Hayward and St George families must exit the GBPA by selling “to an international investor with the capacity to purchase majority ownership” and ensure it meets all its obligations under the Hawksbill Creek Agreement.

It has also called for DevCo, within six months of the extension, to submit a “development masterplan” for its estimated 70,000-acre landholdings, together with proof it has the necessary financing to implement this vision.

The Hawksbill Creek Agreement Review Committee’s recommendations will likely increase the pressure on the GBPA’s two ownership families to find a buyer that meets the Government’s requirements.

The proposals come after a year during which a renewed legal war over the Hayward family estate, sparked by the removal of two trustees, thwarted negotiations with two world-leading asset managers - BlackRock and Carlyle - over the GBPA’s sale.

BlackRock, with $4.5 trillion in assets under management, and Carlyle with some $203 billion, would likely have met the Government’s criteria as plausible GBPA buyers. Both, though, are understood to have walked away from discussions.

Mr Christie yesterday argued that the Review Committee, together with its consultants, McKinsey, and private sector and community stakeholders, “strongly believe that Freeport needs new investors with capital and expertise to execute a vision that will lead to growth and prosperity for Grand Bahama”.

The Prime Minister also indicated that the Government could not sit idly by “hoping that someone will come along, some time, from wherever” to purchase the GBPA - a possible nod to efforts to revive Hutchison Whampoa’s interest in a potential acquisition.

The Hawksbill Creek Agreement Review Committee, headed by ex-Cabinet minister and senator, Dr Marcus Bethel, then called for the Government to receive an unspecified equity stake in the GBPA and its Port Group Ltd affiliate in return for the incentives’ extension.

Mr Christie said the size of the Government’s ownership interest, according to the Committee, would be determined by “the value of the concession extensions, the value of any unmet obligations under prior extensions, as well as any obligations of the GBPA not met under the Hawksbill Creek Agreement”.

He defined these “unmet obligations” as any annual deficits that had resulted from Government spending in Freeport exceeding revenues generated by the city - a gap that the GBPA is obligated to fill under the Agreement.

Freeport’s outstanding maintenance needs would also be included in such a calculation, according to Mr Christie, which would be determined by an “independent audit” conducted by an accounting firm selected by both the Government and the GBPA.

Linked to the Government obtaining an equity stake in the GBPA, the Committee has also recommended that it gain Board seats at both the Port and its Port Group Ltd affiliate.

Mr Christie twice stated that the Government was “not interested” in taking over the Port Authority’s management, but the committee’s proposals again highlight its desire to reclaim regulatory and governmental authority over Freeport.

For in an accompanying set of recommendations, designed to improve Freeport’s investment climate and competitiveness, the Committee recommends that “certain regulation currently overseen by the GBPA” be moved “to independent public bodies”.

This, it suggests, would see the likes of the Utilities Regulation and Competition Authority (URCA) take over responsibility for the likes of energy and telecommunications in Freeport. The Department of Environmental Health and other government agencies would also assume their relevant responsibilities in Freeport.

This proposal, in particular, is unlikely to be supported by Freeport residents, most of whom are likely to be dreading the prospect of the Government taking over from what is perceived to be a relatively efficient private sector entity.

The Government has yet to decide whether to adopt all, or some, of its committee’s suggestions, but Mr Christie made clear his belief that the Government needs to have an equity stake in the GBPA, plus Board seats, so it can have some influence and control over Freeport’s future development.

“To bring long-term certainty and confidence to investors and the public, the Government, although not interested in management, must have a seat at the table of the GBPA, and put measures in place that would not allow internal shareholder fights,” the Prime Minister said.

That is a reference to the five-year legal battle between the Hayward and St George families, which was settled in 2010.

“It is the considered view that the presence of the Government of the Bahamas would be able to provide the necessary balance and minimise conflict that has existed in the past between the shareholders,” Mr Christie added, alluding to the negative impact the previous dispute had for Freeport and the wider Grand Bahama economy.

The Prime Minister also described the GBPA and Freeport’s 60 year-old governance model as past its sell-by date, suggesting it was riven with potential ‘conflicts of interest’ and not suitable for an increasingly competitive international economic environment.

“It is now 60 years since the Hawksbill Creek Agreement and enabling legislation came into being,” Mr Christie told the House of Assembly.

“The world and the Commonwealth of the Bahamas have changed a lot since then, and so have competition and international best practices.

“No longer can an entity like GBPA be licensor and licensee, regulator and investor with no rights of appeal by licensees, without inherent conflicts and varying levels of dissatisfaction. What may have served Grand Bahama well in the past, it is the view of the McKinsey group and multi-talented differing sectors of the committee that it no longer obtains.”

This reflects the view that a privately-owned entity such as the GBPA, with quasi-governmental powers over an entire city of geographic location, is incompatible with the need for sovereign governments to exercise control over all their territory.

“We believe these measures will also expedite decision-making, create a dynamic, professional world-class promotional entity ,and ensure an overall environment that keeps Grand Bahama on the cutting edge of competition and ensure compliance with world class best business practices,” Mr Christie said of the Committee’s recommendations.

“I believe we can collectively, between the Government and private sector, make Grand Bahama soar again to new heights of economic and social development.”