The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Concerns were raised last night over whether the Grand Bahama Port Authority (GBPA) and Hutchison Whampoa have obtained ‘special treatment’ from the Government in relation to the imposition of real property tax in Freeport.

While the Prime Minister on Monday announced the Government’s plans to levy real property tax on foreign-owned, undeveloped land greater than five acres, several Freeport licensees suggested the Memorandum of Understanding (MoU) appears to exempt the city’s two largest landowners from the levy.

Speaking on condition of anonymity, they pointed to clause 5.1 of the MoU, which appears to grant the GBPA and its subsidiary companies a blanket renewal of all Freeport’s expiring investment incentives for another 20 years.

The clause calls on the Government to “review and take the necessary measures to grant further concessions for the GBPA, Freeport Harbour Company, Grand Bahama Development Company (DEVCO), Freeport Commercial and Industrial and their existing affiliates, subsidiaries and joint venture companies IN LIKE TERMs as the expiring concessions for a period of 20 years from May 4, 2016”.

This implies that there will be no change to the terms and conditions attached to the renewal of the real property tax, capital gains and income tax exemptions where the GBPA and its affiliates are concerned, so long as they deliver on their MoU commitments.

The other major beneficiary from this is Freeport’s largest investor, Hutchison Whampoa/CK Property Holdings, which may not, in fact, face the prospect of real property tax on DEVCO’s 74,000 acre holdings - an entity in which it has a 50 per cent equity stake and management rights.

This prospect yesterday alarmed several licensees, who told Tribune Business that if a real property tax exemption was granted on these terms, the Government would have effectively ‘given away’ all its leverage on the GBPA owners and Hutchison Whampoa.

They argued that without the ‘squeeze’ provided by this tax burden, there would be little incentive for the Hayward and St Georges to seek a rapid GBPA exit, while Hutchison Whampoa/CK Property Holdings would not be under any pressure to develop their landholdings.

As a result, they expressed fears that the ‘status quo’ has been preserved in Freeport, and that they city’s economy will remain mired in its moribund state.

“If that’s true, it makes the whole thing a waste of time; there’s no teeth in it - it’s only a blank piece of paper,” one Freeport-based executive, speaking on condition of anonymity, said of the MoU.

“If they [the families and Hutchison] got that, we’re thrown to the wolves. That’s a big problem. It changes the whole tenor. It means the whole thing is for nought. You’re giving your leverage for some promises.”

Another Freeport licensee, speaking on condition of anonymity, said Hutchison Whampoa had already made clear it would not undertake the $300 million Container Port expansion without the real property tax exemption.

They also suggested that the Hong Kong-based conglomerate must have received something in return for giving up the exclusivity to facilitate the Carnival cruise port, suggesting the likeliest ‘trade-off’ was the real property tax break for DEVCO.

Hutchison executives, as reported by Tribune Business, had already effectively warned that it would undertake no further investment without “certainty” that the real property tax exemption is renewed.

The licensee told Tribune Business: “Because of this, Hutchison would not have any obligation or incentive to do any further development on Grand Bahama. They will only have to concentrate on the Container Port - and as mentioned, can’t wait to sell the hotel properties.

“None of this bodes well for Grand Bahama given Hutchison’s appalling lack of success in developing anything for the past 20 years.”

The MoU merely commits DEVCO and Freeport Commercial and Industrial, Freeport’s two largest private landowners, to produce a 20-year ‘master plan’ for their holdings by April 26, 2017.

The MoU does commit the GBPA families to transfer their equity interests in these companies to a new entity, NewCo, and issue 10 per cent of the latter’s shares to the Government.

The Government may feel that this interest, coupled with Board seats at the GBPA, and on the two companies, will give it enough influence to spur DEVCO and Freeport and Commercial and Industrial into development action.

However, the licensee added: “The problem still persists that the families will not get their thumbs out of their backsides and go out and promote Freeport. They just do not want to spend $1 million.”

Expressing scepticism that the “world class investment promotion entity” promised by the MoU will happen, they told Tribune Business: “The fear is it’s just ‘business as usual.”

The real property tax treatment afforded to the GBPA, Hutchison Whampoa and their interests appears to be different from that granted by the MoU to Freeport’s other 3,500 licensees.

While the expiring investment incentives are also being extended for a further 20 years for them, the MoU’s clause 5.2 says the grant is “subject to certain conditions and under a framework that would provide for the monitoring of performance through periodic review every five years”.

Mr Christie made clear on Monday that these incentives would be granted to GBPA current and future licensees “on an individual”, case-by-case basis that was monitored for performance, rather than a blanket exemption.

Thus the MoU appears to provide ‘discriminatory treatment’ favouring the GBPA and its affiliates over the bulk of its licensees.

The Prime Minister’s Monday address lacked clarity on whether real property tax will be applied to the GBPA, Hutchison Whampoa and their interests.

He initially said: “In return for the undertakings and assurance by GBPA, Freeport Harbour Company, Grand Bahama Development Company and Freeport Commercial & Industrial Company Ltd, the Government is to take the necessary measures to grant the expiring concessions to these companies, their existing affiliates, subsidiaries and joint venture companies in like terms for a period of 20 years, commencing May 4, 2016.”

Yet Mr Christie added in the same breath: “We are also taking steps to address an important inhibitor to development in Grand Bahama.

“The lack of any taxes or carrying costs of undeveloped land mean that property holders can simply sit on undeveloped land without recourse.

“To address this situation, and enhance the revenue base in Freeport, we intend to create a new framework where real property tax would be payable on undeveloped land held by non-Bahamians owning more than five acres.”