The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister’s assertion that the Government runs a higher deficit in Freeport than anywhere else in the Bahamas appears at odds with the report produced by his own committee.

The Hawksbill Creek Review Agreement Committee’s June 2015 report said that the ‘higher deficit’ label applied to Grand Bahama as a whole, not the Port area.

While the gap between the Government’s revenues and spending on Grand Bahama was typically 7-10 per cent of gross domestic product (GDP), compared to 4-5 per cent for elsewhere in the Bahamas, the Committee recommended that more study on Freeport’s contribution was required.

“Analysis by the Ministry of Finance shows that the Government runs a deficit on Grand Bahama that is greater than that of the Bahamas generally (7-10 per cent of GDP on Grand Bahama versus 4-5 per cent for the Bahamas overall),” the Committee’s report said.

“The Government is estimating to collect approximately $90 million in revenue per annum, while spending $166-$195 million, resulting in an overall deficit of $76 million to $105 million.

“The estimates cover Grand Bahama as a whole, without clarity on the precise contribution of Freeport to overall Grand Bahama revenue and expenditure,” the Committee added.

“The GBPA, however, maintains that Freeport is a net contributor to the Public Treasury.”

Acknowledging the uncertainty, and different positions of the two sides, the Committee recommended a way to resolve the ‘deficit’ issue.

It called for an audit, by an accounting firm acceptable to both the Government and Grand Bahama Port Authority (GBPA), to determine whether the former was indeed running a deficit in Freeport - and to what extent.

The Government has followed the Committee’s call for such an assessment to the letter, one of its many recommendations that have been adopted into the Memorandum of Understanding (MoU) with the GBPA.

But the Prime Minister, unveiling the ‘deal’ with the GBPA last Monday, strongly asserted ‘as fact’ that public spending was exceeding revenues in the Port area.

“It appears that the Government is running a larger primary deficit in Freeport than in the country overall,” Mr Christie told the House of Assembly last week.

“In fact, the Freeport deficit is being funded by other parts of the Bahamas, which without the tax and infrastructure advantages of Freeport, are experiencing significant economic growth through foreign direct investment (FDI).

The Prime Minister may know more than he let on, given that the recommended study on the ‘deficit question’ has just been completed.

“It should be noted that this is an accounting, and not an audit, and is subject to examination and response from GBPA,” Mr Christie told the House.

“This is a matter for further negotiation and discussion with a view to early resolution between the parties.”

He returned to this theme later in his address, adding: “We are also, via this Memorandum of Understanding (MoU), taking on a difficult and long-standing issue related to the Government’s role in Freeport.

“ The Government, as well as the Review Committee, have closely reviewed the expenditures that the Government maintains in Freeport relative to the revenues that it collects. The Hawksbill Creek Agreement (HCA) provides a mechanism for reimbursement of any Government operating deficit.

“The Government is now working with the Grand Bahama Port Authority to resolve any potential liabilities in a way that recognises the Government’s legitimate right to make claims under the HCA, and yet maintains focus on the need to move forward with unlocking new investments and job creation in Freeport, and meeting the social and infrastructural needs of the community.”

While the results from the ‘accounting’ may ultimately back Mr Christie’s assertions, he currently seems to have gone much further than his own Committee’s report.

The GBPA has always insisted that Freeport is a net revenue earner for the Public Treasury, especially since it has the municipal responsibilities associated with the city’s infrastructure maintenance and development.

Its position has been that Freeport’s status as a ‘net earner’ for the Government justifies the investment incentives granted to the Port area, which are not available anywhere else in the Bahamas.

The GBPA’s position was backed by Fred Smith QC, the Callenders & Co attorney and partner, who “challenged” the Government to provide “full and frank disclosure” of both its Freeport and island-wide revenue/expenditure positions.

He again accused the Government of “mixing apples and oranges” by continuously referring to its ‘deficit’ on Grand Bahama as opposed to just the Port area, as the GBPA is under no obligation to cover the former.

“I challenge the Government to make full and frank disclosure of its expenditures on Grand Bahama,” Mr Smith told Tribune Business. “Second, as a licensee of Freeport, I’d like those figures broken down [between the Port area and the rest of the island].

“From what I know, I understand that Freeport is a net contributor to the Treasury.”

The Government’s own Committee acknowledged that while the Ministry of Finance’s figures were “a useful start”, more work and analysis was required to definitively answer the ‘deficit’ question.

“The Committee found that determining the net contribution of the Port area to the Treasury has not been closely tracked or reported,” the Committee said in is report, finally released last week.

It noted that the Hawksbill Creek Agreement obligated the GBPA to reimburse the Government for any deficits (spending exceeding revenues) incurred in Freeport, plus a further 25 per cent of this amount.

However, the Committee warned that activating this obligation was not necessarily straightforward, even if the deficits were proven.

It said any claim by the Government could be time-barred, given that deficits may have occurred years ago. And by failing to activate the ‘claims’ mechanism in the Hawksbill Creek Agreement, it could even be viewed as consenting to them.

“It may be that the GBPA could be liable to reimburse the Government for such deficit,” the Committee said. “However, further analysis would need to be done to determine the extent of any deficit.

“Moreover, legal considerations such as acquiescence and statute of limitation would need to be taken into account before arriving at a definitive position.”

The Government has used the ‘deficit’ issue as one of the main justifications for its drive to reform the relationship with the GBPA, which ultimately resulted in the MoU unveiled last week.

It has also been one of the Christie administration’s main sources of leverage over the GBPA’s owners, the Hayward and St George families, given the financial ramifications of having to potentially reimburse the Government.

The MoU makes clear that resolving the ‘deficit’ to both sides’ satisfaction is key to initiating other key aspects of the deal, particularly the Board changes at the GBPA.

Its clause 1.9 (ii) requires the Government and GBPA “to wholly resolve such questions prior to the appointment of two directors nominated by the Government to the Board of GBPA”.

The ‘deficit’ question is also supposed to be resolved before the GBPA “use its best endeavours to address questions” about its capital position, including cross-subsidies from its Port Group Ltd affiliate and repayment of shareholder loans.