The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Bahamian Contractors Association (BCA) president yesterday said the total VAT exemption granted to Baha Mar’s completion was “not abnormal”, and that the Government was correct to grant it given the present situation.

Stephen Wrinkle confirmed to Tribune Business that in his experience it was normal for sub-contractors and suppliers to enjoy the same ‘tax breaks’ and benefits as the main contractor when working on multi-million dollar investment projects.

Tribune Business yesterday revealed that Baha Mar’s $600-$700 million construction completion was entirely VAT free, with the exemption extended to the project’s sub-contractors and suppliers, who are effectively being treated as ‘zero rated’.

This has attracted heavy criticism from the Government’s political opponents, but Mr Wrinkle said the move was not unusual given the precedent set by previous Heads of Agreement for major resort and real estate developments.

Acknowledging that there were “pros and cons” in providing such ‘tax breaks’, the ex-BCA president said that in Baha Mar’s case, the benefits - Bahamian employment and greater GDP growth - “outweighed” any revenue foregone.

Mr Wrinkle said the Bahamas was now in a position where Baha Mar had to be completed and open at almost any price, and that China had to be incentivised to finance this to prevent a $3.5 billion “white elephant” emerging at Cable Beach.

He added that having “hitched their wagon to the Chinese pony” in opposing Baha Mar’s original developer, Sarkis Izmirlian, the Government now had little choice but to bow to Beijing’s demands.

“I would not find that abnormal,” Mr Wrinkle told Tribune Business of the ‘blanket’ VAT exemption granted for Baha Mar’s construction completion.

“There’s a bit of paperwork involved, but it keeps the ball moving and the project moving forward. Don’t worry about the noise in the marketplace; we’ve got to keep that project moving forward.”

The VAT exemption was revealed in an e-mail sent by the project’s main contractor, China Construction America (Bahamas), to all sub-contractors and suppliers working on the Baha Mar completion.

“It’s agreed with the Government that the sub-contractors and suppliers of CCA Bahamas (CCA) shall be entitled to have the benefit of a full exemption from the payment of Value-Added Tax for works carried out on the Baha Mar project,” the e-mail read.

“If you have paid VAT to the Government or your own sub-contractors and/or suppliers, please record these invoices as listed in the attached summary form and submit to CCA for the review and process of the Bahamas authority.”

Neither CCA nor the Government has refuted or denied the e-mail’s contents. The main ZNS news broadcast was delayed last night to allow Jerome Fitzgerald, the minister of education and a member of the Cabinet’s Baha Mar ‘committee’, to state that the VAT revenues being foregone were a relatively small amount.

Effectively confirming the accuracy of the e-mail and Tribune Business’s article, Mr Fitzgerald implied that the VAT exemption was “a trade-off” for China Export-Import Bank, Baha Mar’s secured creditor, to make $100 million available to pay out the project’s former employees and local creditors - liabilities it was not responsible for and/or obligated to pay.

Mr Wrinkle told this newspaper that while the VAT exemption was little surprise to him, the Government had created problems for itself by allowing the construction completion agreement’s details to be ‘sealed’ by the Supreme Court.

This, he added, was fuelling mistrust and suspicion of both the Christie administration and the Chinese, especially as details were leaked out via a ‘drip, drip’ in the media.

“I wasn’t surprised to learn that; I thought that [the VAT exemption] would be part of the package deal as an incentive to get that finished,” Mr Wrinkle said.

“The problem arose because the whole negotiation was shrouded in secrecy, and every time a new detail comes out, the public feels as if they have been screwed.”

Mr Wrinkle said fears that the Government was trying to conceal elements of the Baha Mar agreement were “setting a bad tone” that was overshadowing efforts to finally complete the project’s construction.

“Everybody is driving to get that project complete, open and operational, and the Government has made what deals they could have done to get that completed,” he told Tribune Business.

“Their backs were against the wall, and the Chinese had them over a barrel. They threw him [Mr Izmirlian] under the bus, and hitched their wagon to the Chinese pony.

“They’re [the Government] along for the ride. There’s nothing they can do at this point but to give them [the Chinese] what they want and get it finished.”

Baha Mar’s completion likely required the Government to pay a ‘higher price’ than normal, given the China Export-Import Bank’s initial reluctance to finance the construction completion, as well as its funding of the creditor pay-outs.

The Christie administration, though, will argue that the medium and long-term benefits to the Bahamian economy and people will far outweigh the tax revenues foregone, given the thousands of jobs and increased GDP activity that Baha Mar is projected to create.

Mr Wrinkle yesterday backed this strategy, saying: “We’re in a bad spot, and have got to do what we have to do to get out of it.

“At this stage criticism doesn’t help, and the suppliers and sub-contractors are getting on with the task. It’s become a political football, but that’s got to take a back seat and we have to keep the project moving forward. We’ve already been to hell and back.

“It does appear that they’re moving forward with Baha Mar’s completion, and all things considered that’s the big picture. It’s a white elephant for us. We’ve got to get that completed.”

The ex-BCA chief added: “Under the circumstances, I don’t think it was a mistake to offer that incentive to take the 7.5 per cent off materials, which already come in duty free under standard Hotels Encouragement Act incentives.”

Pointing out that VAT did not exist in the Bahamas when Baha Mar’s construction began in 2011, Mr Wrinkle said: “It was probably a goodwill gesture for the Government to give it,and why wouldn’t they [CCA and the China Export-Import Bank] get it, all things considered?

“There’s pros and cons to it but, at the end of the day, the pros outweigh the cons. They [the Government] are doing the right thing.”

Mr Wrinkle said Baha Mar had been “badly negotiated by all parties from the beginning”, adding: “Izmirlian should never have put himself in a position where he could not fire the contractor.

“He found himself in a corner where he had to file for Chapter 11 bankruptcy and look to regroup, and the Government wouldn’t support him. He had played all his cards, and if the Government had supported him it might have worked out, but when they put their hands in with the Chinese it was impossible for him to win.”