By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government has committed to changing the Bahamas' tax incentive laws solely to "accommodate" Oban Energies' $5.5 billion oil refinery and storage terminal.

A little-noticed section in the February 19, 2018, Heads of Agreement (HOA) for the now-controversial project discloses that the Minnis administration will "speedily" introduce legislation to amend the Industries Encouragement Act so that Oban Energies can enjoy an "extended" period of tax concessions.

The HOA's section 12.4 states: "The Government shall, on an expedited basis, present a Bill in Parliament in order to amend the Industries Encouragement Act so that the statutory period (as defined therein) may be extended to allow the developer to be granted concessions for such period to accommodate the development."

The Minnis administration is thus changing a law, first passed in 1970, to meet the needs of one specific investor/developer. A copy of the Industries Encouragement Act, obtained by Tribune Business, defines the 'statutory period' as a 15 years from the date when a manufacturer first begins production.

This means that companies will enjoy the Act's real property tax, export tax and income tax exemptions for their first 15 years in operation. The Oban Energies' Heads of Agreement does not specify the extent to which the Government will now 'extend' these tax breaks for the developer's benefit, but it could be as long as its deal with the Government - some 45 years.

Changing the law for the benefit of a single developer, and one with an unproven track record in major energy infrastructure projects, is likely to raise eyebrows among many Bahamians and seasoned observers. It is also unclear whether the 'extension' will apply to other manufacturers, and it goes in the opposite direction to that initiated by the last Ingraham administration.

In a bid to prevent Bahamian manufacturers existing on what could be perceived as a 'never-ending welfare system', funded by the taxpayer, the then-government amended the Industries Encouragement Act during the 2010-2011 Budget process to prevent them from receiving tax/duty free concessions for more than five years.

This was intended to 'graduate' manufacturers from a government assistance programme to 'standing on their own feet', with a 10 per cent tariff rate then applied to these companies' previously duty-free raw material and equipment imports.

The Christie administration reversed this upon coming to office in 2012, eliminating both the five-year limit and 10 per cent tariff, thereby returning the Act and businesses enjoying its benefits to the 'status quo'.

The impending Industries Encouragement Act change will likely further stoke the already-fevered debate over whether the Government's deal with Oban Energies is in the Bahamas' best interests and represents a 'net benefit' for the country.

The Heads of Agreement shows the Minnis administration has given away extensive 'tax breaks' upfront for an extended period of time, although there is a 'claw back' provision that allows the Government to reduce these concessions on a "proportionate basis" if Oban Energies fails to meet job and performance milestones.

With just 250 full-time jobs pledged during the refinery/storage terminal's operations, the main long-term benefits for the Bahamas appear to be economic diversification and spin-off opportunities for local businesses through the project's presence in east Grand Bahama.

And, while Oban Energies' Heads of Agreement says the developer "anticipates that the development will create approximately 600 direct jobs plus 1,000 indirect and induced jobs during the construction period', the reality is these hires will be spread out over the project's 10-year build-out.

Under the heading 'total jobs', which come to 600, construction employment is projected to peak at around 325 in year four, when the most extensive storage, refinery and infrastructure build-out occurs.

Construction hires for Oban Energies' first two years total 140, as the infrastructure, ship's dock and first four million barrels of storage capacity are built, with the latter two facilities projected to come online by year five.

The development kicks into high gear between years three to seven, a Heads of Agreement annex shows, while the biggest storage terminal and refinery expansion is reserved for last. A 10 million barrel and 125,000 barrel per day increase respectively, representing a doubling of capacity for both facilities will start from year six.

The 10-year build-out indicates that it will be some time before the development's economic benefits are maximised, given that the final completion date is pegged at December 31, 2030. Yet Oban Energies, in an advertorial in today's paper, touted the potential economic impact.

"It is calculated that the Oban Energies project will improve GDP by 10.13 per cent per annum, from $9.047 billion to $9.964 billion," the developer said. "GDP per capita will increase from $23,124.39 to $25,467.42; a reduction of the unemployment rate from 15.7 per cent to 15.26 per cent through direct and indirect employment.

"Overall, the projected increase in FDI net inflow could make the Bahamas No.1 in real GDP growth across Latin America and Caribbean." It is unclear where the data came from, although the Government typically requests economic impact assessments from potential developers, which are usually provided by a consultancy.

The advertorial adds that Oban Energies is being "assisted by the most environmentally-friendly tank building operation from the Netherlands, and a group of oil industry titans". Tribune Business understands that there is indeed a Dutch connection, with Oban using engineers connected to Vopak, the company that once operated Grand Bahama's BORCO facility when owned by First Reserve. The "oil industry titans" were not identified.

This newspaper's contacts, speaking on condition of anonymity, said Peter Krieger, the Oban Energies' non-executive chairman who was accused in two US lawsuits of misappropriating investor monies, is representing his family's interest in the project. Specifically, they said much of the development's financing was coming through his wife's family.

Meanwhile Eric Carey, the Bahamas National Trust's (BNT) executive director, told Tribune Business that the Heads of Agreement needs to be "corrected or addressed" if the Bahamas has "no escape clause" from an adverse Environmental Impact Assessment (EIA).

Reluctant to say too much given that he and the BNT have yet to see the Oban Energies deal with the Government, Mr Carey expressed concern over revelations that the latter "shall not have the right to terminate these Heads of Agreement based upon any EIA report".

Instead, the Government has committed to working with Oban Energies to "mitigate any concerns". While the deal allows the Minister of the Environment to "cause the discontinuation" of any aspect of the project's operations that poses a threat to human health and the environment, the penalty for environmental infractions is capped at $3.5 million.

Mr Carey said the BNT had requested a copy of the Heads of Agreement last week, adding that the Trust did not even know where the project will be located in east Grand Bahama. Only then will it be able to provide advice on concerns "within the context of the National Parks and other sensitive marine and environmental areas".

Pointing out that EIAs were normally conducted and reviewed prior to EIA signings, he added: "This one, according to what was spoken to in the House, appears to be a bit different.

"From what I understand, it references that even if there is a detrimental environmental impact there's no escape clause for the country. That needs to be corrected or addressed."

Mr Carey said EIAs typically "influence whether a project proceeds but what was laid in the House suggests that's not the case". He added that most Bahamians would not want a development to proceed if there was a harmful environmental impact that cannot be mitigated or avoided.

"They should not want to be in a position where they're locked into something regardless of what comes out of the EIA," the BNT executive director told Tribune Business.