The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BAHA Mar's financier had to be "incentivised" through government tax breaks to compensate Bahamian creditors and finance the $4.2 billion project's completion, it has been revealed.

The revised Baha Mar construction contract, worth $700 million and tabled with the New York Supreme Court, discloses just how vital tax incentives provided by the former Christie administration were, with the then-government pledging "expedited processing" of all requests by China Construction America (CCA).

The Chinese state-owned company, Baha Mar's main contractor, finally released the so-called 'Amendment No.9' in response to the $2.25 billion 'fraud' lawsuit filed by original developer Sarkis Izmirlian - but only after it was allowed by the New York court to 'black out' all financial figures.

Still, China Export-Import Bank, Baha Mar's lender, confirmed that the $101 million it set aside to compensate Bahamian private and public sector creditors was a 'trade-off' in return for receiving substantial tax incentives from the Christie administration.

"The lender has expressed to the parties that, in order to incentivise lender to provide such funds [to pay creditors], lender expects the Government to provide suitable government concessions," the construction contract with CCA, dated August 30, 2016, affirmed.

Some $51 million was allocated to pay debts owed to government entities and the former Baha Mar employees, with the remaining $50 million left for Bahamian private sector creditors. The National Insurance Board (NIB), Bahamas Telecommunications Company (BTC), Bahamas Power & Light (BPL) and Water & Sewerage were to be made whole up to October 31, 2015.

The importance of the Government's tax breaks was, meanwhile, further highlighted by the separate 'section 9' dedicated to them in the completion agreement between CCA and China Export-Import Bank's Perfect Luck Assets vehicle.

"The parties acknowledge and agree that the construction manager's continued receipt from the Government of tax-related benefits granted to the construction manager to-date, as well as additional exemptions from Value-Added Tax, duties and other governmental charges are important for the success of the project," the agreement states.

"The Government has provided the parties assurances that it will give proper consideration and expedited processing to all formal requests for such government concessions for the construction manager and, promptly following the execution date, the parties shall continue their co-operation to procure such governmental concessions and submit such requests to the Government."

Tribune Business last year reported that CCA received a $145 remobilisation fee for simply restarting construction work at Baha Mar, a figure well in excess of the $75 million that Mr Izmirlian claimed it was owed when he filed for Chapter 11 bankruptcy protection in late June 2015. The sum was also higher than the $130 million CCA claimed to be owed at the same time.

The construction contract's 'scope of works' required CCA to "perform repair work to the Convention Centre", the facility long plagued by problems and controversy, and which Mr Izmirlian's team had wanted finished first.

CCA was also mandated to "rectify and remediate microbial growth (mold) and water damage" across the Baha Mar campus, in accordance with the recommendations of consultants and a remediation plan approved by the China Export-Import Bank.

However, a comparison with Baha Mar's Certificate of Substantial Completion, dated July 31 last year, reveals that CCA was subsequently released from having to complete multiple works initiated by its sub-contractors prior to the Chapter 11 bankruptcy protection filing.

The construction completion agreement is key to the Chinese contractor's bid to persuade the New York State Supreme Court that Mr Izmirlian's lawsuit against it be 'stayed', and the two sides ordered into mediation, as it contains clauses compelling arbitration as a first means of dispute resolution.

Mr Izmirlian, though, is arguing that himself and his BML Properties vehicle are not parties to the construction completion, which was agreed between CCA and Perfect Luck. As a result, they allege they are not bound by any of its arbitration-related clauses - especially since it replaced the original deal agreed by Mr Izmirlian.

Besides dismissing CCA's arbitration demand, Mr Izmirlian and his attorneys also argued that the construction completion agreement contained "no trade secrets" or pricing information that would harm the Chinese state-owned contractor.

They pointed out that CCA had no competition for the Baha Mar completion work, which was effectively a 'no-bid' contest, and added that the Bahamian Supreme Court's rationale for sealing all documents related to the project - "to preserve the sales process's integrity" - had fallen away following the purchase by Chow Tai Fook Enterprises (CTFE).