The Tribune

• Payment demand doubles due to extra years

• Public sector wages included in spending

• Move is another step towards arbitration

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Grand Bahama Port Authority (GBPA) “does not accept it owes $1 to the Government out of that $357m” claim which has more than doubled after the number of years included were expanded.

Freeport’s quasi-governmental authority yesterday did not respond officially to the Government’s increased payment demand, but well-placed sources speaking on condition of anonymity confirmed that the sum is “vehemently and vigorously disputed” by the GBPA and its owners, the Hayward and St George families.

Tribune Business was told that the Government’s claim, which has effectively increased by 135 percent or more than $200m, has expanded in size because it now covers five years of purported expenses as compared to the initial $152m which only related to two-three years.

That $152m payment demand was made on June 12, 2023, and is understood to have covered the period between July 1, 2022, and March 31, 2023. Both sums represent expenses that the Government alleges were incurred in providing public services in Freeport that exceed tax revenues generated by the city, and thus the GBPA is liable to pay the difference as required by the Hawksbill Creek Agreement.

Tribune Business was informed that, included in the Government’s expense calculations, is the salary and wage bill for every ministry, agency and public sector employee in Freeport as well as spending on infrastructure. The $357m claim covers the period 2018-2022, and also included in the reimbursement demand is the cost of maintaining the Royal Bahamas Defence Force’s Freeport operation.

One source argued that the latest claim is “nothing new”, and is merely a precursor and step in the process towards the Government taking its reimbursement claims against the GBPA to arbitration proceedings to have them determined. “It’s just that they’ve adjusted their figures,” they said of the Government.

“They’ve expanded their period of claim whereas the earlier figure of $150m was based on two to three years they’ve gone back five years. In going back five years, the size of the claim has been adjusted from $150m to $357m. I guess that’s to make it bigger and scarier.

“The $357m is what is set out in the Government’s claim, but the basis on which they came up with that figure is vehemently disputed and vigorously disputed. The Port Authority does not accept it owes $1 to the Government of that $357m.”

The Government is seek- ing reimbursement under section one, sub-clause five, of the Hawksbill Creek Agreement, Freeport’s founding treaty, which stipulates that it can seek payment from the GBPA for providing “certain activities and services” if the costs involved exceed certain tax revenue streams generated in the city.

The original 1955 clause required the GBPA to provide rent-free office and living accommodation to government employees involved in the “the maintenance of law and order, the administration of justice, the general administration of Government, the collection of Customs Duties and other revenue and the administration of the Customs Department the administration of the Immigration Department, Post Offices” and other functions to be mutually agreed.

The GBPA was also required to “reimburse the Government annually” within 30 days of detailed accounts being presented by the latter, but only if “Customs Duties and emergency taxes received by the Government in respect of goods entered or taken out of bond at the Port Area are less than the amount” spent by the Government.

One contact yesterday said the dispute, and arbitration proceedings, will revolve around “whether or not on a true interpretation of the Hawksbill Creek Agreement” the GBPA is liable for such costs. They added: “Arbitration takes just as long as litigation. People think it’s quicker but it’s not. It’s the same costs involved. It’s just private and no proceedings are recorded.”

However, multiple sources again questioned why the Government has waited until now - some 60 years or six decades - to try and enforce a Hawksbill Creek Agreement clause dating from the 1950s and 1960s. They argued that it smacked of the Davis administration using this as leverage to force the Haywards and St Georges to sell and exit after they declined to accept the Government’s purchase offer.

“The Government’s objective is to move the existing owners on and attract new investors,” one source said. “With this claim hanging out there, as big as it is, you have an environment where nobody is really going to be interested in stepping forward and taking over the interests of the Haywards and St Georges.

“It means that, at the end of the day, the Government is setting itself up as themselves to be the only interested party to acquire the interests of the share- holders, which begs the question: Are they trying to depress the value of the company and keep other interested parties away to get it on the cheap?

“The failure to reach a negotiated agreement for the purchase of the shares with the families, have they decided to to take a different track by making a claim which possibly exceeds the value of the whole company? It looks like a pincer move on their part. They are using a stick because the carrot didn’t work.”

The Hawksbill Creek Agreement clause at the centre of the dispute may not be all it seems. It was last amended in 1960, when Freeport was five years-old, the city’s development very much in its infancy, and the only revenues earned by the Public Treasury at the time from the Port area were Customs duties.

While it indeed stipulates that the Government should not spend any more in the Port area than it earns in revenues, and that any excess costs over and above the latter should be reimbursed by the GBPA, that clause has not been amended to account for either the Freeport of today or multiple taxes that have been added since then.

Thus VAT, departure taxes and a host of other revenue streams have to be factored into the calculation of whether the Government is spending more than it is earning in Freeport. Several sources yesterday suggested that, rather than go to arbitration, the two sides should instead negotiate amendments to section one, sub-clause five of the Hawksbill Creek Agreement to ensure it is fit for purpose and attuned to the modern world’s realities.