The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Port Authority’s (GBPA) assertion that the Government’s “misguided policies” resulted in it “deliberately frustrating” more than $10bn worth of investment for Freeport has been rejected by arbitrators.

The three-strong panel, headed by a former Cayman Islands chief justice and two UK law lords, found there were “understandable concerns” over the financing sources for the joint investment by Weller Development and Pegasus in the Six Senses hotel project amid accusations by the GBPA that the Government deliberately stalled providing the necessary approvals in a bid to force its owners, the Hayward and St George families, to sell their interests.

The panel’s decision revealed that, while the Government was opposed to the Weller/Pegasus group buying an ownership interest in the GBPA while the two families remained in control of Freeport’s quasi-governmental authority and its Port Group Ltd affiliate, it did not act “inappropriately” in relation to this project and the allegation that it “diverted, discouraged and/or frustrated investment” from Freeport cannot be sustained.

“The principal project relied on in this connection was Weller/Pegasus, an ambitious project which was characterised by the promoters as promising upwards of $10bn of investments into the Port area, “ the arbitrators found in a ruling that was released yesterday.

“The GBPA accuses the Government of deliberate frustration of this project in order to force the GBPA shareholders to divest of their interests in GBPA and its parent, IDC, to government itself or else to others, most proximately the Weller/Pegasus conglomerate.”

IDC is Intercontinental Diversified Corporation (IDC), the ultimate Cayman-based parent for the GBPA, Port Group Ltd and all of Freeport’s major economic and infrastructure assets. “The contemporaneous evidence does reveal that the Government was against Weller/Pegasus buying into IDC while the existing shareholders, the St George and Hayward families, remained in control. This opposition was largely based on misgivings about the viability of the GBPA itself,” the arbitrators added.

Sir Anthony Smellie KC, the arbitration panel’s chairman, and Lord Neuberger and Dame Elizabeth Gloster, noted that under the late Edward St George and Sir Jack Hayward, the GBPA had spun-off all key assets - such as its interests in Freeport Harbour Company and Grand Bahama Development Company (DevCO) - into Port Group Ltd.

The Hawksbill Creek Review Committee’s 2015 report “concluded that, as a result of the divestments, the GBPA lost the capital base necessary to pursue the development objectives outlined in the Hawksbill Creek Agreement. Having sold off its core assets, the GBPA lacked the means to drive Freeport’s growth.

“As the Report recorded: ‘The intent of the Hawksbill Creek Agreement was such that GBPA would be an entity able to carry out all municipal and regulatory functions in Freeport. Meeting that expectation requires capital. Given that GBPA has sold all of its assets, it no longer has the capital to do so. Moreover, GBPA itself stated that the revenues earned by GBPA today fall short of what is needed for basic maintenance in light of outstanding receivables’.”

The arbitrators concluded: “Thus, the GBPA had admittedly become at least balance sheet insolvent, a state in which it has apparently remained ever since. There were, moreover, other understandable concerns on the part of Government about the source of financing for the Pegasus/Weller project itself.

“In that connection, there was extensive exchange of correspondence between the Attorney General and Michael Holtzman, a senior executive of Pegasus, in which the latter disclosed that the source of funds was proposed to be the Green Climate Fund. While the GBPA insists that this was a conclusive response, it appears that from the Government’s point of view there was never an acceptable answer to its concerns in this regard.”

Other evidence revealed that the Weller/Pegasus project had “earlier obtained government approval without delay, and land had been acquired for the project which was either soon to be or was already under construction

“Accordingly, while relations between the parties deteriorated, this did not result in the Government acting inappropriately in its dealings with the Pegasus/Weller project. Rather, once one affords the Government its proper margin of appreciation as custodian of the public interest, its concern to ensure that the GBPA acquired, as the Prime Minister put it, ‘a fundamental change of direction, leadership and strategy’ in order to take Freeport - and hence Grand Bahama as a whole - forward, and its resulting caution about the Weller/Pegasus project, cannot be criticised.”

Other investments cited by the GBPA to bolster its case were the Tractebel liquefied natural gas (LNG) terminal; Ginn’s planned Barbary Beach resort project in a joint venture with DevCo before it relocated to Grand Bahama’s West End; and the Bluewater project for a resort at the Port Lucaya Marina.

“Evidence was given by a number of witnesses, particularly Ms [Willie] Moss, Ms [Sarah] St George and Mr [Rupert] Hayward at the hearing about these projects and the reasons why they failed, or in the case of others such as the Carnival Port project, were unreasonably delayed,” the arbitrators wrote.

“Their evidence was based on their own views, bolstered in some instances by correspondence and supported by the views of others, of the Government’s ‘misguided policies’ and ‘failings of administration’, which were said to have resulted in the erosion of the foundational value proposition of Freeport as a special economic zone for attracting foreign direct investment, and dismantling the earlier successes and ease of doing business created by the GBPA acting as a ‘one stop shop’ under the auspices of the Hawksbill Creek Agreement.”

The Government, though, said the GBPA had failed to define its claim and provide details. It added that the Ginn project referred to events that occurred 23 years ago and, as far as Weller/Pegasus went, it said: “This project, too, is now over, and it is hard to see what useful purpose would be served by making a declaration in the terms sought in relation to this project.”

As for Tractebel and the other projects cited, the arbitrators ruled that “again, once one affords the Government its due margin of appreciation as custodian of the wider public interest, the Tribunal concludes that the Government’s contractual duties owed to GBPA under the Hawksbill Creek Agreement did not, in all the circumstances, preclude the former’s ability to prefer investment projects for other areas of Grand Bahama outside Freeport”.

They added: “In the case of Tractabel/Enron, environmental protection concerns were raised by the BEST Commission in relation to the development of the Port area, and in the case of the Ginn project there was a perceived need for economic stimulation of, and diversification to, other areas of Grand Bahama.

“Accordingly, the tribunal concludes that these claims fail on their merits, although it is right to add that the claim based on the Ginn project would have failed on the grounds of both limitation and absence of loss, as the project would admittedly in any event not have proceeded because of the impact of the 2008 global financial crisis.”