THE RT. HON. PERRY G. CHRISTIE
AND MEMBER OF PARLIAMENT FOR CENTREVILLE
THE HAWKSBILL CREEK GRAND BAHAMA (DEEP WATER HARBOUR AND INDUSTRIAL AREA) EXTENSION OF TAX EXEMPTION PERIOD AMENDMENT BILL 2016
Wednesday February 17th, 2016
At the outset of my contribution to the debate on the Bill now before us to extend for three months the expiring concessions under the Hawksbill Creek Agreement I should point out that this extension will allow my Government the time needed to conclude a set of important arrangements to further strengthen and expand the economy of Grand Bahama.
When my administration took office less than four years ago, the economy of Grand Bahama was depressed with high unemployment and resultant economic hardships. From then until now we have put in place a series of initiatives and created the environment not only to turn the economy around but to secure future growth.
Tourism was in severe decline with low hotel occupancies a number of 8 hotels had closed and there was inadequate airlift. With the cooperation of Hutchison, the largest hotel owner in Grand Bahama which have been sustaining heavy losses over the years, we were able to enter into arrangements with Sunwing of Canada, to renovate and re-open the closed Reef Hotel, and turn it into a Memories brand, and put in place direct flights to Freeport from more than a dozen Canadian and US cities. We were able to do this by cutting in half the $29 million being spent annually in subsidies and marketing support. More recently Hutchison renovated and reopened its Lighthouse Point Property. All of this has resulted in a significant turnaround in tourism and the creation of more than a thousand jobs. Not only has airlift been expanded, but many Grand Bahamians are now being employed as cruiseship crews.
Other initiatives including the following:
Negotiations with Hutchison and MSC to expand the container terminal and to provide them with the necessary assurance of continuing the concessions;
Proposal now under consideration from Carnival for the construction of a new cruise port in East Grand Bahama;
Re-negotiation of the exclusivity granted in 1994 to Freeport Harbour Company for the construction and operation of container and cruise ports in Grand Bahama;
$110 million investment in expansion and development of a Six Sense Resort at Deep Water Cay;
Enacted Stem Cell legislation and secured the completion and operation of Okyanos Treatment Center;
Actively encouraging new investors for the Ginn project in West End;
Major expansion of Pharmachem.
Parliament has before it for debate and enactment the Hawksbill Creek Grand Bahama (Deep Water Harbour and Industrial Area) Extension of Tax Exemption Period Amendment Bill 2016, which will extend for a further period of three months from February 4th, 2016 concessions of real property tax, real property levy, personal property tax, capital levies or taxes on capital gains or capital appreciation, and no taxes of any kind on the earnings of the Grand Bahama Port Authority (Port Authority) or the earnings of its licencees.
To put this matter into proper historical context, the Hawksbill Creek Agreement (HCA) in 1955 envisaged that these particular concessions would last for a period of 30 years, but by an amendment to the HCA in 1960 an extension was granted for another five years, thus expiring in 1990. In 1992 the concessions were extended retroactively to 1990 and in 1993 the concessions were extended for a further 22 years.
It is germane to this whole review exercise to bear in mind that the GBPA and by extension its licensees, received the benefits and land grants for carrying out the development and other relevant obligations set out in the HCA.
This three month extension in addition to the six month extension already granted will enable the full and proper consideration of these concessions and related matters which do not obtain elsewhere in The Bahamas. They have far reaching economic consequences for the people of Grand Bahama, the Port Authority investors and licensees and by extension for the rest of the country for decades to come. So this is why in this major exercise the government retained as advisors the internationally renowned Mckinsey Group, to undertake a study of the economic situation within the Port Area, the implications of renewing expiring concessions of the kind in question; and the adoption of new measures aimed at accelerating, broadening and sustaining economic development in Freeport and Grand Bahama generally; and to consult with the Grand Bahama Port Authority and other stakeholders. In my Communication to Parliament on the 3rd of February 2016, I laid on the table a copy of the Mckinsey Report.
Additionally my Government appointed a high level bipartisan Review Committee to review and make recommendations with respect to the impending expiration of the tax concessions in question under the Hawksbill Creek Agreement, and to recommend other measures that might be taken to promote and sustain economic growth in Grand Bahama.
The Hawksbill Creek Review Committee has carried out an in-depth and comprehensive study. The Committee has met with over 100 stakeholders including civil society, manufacturers, developers, tourism operators, professionals, present and former Parliamentarians from both sides of the political divide. In addition the Committee has hosted public meetings in various parts of Grand Bahama. In order to fully inform the public on the review process and the extent of its work it has launched a website which is available to all at www.hcareview.org
The far-reaching recommendations of the Review Committee have necessitated further consultation with the GBPA and stakeholders, an economic impact study and the gathering of accounting and land inventory information by independent professionals, while the committee continues time consuming work. Its extensive report to date is under consideration by Cabinet and will be presented to Parliament at the appropriate time. The main recommendations of the report as set out in my recent Communication is to extend the expiring tax concession for a period of 20 years on certain performance and other conditions with a view to ensuring the best economic outcome for all parties. These conditions include:
Within one (1) year of extension, secure an international investor with the capacity to purchase majority ownership of GBPA to enable it to properly meet its obligations and development commitments;
Submission by the Grand Bahama Development Company Ltd. of a specific master development plan within six months of the extension, focused on the key sector opportunities above and including detailed development plans and concrete evidence of financing;
Change to the governance structure to allow for the Government to participate in GBPA and PGL through Directors/members appointed to the Board with a clear role and responsibility around development. Further, licenses to be able to elect a Director to the GBPA Board;
An equity interest for the Government in GBPA and PGL companies in consideration for the value of the concession extensions, the value of any unmet obligations under prior extensions, as well as any obligations of the GBPA not met under the HCA (e.g. any deficit in the Port Area, any unmet maintenance and operations responsibilities) following an independent audit by an accounting firm to be mutually agreed;
GBPA/PGL must establish and capitalize an independent investment promotion agency (IPA), with expertise in retaining, expanding and attracting businesses;
To introduce a process which gives the right of appeal for GBPA’s licensing decisions;
Reaching mutually agreeable terms relating to the exclusive rights of Freeport Harbour Company to container ports, cruise ports, etc. on Grand Bahama, which would allow for exclusive right on container ports for a fixed period, and the development and operation of cruise ports within and outside the port area by other parties;
Agreement to modernize the Grand Bahama International Airport and pursue options to lower cost of airlift (e.g. under a public/private partnership arrangement);
Specific commitments around quality of life investments (e.g. hospital, sports centre upgrades, bridge/road upgrades etc.);
10. Transparency by providing to the public information on revenue and expenses for municipal services;
11. Work in collaboration with the Bahamas Government and the Grand Bahama Port Authority to secure suitable partners and arrangements which would secure the economic viability of Hutchison’s hotels, casino and tourism assets, and curtail unsustainable losses and large Government subsidies;
12. The possible introduction of real property tax on undeveloped land as a stimulus for development and the provision of the necessary revenue to meet the rising cost of government services and infrastructure costs in Freeport , or some alternative form of contribution from the GBPA and its licensees to meet such costs.
In parallel to recommending changes to the current ownership and governance on the island, the Committee also recommends that certain other changes be made to increase the competitiveness of Grand Bahama as a location for global investment. Those changes are as follows:
1. Create a one-stop-shop to manage all GBPA and governmental approvals, with specific guidelines, and, where matters need to be referred to the Central Government, a period of no more than twenty-one (21) days be fixed for approval/determination (as the case may be);
2. Move certain regulation currently overseen by GBPA to independent public bodies (e.g. energy regulation to a public regulator, environment to the Ministry responsible, airport fees and charges to the Ministries/Agencies responsible.);
3. Create transparency and fiscal stability for Grand Bahama Island by conducting one-time and on-going audits of government deficit on GBI, performed by a mutually agreed public accounting firm. Moving forward, the Government should present such accounting to GBPA annually to determine whether a deficit exists;
4. Improve efficiency of dealing with labour and immigration matters. The ministries responsible for immigration and labour should establish a system to efficiently deal with work permits on an expedited basis, (within 21 days), and, where earlier approvals are needed, within 48 hours, recognizing that there may exist a need for specialist skills which are not readily available in The Bahamas;
5. Improve skills training and recruitment. Establish an ongoing multifaceted training programme suited to the skills needed in Grand Bahama, involving Ministries responsible for Education, Training and Labour, the College of The Bahamas, the National Training Agency, principal licensees, the GB Chamber of Commerce and the GBPA;
6. Improve data collection on Gross Domestic Product (GDP) such that progress is able to be tracked;
7. Improve communications between Government and GBPA, licenses and public prior to any major policy changes;
8. To the extent that it has not done so, GBPA and Dev Co. to ensure that land transactions (historical and moving forward) are duly recorded at the Registrar General’s Department.
Simultaneously with the ongoing work of the Hawksbill Creek Agreement Review committee, a Cabinet Negotiating Committee led by myself has been engaged in direct discussions and negotiations with the shareholders of the GBPA, and principal investors on pertinent issues and recommendations. This has involved separate sessions with full representation of both the Hayward and St George families as shareholders of the GBPA, and the Port Group of Companies, the principals of Hutchison Group the largest investor in Freeport in the Port, hotel and property operations and shareholders along with the Hayward and St. George families in the Port Group of Companies. Meaningful progress is being made in full and frank discussions, which are continuing.
It has become abundantly clear that in order for the economy of Freeport to grow and develop in line with the original vision and purpose of the Hawksbill Creek Agreement, large sums of new capital and top level management and promotion expertise are required to drive expansion of existing businesses and the introduction of new ones. Towards that end the Cabinet Negotiating Committee has been engaged in very encouraging and fruitful discussions with Mediterranean Shipping Company principals who are already major investors in Freeport. Last week we held successful meetings at their Geneva Headquarters with MSC Group Chairman, the President, the Executive Chairman of MSC Cruise and the Head of Global Port Development.
MSC which is already contributing significantly to the Freeport economy is moving ahead quickly to create a one of a kind cruise port at Ocean Cay, which will employee over 200 Bahamians. It will clean up what is now a derelict dump and turn the island and its surroundings into an environmentally sound and pleasant resort which environmentalists will applaud, and provide a pleasant experience for its upscale European cruise passengers. MSC is not only a leader on cargo ships with 193 vessels in its fleet but is also one of the fastest growing cruise lines in Europe with the most modern fleet of cruise lines and a large network of travel agencies. Both Nassau and Ocean Cay will be included on the cruise lines Caribbean itinerary.
We held positive talks with MSC regarding the container port expansion in Freeport, the establishment in Grand Bahama of one of their network from training academies expanding opportunities for Bahamian crews on their ships, providing hundreds of new jobs in the short term and many more as they expand their fleet which will require an additional 20,000 crew. We discuss other major investments in Grand Bahama which we expect to finalize in the near future.
The visit to MSC headquarters enabled me and my colleagues to obtain a great appreciation of the magnitude, financial standing and stature of the company and to become better acquainted with its principals.
My Government particularly recognizes the long term commitment of both Hutchison and MSC to the economy of Grand Bahama and is seeking to encourage and provide for them strong partnership in the further investment in Grand Bahama.
We shall keep fully engaged in further negotiations in the ensuing months. With the assistance of our advisors and cooperation of stakeholders, we remain confident that we shall be able within the three-month extension contained within the Bill before us to bring the exercise to a successful conclusion, leading to sustained long-term growth and prosperity for Grand Bahama, within a sound democratic environment and in conformity with international best business practices.