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PM updates Parliament on HCA

Prime Minister Perry Christie addressed Parliament on the review of expiring concessions contained in the Hawksbill Creek Agreement in Freeport. Read his address here. 

Monday, May 9, 2016
Monday, May 9, 2016

Here follows a May 9, 2016 communication by Prime Minister Perry Christie on the review of expiring concessions contained in the Hawksbill Creek Grand Bahama (Deep Water Harbour And Industrial Area) extension of Tax Exemption Act, 1993:

Mr. Speaker,
The review of the expiring concessions under the Hawksbill Creek Agreement has afforded my Government the opportunity to conclude arrangements aimed at strengthening and expanding the economy of Grand Bahama.

When my administration took office four years ago, the economy of Grand Bahama was depressed with high unemployment and resultant economic hardships. Tourism was in severe decline with low hotel occupancies. A number of hotels had closed and there was inadequate airlift.

With the cooperation of Hutchison, the largest hotel owner in Grand Bahama., we were able to arrange for Sunwing of Canada to renovate and re-open the closed Reef Hotel, and turn it into a “Memories” branded property, and to secure direct flights to Freeport from more than a dozen Canadian and US cities. We were able to do this while at the same time 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 by Sunwing, American, Delta and Bahamasair, but many Grand Bahamians are now being employed on board dedicated cruise ship ferries operating between Florida and Freeport, delivering both cruise and stopover passengers.

As part of the process of revitalizing the tourism industry on Grand Bahama, the owners of the Lucayan Beach Hotels, casino and golf courses, are engaged in the process of securing new investors with the resources and expertise to acquire and successfully operate these prime assets. I am advised that the process is going well. My Government has agreed to work closely with HVS Corporation which is handling the sales process as well as the owners of these properties and prospective buyers with a view to achieving an outcome that will ensure to the benefit of the people of Grand Bahama.

Mr. Speaker,
Other strategic initiatives adopted or supported by my Government over the past four years and aimed at improving Grand Bahama’s economy have included:

  • The creation of a Ministry headed by a resident Grand Bahamian Cabinet Minister with direct responsibility for Grand Bahama’s affairs.
  • Negotiations with Hutchison and MSC to expand the container terminal and to provide them with the necessary assurance of concessions;
  • Proposal (now under active) 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;
  • Plans for expansion and development of a Six Senses Resort at Deep Water Cay;
  • Enactment of Stem Cell legislation and completion and operation of Okyanos Treatment Center;
  • Major $150 million expansion of Pharmachem for which ground was broken last month;
  • Active pursuit of new investors for the former Ginn project in West End;
  • Providing of custom duties exemptions to spur economic growth in East and West Grand Bahama;
  • Awarding of the Fishing Hole Road contract;
  • Opening last week of the Sir Jack Hayward Bridge providing better access between Freeport and East Grand Bahama;
  • Increased Social welfare and Urban Renewal resources to assist the elderly, unemployed and needy;
  • Construction of new Fire Station in Freeport;
  • New High School in West End;
  • Refurbishment and expansion of Blue Marlin Cove in West Grand Bahama

Mr. Speaker,
For some two years now my Government has been giving intensive consideration to the expiring tax concessions granted under the Hawksbill Creek Agreement (HCA) in 1955 and related matters.
It will be recalled that it was originally envisaged that these particular concessions would last for a period of 30 years, but by amendment to the HCA an extension was granted for a further term expiring in 1990. In 1992, the concessions were extended retroactively to 1990 and in 1993 the concessions were extended for a further 22 years, and subsequently extended in 2015 for six months and in 2016 for three months with the concessions that expiring on 5 May, 2016. To be clear, the concessions in question expired on the 5 May 2016 and are in respect of real property tax, real property levy, personal property tax, capital levies on taxes on captioned gains or capital appreciation and a zero tax regime in respect of the earnings of the Grand Bahama Port Authority (“GBPA”) the earnings of Port licensees.

I should point out, however, that the main broad tax concessions such as customs duties, export taxes, excise taxes, certain stamp taxes granted for a period of 99 years under The Hawksbill Creek Agreement in 1955 (almost sixty-one years ago), remain intact and will not expire until the year 2054.

Mr. Speaker:
In spite of the broad and generous concessions which apply to the Port Area (Freeport) and not to other parts of The Bahamas, Freeport’s economy has been stagnant, with Government expenditure exceeding revenues. It appears that the Government is running a larger primary deficit in Freeport, than in the country overall. In fact the Freeport deficit is being funded by other parts of The Bahamas, which without the tax and infrastructure advantages of Freeport, are experiencing significant economic growth through Foreign Direct Investment.

It is germane to this whole exercise to bear in mind that the Port Authority and, by extension, its licensees, received the benefits of land grants at nominal cost and extraordinary concessions for carrying out the development and other related obligations set out in the HCA.

Mr. Speaker:
As Parliament is already aware, the Government retained as advisers the internationally recognized 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 GBPA and other stakeholders.

Following receipt of the Study of the McKinsey Group which I previously laid on the Table of The House of Assembly, Government appointed a broad-based, bi-partisan Committee to review the expiring concessions under the HCA.

The Hawksbill Creek Review Committee was tasked with reviewing and making recommendations with respect to the expiration of certain provisions within the HCA and other appropriate measures to promote and sustain economic growth in Grand Bahama. In this regard there are several main objectives, namely:

(i) agree with the GBPA and principal licensees a long term economic development plan which both protects and promotes the shipping, industrial, logistics, tourism, real estate and other commercial sectors as the focus for Grand Bahama Island;
(ii) create a framework for immediate and long-term investment promotion on the island to attract investors that can operate assets competitively at a world class standard, and effectively and efficiently utilize the land resources with proper environmental safeguards;
(iii) ensure that the mechanisms are in place to align the GBPA quasi-regulatory authority with the policies of the Government and that a regulatory framework exists in keeping with evolving international business best practices.
(iv) agree a suitable framework for property tax and business license that would not impede economic growth, and contribute along with other suitable measures to the enhancement of the Government’s revenue base.

Mr. Speaker,
The Hawksbill Creek Review Committee has carried out an in-depth and comprehensive study, the first of its kind in 60 years, and its report dated June 23, 2015 was subsequently presented to Cabinet. It bears noting, however, that the Review Committee has continued its consultative process up to the present time. Indeed an addendum to the Report has also been received. With your leave, Mr. Speaker, I now lay both documents on the Table of the House.

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.

Licensees of the GPA, interested parties and the public have also been able to access the McKinsey Report on their website. This is an important fact that appears to have been overlooked by some.
The far-reaching recommendations of the Review Committee have necessitated further consultation with stakeholders and the GBPA. It was necessary for the Committee to commission an economic impact study by Oxford Economics, and to also commission the preparation of an accounting for reimbursement by GBPA to Government of expenses in excess of revenues for years 2011-2014 under section 1(5) of Hawksbill Creek Agreement (an exercise which appears not to have been done by successive Governments during the life of the HCA), and the preparation of land inventory and valuation information.

Mr. Speaker,
The main thrust of the Oxford Economics Study which I now lay on the Table of the House, supports the economic impact analysis of the McKinsey Report and makes two very significant observations:
(i) The imposition of tax on underdeveloped land spurs development
(ii) The GBPA model with quasi-Governmental and regulatory powers does not exist in the United States, and is an outdated model in today’s world.
The accounting on reimbursement under section 1(5) of the Hawksbill Creek Agreement has just been completed. It should be noted that this is an accounting and not an audit and is subject to examination and response from GBPA. This is a matter for further negotiation and discussion with a view to early resolution between the parties.

Mr. Speaker,
I referred to main recommendations of the Review Committee’s report in my Communication to this House on 3rd February 2016.

Mr. Speaker,
The recommendations were referred to the GBPA for comments, to which they responded positively on some of the recommendations and negatively on others.

Mr. Speaker,
Simultaneously with the ongoing work of the Hawksbill Creek Agreement Review Committee, a Cabinet Negotiating Committee comprising myself, the Minister of Tourism, the Attorney General & Minister of Legal Affairs, the Minister of Education, Science & Technology and the Minister for Grand Bahama 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 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, including the container port, hotel and property operations, and MSC Shipping. Meaningful progress has been made in full and frank discussions, which are continuing with sessions having already been conducted in Nassau, Freeport, London and Geneva.

Mr. Speaker,
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 and the Office of The Prime Minister have been engaged in encouraging discussions with Mediterranean Shipping Company (MSC) principals, who are already major investors in Freeport Container Port.

MSC which is already contributing significantly to the Freeport economy is moving ahead to create a one of a kind cruise port at Ocean Cay, which will employ 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.

Positive talks have been held with MSC regarding the container port expansion in Freeport, the establishment in Grand Bahama of one of their world famous training academies expanding opportunities for Bahamian crews on their ships, and their interest in other major investments in Grand Bahama including the logistics center, a container repair facility, home porting of cruise ships and airport upgrades. Discussions have also been taking place between MSC and Ms. Sarah St. George representing the St. George and Hayward families on the possible acquisition of their shares in the Grand Bahama Port Authority and Port Group of Companies.

Mr. Speaker,
I am pleased to report today the outcomes of the Government’s negotiations. The Government has entered into a Memorandum of Understanding (“MOU”) with the Grand Bahama Port Authority Limited, and key entities controlled by GBPA, Hutchison Ports, CK Property Holdings Ltd. and the Port Group, namely GBPA, Freeport Harbour Company Ltd., Grand Bahama Development Company Ltd., and Freeport Industrial & Commercial Ltd. The Government has also executed a Waiver of Exclusivity Agreement with Freeport Harbour Company Ltd. with respect to the operation of cruise ports on Grand Bahama. I now lay a copy of the MOU on the Table of the House.

The agreements and similar ones to be made with other licensees aim to fundamentally shift the investment climate and economic prospects in Grand Bahama in a dynamic and positive way for all concerned. Through our negotiations in recent months, we have sought to create a new economic development framework that can jumpstart and sustain growth in Grand Bahama. The result is an MOU that sets a framework for the Government and private sector to partner to deliver a wide range of gains for the residents of Grand Bahama and The Bahamas as a whole.

Specific opportunities that will emerge from this framework include:
(a) immediate investments in strategically important industries
(b) the commitment of the GBPA to seek an injection of new equity capital into its Group of Companies through new globally respected shareholders or equity partners and project specific investors who will further the development of Freeport and Grand Bahama and to explore the same with Hutchison Ports Bahamas Ltd. and Mediterranean Shipping Company, SA
(c) historic changes in the governance, transparency, and regulatory framework that governs Freeport
(d) Government ownership stakes in prime landholding companies which will allow for enhanced public/private development
(e) a commitment to social and infrastructure improvements to enhance quality of life
(f) a new framework for performance-based development concessions that will replace the expiring tax concessions of the Hawksbill Creek Agreement
(g) a focused and collaborative strategy to reshape the approach to attracting, retaining, and expanding investment in Grand Bahama
(h) and a commitment to resolve longstanding issues related to Government deficits in Freeport in a way that protects the Government’s rights but creates a path forward in Freeport.

Mr. Speaker,
With the changes contemplated in the MOU, we can get beyond many of the issues that have held Freeport back, and fulfill the promise that Freeport holds to become an important engine for growth and prosperity in The Bahamas.

Freeport is a globally strategic asset, with tremendous infrastructure and geographic significance that can support growth for years to come. With the right focus and a refreshed partnership with key private sector players, we can and will make Freeport into a vibrant integrated logistics hub, second to none in the region.
We will dramatically expand and diversify the tourism offering allowing visitors from around the world to experience and enjoy the natural beauty and features of Grand Bahama Island.
We will also create an integrated public/private approach to attracting the next generation of industries and anchor investors that will continue the momentum of growth, creating new and different employment opportunities for Freeport.

The negotiations of this MOU were complex, involving multiple counterparties, but the result is a comprehensive approach to development that includes short-term stimuli in the form of specific investments, as well as longer-term investments in the governance and infrastructure of Freeport. We are competing in an increasingly global economy, and this MOU charts a path for us to create a new vision for Freeport as a special investment zone, as well as mechanisms for the Government to deliver our part in creating an investor-friendly environment.

Mr. Speaker,
Most immediately, provisions of this agreement will result in significant new investment projects that will retain and expand key industries in Grand Bahama. There is now a clear path to the expansion of the Freeport Container Port through Phase V and VI, expecting to commence in the second half of 2016. In addition, the MOU provides for expanded cruise operations in Grand Bahama. When coupled with ongoing discussions with MSC to consider home porting, a container repair facility, a logistics centre, creating a maritime training centre, and opening up employment for large numbers of Bahamians on their ships, Grand Bahama is poised for significant expansion as a hub for cruise operations. Additionally the MOU contains an overall Public Private sector Partnership commitment to recruitment and training of Bahamians to meet present and future diverse manpower skills.

Beyond specific short-term investments, we have secured historic commitments to change the governance paradigm in Grand Bahama, and a mechanism to enhance transparency into the GBPA’s financial affairs. The MOU provides a mechanism for the Government to play a meaningful role in steering and overseeing critical infrastructure and development via seats on the Boards of the GBPA and land development companies. It also provides the licensees the opportunity to participate in governance by nominating a member to the GBPA Board. We have also come to agreement in principle to align the regulatory functions of the GBPA with the national regulatory framework and policies of The Bahamas Government, and to establish a process for licensee appeals. These changes will allow increased public understanding of and dialogue about the inner workings of Freeport that have long been opaque and inaccessible to Freeport stakeholders. The changes will also help to mitigate conflicts associated with GBPA and its affiliates operating simultaneously as licensor, licensee, and regulator.

Mr. Speaker,
Freeport has significant capacity for growth, with tens of thousands of acres of undeveloped land in close proximity within the port area. Throughout the rest of The Bahamas, new projects are launching to capitalize on the significant opportunities available to investors, often facilitated by the Government making its own land holdings available for development. The MOU creates a mechanism for the Government to acquire a minority equity stake in the principal landholding companies in Freeport (GB Devco, and Freeport Commercial & Industrial via the vehicle of a new company to which the St. George & Hayward shareholders will transfer their interests), as well as participation in governance at the Board level. By having equity participation, and Board level transparency into the affairs of the prime landholding companies, the Government can play an active role in accelerating development in Freeport. Among other things, this new structure opens up significant new opportunities for public / private partnerships to facilitate larger development deals.

The MOU also provides a commitment to social and infrastructure investments in Grand Bahama that will deliver tangible contributions to the quality of life for the residents of Freeport. While individual investment projects can be very helpful, too often we pursue disparate projects that do not reinforce our broader development agenda. To that end, subsequent to signing the MOU we intend to seek to work with the GBPA to create an ongoing “Grand Bahama Development Fund,” which would make investments that can help to carry Grand Bahama forward. We will seed the conversations on the creation of this Fund with a series of helpful recommendations from the Review Committee, including reopening important portions of West Sunrise Highway, upgrading airport facilities, making available residential lots to expand affordable housing, construction of modern medical facilities, refurbishing and expanding athletic facilities, and making contributions to support critical social services. Rather than a “one shot deal”, we will seek to create an ongoing mechanism for infrastructure investments that are aligned with our development strategy, and can evolve as the economy grows and the needs of the population of Freeport change.

Mr. Speaker,
Underpinning these agreements for change and new investments is a new approach to development concessions in Grand Bahama. The expiring tax concessions as initially provided under the Hawksbill Creek Agreement, and extended on multiple occasions, were designed in a different era and need to be updated. Tax concessions, when used properly, should be an inducement to encourage private sector investment and/or employment. Accordingly, we will be establishing a new framework that will replace and modernize the current framework for tax concessions in Freeport.

Mr. Speaker,
A new regime with a new framework is contemplated for the Port area with respect to the tax concessions which expire on 5 May, 2016. The same tax concessions will be granted by the Government for a period of 20 years commencing on 4 May, 2016 to existing licensees of the GBPA on an individual basis, subject to certain conditions and under a framework that would provide for the maintaining of performance through periodic reviews every five years. The Government would collaborate with GBPA on the design of the framework. The same framework will apply to new licensees once they submit and obtain approval of their development plans.

In return for the undertakings and assurance by GBPA, Freeport Harbour Company, Grand Bahama Development Company and Freeport Commercial & Industrial Company Ltd., the Government is to take the necessary measures to grant the expiring concessions to these companies, their existing affiliates, subsidiaries and joint venture companies in like terms for a period of twenty years, commencing 4 May, 2016.

We are also taking steps to address an important inhibitor to development in Grand Bahama. The lack of any taxes or carrying costs of undeveloped land mean that property holders can simply sit on undeveloped land without recourse. To address this situation, and enhance the revenue base in Freeport, we intend to create a new framework where real property tax would be payable on undeveloped land held by non-Bahamians owning more than five acres.

Mr. Speaker,
Reflecting our forward-looking commitment to expand the economy of Freeport and attract new investors, we have also made commitments through the MOU that the Government will work closely with the GBPA to transform the way we attract, retain, and expand investment in Grand Bahama. The GBPA will collaborate with the Government in the establishment of a world class investment promotional entity to attract domestic and foreign direct investors to the Port Area. We will work together to redesign our approach to investment promotion, which will be firmly anchored in Freeport’s unique value proposition in the global market. We will also examine our processes for securing new license and investment approvals, and seek to streamline those as much as possible. Finally, we will establish a “one stop shop” in collaboration with GBPA within the Ministry for Grand Bahama to serve as an advocate for investors, facilitate timely feedback on license and regulatory applications, and create an atmosphere for investment that is second to none in the region.

Mr. Speaker,
We are also, via this MOU, taking on a difficult and longstanding issue related to the Government’s role in Freeport. The Government, as well as the Review Committee, have closely reviewed the expenditures that the Government maintains in Freeport, relative to the revenues that it collects. The Hawksbill Creek Agreement provides a mechanism for reimbursement of any Government operating deficit. The Government is now working with the Grand Bahama Port Authority to resolve any potential liabilities in a way that recognizes the Government’s legitimate right to make claims under the HCA, and yet maintains focus on the need to move forward with unlocking new investments and job creation in Freeport, and meeting the social and infrastructural needs of the community.

The commitments on all sides of the MOU are numerous, and there is very significant work ahead to implement these provisions successfully. We also have some significant issues that remain to be resolved.

Some of the most consequential changes envisioned will take time to implement. The Government will engage in discussions with businesses of all shapes and sizes about how the new concessions framework will work in practice, who may be eligible, and what kinds of employment and/or investment commitments will be required to obtain new concessions. In addition, the Attorney General’s Office is rapidly evaluating what legislative changes may be needed to implement the new framework and MOU. I will bring a Bill to Parliament to give effect to the granting of the expiring concessions with effect from 4 May, 2016 for consideration during the Budget debate.

Mr. Speaker,
Throughout these complex negotiations, I have remained steadfast and focused on the growth potential of Freeport, in the interests of the up and coming generation in Freeport and throughout The Bahamas. No longer can Freeport be embroiled in internal shareholder disputes that stall progress, nor can there be any daylight between the integrated investor promotion objectives of the GBPA and the Government. This MOU creates a clear way forward, and I am confident that with full cooperation and partnership from key Grand Bahama stakeholders, it will establish the path to growth that has been elusive for so many years.

Mr. Speaker,
I would be remiss if I did not record the Government’s deepest appreciation for the invaluable, thorough and painstaking work done by the Hawksbill Creek Review Committee comprising Dr. Marcus Bethel, Chairman, Sir Baltron Bethel, Senior Policy Advisor in Office of The Prime Minister, the Honourable Maurice Moore, former Cabinet Minister, Ambassador and Member of Parliament, Mr. James Smith former Cabinet Minister, Mr. Kevin Seymour, President of Grand Bahama Chamber of Commerce and Ms. Cassietta McIntosh, Attorney-at-law. We shall continue to rely on their services in the ongoing consultative process and in the successful implementation of the recommendations and agreements.

I also commend Sir Baltron Bethel who not only served as a member of the Review Committee, but coordinated and led under my direction in the complex, time consuming and difficult negotiations, supported by an able team from the Office of The Prime Minister, the Ministry of Finance, Office of the Attorney General, Ministry for Grand Bahama, Ministry of Tourism and consultants McKinsey & Co.

Lastly, I wish to thank the St. George and Hayward shareholder families of the Grand Bahama Port Authority led by Ms. Sarah St. George, Deputy Chair of GBPA, the Hutchison Group, CK Property Holdings and their subsidiaries, Mediterranean Shipping Company, and all other stakeholders for their cooperation and contribution towards the successful outcome of these far reaching arrangements. These arrangements will create certainty and confidence among investors and the public. There will be a new governance paradigm which will bring about alignment with the policies and regulations of the Government and will accord with the best international business practices, which will serve the public good, and enhance competitiveness, efficiency, productivity and economic growth.

British-based Thorn Medical Plc has acquired Grand Bahama's Okyanos stem cell facility, and says plans to expand the clinic's services will make it one of the world's leading centres – attracting investment and boosting The Bahamas' medical tourism industry.

Prime Minister Perry Christie said yesterday that an MOU signed with private sector stakeholders in Grand Bahama is a key step in restoring Freeport as an "important engine for growth and prosperity in The Bahamas."

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