By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday confirmed it has secured a greater role in Freeport’s governance and future development, despite its deal with the Grand Bahama Port Authority (GBPA) being branded “an illegal breach” of the Hawksbill Creek Agreement.

Prime Minister Perry Christie told the House of Assembly that the April 26 Memorandum of Understanding (MoU) between the Government, and the GBPA and its group of companies, would set Freeport “on the path to growth that has been elusive for so many years”.

The agreement, which is intended to spark the city’s short and long-term economic development, embraces many of the recommendations made by the Government-appointed Hawksbill Creek Agreement Review Committee.

In particular, the GBPA has agreed to permit two government-appointed directors to its Board “to achieve a more effective working relationship” between Nassau and Freeport, and “vibrant and sustained economic growth” for the latter city.

The Government will also have a direct role in real estate-based developments, after the GBPA ownership agreed to transfer their 100 per cent and 50 per cent equity interests, respectively, in the city’s two major landowners into a newly-formed company.

The Government will then acquire a 10 per cent equity interest, with a possible option for another 5 per cent stake, in the new company established to own the ordinary share capital of Freeport Commercial & Industrial and the Grand Bahama Development Company(DEVCO)

The GBPA’s owners, the Hayward and St Georges, have also agreed to far-reaching governance reforms, and the potential devolution of some of their quasi-governmental powers/regulatory authority, via their MoU commitments.

The agreement commits them to working with the Government to create “a mechanism to ensure the exercise of the regulatory powers and functions vested in the GBPA are consistent with the national policy, regulations and laws of the Bahamas”.

The Hawksbill Creek Agreement has frequently led to conflicts with the regulatory authorities in Nassau, and the MoU says the ‘consistency’ will be achieved via existing regulators, such as the Utilities Regulation and Competition Authority (URCA), or “through reserved powers” held by the two government-nominated directors at the GBPA.

Many Freeport residents, and the GBPA’s 3,500 licensees, are likely to be distinctly nervous at the prospect of greater involvement by Nassau in Freeport’s governance and regulatory affairs.

The MoU also commits the GBPA and the Government to work together to create “a world class investment promotional entity” to attract local and foreign investment to Freeport, and promises “a one-stop shop” for investors.

Then there are the fundamental changes to Freeport’s tax and investment incentive regime, even though the Government has agreed to extend the expiring real property tax, capital gains and income tax exemptions for another 20 years.

Mr Christie indicated that these incentives would be performance-based and subject to five-year reviews,, with their grant being on an individual or ‘case-by-case’ basis as opposed to the past ‘blanket’ approach.

And, to incentivise real estate-based development, the Prime Minister said real property tax will be imposed on undeveloped, foreign-owned land that is greater than five acres.

Mr Christie said the existing tax exemptions would be extended “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 same framework will apply to new licensees once they submit and obtain approval of their development plans.”

Explaining the rationale for the real property tax reforms, Mr Christie added: “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.”

Extolling the virtues of the agreement with the GBPA, Mr Christie told the House: “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.

“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.”

Not everyone, though, was impressed. Fred Smith QC, the Callenders & Co attorney and partner, who brought the Judicial Review action that last week temporarily “quashed” much of the MoU’s contents, yesterday revealed the Government had obtained a ‘stay’ of Justice Indra Charles’ ruling until it was appeal.

He told Tribune Business that the MoU, and its announcement yesterday, were “contemptuous” of her judgment, Mr Smith said he was “alarmed” by the fact the Government never disclosed its negotiations with the GBPA when it applied to ‘stay’ the ruling.

Arguing that the MoU was an attempt to circumvent the Hawksbill Creek Agreement, Mr Smith told Tribune Business that the reforms contained in it were “illegal” unless approved by 80 per cent of the GBPA’s 3,500 licensees.

“The Government can call it what they want, but it is in fact an amendment to the Hawksbill Creek Agreement,” he said.

“It is illegal unless four-fifths of the licensees agree and consent to the change. This new regime that they propose to implement and initiate in the future changes the Hawksbill Creek Agreement on the method of licensing, taxation, and increases the involvement of the Government.”

Revealing that he was now considering his legal response, Mr Smith argued that the MoU was “effectively a devolution of the Port’s licensing and development responsibilities”, and a way for the Government to become “a transaction intermediary” between itself and its licensees.

Mr Christie, meanwhile, said the MoU had paved the way for the Phase V and VI Container Port expansions. And the Freeport Harbour Company (owned by GBPA affiliate, Port Group Ltd, and Hutchison Whampoa) had agreed to waive its port exclusivity on Grand Bahama, enabling Carnival’s cruise port to proceed.

Suggesting that the GBPA’s financial and regulatory transparency would also be enhanced, Mr Christie said the MoU provided for a licensee appeals process.

“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 Prime Minister said.

“The changes will also help to mitigate conflicts associated with GBPA and its affiliates operating simultaneously as licensor, licensee, and regulator.”

The MoU also commits both the GBPA and the Government to social and infrastructure investments, via the creation of a ‘Grand Bahama Development Fund’.

“While individual investment projects can be very helpful, too often we pursue disparate projects that do not reinforce our broader development agenda,” the Prime Minister said.

“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.”

While the Government has negotiated much of what it was seeking, Mr Christie acknowledged that the MoU’s contents would not be implemented overnight.

“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 resolve,” the Prime Minister said.

“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 May 4, 2016, for consideration during the Budget debate.”