Baha Mar Development... Debate

Debate on the Baha Mar development
By LARRY SMITH


DEBATE on the government's resolution to approve the Baha Mar development was scheduled to begin today in Parliament - five years after the initial deal was concluded in 2005. But the debate was postponed until the project's principals can come to terms with the Bank of Nova Scotia on outstanding debt.

It's been a long road - although not quite as long as the 13-year BTC sell-off - and conditions in 2005 were vastly different from what they are today. Back then, the credit boom underway in the US had a marked spillover effect on the Bahamas, with major developments planned around the country.

But most of these projects collapsed in the wake of the Great Recession that swept the world in 2008. The Baha Mar project was kept ticking over, even when the original joint venture partners withdrew. It was the brainchild of a Lyford Cay resident named Sarkis Izmirlian, whose grandfather left Armenia in the final years of the Ottoman Empire.

Sarkis' father, Dikran, made his fortune by cornering the world peanut trade. And the family became property developers in Britain, where one of their companies owns the 13-acre site on which London's City Hall is located. While Dikran lives in Switzerland, Sarkis manages the family's assets from the Bahamas.

He is said to be an astute developer who conceived the grandiose Baha Mar project partly to make a name for himself. But the project has been able to survive only because the Chinese are investing their huge currency reserves in support of their strategic interests. According to China's Commerce Ministry, some 800,000 Chinese are now working on energy, infrastructure and housing projects around the world.

Without clear evidence, we should discount the allegations that have been made about the use of Chinese convicts as workers on these projects. But we do think it makes sense for our government to seek a broad political consensus for the project in view of the large foreign labour component.

The 1,000-acre Baha Mar project is owned by the Izmirlian family, with the Chinese Export-Import Bank providing $2.5 billion in financing over 20 years and the China State Construction & Engineering Co as principal contractor.

Challenges

It was unclear at this writing whether the Bank of Nova Scotia, which financed the Izmirlian's earlier acquisition of Cable Beach hotels, would become an equity investor. But it is fair to ask how Baha Mar expects to repay a $2.5 billion loan from China when it has already encountered challenges servicing the current $200 million loan to Scotiabank.

Still, it is the view of most observers that Cable Beach needs to be redeveloped for the country's tourism industry to remain competitive, and whether the land used for collateral is conveyed on a long-term lease or as freehold is beside the point.

The optimum use for that land is resort development and nobody else in the current environment can finance such a project.

And even though a large portion of the $2.5 billion will return to China in the form of interest, wages and materials purchases, this is still a major foreign investment for the Bahamas that will help to stimulate the economy in the short term and drive tourism growth in the longer term.

Conflict of Interest

According to the Institute of Auditors, conflict of interest is when someone in a position of trust has a competing professional or personal interest that makes it difficult to fulfil his or her duties impartially, or that creates an appearance of impropriety.

But exactly what does that mean in the Bahamas? Well, the short answer is...very little.

The Bahamas is a small place, which makes it difficult for any of us to avoid apparent conflicts. And they happen all the time, at every level, in both the public and private sectors. There are very few explicit rules, and even where rules exist, there are no real sanctions.

In the political realm, the old United Bahamian Party oligarchs have been described as "the poster boys for conflict of interest and corruption." Back before the days when cabinet ministers earned official salaries, UBP politicos routinely represented companies doing business with the government and awarded themselves contracts as a matter of right.

Things were so bad that prior to the 1967 general election the UBP itself had issued a code of ethics requiring ministers to withdraw from any case in which they had a private interest.

But that didn't stop politicians like Sir Stafford Sands from acting as paid agents for Freeport gambling interests, as documented by the 1967 Commission of Inquiry.

Sands (who was finance and tourism minister at the time) received over $1.8 million in consultancy fees from the Grand Bahama Port Authority between 1962 and 1966. The Port also gave hundreds of thousands of dollars in political contributions to the UBP.

When the Progressive Liberal Party came to power in 1967 it promised to change all that.

The Pindling administration issued a new code of ethics that prohibited ministers from accepting substantial gifts from persons doing business with the government.

Fast forward 15 years and the Bahamas was in the throes of a criminal takeover by South American drug cartels.

The Colombian flag was raised over Norman's Cay in George Smith's Exuma constituency by the notorious gangster Carlos Lehder, who drove ordinary visitors away at gunpoint and orchestrated hourly cocaine flights to the US.

The 1984 Commission of Inquiry found that Smith had accepted gifts and hospitality from Lehder, who is now serving a long sentence in an American jail. In fact, one parliamentarian said at the time that "Pindling and his crew make the Bay Street Boys look like schoolchildren."

The 1993 inquiries into Bahamasair and the Hotel Corporation were initiated by the first Free National Movement government. They documented decades of gross mismanagement, conflict of interest, and official corruption under the PLP. In response, the FNM promised a government in the sunshine that would be fully accountable to the people.

In the years since there have been many accusations of conflict of interest featuring politicians of both major parties, but none of them have matched the scale and sheer brazenness of those earlier controversies.

For example, during the second FNM administration Brent Symonette resigned as chairman of the Airport Authority after it became known that a company in which he had a minor interest had been contracted to do paving work at the airport. Charges were made against Tommy Turnquest for allowing an air conditioning contractor to pay for his leader-elect victory party. And Dion Foulkes was accused of awarding contracts for school repairs without a public tender.

When the PLP was re-elected in 2002, Perry Christie made a lot of noise about integrity in public life, and issued another code of ethics for ministers that basically re-stated existing guidelines. But his promised law codifying rules on conflict of interest never came before parliament.


Controversies

And so the controversies continued. Leslie Miller and other PLP officials were accused of renting buildings to the government they served, a common practice.

Minister of Local Government V. Alfred Gray was accused of remaining active in his law firm, which was representing one party in a local government dispute. Neville Wisdom faced charges of impropriety in awarding contracts for Junkanoo bleachers.

PLP Minister Bradley Roberts and then chairman of the Water & Sewerage Corporation Don Demeritte were accused of leading a conspiracy that would have bilked Bahamians of millions of dollars. According to testimony in an industrial tribunal, the chairman instructed the corporation's general manager to call off the bidding process for a reverse osmosis plant at Arawak Cay, and start negotiations with a firm whose principal was Jerome Fitzgerald, a PLP senator. This matter is still before the court.

The most sensational case of conflict of interest during the PLP's last term involved Shane Gibson's relationship with expired American sex symbol Anna Nicole Smith.

Gibson resigned from the cabinet in February 2007 after The Tribune published embarrassing photos of him on a bed with Smith at her Eastern Road home, although both were fully clothed.

Gibson insisted he did not have a sexual relationship with Smith and denied doing her any favours.

At the time, the "attack" on Shane was characterised by a fellow PLP minister as "the successful manipulation of misinformation by people whose stock in trade is nastiness and sleaze."

Well, now we have something that trumps all of that potted history.

A minister who takes advantage of a private helicopter flight in order to attend two official meetings on two different islands over two consecutive days - the evening premiere of a conservation film on Abaco, and a meeting with visiting American experts in the Exuma Cays the next morning.

"I would not have been able to do either with regular flights, or even make the previously agreed times by boat," Environment Minister Earl Deveaux told me. "It is difficult, if not impossible, to discharge this job, with the required oversight, if we are not able to use the facilities of the principals."

For George Smith's information, the Aga Khan is not a criminal - unlike Carlos Lehder. He is as desirable an investor as Sarkis Izmirlian. His Swiss-registered Development Network runs a variety of multi-billion-dollar humanitarian programmes in 25 countries around the world. And the Aga Khan Health Services is one of the most comprehensive, private, not-for-profit healthcare systems in the developing world.

Before we jump to conclusions, perhaps we should ask what are the actual regulations that apply to official conflict of interest in the Bahamas these days.

The answer to that question is contained in the manual of cabinet procedure, which states that a minister "must not, except as may be permitted under the rules applicable to his office, accept any gift, hospitality or concessional travel offered in connection with the discharge of his duties."

On my reading, accepting a trip for a personal benefit rather than for a public duty would likely be considered a breach of this rule.

Yet incumbents of both major parties have accepted personal hospitality from big investors or foreign governments fairly routinely over the years, and usually without any controversy.

The real elephant in the room in this context is the financing of political parties by big investors and corporate interests.

There are no rules at all in this regard, and everything is done behind closed doors.

I have it on good authority that each of the 82 main party candidates in the 2007 general election received an average of $30,000 in campaign funds. Added to that are general party expenses for advertising, printing, logistics, travel, and give-aways.

Clearly, Bahamian elections cost millions of dollars. Where do you think that money comes from?

So should we be concerned about a free helicopter ride to a business meeting? You be the judge.

What do you think?

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larry@tribunemedia.net

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September 22, 2010

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