Sir Sol Kerzner and the Baha Mar deal

Kerzner's concerns on Baha Mar project
By PAUL G TURNQUEST
Tribune Staff Reporter
pturnquest@tribunemedia.net


A NEW day is dawning in the Bahamas. An entity that was once only talked about will soon become a reality on Cable Beach - Baha Mar.

At an estimated value of over $2.6 billion, it is considered by all estimates to be a monolithic project. To some it is considered a monstrosity that will consume all that was here before it. To others it is a golden egg.

To the chairman and CEO of Kerzner International, Sir Sol Kerzner, it is something else altogether.

Last week, Sir Sol made a rare appearance in the local press by issuing a statement to the media on the impending approval of Bah Mar.

In his statement, Sir Sol said that while they welcomed any project that would enhance and improve the tourism sector in The Bahamas, "the proposed terms of the Baha Mar project violates the Kerzner Heads of Agreement with The Bahamas." He promised that Kerzner International would discuss with the Government how to address this "breach" in their "most favoured nation" clause.

Principle

Since this statement there has been much talk in the press about what exactly a most favoured nation clause is. According to the Minister of State for Finance, Zhivargo Laing, a MFN classification is an internationally established economic principle, centrally recognized by the World Trade Organization (WTO), which seeks to establish a level playing field between mutual parties.

"The term is counter intuitive," Minister Laing explained.

"The name suggests that you treat the entity with MFN status more favourably than others, but what it really means is that you treat everyone alike; you don't treat anyone more favourably," he said.

Based on the MFN principle, if one MFN entity is granted special Customs rates, for example, then all MFN entities should be granted special Customs rates. The specific rates would be established by government policy or law.

In the case of the Bahamas, the Hotels Encouragement Act addresses the issue of concessions, while allowances for labour are specified in government policy, he said.

In order to establish whether a breach of MFN privilege exists, Mr Laing suggested one would have to assess a competing agreement "in its totality" and not compare a single line item. He said the question of a breach is "not so simple from the government's point of view."

In fact during the Prime Minister's wrap up on the Baha Mar debate he said, "I do not concede that we would be in breach of the deal with Kerzner. The relationship between the Bahamas and Kerzner has been mutually beneficial," Prime Minister Ingraham said.

Sir Sol, however, has taken the conversation to another level when he revealed during a teleconference with the press last week that if Baha Mar were to be approved in its current state the jobs of over 8,000 employees at Atlantis could be put at risk.

"It seems to me pretty ridiculous in this current environment, even if the economic environment were a lot better to look to come in and double the current number of rooms overnight. It seems to me pretty irresponsible. I also believe that one should take into account that we have 8,000 people working with us, and if this were to move forward the likelihood is that people's jobs would have to be threatened. It is just impossible, practically impossible to double the size of the market.

Pressure

"As we said in our statement, last year was a tough year and occupancy was under pressure. Well guess what, this year is even tougher. So it seems pretty ridiculous to me that these folks are wanting to move forward," he said.

And move forward they have. The Baha Mar labour resolution was passed unanimously before the House of Assembly (36 voting for, with four absent), which allows for 8,150 foreign workers, but no more than 5,000 at one time to be employed on the Baha Mar Cable Beach project.

Following this unanimous vote in the House of Assembly last week, Baha Mar's senior vice-president of external affairs, Robert "Sandy" Sands said that construction for the single-phase $2.6 billion Baha Mar development project could break ground as early as January, pending the close of the Export Import (EXIM) Bank of China loan.

Contractors have already been chosen for the first six construction packages, totaling $60 million, which will include the new Commercial Village contracts and the new West Bay Street.

According to Mr Sands, the initial payout will cover construction contracts and also includes numerous Bahamian architects, engineers, quantity surveyors, suppliers and many other related parties who will participate in these first six contract packages.

Prior to the approval of this massive project, Sir Sol said that he did not want to speculate on what he would do if Baha Mar was approved without at least the development being "phased" in as his Atlantis properties were. Now that the project has been pushed through the proverbial pipeline, the question remains: What will Atlantis do in response?

Addressing these concerns, Prime Minister Hubert Ingraham informed the nation that he was confident that Sir Sol's concerns about Baha Mar could be resolved satisfactorily.

He also publicly proclaimed his respect and gratitude for Sir Sol's contributions to the country, adding that he will do anything in his power to ensure the Atlantis product remains successful on Paradise Island. However this commitment, he said, does not mean he will not be fair to other developers.

"We were always concerned, when we came to office that there was nothing in the Baha Mar deal that would have given them a better deal than Kerzner. I think I can say that the thing that ticked Kerzner (off) more than anything else is a statement by Perry Christie to the effect that Baha Mar only wants to get what Kerzner got," said Mr Ingraham on the radio show Issues of the Day.

"There is no question in my mind of my high regard for Sol Kerzner and what he has done for the Bahamas. I was berated by many when he came in 1994 and what he has done for the Bahamas has transformed our tourism industry.

"He has provided us with 2,000 more jobs than he committed to, he has a very successful project on Paradise Island and I will do all I can, for as long as I can, to ensure that his project is successful."

"That has nothing to do with whether I will be fair to anybody else. (But) I will not knowingly give anybody else a better deal than Kerzner got," stated the nation's chief.

During his live radio interview, Mr Ingraham also accused the former Christie administration of engaging in secret deals with Baha Mar by promising them concessions not included in their contract.

He said these secret concessions are part of what government is trying to renegotiate.

"The PLP government gave Baha Mar a deal over and above what they signed in the contract. So on the same day that they signed the contract they issued what was called side letters offering Baha Mar more.

"We tried to pull those things back. We are now doing an analysis to see the extent to which we have been successful, we think we have been somewhat successful in ensuring that there is equity and balance between the two."

Hopefully this "equity" and "balance" between the two resorts will eventually allow the two properties to complement each other, without there being any cannibalism in the marketplace, he said.

However, this appears highly unlikely if both hotels will be aiming for the same dwindling number of "high-end" visitors.

At this stage it is not easy to dismiss Atlantis' concerns as a mere fear of competition when one considers that our air arrivals have not actually been booming over the past few years. With a global recession still wreaking havoc on our tourism industry, no "expert" is willing to guess on when things are expected to turn around in that sector.

Maybe, like the haunting voice in the Hollywood film "A Field of Dreams," if Baha Mar builds it, the tourists will come.

November 22, 2010

Tribune242 Insight

Bahamas Blog Inernational

Perry Christie - Opposition Leader says: ... if the government considers itself a partner in the deal with Baha Mar, it should have dealt with the alleged breach with Kerzner outside of the House of Assembly

Christie: Issues with Kerzner should have been resolved first
By CHESTER ROBARDS
Guardian Staff Reporter
chester@nasguard.com


Leader of the Opposition Perry Christie admonished the government during his contribution to debate in the House of Assembly yesterday, for not moving to resolve their apparent breach of a ‘Most Favored Nation’ (MFN) clause with Kerzner International, before bringing the Baha Mar resolution to Parliament for a vote.

Christie said if the government considers itself a partner in the deal with Baha Mar, it should have dealt with the alleged breach with Kerzner outside of the House of Assembly.

According to him, when the government was made aware that Kerzner considered the allowance of 8,000 Chinese workers for the Baha Mar project a violation of MFN, the prime minister should have met with them to resolve the issue before yesterday.

“It looks like there is antagonism in the product, serious difficulties in the product, where the government is making a decision to breach an agreement,” said Christie.

“Because, if we are saying that we are going to approve it (Baha Mar) and he (Sol Kerzner) is saying we are in breach of it (MFN), Parliament should suspend itself, since we have been asked to come to this point to have a determination made as to whether or not we are in breach.”

According to him, the matter of a breach of contract is “a matter to do with partners” and “not to do with public relations of a government”.

He said he was taken aback when Member of Parliament for Marco City, Zhivargo Laing read the press statement in the House of Assembly that was issued by Kerzner International outlining what it considered to be a breach of MFN.

“I was shocked yesterday,” he said. “This (MFN breach) is essentially a major legal matter that has exercised the minds of lawyers here in the attorney general’s office and the Queens Counsel of England.”

Christie also used much of the beginning of his alloted time in the House to respond to the government’s accusations that his party was not an effective government when they were in power and with regard to the Baha Mar agreement.

He got extremely testy with his colleagues across the floor yesterday, reminding them to act like parliamentarians while addressing the House and each other, as Bahamians look to them as a good example.

“We are coming to a time in the country where we have to be careful that we do not begin applying in our country retribution and reaction,” he said.

“That is not good for this country and our leadership in this country must exercise the greatest care as we move forward, dealing with people's reputations.

“Recognize that as best we can, we will try to avoid the snaring remarks and try to focus on the issues at hand.”

11/19/2010

thenassauguardian

Bahamas Blog International

Hubert Ingraham versus Perry Christie - and the emerging Chinese superpower

Another Watershed for Ingraham & Christie
by Simon
bahamapundit


Hubert Ingraham arrived in China in a strong and enviable position. Much of this comes from the office he holds as Prime Minister of a strategically-located Bahamas with diverse and impressive assets relative to our size.

Moreover, a considerable amount of the Prime Minister’s strengthened position is rooted in his character and experience, including a combination of international experience and domestic credibility.

The posture with which Mr. Ingraham has travelled to the emerging Chinese superpower is in obvious and stark contrast to the posture with which former Prime Minister Perry Christie would have made this journey.

Mr. Christie would have gone in a considerably weaker position for reasons rooted in his political character, including an operating style marked by indecision and pandering.

Whereas Mr. Ingraham enters into a negotiation with some inscrutability and poker-faced, Mr. Christie is generally an easy mark, easy to read and easy to push over. Bahamians know that Mr. Ingraham will always drive a harder bargain while Mr. Christie is prone to give away the store.

Domestic Credibility: On the eve of his departure for China, Mr. Ingraham and his predecessor, Opposition Leader, Perry Christie each held a press conference. In tone and substance they were a study in contrast.

Mr. Ingraham noted that Baha Mar was among one of a wide range of issues on the agenda during his trip. The Leader of the Opposition’s press conference focused almost exclusively on Baha Mar, with little reference to various other bilateral matters. Yet, what they both said about Baha Mar was revealing.

WATERSHED

The debate over Baha Mar has been another watershed for these former law partners and cabinet colleagues. The current debate is etching into the national consciousness the essential differences between the men in terms of vision, character and governance.

In his brief statement at a press conference in which Dr. Bernard Nottage took the lead in outlining the PLP’s position on Baha Mar, Mr. Christie left little doubt that he would have headed to China mostly as the gushing representative of Baha Mar.

In one of the most disturbing public performances by someone who served as prime minister, Mr. Christie all but abandoned the national interest in the favour of a private interest. It is an interest that has repeatedly demonstrated that it lacked the vision, track record and wherewithal to redevelop Cable Beach. Indeed, Baha Mar has repeatedly failed to meet various deadlines over the course of several years.

Just in September, Mr. Sarkis Izmirlian, the Chairman and Chief Executive Officer of Baha Mar spoke at a 25th anniversary event marking the China State Construction and Engineering Company’s presence in the United States.

“As some of you may know, my family and I have a vision for the country of The Bahamas, and its huge potential for tourism. We were approached by the Bahamian Government to consider redeveloping a beautiful area of Nassau called Cable Beach.”

Mr. Izmirlian also spoke glowingly that a successful Baha Mar project would “showcase to the world China State’s ability to deliver an intricately designed, and complex, resort metropolis on a somewhat remote island in The Caribbean.”

So, what exactly is Mr. Izmirilian’s vision for The Bahamas, and when exactly did we outsource that vision to a private developer? And, when did New Providence become a “somewhat remote island in the Caribbean?”

Mr. Izmirlian may want to check this bit of condescension and take note that many Bahamians do not find his vision for Cable Beach in the country’s broader interest. But it is not primarily Mr. Izmirlian who the Bahamian people are questioning.

EQUITABLE DEAL

Bahamians continue to wonder why Mr. Christie and the PLP chose the family in question to redevelop one of the more valued tourism sites in the country. Whatever the reasons, the PLP cannot shirk responsibility for the fact that it is because of that choice that we are in the position we are today. Because of Baha Mar’s lack of resources, the company turned to China for financing.

The genesis and convoluted nature of the Baha Mar project rest with Mr. Christie. As the drama at Baha Mar continues to unfold, Mr. Christie and the PLP have delivered a series of mixed and often incoherent messages. This rambling has damaged their domestic credibility on Baha Mar and related matters.

While Mr. Ingraham has repeatedly stressed that his overriding concern is an equitable deal for The Bahamas, the PLP and Mr. Christie have shown divided loyalties on the Baha Mar project. Sometimes, their posturing and pandering has been comical.

Having agreed to Chinese workers building the new National Stadium and signalling that they would agree to a considerable Chinese presence to build Baha Mar, the PLP voted against allowing Chinese workers to construct the Gateway Road Project.

Never mind that there would be Bahamian workers on the road project and that the terms of the loan were quite generous. The PLP sought to score a political brownie point and ride a wave of hysteria about a Chinese takeover. Not only did most Bahamians see through such an obvious ploy, so did the Chinese Government.

In striking contrast, Ingraham has demonstrated to the Chinese that while he is prepared to do business with them, that it must be mutually beneficial to both countries. He has refrained from any China-bashing in order to pander to some elements of the populace. Undoubtedly, the Chinese have taken note.

The Chinese must also be bemused and amused by Mr. Christie’s chest-thumping on the National Stadium. The stadium is a typical gift of the Chinese Government after the launch of diplomatic relations with a developing country.

In this case, those relations were established during a previous Ingraham administration. Moreover, even after the offer of a national stadium, the Christie administration, in typical fashion, failed to get the construction started.

FAVOURABLE COMMENTARY

The Prime Minister’s tough pre-trip stance to the Chinese Government of what may be acceptable regarding Baha Mar has earned him favourable commentary in various quarters in the Caribbean. Most Bahamians are relieved that it is Mr. Ingraham and not Mr. Christie who has journeyed to China to negotiate on the country’s behalf.

International Experience: Mr. Ingraham’s domestic credibility boosts and mirrors his credibility with the Chinese Government. That credibility is reinforced by Mr. Ingraham’s decisiveness. Reportedly, the Chinese were as frustrated by Mr. Christie’s late-again manner as were the Bahamian people.

Mr. Ingraham appointed two senior figures as Bahamian Ambassador to China, including Sir Arthur Foulkes who was non-resident and former cabinet minister Elma Chase Campbell, the first resident Ambassador. While the PLP did eventually send a resident diplomat to China, it took a while and he was a relatively junior civil servant.

It is a no-brainer for the Chinese which Bahamian leader they trust to talk straight to them. It is the man and the leader of the party which, in 1997, inaugurated diplomatic relations with the most populous country on earth. It decidedly is not the leader of the party that was about to send an ambassador to Taiwan if it had won re-election.

The Chinese also respect seniority. This is the Prime Minister’s second official visit to China, his first having occurred 13 years ago. Mr. Ingraham’s international resume is extensive as a senior head of government in the Americas. He has served as Chairman of Caricom on various occasions, where he is the senior leader in the regional grouping.

Prime Minister Ingraham has overseen the bilateral interests of The Bahamas with three American Presidents from Bill Clinton to George W. Bush to Barack Obama. Recently, he was elected to chair the Boards of Governors of the International Monetary Fund and World Bank Group.
One of the press reports following Mr. Ingraham’s election noted: “The chairman’s country should also be in good standing in the international community, and the person selected to be chairman is expected to be widely respected among finance and development officials.”

The Chinese will have all of this information in their briefing notes on Mr. Ingraham as he and his delegation travel from Hong Kong to Beijing to Shanghai and are hosted at various meals.

They will find in Hubert Ingraham an appreciative guest. Yet, they will also discover, like Mr. Izmirlian, that the current Bahamian Prime Minister will not be swayed by pomp and circumstance or flattery and a few nice meals.

bahamapundit

Bahamas Blog International

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?

Send comments to

larry@tribunemedia.net

Or visit www.bahamapundit.com

September 22, 2010

tribune242