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

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