The Parliament’s decision to unanimously approve Baha Mar’s request for 8,100 work permits is troubling...

Decision to approve Chinese work permits troubling
BY LYNDEN NAIRN



At the risk of prejudicing my views on this matter, let me remind your readers that “a bird in the hand is better than two in the bush”.

The Parliament’s decision to unanimously approve Baha Mar’s request for 8,100 work permits is troubling because it appears that all of the relevant factors were not considered or even known.

At the outset, I want to make it clear that Baha Mar has the right to invest whatever amount it wishes, wherever it wishes and whenever it wishes within the confines of our laws.

I also believe that consistent with the tenets of our capitalistic economy, Baha Mar has the right to make good and bad business decisions. It is not right, for instance, to deny approval of a Bahamian project on the basis that it would create a glut of room inventories in the marketplace, even though one would expect investors and their financiers to have regard for that possibility.

The labor issue is a significant problem not only because it robs Bahamians of maximizing their benefits from the project, and not only because on its face it puts Atlantis at a disadvantage, but because it represents a business deal that apparently could not be financed if the financier were not afforded certain privileges.

During Atlantis’ multiple phases, the government thought that it was in the best interest of the Bahamian people to require Atlantis’ labor component to be at a certain level. Undoubtedly, that imposition caused Atlantis to engage labor at a higher cost than it would if that condition did not exist.

A few years later, in order to ensure that financing is secured for a project, the government has decided to allow Baha Mar to engage almost three times the number of foreign workers as Atlantis. That circumstance means that Baha Mar is able to construct its facility at a lower cost than Atlantis.

That places Atlantis at a significant competitive disadvantage since the cost of construction drives capital requirements, financing costs, room rates and ultimately profitability. Whatever one’s opinion with respect to Atlantis and Baha Mar, one has to at the very least appreciate that this is a legitimate concern for Atlantis.

Indeed, it really ought to concern all of us since this state of affairs creates uncertainty in the minds of current local and international investors as to whether the government might change the playing field and render their business models not feasible.

This is a very dangerous matter and should not be brushed over in our effort to cause Baha Mar to happen. Atlantis’ investment is already in the ground — it is what it is. A decision by the government should not be the event that renders it less competitive — not in a capitalistic environment.

Some persons have criticized the agreement between Atlantis and the government. However, it needs to be remembered that businesspersons must seek to guard against the kind of risk that Atlantis faces today. Perhaps one is saying that such a deal is not in the country’s interest. The fact is though that no reasonable government should be afraid to execute such a deal since no reasonable government would wish to jeopardize a major investment project.

That said, I believe that the government has a moral responsibility to not grant a better deal to Baha Mar. Foreign and local investors must be able to trust that the government will ensure that the playing field is level at the time of their investment and after as well.

No investor, local or foreign, would wish to invest in an environment of uncertainty. This situation could jeopardize future investments in The Bahamas.

Indeed, Sir Sol Kerzner has already said that Atlantis phase four is unlikely. Already, therefore, the cost of granting Baha Mar 8,100 permits to construct a $2.6 billion hotel is $1 billion in future investments. The question is how many other projects will be deterred?

Moreover, if Atlantis’ phase four project were to reflect the Bahamian labor component that was imposed on it several years ago, they are likely to have engaged 3,500 Bahamians, the same number that Baha Mar will hire.

I also found it rather revealing that the labor cost allocated to the 3,500 Bahamians that Baha Mar intends to engage is $200 million over four years. That equates to $275 per week inclusive of national insurance and other benefits.

What is equally striking is that having increased the Bahamian component by $200 million, the Chinese labor component remains unchanged. Assuming that information is complete, and frankly there is no reason to believe that the Prime Minister was complete, then it simply means that Bahamians will be given contracts to procure materials. Assuming such materials are required to be sourced in China, then this amendment constitutes nothing.

What is more, if it is true that as the Prime Minister suggests, the additional $200 million is intended to move Baha Mar’s cost closer to Atlantis’, then what is the incremental cost of the Baha Mar development?

Now let’s say that Baha Mar makes the argument that its total development cost was not lowered as a result of the favorable labor allocation. That is quite possibly true, but does that make the government’s situation any better? Perhaps not.

Here is why: It is indisputable that the Chinese government’s decision to provide the financing is based on the excessive work permits and the sale of materials for that project. Therefore, the inducement takes place broadly at the level of financing, not at the level of project development cost.

That makes Atlantis’ argument even more compelling since in that instance the issue is not merely the competitive disadvantage that is driven by development cost, but the entire project. In other words, if in the absence the incremental incentives the Chinese would refuse to finance the project, the government has unwittingly given Baha Mar a financing advantage. Atlantis can therefore argue that the entire project represents an abandonment of the agreement, not just the additional labor and land cost that they incurred. Even commercial banks can argue that this deal places a competitive bar on them that they cannot reach.

I do not seek to carry water for Atlantis, much less commercial banks. I simply believe that it is essential for us to consider the consequences of the decisions we make.

The fact is that this arrangement has far reaching consequences. I only wish that the Christie administration and the Ingraham administration had not messed up Baha Mar’s original plans so badly. They owe Izmirlian, Atlantis and the Bahamian people an apology and even their resignations.

I now wish to consider a related but slightly different matter. Bahamians will recall that during the various construction phases of Atlantis, many persons argued that it was inappropriate to grant Atlantis all the incentives that were given. Undoubtedly, there were smaller investors, Bahamians and others, who felt that their business models were being threatened by the Atlantis subsidies or perhaps they felt that they should have received similar incentives, for whatever reason.

I believe a strong argument can be made by those who were aggrieved. That points to the fact that we need to have clearly defined concessions/incentives in order to create a level playing field and remove uncertainty and arbitrariness from the process. The latter leaves too much room for abuse and under the table dealings. Furthermore, deals should not be made in secret and persons who benefit in any way as lawyers, developers, etc., should not vote in our Parliament on these specific matters.

• Lynden Nairn is a Chartered Accountant, and president of Colina General Insurance.

11/24/2010

thenassauguardian

Bahamas Blog International

Prime Minister Hubert Ingraham: I will not knowingly give anybody else a better deal than Kerzner got...

PM responds to Kerzner’s claims
By KRYSTEL ROLLE
Guardian Staff Reporter
krystel@nasguard.com


Prime Minister Hubert Ingraham said yesterday that he is not concerned with the statements made by Kerzner International’s Chairman and CEO Sol Kerzner that thousands of jobs may be at risk as a result of the Baha Mar project.

Kerzner told reporters on Thursday that the 8,000 jobs at the Atlantis Resort on Paradise Island would be placed in jeopardy if the government approves the Baha Mar project in its current form.

“It’s a deal that makes no sense,” Kerzner said. “It’s a deal that could be harmful to the people of The Bahamas and certainly to future investors and indeed ourselves.”

Kerzner has also argued that the deal between the government and Baha Mar violates the most favored nation status clause his company agreed to with the government in successive agreements.

Under these agreements, no investor should receive more favorable terms with the government than Kerzner’s company.

Ingraham said he thinks the issue with Kerzner will come to a satisfactory conclusion.

“I have many discussions with Mr. Kerzner,” said Prime Minister Ingraham, who was a guest on Love 97’s radio talk show Issues of the Day. “I think that we will resolve this issue satisfactorily. I think so.”

Despite the public criticisms of the Baha Mar deal by Kerzner, the House of Assembly unanimously approved the Baha Mar resolution on Thursday.

The company is seeking 8,150 work permits for non-Bahamian construction workers. The government brought the resolution to the House in order to get the ‘blessing’ of members before it finally approves the project, likely by the end of the month.

“We were always concerned that when we came to office that there was nothing in the Baha Mar deal that would give them a better deal than Kerzner, ”?Ingraham said yesterday. “I think I can say that the thing that ticked Kerzner more than anything else is a statement made by (Progressive Liberal Party Leader) Perry Christie to the effect that Baha Mar only wanted to get what Kerzner got. And he (Kerzner) was of the view that Baha Mar was getting more than him. And he was very hurt that Christie would make such a statement.”

Ingraham said Kerzner is concerned about Baha Mar’s lower construction labor costs, as compared to his company’s construction labor costs. Baha Mar will be mostly using Chinese labor to build its resort. Kerzner used more Bahamian labor at his property, increasing costs.

According to Ingraham, Kerzner is also concerned about the sum Baha Mar paid for the land the development is located on.

Ingraham said one of the reasons why they insisted there had to be a substantial increase to the contract value for Bahamian contractors was to help to offset any question about Kerzner’s concerns.

As a result of negotiations between Ingraham and the Chinese, and subsequent negotiations between the Chinese and Baha Mar, subcontracts to Bahamians in connection with the Baha Mar project will increase from $200 million to $400 million.

Ingraham said he wants to be sure that the government is not giving Baha Mar a better deal than Kerzner.

He added that when the Free National Movement (FNM) government negotiated a deal with Baha Mar in 2008, it did not give Baha Mar some of the concessions the Christie administration had agreed to.

“They issued side letters offering Baha Mar more. We tried to pull those things back. We think we have been somewhat successful ensuring that there is equity and balance between the two,” Ingraham said.

In response to criticism that he treats Kerzner with more regard than he does other developers, Ingraham didn’t shy away from the relationship he shares with the hotel developer. However, he added that all developers are treated fairly.

“There’s no question of my high regard for Sol Kerzner for what he has done for The Bahamas,” Ingraham said adding that Kerzner provided The Bahamas with 2,000 more jobs than he committed to.

“I will do all I can for as long as I can to ensure that his project is successful, but that has nothing to do with whether I will be fair to anyone else. But I will not knowingly give anybody else a better deal than Kerzner got,” he said.

Ingraham added that the Baha Mar project is only going forward because of his government.

He said there was no means by which Baha Mar’s CEO Sarkis Izmirlian could get the funding from the Chinese unless the government gave the Chinese the go ahead.

China Export-Import Bank (China Eximbank) is extending a $2.45 billion loan to Baha Mar.

11/21/2010

thenassauguardian

Bahamas Blog International

Sir Sol Kerzner says: The proposed deal between the Government of The Bahamas and Baha Mar violates previous agreements between the government and Kerzner International

Sol Kerzner hits out on Baha Mar
By BRENT DEAN
The Nassau Guardian
Deputy News Editor
brentldean@nasguard.com


Says Baha Mar deal violates agreements made with his company


The proposed deal between the Government of The Bahamas and Baha Mar violates previous agreements between the government and Kerzner International, charged Sir Sol Kerzner yesterday.

“Baha Mar proposes employing thousands of foreign Chinese workers, which would represent far more than 30 percent of the total labor force.

Approval of this arrangement by government would be a clear breach of an investment agreement with a developer that has become its largest private employer, and an investor who took a risk on The Bahamas when its economy was struggling far more than it is today,” said Sir Sol Kerzner, chairman and chief executive officer of Kerzner International in a statement.

The House of Assembly is scheduled to conclude debate on the Baha Mar resolution today. The company is seeking 8,150 work permits for Chinese workers to help construct the $2.6 billion resort. The government is seeking the blessing of the House as it grants the work permits. The opposition has said it supports the deal.

In previous heads of agreements between Kerzner and the government, it pledged to grant Kerzner most favored nation status, meaning no investor would be granted concessions greater than Kerzner.

However, in a rare public statement, Kerzner, who is the largest private sector employer in the country, said Baha Mar is being granted much more than his company received.

“When we made our largest single investment of approximately $1 billion for Phase III, we did so based on a heads of agreement signed with the PLP government in 2003. Among the many requirements that government imposed on Kerzner under this and prior agreements was a strict rule that at least 70 percent of the total construction labor force would be Bahamian,” said Kerzner.

“As was the case with the two previous agreements with government, our 2003 agreement included a most favored nation provision that assured Kerzner that our investments would be protected from subsequent investors receiving more favorable terms. These agreements represented a solemn promise by The Bahamas to us that any subsequent investor would only compete against us on a level playing field.”

Prime Minister Hubert Ingraham said on Sunday that the Baha Mar deal would be approved by the end of the month. It is unclear if Kerzner’s intervention will have any effect on that pronouncement.

Yesterday Baha Mar was not pleased with Kerzner’s public intervention.

“We are not going to comment on Mr. Kerzner’s public relations statement. The Baha Mar project has been well vetted with the public, the government and its investors. We are happy the Baha Mar resolution is being debated in Parliament today,” said the company in response to Kerzner.

Kerzner International said it intends to discuss with the government how to address its concerns. As a result of the deal, Baha Mar is to receive on the labor and land components of the proposed deal, Kerzner can argue it is entitled to the same.

The government is transfering 265 acres of public land at Cable Beach to Baha Mar as a part of the deal.

Kerzner International emphasized that the heads of agreement for each of the three phases of development on Paradise Island required that at least 70 percent of the total construction labor force had to be Bahamian.

Bahamian labor is more expensive than labor from countries such as China and Mexico.

The company and its chairman argued that the deal Baha Mar is to receive “would represent a material breach” of its agreement with the government.

“When Kerzner first invested in The Bahamas by acquiring what is now the Coral and Beach Towers out of bankruptcy in May 1994, we made our investment on the basis of agreements with the government that gave us contractual assurances regarding our investment. Although we were confident in our abilities to re-establish the Bahamian tourism industry at that time, we did so in the face of truly dire economic conditions,” said Kerzner in his remarks.

“Accordingly, we insisted upon most favored nation treatment, which would ensure that no subsequent investor would be given advantages that we never enjoyed. Since our first investment, we have always found government – irrespective of the party in office – to be a faithful partner who has justified our initial and subsequent confidence in The Bahamas as an investor. We have invested more than $2.3 billion over the course of our build-out of the three phases of Atlantis, increasing our room count from approximately 1,100 in 1994 to over 4,000 today.

“We have grown the Bahamian workforce from approximately 1,200 employees when we commenced operations in 1994 to nearly 8,000 full-time employees today, not to mention the indirect employment that our investment has generated in the community. Furthermore, we have spent millions on training programs to develop and improve the skills and professionalism of our work force, which has allowed Atlantis to be rated among the top resorts in the world.”

Both the governing Free National Movement and opposition Progressive Liberal Party support the Baha Mar deal.

11/18/2010

thenassauguardian

Bahamas Blog International