Ingraham On Baha Mar
The policy of Governments of The Bahamas of subjecting the necessary arrangements for foreign direct investment projects as agreed between the Government and the Investor to executed agreements between them reflects the huge importance of such projects to the economic growth and development of The Bahamas. The practice of tabling such agreements in Parliament adds a critical layer of transparency to the affair.
I have, therefore, found the present Government’s efforts to unilaterally and in a very public way revisit terms contained in the Heads of Agreement between the Government and Baha Mar especially worrisome. The provision setting out the Government’s commitment to pay some $45.3 million as the Government’s contribution to specified infrastructural work (ie the new diverted West Bay Street related utility infrastructure and landscape) was contained in the first agreement signed in 2005 on the watch of the first Christie-led Government.
Section 11.2 of that agreement provides as follows:
“…The current estimated cost by Baha Mar of such work is approximately $90 million (inclusive of all designs, engineering and supervision costs but exclusive of the $16 million for cost of the reverse osmosis plant which shall be paid for by Baha Mar), Baha Mar agrees to pay for the cost of such work beyond Government’s commitment to spend $53.3 million plus budgeted costs of the John F Kennedy Connector Road); provided, however, that if the total expenditure for such public infrastructure work by Baha Mar and the Government is determined by Baha Mar and the Government to be less than $70 million (inclusive of design, engineering and supervision costs) then Baha Mar agrees that the total amount expended shall be allocated 50 per cent (50%) to each party. Provided further that Baha Mar shall not be responsible for the cost overruns occasioned by Government-initiated change orders…”
When the Government which I led came to office in 2007, it fell to us to complete negotiations and conclude a Supplementary Agreement with Baha Mar to take into account the developers’ interest in doubling the size of their investment from some $1 billion to $2.6 billion. The supplemental agreement tabled in the House of Assembly in February 2008 reflected improved terms for the Government conditioning the Government’s financial contribution on infrastructure works of up to $45.3 million in respect of the proposed new diverted Bay Street as follows:
• When the concrete superstructure of the 1,000-room casino hotel is constructed 100 feet above grade; and
• Baha Mar and its partners, and not the Government, were to bear the cost of burying all the utility lines on the JFK Connector Road;
The matter did not rest there and subsequently, with the entry of the China Export Import Bank and the China State Construction Engineering Corporation as replacements for Baha Mar’s original American partners and financiers a new Novated and Amended Agreements was concluded and tabled in the House of Assembly in February, 2011.
This final Agreement restated the commitments and obligations of the Government and Baha Mar including the higher standard introduced into the Agreement in 2008. Section 15.1.2 of the Novated Agreement as regards the payment for the diverted new West Bay Street provides as follows:
“The Project Company shall complete the new John F Kennedy Drive Connector Road (the “JFK Connector”), the new diverted West Bay Street and public infrastructure relating or appurtenant thereto to mutually agreed specifications and to a standard which would complement the Project in a manner consistent with the Project Plan for the Project complete with suitable landscaping, lighting, signage, drainage, footpaths, jogging trails, etc. The current estimated cost by the Project Company of such work is approximately $90 million (inclusive of all design, engineering and supervision costs but exclusive of $16 million for the cost of the reverse osmosis water plant and sewerage treatment plant which shall be paid for by the Project Company), and the Project Company agrees to pay the entire cost of such work and the Government agrees to reimburse the Project Company for (i) $45.3 million of the total cost expended by the Project Company in respect of such work and (ii) the entire budgeted cost of the JFK Connector, which the Government confirms is $2.8 million, once the concrete superstructure of the 1,000-room Casino Hotel is constructed 100 feet above grade; provided, however, that if the total expenditure for such public infrastructure work by the Project Company is determined by the Project Company to be less than $70 million (inclusive of all design, engineering and supervision costs), then the Project Company agrees that the total amount expended shall be allocated fifty per cent (50%) to each party and the Government’s obligation to reimburse the Project Company shall be adjusted accordingly; provided further that the Project Company shall not be responsible for cost overruns occasioned by Government-initiated change orders or other additional costs occasioned by the Government without the prior approval of the Project Company…”
These terms were agreed by the Government of The Bahamas, the owners of Baha Mar, that is, the Izmirlian Family, and State-owned agencies of the People’s Republic of China.
Having been a part of the good faith negotiation of some of these Agreements with these investors, I am saddened to see the good name of The Bahamas as a trustworthy and transparent jurisdiction in which to conduct business threatened by a tedious, vexatious effort by its Government to delay meeting its agreed financial obligations to this important project.
I understand that it has been intimated that this action being taken by this Government should be seen in the context of the benefit it is seeking to secure for the Bahamian people through the realisation of savings in relation to this signed Agreement. I submit that the harm this action portends for the Bahamian people and their economic prospects by the destruction of goodwill and trustworthiness that it represents may be unimaginable.
I extend my personal apologies to the Izmirlian family and in particular to Mr Dikran Izmirlian and to the Government of the People’s Republic of China. China has proven to be a good friend to The Bahamas and to the Bahamian people since the establishment of diplomatic relations between our two countries in 1997.
I sincerely hope and trust that this embarrassing situation will be expeditiously concluded by The Government.
HUBERT A INGRAHAM
August 11, 2013