Saturday, Nov 17, 2018

A tight spot

Gambling on the backs of already burdened taxpayers
The Royal Oasis Resort in Freeport remains in ruins more than a decade after it closed. TORRELL GLINTON

In the lead up to the 2017 general election, Dr. Hubert Minnis and the Free National Movement (FNM) promised to deliver big for Grand Bahama.

After all, Grand Bahama’s woes were directly a result of the Christie administration’s incompetent governance, according to Minnis.

“Your major hotels remain closed because of them,” he declared at a rally in Freeport on April 22, 2017.

“Many of you are struggling just to pay mortgage because of them. And some of you have even lost your houses because of them. Instead of helping you, the PLP sent the Mortgage Corporation to take your homes and put you on the street. The Bazaar is a ghost town. Airlift and cruise ships are stagnant. There is no hope for your future with the PLP.”

Minnis said the claim by the then Prime Minister Perry Christie that a deal with the Wynn Group for the Grand Lucayan sale was near was a “bunch of nonsense”.

“Once again, they are making a big promise right before the election,” the FNM leader told supporters. “They’re only promising you the possibility of a deal. There is no deal. The PLP is responsible for the loss of thousands of hotel jobs here in Grand Bahama.”

Minnis pledged throughout the campaign that an FNM administration would “put an end to Grand Bahama’s neglect”.

Grand Bahamians in large numbers — many of whom had long given up on Christie and the Progressive Liberal Party (PLP) — took a chance with Minnis and the FNM.

They delivered big for the party, which won every seat on that island in the election.

Fifteen months later, Grand Bahama still waits for Minnis and the other big talkers in the FNM to deliver.

In his interview with us last week, former Prime Minister Hubert Ingraham suggested that desperation has set in for the Minnis administration.

“I think that they feel boxed in and they promised Grand Bahama lots of things and they can’t deliver,” he said.

“They have been unable to deliver, but I think it is also telling that they have been unable to persuade the private sector to buy the hotel or persuade Hutchison to stay.”

Desperation has indeed set in for a government that made a major blunder in signing a highly questionable heads of agreement for the Oban oil refinery and storage facility project for East Grand Bahama back in February, and then saw the deal for Grand Lucayan fall through.

In December, after the Wynn Group signed a letter of intent with Hutchison Whampoa, owner of the Grand Lucayan resort, the government expressed great optimism.

“The government is very hopeful that this important formal step will lead to the full renovation, opening and redevelopment of the entire strip in the early part of 2018, helping to bring much needed economic growth and jobs to Grand Bahama, which will also help to boost the national economy,” the government said.

But with that deal crashed, the Minnis administration is making the desperate move to purchase the property. There are few details at this point and the proposition is incredibly scary given that the government has spent months telling us about the dire state of our fiscal affairs.

Even if it came to an arrangement with Hutchison to purchase the three-piece property, it also needs to explain meticulously where the money will come from to operate the resort from month to month and how it will be marketed.

The property has long suffered from lack of a strong brand recognition in international markets.

Back in 2010, then Prime Minister Ingraham said one of the resort’s major downfalls was the fact that its brand did not receive much international recognition.

“Nobody knows Our Lucaya, when I say nobody, very few people and that is why we are in that position that we are in,” he said, referring to the property’s struggles with profitability.

In 2011, the resort’s owner said over years, Grand Lucayan (which was known as Our Lucaya) had “realized substantial losses annually” but remained committed to providing a first-class tourism product and keeping talented and hardworking Bahamians employed.

We understand the Minnis administration wants to enter a mortgage arrangement with Hutchison to pay for Grand Lucayan. The government has suggested it will quickly flip Grand Lucayan, but that seems like a huge gamble.

If the private sector could not be convinced to pursue the deal under a Hutchison ownership, what exactly is it that will make it more attractive when it is placed on the market by The Bahamas government?

The ghost of Royal Oasis 

The government fears that if it does not move to purchase Grand Lucayan, the property would go the way of the Royal Oasis resort, which closed in 2004 after back-to-back hurricanes, fell into disrepair and remains closed and in ruins well over a decade later.

More than 1,000 people lost their jobs when the resort closed. They had been advised that it would reopen in phases, but that never materialized.

Today, Royal Oasis is a blight on Freeport, and so is the nearby International Bazaar, which fell into decay after the resort’s closure. Once a cultural site with unique architecture and teeming with activity, it is today a literal ghost town, with almost all of the businesses closed.

The FNM administration, like the PLP before it, tried unsuccessfully to broker a deal between the Canadian-based Wynn Group and Hutchison Whampoa to save Grand Lucayan from a similar fate as Royal Oasis.

Minnis said Grand Lucayan is the heart of Grand Bahama and cannot be allowed to close.

Lighthouse Pointe, the only hotel in the three-piece resort that is still open, would be closed in a matter of weeks without a deal, according to government sources.

The government reportedly made a bid of $45 million to purchase the property. But the final purchase price is expected to be $65 million, which Paul Wynn of the Wynn Group told us was too high for him.

PLP Leader Philip Brave Davis said recently the government should not buy the property as it is not turning a profit and is essentially closed.

“I don’t know if they understand what they are getting into,” Davis recently told reporters. “It’s not just buying the hotel. The hotel has been closed for how many years, since the hurricane? You need money to renovate it. You probably need to think about what product you want in the hotel.”

In a Tribune article, PLP Chairman Fred Mitchell also attacked the idea of the government buying the resort as “desperate”.

“I must say that I get astounded,” Mitchell said. “First of all, it is interesting to me that a party that is in government and markets the fact according to them that the country is broke – I don’t believe them for one second that that is the case, that this country has a money problem.

“They say that the country has a money problem so on what basis are you going to buy a hotel and why has it come to that when they were all boasting that this hotel was going to be opened within a short period of time?”

The PLP’s concerns on the government’s plan to purchase the resort are legitimate.

But it is interesting how views evolve over time; in other cases, though, we see sheer hypocrisy on display.

Ten years ago when The Bahamas was gripped by the impact of the global financial crisis and the hotel in the spotlight was the Royal Oasis Resort, Mitchell said the Ingraham administration should buy that hotel.

“The government ought to consider taking special measures to ensure that the Oasis property in Freeport is opened, including buying and developing it if necessary to put people back to work,” Mitchell told the Rotary Club of South East Nassau in October 2008.

His comments were carried by The Nassau Guardian at the time.

The Ireland-based Harcourt Group announced in November 2007 that it purchased the Royal Oasis from Lehman Brothers Investment Bank. The sale price was reportedly $33 million.

At the time, Harcourt said the Royal Oasis represented a major expansion of its interest in Grand Bahama, and the sale reflected the company’s commitment to the island.

It had estimated that up to 1,000 people would eventually be employed across many varied disciplines to construct, refurbish, manage and operate the resort. Harcourt claimed the total investment in the resort would be in the region of $400 million.

But nothing happened for the property.

In 2011, Zhivargo Laing, then minister of state for finance, reported that the Harcourt Group was having discussions with others who had an interest in the property.

Still, nothing was ever done about the Royal Oasis, which was widely viewed as a symbol of Grand Bahama’s lackluster economy, which has struggled since the 2004 hurricanes.

Gamble

We have heard FNMs quietly suggest that Ingraham’s criticisms of the Minnis administration’s plan to buy Grand Lucayan should be considered in the context of the failed Royal Oasis.

“If we sit and do nothing, we would very well have another Royal Oasis on our hands,” one observer opined.

Another government insider said: “You ask him if he feels no regret seeing that property closed and the devastation it caused to the Grand Bahama economy as a result. Is he willing to see that same thing happen to the Port Lucaya Marketplace and to the Pelican Bay Hotel?”

The government today is in a tight spot.

The full closure of the Grand Lucayan would deal a significant blow to Grand Bahama.

During our recent trip to Port Lucaya, which sits in the shadows of the resort, many small business people expressed unease over the protracted wait for a resolution to the matter. Many said they are frustrated, but there was some degree of optimism as the idea of the government buying the resort and “saving” Grand Bahama’s tourism product had already been floated.

But many Bahamians worry about the financial position the government is about to put the country in with the resort’s purchase. How will the ratings agencies and the International Monetary Fund view the decision when they next assess our fiscal and economic position?

What guarantees are there that the government’s purchase of the property would save Grand Bahama’s economy?

The announced decision to buy Grand Lucayan followed weeks of lecturing from the government about why we have to tighten our purse, cut spending and pay more in taxes.

The prime minister has told us that he would rather lose the next election doing what’s right than to lose the country. In his view, what’s right was raising value-added tax from 7.5 percent to 12 percent. It is difficult to square that position with the decision to purchase an entire resort.

So it is difficult for many Bahamians to process how the government will be able to justify this kind of financial commitment. While the government is apparently hopeful that it will be able to quickly sell the property, many of us envision a nightmarish scenario where the months drag on and the Grand Lucayan becomes a tighter noose around the necks of already stressed taxpayers.

We can see it becoming a dark, bottomless pit down which our government is throwing money. Hutchison has poured millions of operating dollars into the property.

The purchase would represent a reversal of the promise of a more conservative stance on government’s involvement in the economy.

The government will need to articulate a clear exit strategy upon purchase, but that would likely not provide any great deal of assurance to Bahamians on edge about this decision.

The gamble may be even bigger than the Minnis administration has considered.

 

SHARE US ON:

What’s it worth?

Jewel Edwards appointed NTA's executive chairman