Rt. Hon. Hubert A. Ingraham

Communication to Parliament

on

Novated and Amended Agreements for the

Baha Mar Cable Beach Redevelopment Project  

Mr. Speaker,  

       I am pleased to advise of the conclusion of the Novated and Amended Agreements with Baha Mar Development Company (Baha Mar) for the redevelopment of its Cable Beach Resorts.  This brings to a conclusion the agreements necessary for the commencement of the redevelopment of a hugely important and historic Bahamian tourism domain.  

       Honourable Members may recall that on the 18^th February, 2008, I tabled a Supplemental Heads of Agreement dated 31^st January 2008 between the Government, Baha Mar Development Company Limited and its joint venture partners Harrahs and its subsidiary, Caesars Bahamas.  

       That Agreement was supplemental to the Heads of Agreement entered into by the Government dated 6^th April, 2005 with Baha Mar Development Company Limited to redevelop the Cable Beach area into a world-class resort.   

       The Supplemental Agreement which was under negotiation at the time of the 2007 general elections provided for the expansion of the development proposed from a $1 billion dollar investment to a $2.6 billion investment.  

       At that time, I advised that, in concluding the 2008 Supplemental Agreement, my Government welcomed the opportunity to improve certain terms for the Government as represented in the drafts prepared by our predecessors.  In particular we successfully negotiated:  

• a reduction of the quantum of Government land being disposed of by the retention of the Development Bank and Gaming Board buildings as well as portions of old West Bay Street and of the median strip;
• leasing of 50 acres of land instead of fee simple transfer of 70 acres of back-of-house land (Crown Land) at Gladstone Road;
• preservation of 71.40 acres wet lands owned by Baha Mar in the Cable Beach area as a “No Build Zone” for public use in perpetuity;
• leasing 99.78 acres as opposed to fee simple transfer of Water & Sewerage Corporation lands.

• conditioning the Government’s financial contribution of up to $45.3 million in respect of the proposed new diverted Bay Street 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, are to bear the cost of burying all the utility lines on the JFK Connector Road;
• enhanced financial benefits for the Government and  reduced concessions granted by the 2005 Heads of Agreement and the side letters. The 2008 Supplemental Agreement :

1. refused Baha Mar’s request to permit additional deductions from annual casino Licence Fee by an additional 14 years.

2. refused requested additional special concessions on casino taxes for 3 years
3. refused to increase the co-operative marketing support by 8 years at a cost of $32 million
4. refused to provide $40 million in co-operative marketing for the re-launch of the Cable Beach resort area
5. provided for Baha Mar and the JV Company to (i) pay the Government the sum of $17.686 million for the Cecil Wallace-Whitfield Building and further provided for the transfer to the Government some 2.259 acres of replacement land along the new West Bay Street. 

       Honourable Members will recall that not long after the conclusion of the Supplementary Agreement in 2008, Harrahs withdrew as joint venture partners to the development project.  This was followed by the dramatic downturn in the global economic and financial markets and the stall of a number of resort developments in our country and indeed in our region and around the world economy.  

       Economic conditions then notwithstanding, the principal of the Baha Mar aggressively pursued new partners and financing to permit the realization of the proposed redevelopment of Cable Beach.  This single-minded determination realized its objective when in March 2010, Baha Mar received the agreement in principle of the China Export Import Bank and the China State Construction & Engineering Corporation to provide the funding for the $2.6 billion Cable Beach Redevelopment.  The China State Construction and Engineering Corporation also proposed to take an equity stake in the development. A number of approvals from both the Chinese and the Bahamian Government were required before the new partnership and financing arrangements could be implemented.  

       Notably, Baha Mar required the approval from the Government of The Bahamas for its new equity partners in the proposed redevelopment of Cable Beach as replacements for Harrahs and Caesars Bahamas.  

       A crucial condition precedent to financing from the China Export Import Bank was the prior satisfaction of Baha Mar’s mortgage held by Scotia Bank.  I am advised that Baha Mar’s mortgage with Scotia was satisfied on the 31^st January, 2011 and that as part of that satisfaction Scotia has taken up an equity interest in the Baha Mar Redevelopment Project.   

       As Members are aware, most contentious of the provisions requiring Bahamas Government approval was agreement for the China State Construction & Engineering Corporation to serve as the main project contractor for the development and provide the majority of the labour for the construction of the project from outside The Bahamas.   The Government found the foreign labour component of the proposed construction phase particularly challenging.

       Members will also recall that in November, 2010 I brought a Resolution seeking the agreement of this House for a commitment by the Government to approve the engagement of as many as 8,100 non-Bahamians workers, with a maximum of 5,000 at any single time during the life of the Project.  That Resolution received the unanimous support of this Honourable House, not least of all because of the markedly good terms agreed between the Government and Baha Mar and its partners to ensure the maximization of the engagement and employment of Bahamians during the construction and operation of the new resort properties.  

Mr. Speaker,  

       I advise Honourable Members that the request by Baha Mar to further amend the Agreements to take into account the corporate restructuring of the Baha Mar Group of Companies, and to extend the completion date of the Project provided another opportunity for the Government to improve upon benefits to be derived from the project for the Bahamian people and our economy.  

    The Amended and Restated Heads of Agreement include a number of newly negotiated clauses which stand to bring significant benefits to the Bahamian people.  

Mr. Speaker,  

       Honourable Members will recall that as originally conceived by Baha Mar and its partners, Bahamians would be restricted to construction contracts on non-core project works with a value of some $200 million.  Following upon discussions between my Government and Baha Mar and its Chinese partners, the Amended and Restated Heads of Agreement now provides that the value of construction works to be subcontracted to Bahamian contractors and subcontractors would be increased by an additional $200 million, for a total of $400 million. And, it was agreed that Bahamians would also work on elements of the Core Project.  Indeed, a considerable portion of the new works to be subcontracted to Bahamians will include work on the Core Project.   

       We are satisfied that project works will be contracted to large, medium, small scale and individual Bahamian contractors.  I repeat an observation first made by me in this Honourable House last November: “The contract of works valued at $400 million amounts to the largest award of contracts to Bahamian contractors on a single project in our history”.   

       To date, sub-contracts issued to Bahamians total approximately $54.3 million.

       Prime Core Project packages to be made available for Bahamian Contractors’ bidding will include, but not necessarily be limited to:

Ø      Core Project site work (demolition of existing buildings;  underground utilities; earth works; parking lots; lighting; for example)

Ø      The Baha Mar Convention Centre (structure; masonry; mechanical and electrical; drywall; tile and finishes for example)

Ø      The Hyatt Timeshare Villas (structure; masonry; mechanical and electrical; drywall and finishes, etc.)

Ø      Core Project - there are  24 individual free standing buildings within the Core Project site including restaurants; retails shops; bars; and pool restrooms, for example, that will be bid to Bahamian General and Sub Contractors for full scope including structural, masonry or envelopes; full interior fit-out; mechanical, electrical, and plumbing.

Ø      Landscape and Irrigation scope - is substantial and will be bid to Bahamian Contractors.

Ø      Site wide concrete, pavers, specialty walks and pool decks will be bid to Bahamian Contractors.

• Within the towers, there are numerous restaurants and retail shops that will be bid to Bahamian General and Sub Contractors for fit out including mechanical, electrical, plumbing, kitchens, and full finishes.  

       This is in keeping with my Government’s commitment to the deepening and broadening of economic opportunities for all Bahamians.  

       It is now contemplated that, as a result of the doubling of contracts to be executed by Bahamian firms, the number of Bahamians to be engaged on the project during construction is likely to be as many as 4,500.  

       Earlier this year in addressing the Bahamas Business Forum 2011, I noted that it should be the desire of any government to see as many types of economic enterprises and sectors develop in its economy as its resources can promote.  The Government should not stand in the way of creativity and innovation of the entrepreneurs in its society.   

       What my Government has sought to do in its negotiations with Baha Mar was to ensure that the widest possible opportunities will be available to Bahamian entrepreneurs to benefit directly and indirectly from the realisation of the long deferred dream for a redeveloped Cable Beach Resort area.  

Mr. Speaker:  

       Baha Mar has scheduled its ground breaking ceremony for 21^st February.  I am advised that surveyors are on the ground as I speak and that construction works for the new West Bay Street will commence before the end of this month.   

       It is expected that work will commence on the commercial village early in the second quarter of this year.  As all of these works are to be undertaken by Bahamian contractors, we expect significant positive impact on securing and expanding employment in the construction sector.  

Mr. Speaker,  

       As already announced the China State Construction Engineering Corporation and Baha Mar have agreed to an extensive and comprehensive $8 million training and retraining programme for Bahamian workers.  Baha Mar and China State Construction Engineering Corporation will collaborate with the BTVI and The Bahamas Contractors’ Association for the training of construction workers.  This bodes particularly well with regard to the upgrade of skills in our work force.  

       In an ever more competitive international tourism sector it is increasingly important that tourism sector workers are of the highest caliber.  In these tough economic times ‘value for money’ vacation experiences take on even more than their usual importance.  Hence, my Government has been very keen to secure firm commitments from all its private sector partners in the hotel and tourism sector for continuous training of sector employees.   

       We were very satisfied that the Amended and Restated Heads of Agreement provides that Baha Mar will establish a Training and Service Academy, which will provide extensive training prior to the opening of the various new hotels and other amenities for persons who will be employed during the operation of the resort.  The Academy is to be permanent, offering ongoing training opportunities for employees and prospective employees.

       Late last year Baha Mar undertook that its Training Academy, in conjunction with its Human Resources Departments and Baha Mar’s hotel/casino brand partners will put in place a series of training programmes particularly targeting hotel workers.  Training courses are slated to commence 24 months before the scheduled opening of the new hotels. Following the opening of the new resorts training will continue for new employees as well as for existing employees

       Honourable Members will be aware that Baha Mar has concluded agreements in principle with three upscale/luxury hotel operators for the operation of three of the new hotels proposed for development at Cable Beach: they are Rosewood, Morgan’s and Hyatt. These operators will be making capital investments in the development totalling $57 million - $10 million each by Morgan’s and Rosewood and $37 million by Hyatt.  

Mr. Speaker,  

    The Amended and Restated Heads of Agreement also includes a number of additional renegotiated clauses inter alia:  

1. The Casino Operator is to be identified and communicated to the Government not later than six months prior to the opening of the hotel.

 

2. Land at Arawak Cay will no longer be sold to Baha Mar if used as the site for a marina as was agreed in the 2005 Agreement and, instead, the land will be leased if used as a site for a marina.

3. While the Wyndham Nassau Resort will be closed for renovation for twelve months following the opening of the last of Baha Mar’s new hotels, during this time, the existing Wyndham Nassau Resort staff would be redeployed to the new hotel. If twelve months prior to Substantial Completion of the Development economic circumstances warrant, the Wyndham Nassau Resort will remain open.

4. The Novated and Amended Heads of Agreement provides for no taxes to be payable on excavated rock, gravel or fill taken from any lands owned by Baha Mar, provided that the same is used in connection with the Project. In addition, no royalties will be payable on sand used for the restoration of the Cable Beach. Notwithstanding, the standard $3 per ton or $75 trucking fee for aggregate will be payable.  In addition, royalties would be paid on sand used in construction.

5. My Government has required that Baha Mar bring all real property accounts current up to the date of closing, that is 31^st January, 2011 and, thereafter, the Project will receive concession under the Hotels Encouragement Act as it relates to real property tax.  I am advised by the Valuation Department of the Ministry of Finance that Baha Mar has brought current all of its real property tax accounts up to 31 January, 2011.

6. My Government agreed that casino taxes owed in the amount of $10.75 million and deferred pursuant to the Side Letter Agreement of 2005 will be paid upon the opening of the proposed new casino. 

    Baha Mar has now paid $8.3 million in outstanding taxes.  Further, Stamp Duty of approximately $27 million has been paid by Baha Mar in connection with it financing arrangement  

    BEC has been paid the $8.5 million due to the Corporation.   

    Additional sums will become payable to the Government upon the transfer of the Commonwealth Bank and the Fidelity Bank premises.  

       I advise also, that the China State Construction and Engineering Company will be required to pay the usual sums payable by non-Bahamian companies in respect of projects undertaken in The Bahamas, that is a fee of 1½% of the contract value.  

Mr. Speaker,  

       I am pleased to table the following novated and amended agreements connected to the Baha Mar Cable Beach Redevelopment Project:  

1. Novation and Amendment between the Government, Baha Mar Development Company Ltd., Baha Mar Joint Venture Holdings Ltd. and Baha Mar Ltd. with respect to the Heads of Agreement of 6^th April 2005 as amended and supplemented by a Supplemental Heads of Agreement of 31^st day of January, 2008. [Annex I]

2. Schedule to Annex I, namely the Amended and Restated Heads of Agreement between the Government and Baha Mar Ltd. with respect to the Heads of Agreement of 6^th April 2005 as amended and supplemented by a Supplemental Heads of Agreement of 31^st day of January, 2008. [Annex II]

3. Deed of Novation and Amendment between Baha Mar Development Company Ltd., Baha Mar Ltd. and the Treasurer with respect to the Agreement for Sale of 6^th April 2005. [Annex III]

4. Deed of Novation and Amendment between Baha Mar Development Company Ltd., Baha Mar Ltd. and the Prime Minister and Minister of Finance acting as the Minister responsible for Crown Lands regarding the Agreement for Sale of 6^th April, 2005. [Annex IV]

5. Novation and Release between N.B.H. Holdings Ltd., Baha Mar Land Holdings Ltd. and the Prime Minister and Minister of Finance acting as the Minister responsible for Crown Lands regarding the Nassau Beach Ground Lease of 4^th day of May 2005. [Annex V]

6. Deed of Novation and Amendment between Baha Mar Development Company Ltd., Baha Mar Ltd. and the Hotel Corporation of The Bahamas regarding the Agreement for Sale of 6^th April, 2005. [Annex VI]

7. Novation and Release between Baha Mar WE Ltd., BMP Three Ltd. and the Hotel Corporation of The Bahamas regarding the Wyndham East Lease of 25^th day of October 2007. [Annex VII].

   As I noted in the beginning, this brings to a conclusion all the all the necessary steps to enable the commencement of the actual redevelopment of an important and historic area in the Bahamian tourism establishment.  Such a redevelopment has been highly desirable for some time and its long anticipation relates to the traditional contribution the area has made to the Bahamian economy through tourism.  

   It clearly requires an enormous project to achieve the redevelopment objectives and without doubt the enormity of the requirement was reflected in the Baha Mar project.  Indeed, it is its enormity which is the principal challenge of this undertaking.  It has now come through all its paces by a spirit of dogged determination and a clear sense of purpose which should bode well for its prospects and future.  
 

7^th February, 2011