What's at Stake in Freeport, Grand Bahama

by Larry Smith

The City of Freeport is one of the world's last company towns. And a group of Bahamian "licensees" are fighting to bring accountability and transparency to the Grand Bahama Port Authority - a private franchise with enormous value for the country as a whole.

Freeport's origins go back to 1955, when the government leased 80 square miles of wilderness for next to nothing to an American named Wallace Groves who had been running a lumber operation on the island.

In return, Groves undertook to convert uninhabited Hawksbill Creek into a deep-water port and carve a new township out of the pine barren. That land grant was later increased to about 200 square miles, and the comprehensive tax exemptions extended until 2054.

The Hawksbill Creek Agreement between the government and Groves gave the new Grand Bahama Port Authority the right to plan, develop and administer the city of Freeport, as well as to license persons and businesses to operate there. The agreement also had a safety clause that would return the land to the government if the development failed.

But since 1978 when Groves was forced to sell out, Freeport's land, and most of the important companies, have been essentially owned by two families - the Hayward's and the St George's. They hold all of the assets in a clutch of offshore companies, which are subject to no public oversight.

Sir Jack Hayward's father, a British millionaire, had acquired a 25 per cent share of the Port Authority in 1959. And Sir Jack later hired an expatriate lawyer named Edward St George as his right-hand man. St George eventually became Freeport's uncrowned king and chief fixer.

In addition to land sales in the Port area, the two families derive income from business license fees and service charges (a form of real estate tax), as well as revenue from a wholly owned water company and shared revenue from the harbour, a major shipyard, the airport, the power company, the waste management company, Port Lucaya (a waterside shopping centre) and a few other ’assets’.

To give an approximate idea of the worth of these assets, the sale of 50 per cent of just some of them recently raised $80 million. Of course, continuing maintenance and major expenditures are required from time to time for infrastructure but these can be performed (or not) at the whim of the families.

So are there any constraints as to what these families can do with Freeport? Apparently not.

As a private company the books of the Port Authority are closed, and since the government derives substantial revenue from Freeport it seldom rocks the boat. Anywhere else in the world there would be an elected mayor and council, possibly a city manager, and public scrutiny of revenues and expenditures. But not so in Freeport, despite the fact that it has a population of some 50,000 (including outlying settlements)

And the citizens who are most affected by the actions of the Port owners have been almost mute. Only once in the 50-odd years that the GBPA has been in existence has there been a backlash, and that was in the so-called ‘licensees revolt’ of the late 1960s, which was aimed mainly at the new PLP government's restrictive immigration policies. Over the last 30 years Hayward and St George have successfully "managed" relations with the government to avoid controversy.

Sir Jack is now in his 80s. And after St George died in 2004 the two ruling families became locked in a bitter struggle for control of their cash cow - the GBPA and its associated companies. A rough estimate of the value of these companies is said to be in the region of $200 million, which should give Freeporters something to ponder next time they have to pay their light bill.

But now, the unseemly chaos at the Port has spurred a group of some 100 Freeport licensees to pursue legal action against both the Hayward and St George families. They are seeking discovery of information and asking for an independent public trustee (rather than a receiver) to be appointed to run the Port. The chief justice is expected to decide on a court date later this week.

"The Hayward and St George families are fighting amongst themselves over the spoils," explained Freeport Chamber of Commerce chief Chris Lowe. "But the licensees are questioning the very validity of their right to hold those assets. For the sake of posterity this needs to be sorted out and Freeport needs some straight-up municipal government. No-one knew anything about the inner workings of the Port until the shareholder dispute arose after St George died."

Insiders say all this creates a huge dilemma for the government, which does not want to be seen as intervening heavy-handedly in private enterprise, abrogating the Hawksbill Creek Agreement or pre-empting the courts. Yet Freeport's franchise is so important to the welfare of Grand Bahama and the country as a whole that it is difficult for the government to take a completely dispassionate approach.

And the vitriolic and very public legal and personal dispute between the ruling families has led to a deterioration of Freeport's general business climate. Observers say that none of the younger members of either family has the interest or the capacity to lead Freeport into the future. A general view among insiders is that the Hayward's and St George's have squandered too much goodwill and both should sell out in the interest of the nation.

As Prime Minister Hubert Ingraham put it, "Economic development in Freeport requires collaboration between the public and private sectors, most particularly with the Grand Bahama Port Authority. (We) look forward to an early settlement of matters which now serve to distract the principals of the Port Authority from the business of the Port Authority and hence the business and further development and growth of Freeport."

Those "matters" clearly refer to the ongoing dispute between the ruling families. And it is indeed a high-stakes game. Not only is Freeport the Bahamas' second city and the only planned community in the country, with the potential to accommodate a population of half a million, but there are major industrial investors on the island who could make or break the Bahamian economy.

The prime example is Hutchison Whampoa, a Chinese conglomerate that acquired some of the Port's assets a decade ago and now operates a major container hub at Freeport as well as the Our Lucaya resort complex. And growing interest by global shippers in Freeport's geographic and tax advantages has spurred development of a new 750-acre entrepot adjacent to the container terminal.

Associated Grocers of Florida recently opened an $8 million warehouse there, with plans for major expansions in a joint venture with the Chinese investment trust, CITIC. Should this materialize (sources say the deal has already been signed and is awaiting government approval), Grand Bahama could become one of the largest goods distribution hubs in the world.

In fact, Hutchison is one of two potential buyers of the Port Authority and its assets. The other is the London-based Fleming Family & Partners, a firm which descends from famed Scottish financier Robert Fleming and portrays itself as one of the leading wealth manager for the world’s richest families - including the Cayzer shipping dynasty. James Bond creator Ian Fleming (who died in 1964) was a prominent member of the family.

Hutchison's bid has problems because critics say it is seeking to establish a western hemisphere shipping hegemony as a proxy of the Chinese government, and looks upon Freeport simply as a "50-year land bank close to the eastern seaboard of the United States." A top Hutchison delegation reportedly met with Prime Minister Ingraham within the last several weeks to discuss the sale of Freeport.

The Fleming Group considered investing in Freeport during the early 1990s, but backed off because of the Port's lack of transparency and accountability. Some argue that Fleming is now a proxy for the Hayward family, but insiders say they are too big to act as a mere front. And Roddie Fleming, the group's chairman, says his vision for Freeport would create "billions of dollars" in added value by partnering with both licencees and the government.

All of which leads to the clear conclusion that the days of obscure dynastic rule in Freeport are almost over, and we will soon have an opportunity to re-create the Port Authority in a way that will enable it to live up to its early promise, and perhaps become the leading engine of Bahamian economic development for decades to come.

The big question is, what kind of deal with be crafted? And will it be an open and transparent agreement that will benefit the Bahamian people as a whole rather than just sectoral or political interests.

One long-time resident says it is high time to discard the 19th century concept of a private company ruling vast areas of land from afar and instead allow the management and wealth of the second city of The Bahamas to be owned and controlled by the people who live there and who, historically, have made it what it is today.

Insiders expect the situation to be resolved over the next several months, with the active engagement of the Ingraham government to bring all parties to the table.

Comments

[Tumbalena Carter]

yes....but when will freeport pick up. I live aboard and would like to move back home, but there are no jobs. What is the Government doing ? What are the Government plans?
I know its bad my family is there.

[sabri smith]

I WOULD LIKE TO KNOW MYSELF WHEN FRREEPORT WILL PICK UP? BECAUSE IT"S BEEN OVER 7 YEARS MY FATHER HAD TO LEAVE FREEPORT AND FIND ANOTHER JOB THAT WOULD HELPFULLY TAKE CARE OF MY SISLINGS AND I. ALL THE CONTROVERSY WITH THE PORT IS REALLY A LOT OF FOOLISHNESS AND GREED.US BAHAMAINS STRUGGLE EVERY DAY TO MAINTAIN OUR JOB OUR KIDS OUR HOMES AND ESPECIALLY OUR SELVES AND LOOKING AT THE OUT COME FREEPORT STILL ISNT GETTING ANY BETTER. I BELIEVE IN THE NEXT 10 YEARS GOD'S SPARE LIFE THERE WILL ONLY BE MILLIONAIRES LEAVING IN GRAND BAHAMA. BUT I HOPE FOR THE BEST AND BELIEVE THAT ONE DAY THINGS WOULD GET BETTER. GOVERMENT, PORT AUTHORITY PLEASE HELP US BAHAMAINS.