Bahamas Hotel Corporation—Relic of Past Corruption

by Larry Smith

Well, it seems that Perry Christie and George Smith have set themselves up as defenders of the Hotel Corporation of the Bahamas.

This is a big mistake, because it shows that the current leadership of the PLP is rooted in the past and has learnt nothing from the party's 30 years in power - or its electoral defeats since 1992.

Both men are emblematic of a discredited legacy. Smith was a PLP cabinet minister and Exuma MP when Colombian gangsters used his constituency with impunity as a smuggling base. He figured prominently in the 1984 commission of inquiry into drug corruption, and was resurrected as the Hotel Corporation's chairman during the PLP's last term.

Christie was fired from the PLP cabinet when it was rumoured that he and fellow minister Hubert Ingraham intended to resign over drug trafficking, but he soon returned to the fold. And he secured his succession to the PLP throne by defending former Hotel Corporation chairman Sir Lynden Pindling during the 1993 commission of inquiry into corruption and incompetence.

Christie and Smith portray the Ingraham administration's promise to abolish the Hotel Corporation by the end of this year as a sign that the FNM "is philosophically moving away from the view that there is an advantange to the government having some involvement in the industry."

But the FNM was opposed to the Pindling regime's takeover of the hotel sector from day one. In fact, more than 30 years ago PLP cabinet minister Paul Adderley said the FNM's opposition signified "a capitalist, private interest philosophy that is no longer valid."

There was a running battle between the two parties over the financial chicanery at the Hotel Corporation right up until 1992, when the first Ingraham government moved to set up an inquiry. In 1997 the FNM promised to "transform the Corporation into an agency to support and promote the development of out island resorts."

Although that didn't happen, when the PLP was re-elected in 2007 it pledged the same thing. This marked a recognition by both parties that the Hotel Corporation's track record was the worst of any state enterprise in the Bahamas.

The Corporation's 1974 enabling legislation gave it the power to "carry out any undertakings needed to achieve its purposes". And PLP leaders used it as a gigantic slush fund for decades, wasting hundreds of millions in public funds. That's why it is so remarkable that Smith and Christie can continue to say with a straight face that the Corporation has "proven beneficial" to the Bahamas and can still play a "constructive role" in tourism.

Let's go back to the summer of 1974 when it all began. The Arab oil embargo had produced a sharp recession in the US, which led to a downturn in travel to the Bahamas. Faced with a loss of tourism jobs for the first time in a generation, the government stepped in to buy three failing hotels on Cable Beach - the Ambassador, Emerald and Balmoral Beach - for a total of $20 million.

Then Prime Minister Lynden Pindling dressed up the purchase with typical rhetoric. As well as stimulating the economy and providing jobs, he said, "we wanted to develop a major and outstanding touristic facility to cater to the top economic bracket (with) a first class entertainment and convention centre."

But things went downhill from the start. The board was packed with PLP loyalists and failed to produce financial statements for the first few years. In 1976 more millions were spent to buy the Cable Beach golf course and three hotels in Freeport. And by the end of the decade the Corporation was in "grave financial difficulties" and the subject of heated disputes in parliament.

Although he denied that the government wanted to take over the hotel sector, Pindling nevertheless boasted that the Corporation now had "a good foothold" in the industry. The next step was to replace the rundown Emerald Beach (which was demolished in 1979) with a flagship hotel and convention centre.

The Cable Beach Hotel opened in 1983 following numerous mishaps and mistakes, including the expenditure of $100 million on a project that everyone from the prime minister down agreed would never be economically viable. The inquiry report devotes many pages to this complex debacle.

"At the outset costs were totally ignored...and a sum of $7 million was wasted on (the) initial phase...This attitude continued throughout the life of the project, and no proper feasibility study was ever carried out...The tendering process was not properly handled...The hotel could not conceivably support a development cost of $100 million...But the chairman continued to insist that the project had to go forward regardless of whether it was viable or not."

At different times, the various hotels and casinos owned by the Hotel Corporation were leased out to well-known industry names like Jack Tar, Wyndham, Playboy, Carnival and Canadian-Pacific. But the contracts and their terminations were always highly controversial.

The most egregious case was when the cabinet made a deal with Carnival to run the Cable Beach Hotel while the Hotel Corporation still had a long-term operating agreement with Wyndham. This unusual "marriage before the divorce" resulted in "disastrous losses" of some $100 million.

Unfazed, the Corporation continued on its acquisition spree. In 1985 it bought the 20-room Lighthouse Club at Fresh Creek, Andros (developed by Axel Wenner-Gren in the 1950s) along with thousands of acres of vacant land on Andros and Eleuthera. The following year it acquired the Freeport Holiday Inn, and went on to build a multi-million-dollar headquarters building on Cable Beach, described as "a magnificent monument and landmark."

According to then chairman Paul Adderley, "the Bahamian people, through the Hotel Corporation, ought to be owners of, and initiators of, touristic development in the Bahamas." He later announced with much fanfare a Family Island Development Plan that called for the Hotel Corporation to build small modular resorts on Andros, Eleuthera and Exuma. His grandiose plan went exactly nowhere - except for the little-known Las Palmas Hotel on Andros.

Las Palmas (now known as the Emerald Palms) was the most fascinating example of the Corporation's crookedness. Built in the 1960s, it was acquired in 1975 by Pindling's chief crony, Everette Bannister, with money from fugitive American swindler Robert Vesco. Las Palmas was the prime minister's base camp whenever he was in his Mangrove Cay constituency. And from 1976 to 1984 it was managed by Resorts International as a favour to Pindling, who was given a cottage at the resort.

In 1986 Mangrove Cay resident Benjamin Forbes bought the hotel with a $600,000 loan from the Bahamas Development Bank, and none of his own money. When Forbes defaulted, the Hotel Corporation (in the person of CEO Baltron Bethel) stepped in to buy Las Palmas for $650,000, plus an extra $34,000 for Forbes. The Corporation then spent $1.6 million to renovate the hotel (as well as Pindling's cottage).

By 1992 - even though industry conditions were probably worse than they were in 1974 - the emphasis was on getting out of the hotel business in order to stem the country's mounting financial losses. The hotels were up for sale even before the government changed, but there was little interest until the new Ingraham administration struck an investment deal with Sol Kerzner.

In the mid-90s three hotels in Freeport and two in Nassau were sold off. Las Palmas lingered until 2000, and the Cable Beach Hotel remained in government hands until it was acquired by Baha Mar in 2005.

According to Michael Scott, the current chairman, the Corporation's remaining assets are 7,500 acres on Andros (including the Lighthouse Club) and 3,500 acres in South Eleuthera. And the Lighthouse Club costs up to a million a year to run at less than 30 per cent occupancy - half of the Corporation's $2 million annual budget.

Efforts are ongoing to sell these properties, but the Hotel Corporation Act will be repealed by the end of the year regardless, with any remaining lands conveyed to the government. According to Scott, this is part of "our embrace of new realities in the tourism industry.

"We are too focused on North American mass tourism and we cannot compete with Cuba on this level. Our market niche - especially in the out islands - is low-density, high-end boutique resorts. We need to look beyond the Hotel Corporation and engage in a lot of creative thinking to promote this paradigm shift."

The view seems to be that there is a need to promote not only financial services and tourism, but investments in the broader sense of the word, in the same way that the UK, Canada and the US have departments that are focused entirely on promoting investments in a world that has become significantly more competitive.

Some experts say that the failure to develop tourism in the out islands is due to an inability to see internal air and sea transport as necessary infrastructure. And to develop transport links we need to loosen the constraints on foreign and local investments in these areas and provide the necessary incentives and policy changes.

So the current thinking is not about replacing the Hotel Corporation, but creating a workable investment and development agency to cut through the red tape that investors abhor and to treat them as clients to be shepherded through the process. At the same time, it is important to remove any differences in treatment between local and foreign investors.

This change in thinking is long overdue - indeed our very survival as a tourism player may depend on it. Tough Call was a writer for the Bahamas News Bureau in the late 1970s and travelled to most islands producing features on tourism. Lately, I have been in a position to travel to these islands again to produce articles. I can say that with the exception of Abaco, things are no different from what they were 30 plus years ago - and worse in some cases.

Let Christie and Smith live in the past - we need to move on.

Freedom of Information
My research for this article, and the one published last week, included a request for annual reports from two public bodies - the Hotel Corporation and the Hospitals & Healthcare Facilities Board.

The House of Assembly could not provide a copy of the Hospitals Board 2007 report, which was tabled in December 2008. Government Publications did not have it and the Board itself (chaired by Dr Kirk Culmer) flatly refused to provide it - hanging up on me to make the point even finer. They referred me to the Minister of Health, Dr Hubert Minnis, who promised to ask the House of Assembly for a copy.

That's what is known as a vicious circle.

My experience with the Hotel Corporation was a little more sophisticated. The chairman, Mike Scott, agreed to provide a copy of the 2007 report, noting that the 2008 report had not yet been laid in the House and so was not a public document.

He later said he could provide only the 2005 report - the 2006 and 2007 reports not having been tabled yet. Here we have a public corporation whose board has approved audited financial reports that have been seen by cabinet long ago and that relate to the spending of taxpayer money, but are still considered secret documents.

These two examples make it glaringly plain to me that a Freedom of Information Act in the Bahamas would be an absolute and idiotic waste of time.

South Riding Point Oil Terminal
The oil storage terminal at South Riding Point on Grand Bahama is an environmental disaster, sources say - possibly resembling a Siberian oil swamp.

Environment Minister Earl Deveaux told me recently that a team of independent experts will be contracted to investigate the site and prescribe a clean-up programme, which is a condition of the terminal's pending sale. In other words, the government has approved the sale subject to certain conditions.

The 155-acre terminal is a break-bulk point for crude oil destined for the United States. Located 35 miles east of Freeport. It includes a 6.75 million-gallon tank farm connected to an offshore docking facility by two underwater pipelines. The docking facility can accommodate tankers up to 500,000 tons in water 105-feet deep.

The relatively shallow water access to US gulf coast and east coast ports means that the final delivery of crude oil from the North Sea, Middle East, North Africa and other points of origin must be accomplished in smaller, shuttle-size vessels. Grand Bahama's deep-water access makes it ideal for this purpose.

Acquisition of the South Riding Point terminal by the Norwegian company, StatoilHydro, for $263.2 million is a strategic move designed to strengthen StatoilHydro's marketing and trading position in North America.
 
The terminal was developed in 1975 by Burmah Oil, a British company, and sold to South Riding Point Holdings in 1985. Canada’s World Point Terminal acquired the facility in 1989 and agreed to sell the terminal, along with a 50% interest in Freepoint Tug and Towing Services, to StatoilHydro in July.

Comments

[Jeff]

Larry.. First rate analysis and reporting.. We foolishly seem to forget our past.. When will they ever learn.. How truly sad of us.. Again, well done Larry, keep it up..

[Andrew Curry]

Larry , Its refreshing to read real reporting . The corruption and waste are stagering. Hundreds of millions of dollars wasted and Abaco still has a Shack for a airport. Keep it coming Larry.

[resigned]

So much to offer, from a mile above the Bahamian archipelago is a turquoise and emerald sea lined with foot soothing creamy white sand beaches. Yet, our political,religious and moral dissarray seems lifelong and insurmountable. What must the rest of the world think?

[Ken]

I doubt we'll see this new agency or the Freedom of Information Act anytime soon. More of the same