DECCO, a subsidiary of Dart
Enterprises, could be granted a 99-year master lease on the land earmarked for
the cruise ship berthing facility in exchange for developing the project.
Backbench legislator Cline Glidden
Jr., who is heading up the government’s efforts to build a cruise ship berthing
facility, made the announcement during a presentation about the project at the
Marriott Beach Resort on Wednesday.
“The developer would be at risk for
the majority of the investment, and the only way to achieve the total vision
was an integrated finance plan that includes all available revenues, grants the
developer a lease over residual lands commensurate with the funding shortfall
and for a period [long enough] to allow the developer to make back his
investment with an agreed profit,” said Mr. Glidden
“Depending on the risk and
investment period, this lease could be between 21 and 99 years.”
The berthing project is mooted to
be built on eight acres of reclaimed land to the north of, but not including,
the cargo port. Mr. Glidden said that there could be a cost of $100 million on
reclaiming the land plus $200 million on constructing the project, which
included $62 million that he said would be spent on infrastructure at the dock
and around the George Town area affected by the construction project. However,
these costs would not be known until the developer had put forward a proposal
that was acceptable to government.
The government had explored
financing options but was not willing to enter into a situation whereby the
cruise lines themselves invested in the infrastructure, Mr. Glidden said.
“Government does not have the money
to go out and invest in all the consultants, all the architects and all the
work that is necessary… looking at the market today, cruise investment
continues to grow but not as much in the Caribbean.
“Grand Cayman had grown as one of
the most important ports in the Western Caribbean but now it is being
threatened by new ports. Company investments in Cozumel, Roatan, Jamaica and others
are pulling capacities [originally] destined to Grand Cayman. The cruise lines
themselves have made significant investments in those ports so what we see is a
model for new cruise ports being driven mainly by the cruise lines themselves
where the intention is to monopolise revenues on board ship as well as on
shore,” explained Mr. Glidden.
The master lease that would be
granted to DECCO would allow it get a satisfactory return on its investment,
while avoiding Cayman being beholden to cruise lines’ own interests in the
construction project, Mr. Glidden said.
A number of income streams have
been identified in order to make the proposal attractive to developers.
“Project income will be derived
from additional cruise usage fees, some of which may be guaranteed by
preferential berthing agreements,” he said. “There will be a master lease of
residual property with other income to be negotiated…
“When we refer to a master lease of
the residual property, for clarity, government wanted to remove the risk of the
development of the residual property. [For example] if the repayment is $20
million and we’re able to get, through preferential berthing, $10 million, the
remaining half of that will be paid for by the master lease of the residual
property. So the developer would pay the $10 million dollars; they would then
be responsible within the limitations agreed by government to make sure that
remaining property is able to give them the profits that are required to pay
them the $10 million and whatever profits are needed,” said Mr. Glidden.
He noted that government did not
want to be in the business of depending on the success of whatever would be
established on the additional land, in order to be able to finance the project.
He said that he had seen questions and concerns regarding the government
entering into projects without making the money to be able to sustain them, but
in this case the risk was transferred to the developer, who would have
exclusive rights to build a cruise dock on Grand Cayman.
“The developer will have the land
and will have the responsibility to make that land work. But the risks
associated with whether that land works or not is not something that will
affect this project,” he said.
Mr. Glidden revealed that a
framework agreement had been discussed that provides a commitment for the
parties to negotiate a binding agreement and explore financial options plus
provide a business structure for the deal and its subsequent schedule, he
The business plan presented by the
developer would identify project costs, revenues derived from cruise
operations, financing plans, including the level of borrowing and projections
of costs and revenues from residual land, and revenue share proposals based on
a benchmark of 1.6 million passengers per year.
“There is a possibility that the
existing $12 to $14 [cruise passenger tax] could be used as revenues to help as
well,” he said.
“Business plans will be subject to
approval from government and the Port Authority, and both construction and
finances will be done on a competitive basis, subject to government approval,”
he said. “Government wanted to be protected and ensure that the costs of the
project be restricted, because costs will be reflected by the period of time
that the lease has to be given to the developer.”
A series of agreements would be
made subsequently including a concession agreement awarding the developer the
right to execute the design-and-build documents that set forth conditions of construction,
and berthing agreements, in which cruise companies put forward the fees to be
“Until we determine what the final
cost is and what the shortfall is based on what the cruise lines and other
revenue streams are willing to make up, what we’ve given to the developer in
broad framework terms is to say that we’re willing to give you the lease; we
can’t tell you what period of time that lease will be until we get those
“But we’re willing to do the lease,
give you a range and the commitment to agree on a period time of sufficient
length to justify that investment and risk… this broad framework agreement is
enough for the developer to know that, within those restrictions, they can go
out and make an analysis and plans to come back to government and justify why
they need the lease to be 21, 25, 35 years,” he said.
If this acceptable
and a binding agreement were reached by 31 October, the project could be
completed within 24 months so that operations could begin at the end of
October, 2012. This was a goal the government and developer had agreed, he
said, although the period could be extended to 31 December.