An expired framework agreement signed in March 2012 by Cayman Islands government officials and a representative of the China Harbour Engineering Company for the development of a cruise port berthing facility in George Town reveals that Cayman could owe the Chinese state-owned developer significant amounts of money.
In addition, documents made public Tuesday by two Grand Cayman MLAs also reveal concessions proposed as part of a ‘summary of definitive agreements’ on the project. However, that agreement was never put into effect and negotiations with the Chinese company were abandoned last November when the United Kingdom government intervened and scuttled the process.
The framework agreement expired a year after it was signed by then-Premier McKeeva Bush, Port Authority Board Chairman John Henry Ebanks and Tang Zhongdong, general manager of China Harbour’s Jamaica office.
According to the document, the framework agreement was considered non-binding with regard to the final project agreement. However, in section 5.5 (a) of the agreement it is clearly stated that some cost recovery mechanism would be available to China Harbour Engineering Company in the event government or the Cayman Islands Port Authority terminated the agreement or the parties “failed to execute the definitive agreements for any reason other than a material breach of this framework agreement by the developer”.
If that occurred “then government shall refund to developer one-half of developer’s reasonable and proper costs, charges and expenses incurred in complying with its obligations under this framework agreement from the effective date [which was 30 March, 2012] up to a maximum of US$3.5 million or all costs and expenses incurred by developer in undertaking any part of the project with the consent of the government and/or [port authority] whichever is greater”.
In parenthesis of the same section of the agreement it is noted “for example, the upgrade of the existing Spotts Jetty and landing facility”.
In November, Mr. Tang said China Harbour was respectful of the UK’s decision to order a specific type of bidding process for the Cayman Islands port berthing project. However he also stated at the time that China Harbour felt “the history of its. involvement and cost have not been fully considered” in the decision to terminate and re-bid the project.
Then-Premier McKeeva Bush said in November that ‘no reasonable person’ could say that the port selection process that led to the eventual selection of China Harbour had not been fair and open.
“In preparation for, and arising from, the framework agreement [China Harbour] has spent a vast sum of money to pursue site visits, design works, geotechnical evaluation, financing options and other preliminary matters associated with the port project,” the November statement from Mr. Tang read. “[China Harbour] also incurred significant expenses developing a detailed design for marine and other upgrade works at Spotts Dock.”
China Harbour officials did not state any specific amounts in referring to a “vast sum of money” being spent.
The cruise port development project was envisioned as a public-private partnership with China Harbour taking on the costs of developing the facility in return for certain concessions and guarantees on its investment over a period of years.
Concessions and guarantees
The ‘summary of definitive agreements’ for the port development project contained within the framework agreement document details a number of concessions in section 1.2 – Grant of Rights to Developer. However, that definitive agreement was never finalised and the framework agreement expired a few days ago.
According to the summary, the rights to be granted to China Harbour included:
*A first-ranking, long-term leasehold interest of 51 years with full development rights and rights to sub-lease over the residual areas [adjacent to the port development site, to be used for retail and other business ventures] with an option to renew for a further 30 years.
*A registerable interest for a term of 25 years over the cruise terminal facility, with a right to renew such interest for any additional period necessary to secure developer’s investment in the project but such total period not to exceed 49 years from the cruise terminal’s completion.
*Leasehold interest over the residual areas.
*Free to developer, all utilities easements and other rights-of-way related to the property for development and construction of the project.
*The waving of all planning and building fees, coastal works licence fees, excavation royalties, import duty and such other fees, charges, duties and taxes related to or connected with the development and construction of the project.
*Expediting planning, building and development consents or permits.
*The waiver of all duties, rates, custom fees and all such other charges payable in relation to any labour or on all goods or items imported into the Cayman Islands by the developer for or in connection with the design and construction of the project and the maintenance of the cruise terminal for 25 years.
*Relief or exemption from any payment of income tax, tax on earnings or any other corporate tax that could arise in the Cayman Islands for a period of 27 years.
*Title and right to use all material excavated from the sea bed for the purposes of the project, at no cost to developer. It is agreed that any fill necessary for marine and upland works will use material excavated from the sea bed.
*Securing 300 work permits for developer’s personnel, 50 management and technicians and another 250 construction workers and another 30 personnel during the operation of the project. For the Spotts Jetty project, the number of permits “shall not exceed 50”.
*Assignment of certain fees for usage, tendering, marina operation and the Spotts Jetty at various rates. The usage fee [ranging from US$4 to US$10 per passenger, depending on the project’s progression and timeframe] would be paid entirely to the developer for 30 years and after that the developer would receive 70 per cent and government receive 30 per cent. The developer would be paid the entirety of all tender, marina and Spotts dock fees.
*Government guarantees to developer a minimum of 1.2 million passenger per year to the cruise terminal facility.
*Port authority to maintain it’s the cruise terminal facility at its own expense.
According to a ‘description of the project’ document attached to the framework agreement, China Harbour was to construct two piers for berthing cruise ships in George Town harbour.
At least one berth was to have been capable of handling the largest cruise ships currently in operation; the other berth was to accommodate ships with an overall length of 1,100 feet and 5,000 passengers.
China Harbour agreed to construct a facility for the port authority for passenger processing and ground transportation issues after cruise visitors disembarked.
The project also envisioned ‘residual areas’ around the port facility to be designated as a public space to be used in conjunction with the port development, as well as private business areas for retail and the like.
China Harbour agreed to an upgrade of cargo handling facilities within the existing George Town port facility. The Spotts Jetty upgrades, to include a landing facility were a part of the project as envisioned as well.