Dart Realty [Cayman] Ltd. officials warned Wednesday that the Cayman Islands Government was risking its international reputation by not meeting legal obligations with regard to the National Roads Authority agreement, which – among other things – dictates the closure of a section of West Bay Road along Seven Mile Beach.
“The failure of government to do what it is committed to and legally obligated to do, as well as the public acknowledgments by government that they are fully aware they have been in breach [of the NRA agreement] since May 2012, negatively impacts Cayman’s international reputation as a credible place to do business, especially for other investors who may be considering public-private partnerships,” said Dart Realty’s Chief Operating Officer Jackie Doak.
Mrs. Doak’s comments came following a government press conference Tuesday in which Tourism Minister Cline Glidden Jr. seemed to question whether the National Roads Authority agreement, including some amendment clauses that had apparently been agreed since last year, were still binding.
Mr. Glidden seemed to state on Tuesday that because government and Dart were still in talks over another proposed change to the agreement – referred to as the third amendment – that the document was still in question.
One of the key areas of dispute with the NRA agreement has been whether a section of West Bay Road would be closed down to allow for the construction of a new four/five star hotel on the site of the old Courtyard Marriott property. The government has gazetted a portion of that closure area, but a second section remains to be gazetted.
“We were willing to close a short, small section of the West Bay Road,” Mr. Glidden said. “We felt it was safe to close the portion by the hotel and the piece by the public beach while we were negotiating the third amendment. The fact that the third amendment has not passed means the road has not been gazetted, it has not been closed.
“Obviously, that’s not going to happen between now and the 22nd and the new government after the election will have to negotiate. They would have to decide whether they think that there is justification, that they have a mandate to go forward or go back and renegotiate the agreement.”
When asked during the press briefing about whether government was in compliance with the current version of the NRA agreement, Mr. Glidden responded: “We feel that compliance is a continuation of negotiating. If you are familiar with the agreement it also calls for the reconstruction of the hotel, so we can look at it and say they’re not in compliance either. It’s a work in progress.
“We haven’t been compliant since sometime in May . We’re not willing to accept the conditions in the second amendment because we’re working toward the third amendment. You will see there are remedies for…either party breaching the agreement and we’ll have to deal with, at that point, breaching the agreement.”
According to Mrs. Doak, the NRA agreement as it stands – including the first and second batch of amendments already agreed between the two parties – is a “binding and enforceable agreement”. The fact that government proposed a third round of amendments does not change the fact that a binding contract remains in place, according to Dart officials.
Dart Realty managers also denied that work had not commenced on the new hotel, stating that some CI$1.75 million had been let on contracts for hotel work and that a total of US$3 million had been spent to date on total construction costs.
“Government continues to acknowledge that since May 25, 2012, it has been in breach of its contractual obligation to close the full stretch of the road,” Mrs. Doak said. “Dart Realty has complied with all its obligations under the NRA Agreement thus far and continues to do so despite government’s breach.”
Dart officials said the government proposed a “phased” closure in February of this year to allow time to fulfil commitments to close the remaining stretch of road after the release of an independent review on the NRA agreement by accounting firm PricewaterhouseCoopers. That evaluation was released to the public on Friday.
Dart Realty also pointed out that the third amendment to the agreement, which included new proposals to widen the southern end of the Esterley Tibbetts Highway in George Town and the transfer of land to government in the Smith Cove and Barkers areas, was also agreed “in principle” between the two parties on 11-12 April.
However, the company indicated that “last minute” changes attempted after that date led Dart Realty to end talks on the NRA agreement.
According to Minister Glidden, the main point of contention was over $16 million in tax incentives given to Dart Realty for the construction of the Seven Mile Beach hotel on the old Marriott property.
“The country has to ask itself, if we’re going to have to start giving $50 million or more in concessions for someone to build a hotel on our world famous Seven Mile Beach, then that sets a precedent,” Mr. Glidden said. “It’s not $16 million in terms of a $700 million deal. It’s ‘should the government give $50 million in concessions to incentivise a developer to build a $150 million hotel’?”
Dart Realty officials noted they “cannot state precisely what Minister Glidden intended to convey in his public statements”. However, they stated that government in February proposed that development incentives – including the hotel tax rebate of 50 per cent offered – should be limited to US $16 million. After talks on the deal continued, the parties reached an agreement on 11 April, 2013, which is when things went south, according to Dart Realty.
Dart Realty pointed out that both versions of the PricewaterhouseCoopers report found that the hotel redevelopment project was estimated to provide benefits to the country of $755 million over 20 years, as well as some 1,651 man years of construction activity.
“Even with the 50 per cent hotel tax abatement provided to Dart Realty in the finalised NRA Agreement, government will still receive an estimated US$18 million in hotel tax revenue; revenue it would not receive if the hotel was not redeveloped,” a statement from the company provided to the Caymanian Compass read.