The recent official statements about a proposal for a Sandals Resort in Tobago are significant, given both the convulsions in the Tourism portfolio and the urgent need to diversify our economy away from its long-term dependence on energy earnings. This is a preliminary view of some of the relevant considerations, since the sparse details now available do not permit a critique.
The various official statements outline that Sandals are in discussions with the State towards a new 750-room resort to be located in Tobago, which would both increase the overall room stock and bring collateral benefits if it proceeds.
Some of the main considerations are –
- Procurement model – The model by which T&T has attracted large brand-name hotels has been one in which the State has built and equipped the hotel to the specifications of the hotelier, who have in turn ‘badged’ the property, provided management expertise and access to their network. Trinidad Hilton and Hyatt Regency were both built by the State and subsequently managed by the foreign hoteliers. Tobago Hilton was built by a company in which the State was a shareholder, before acquiring the shares of the private sector partners to make that resort wholly-owned by the State. The model could be described as a type of Public Private Partnership (PPP) in which risk and reward are shared. The official statements have not yet disclosed if this is the procurement model to be adopted, so this is certainly an aspect which would require careful consideration – see the third sidebar for further details.
Sandals was launched in 1981 by Jamaican tycoon, Gordon ‘Butch’ Stewart. This is now the most successful resort chain in the Caribbean, with 15 hotels spread between Jamaica, Antigua, Grenada, Barbados, St Lucia and the Bahamas. These are luxury, couples-only, all-inclusive beachfront resorts which are usually run at high occupancy rates. This resort chain has attracted a slew of top tourism awards and would likely attract a new niche of tourists to T&T if the project proceeds.
Scale – At 750 rooms this is a huge project, certainly the largest in the country and more than three times larger than Tobago’s biggest existing hotel, the 198-room Magdalena Grand (formerly Tobago Hilton). Since the Sandals brand operates luxury, all-inclusive resorts which usually run at high occupancy rates (see sidebar), there will be extensive support facilities required.
- Infrastructure Costs – To support a luxury resort of that size, Tobago’s water supply must be seriously improved to address the current shortages and satisfy the demand from Sandals. It is also likely that a significant upgrade of the island’s electricity supply would be required. In addition, a resort on this scale would cause increased levels of air and road traffic, which would likely require significant improvements to roads and the Airport. All of those expenses are ‘externalities’, being outside the literal boundaries of the project, which would require substantial investment of Public Money.
- Tax Concessions – One of the most controversial aspects of the Sandals expansion throughout the Caribbean is the tax concessions granted to attract this leading resort. In Grenada, the 225-room La Source Sandals Resort was supported by a substantial tax concession in which the Grenada government agreed to a 25-year tax holiday in relation to all construction materials; property tax; and alcohol imports, as well as a 29-year tax holiday on profits. In Barbados, the Sandals investment in the former Casuarina Hotel was supported by a 25-year tax holiday granted in November 2013 in respect of all duties and taxes on construction materials, vehicles; food, drink and alcohol; furniture and equipment. Those concessions are also renewable for a further period of 15 years. In both Grenada and Barbados, the construction was undertaken by Sandals, seemingly in exchange for the substantial tax concessions, so that is a different model from the one used in Trinidad & Tobago so far. It is therefore not clear if substantial tax concessions will be a part of the Sandals arrangements for the proposed Tobago resort. The Sandals Grande Antigua resort is now at the centre of a controversial claim by Antigua’s Prime Minister, Gaston Browne, that the tax concessions granted to Sandals by a previous government in 2009 are illegal.
- Linkages – It is critical that, if this project proceeds, the issue of linkages to the national economy be properly developed for high levels of local employment, as well as local content in the supplies and services provided to the resort.
- Negotiating Team – On 30th June 2016, former finance minister and international investment banker, Wendell Mottley, was named chairman of a negotiating team to arrive at an agreement between Government and all-inclusive operator Sandals Resorts for two hotels in Tobago. The other team members were Dr Terrence Farrell, Dr Rolph Balgobin, hotelier Michael Small, small farmer Glen Leslie and head of public/private partnership in the Ministry of Finance, Nadira Lyder, and two representatives to be named by the Tobago House of Assembly.
At this point, it is useful to consider the costs of the model in which the State builds and refurbishes the hotel properties.
of Large Branded Hotels in T&T
|HOTEL||SIZE||COSTS||COST PER ROOM||COMMENTS|
|Trinidad Hilton, POS||418 rooms||$634M||$1.52M||Opened in 1962 – the costs cited are being incurred in an ongoing refurbishment which started in 2008. 52 luxury suites were created by remodelling – no new rooms were added.|
|Tobago Hilton, now Magdalena Grand||198 rooms||$388M||$1.96M||Opened in 2000, this hotel closed in 2008 for extensive renovations required by damage from seablast.|
|Hyatt Regency, POS||428 rooms||$516M||$1.21M||Opened in 2008 as part of the International Waterfront Complex|
In keeping with the way in which we discuss project details, these are construction costs, which do not include land or the cost of finance.
Some important points of background put some context to these projects –
- Trinidad Hilton – This was billed as the first ‘upside-down hotel’ in the world and said to be the first Hilton to be opened outside of the continental USA. The ongoing extensive refurbishment was started in 2008 with the substantial complication that the hotel had to remain open during the works since the Commonwealth Heads of Government and the Summit of the Americas were imminent. According to the Chairman of eTeck, Robert Salandy, in his report to the Joint Select Committee on 6th April 2016, the project costs have escalated from an original estimate of $484M to a current figure of $634M. A total of $508M has been spent and it was reported that “…Salandy could not give a timeframe in which the renovations at the Hilton hotel would be completed…”.
- Tobago Hilton – This was the country’s largest resort hotel and the construction was undertaken via a Public Private Partnership in which the State joined with Angostura Holdings and Guardian Holdings. The resort was closed in early 2008 due to extensive disrepair due to poor use of materials and the lack of maintenance, according to the official statements at the time. The State acquired the private shareholdings and proceeded with an extensive refurbishment. A significant part of this episode is that at the inception we were told that Hilton had committed to a 30-year management contract, with an option to renew for a further 20 years, yet they were able to exit the arrangement after the property was forced to close. Another issue we were told of is the effective collapse of the maintenance arrangements between the three property owners. The resort re-opened in 2011 as the Magdalena Grand, now operated by the Hospitality Solutions organisation.
- Hyatt Regency, POS – This hotel opened in 2008 as a waterfront, business traveller/conference hotel and comprised part of the International Waterfront Complex built by UDECOTT. The property was reported to be a ‘very profitable cash cow’ by UDECOTT Chairman Noel Garcia when he appeared before the Joint Select Committee on 3rd May 2016. Garcia also said that this investment had virtually repaid its initial costs and that a contract for an extensive $122M refurbishment has been awarded.
A petition has been launched on change.org to seek the details of the proposed arrangement with Sandals.
Finally, one has to consider just what are the lessons learned from these experiences. At this point it is not clear to me why the Tobago Hilton failed. That is a sobering gap in our knowledge, given that as a large resort it is the closest to the current Sandals proposal now under discussion. How can we properly engage the new and critical negotiations without that kind of detailed understanding?
The introduction of a huge Sandals resort to Tobago would surely accelerate the rate of change in our country and there are a number of interlocking issues to be reconciled. This would be a huge project, with a cost likely in excess of $1 Billion TTD, so the stakes are very high at that initial stage. The design and construction of the resort is expected to take three years and a series of opportunities on that scale would be of great interest to the beleaguered construction industry. Can we achieve a high level of local content in the Tobago Sandals project? If the State is paying, it will be a huge expense on a seriously strained public purse and there will be no case for any tax concessions. In the alternative, if the resort is built at Sandals’ expense, they are likely to demand significant tax concessions as is the accepted pattern elsewhere.
The underlying, seldom-disclosed, commercial arrangements drive projects of this type, so that is where our attention is demanded.
Tobago Benchmark hosted a symposium on the “Impact of Sandals Resort on Tobago and No Man’s Land” on Thursday 18th August at the Buccoo Community Center. Afra Raymond was one of the guest speakers, focusing his talk on the “underlying commercial arrangements” which no one likes to talk about. Examples throughout the Caribbean are seemingly secret, but there are examples from the Trinidad and Tobago that can set a context for what is important as well as what is interesting. Video courtesy Tobago Benchmark.
Sidebar #3: St Clair Hotel proposal
On 10th August 2016, UDECOTT published a request for Expressions of Interest for the Design, Finance, Construction and Operation of a luxury hotel on the site of the Ministry of Agriculture at St Clair Circle in north POS. That raises two important questions in relation to the Sandals Tobago matter.
- Firstly, one wonders why a similar approach of advertising for Expressions of Interest and Requests for Proposals was not taken in relation to Sandals Tobago.
- Secondly, it seems to signal a shift away from the previous pattern in which the large international hotels were designed, built and fitted/furnished at our expense.
To me, it signals that our reduced financial circumstances do not permit that level of investment, which implies that T&T will be offering substantial tax concessions to Sandals, if the project proceeds.