The previous article on the Sandals Tobago proposal ended by pointing to the need for attention to the underlying, commercial arrangements which drive projects of this type.
The procurement model is key to understanding how these large-scale, internationally-branded hotels are created and sustained. The two ends of the procurement show different approaches –
- the T&T model is one in which the State paid to design, build, fit and furnish the hotel to the specifications of the hotelier. The hotel then operates via a management contract which splits the revenue between the State and the hotelier. Trinidad Hilton, Tobago Hilton/Magdalena Grand and Hyatt Regency were built by the State using this method.
- The other approach is one in which the hotelier constructs the hotel and receives tax concessions from the ‘host State’ in return.
Both these are Public Private Partnerships (PPPs) in which risk and reward are shared.
I have never seen any kind of sustained public reporting on the performance of these hotels in T&T, so I remain sceptical as to just what are the tangible returns to the public purse, beyond the employment of nationals.
The veritable ‘Jewel in the Crown’ is the Hyatt Regency in POS, which is part of the International Waterfront Centre, once dubbed UDECOTT’s ‘flagship project’. On 10 June 2014, the then Attorney General, Anand Ramlogan SC, told the Senate some sobering facts about the way that management agreement with Hyatt International had been operating. That hotel was opened in January 2008, but due to an alleged error at our end, an important agreement was missing. Hyatt International was able to use that missing agreement to withhold payment of monies due to UDECOTT under the management agreement. That issue was not resolved until an arbitration was triggered by Hyatt in 2011 and that procedure ended with some $334M being paid to UDECOTT after the agreement was signed in June of 2014. So, for 6 and a half years the Hyatt Regency was thriving, with the majority of the high-end business in our capital, yet UDECOTT had received no money due to an alleged lapse at our end. Until Ramlogan’s statement to the Senate, I had been entirely unaware of any such situation in relation to what seemed to be a very successful State-owned hotel.
In the case of Trinidad Hilton, the 2008 refurbishment program is continuing with costs having risen from an original estimate of $484M to a current figure of $634M, an increase of about 30%. More seriously, there is no clear idea as to when this project is expected to end.
The State spent an estimated $388M on the Tobago Hilton/Magdalena Grand, according to 2011 statements by then Trade & Industry Minister, Stephen Cadiz. This hotel had to be extensively renovated less than a decade after its opening, but I am unaware of any action taken against the companies responsible for its design and construction. This resort re-opened in 2011 as the Magdalena Grand, now operated by the Hospitality Solutions organisation.
There are serious gaps in our understanding of just how these various hotels have actually performed. I have already been advised that the actual management contracts are top secret documents, but it seems to me that clarity is required if we are to properly proceed on negotiations with the Sandals group.
These are some of the important questions on the underlying commercial arrangements –
- What is the revenue earned by these hotels?
- How is that revenue shared between the State and the hotelier/operation group?
- Are there provisions to reserve funds for repairs and refurbishment, or are those expenses entirely for the account of the State?
- How easy is it for a hotelier to exit these contracts? Are penalties charged in that event?
- Does the State earn any $USD from these international hotels?
Finally, when one considers the contents of the sidebar, it seems that we are likely to adopt the tax concession model due to the limits on our available finance.
SIDEBAR: Other Hotel proposals
On 10th August 2016, two requests for Expressions of Interest in relation to new Trinidad hotels were published by State Agencies –
- UDeCOTT – for the Design, Building, Financing, and Operation of a luxury hotel on the site of the Ministry of Agriculture at St Clair Circle in north POS.
- CDA – for the Planning, Design, Construction and Commissioning of a Full-Service hotel at Old Tracking Station, Macqueripe, Chaguaramas.
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.