Property Matters – Tobago Sandals MoU

29th November 2018 was the first hearing of my Judicial Review of the refusal of the Office of the Prime Minister (OPM) to provide a copy of the Tobago Sandals Memorandum of Understanding (MoU) which I had requested under the Freedom of Information Act (FoIA) since 27th February 2018. At that hearing, the OPM agreed to provide the MoU and pay my costs, so my lawsuit was withdrawn.

tobagosandals-mouhandover
(L-R): Adam Stewart, Sandals Resorts Group Deputy Chairman; Minister of Communications, Stuart Young; and Sandals CEO, Gebhard F. Rainer with the MoU for Tobago Sandals .

This Tobago Sandals MoU was signed on 10th October 2017 and should have been disclosed long ago, without any necessity for legal action on my part. The PM and Minister Stuart Young repeatedly told the public that these details could not be published as that would undermine these important negotiations and so on and so forth.

Nine months of delays and obfuscation verging on an abuse of process, but that is just my opinion, as the OPM was advised by eminent Senior Counsel, Deborah Peake.

When the MoU was released at a press conference the evening before, Minister Stuart Young was emphatic that the decision to publish had nothing to do with me or my litigation. One has to wonder at the quality of advice being taken by the Cabinet.

We had to endure expensive time-wasting and elaborate waffle, dripping with disdain, about ‘sophisticated investors‘ and ‘how government business really runs‘. Well this is a good time to examine the actual Tobago Sandals MoU and see how sophisticated investors really work and learn how government business really runs. This is a serious teaching moment.

There were many positive features in the MoU (embedded below) in favour of Sandals. In fact, the MoU is so protective of Sandals’ interests that one can scarcely imagine how on earth we the public will ever profit from this immense investment. This article details my concerns on the decisive provisions of the MoU –

Arrangement – The MoU is not legally binding and is an outline of the intentions of the parties, who will enter Heads of Agreement (HoA); Technical Services Agreement (TSA) to stipulate the development standards and the parties’ roles; and a Management Agreement for the operation of the Resorts. The State’s interest is via Golden Grove Buccoo Ltd, which is the new State Enterprise established for this project. These main agreements will be for 25 years with an option to renew for a further term of 15 years. Of course, we do not know the contents of those agreements, but those terms are crucial to understanding this deal. What is the Business Case? Have projections been prepared?

Investment – “…All costs of constructing and outfitting the Resorts in a ‘Ready-for-Guest’ state including the cost of the soft and grand openings shall be for the account of the Government…” (clause 8 on pg 6). Although there are specific provisions for private equity financing, it is still arranged so that the State has to repay. That means that only Public Money is to be invested and placed at risk in this project. New wave Public Private Partnership. I tell you.

Incentives and Exemptions – Sandals is to get incentives and concessions as per clause 8 on pg 4. I consider that proposal to be against the public interest. Given that we are investing all the capital, how are we to get a return on that investment, if there are further concessions/incentives granted to the hotelier? But there are not only questions as to the rationale for these incentives/exemptions. The MoU seeks to insulate Sandals from all risk.

Level-up clauses – At clause H on pg 7, if any subsequent resort development is granted better incentives/exemptions/tax benefits those shall also be extended to Sandals by the Government. So Sandals is to have the best terms for its full stay here.

Non-Discrimination – At clause C on pg 6, the Government agrees not to establish any special law, regulations, rules or policy applicable only to Sandals, its creditors, guests or employees. That seems to me to be an attempt to contract-out of the reach of the future needs of public policy or indeed the will of the legislature and entirely unacceptable.

Tax Stability – The MoU appears to innoculate Sandals from any future impact in terms of changes in taxes, concessions or other incentives. At clause D (between pages 6 & 7) the State gives an undertaking to stabilise the tax regime applicable to Sandals, which discloses two points. Firstly, the tax regime applicable to Sandals will be different to that which is applicable to other investors. If that were not under discussion, why else would it be included as a point in this compact document? Secondly, can we negate the sovereign right of Parliament to tax the nation? Can we contract-out of the Social Contract?

Transfer Pricing – Transfer-pricing is widely-used by multi-nationals to shift earnings to low-tax countries so as to deny the countries in which the actual wealth is generated. Interestingly-enough, those types of detrimental transfer-pricing arrangements are expressly facilitated in this MoU at clause B (1) at page 5 in which “…The Government acknowledges that Sandals intends to establish subsidiaries, affiliates or associate companies to hold the Management Agreement, operate the Resorts and to otherwise perform its role…”.

We need open-book accounting provisions and limits on the intra-company transactions which engender transfer-pricing. Open-book accounting is a well-accepted approach which would allow us to end the decades of secrecy on the terms and performance of the existing State-owned hotels by normalising the access to and publication of that data.

Risk-Free investment – The project designs are being prepared by Sandals architects and in the event that the project does not proceed for any reason, all those fees are to be repaid by the State. (clause 6 on pg 4) Sandals is placing no money at risk.

Employment – Despite clause B5 at pg 6 stating that Sandals shall “…employ qualified T&T nationals…” there are further provisions which allow the employer to decide on staff “…at its sole discretion, be the final determinant regarding the suitability for employment of all candidate employees…such that the standard of the brands can be attained and maintained…” (clause 10 at pg 4). The next two clauses state that the Government will expeditiously grant as many work permits as are required.

Environmental aspects – Sandals is to “…meet all locally acceptable environmental standards and requirements in all phases of the operation of the Resorts…” (clause 4 on pg 6).

Agricultural and other inputs – According to clauses 6 & 7 on pg 6, Sandals is to ‘give preference to purchasing‘ local agricultural and other inputs, subject to the proviso that these are available in adequate quantity, quality and at comparable prices.

I am also concerned that the MoU included a Confidentiality Clause as its penultimate item. Why the need to underwrite secrecy, especially since it is now published and the deal is proceeding.

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13 thoughts on “Property Matters – Tobago Sandals MoU

  1. Afra,

    Kudos as always for the work that you do. You have laid out your case as to why you believe the Sandals MOU is deficient. As I understand it, your main critique of the arrangement is that Sandals is coming here putting no money down and participating in the potential revenues and profits on a project fully funded by taxpayers. A no risk proposition and in this you are quite correct. This begs an obvious question – are you opposed to a mega project in Tobago or this particular deal. Because if you are in favor of a like project, there is no operator that is going to come to Tobago and put a cent down. Not Ritz Carlton, not Four Seasons or any of Sandals competitors. That is the reality. The reasons are obvious – lack of airlift, poor tourism infrastructure and an overall moribund and unknown tourism product.

    A Sandals type project is exactly what Tobago needs if we are serious about tourism. Now reasonable people can differ as to the size of the project (e.g is 1000 rooms too large a project) or, whether, in principle, the government should fund commercial ventures etc. Sandals has done a fantastic job as a Caribbean company in developing a global brand. As I see it to make an informed decision one must know the alternatives and the idea that there is some some significantly better deal to be negotiated with Sandals or some other operator is just inaccurate.

    Thanks again for the sterlin work that you do

  2. Mr. Pilgrim are you saying that we should embrace Sandals and ALL it intends to take away from this country on the mere premise that there is no better known alternative?
    Have we even strategically attempted to locate or stimulate other ventures locally or internationally? Was Sandals chosen as the best option out of a line-up of options or plausible proposals or was it chosen because we think it would be a good idea for them to come here?
    So too did Antigua, Cuba etc. and their experience with the big dream company, leaves us much to learn from.

    Afra, it is clear to me that we are an imaginative people. Even, with the risks set out in this article indicating how Sandals intends to cripple our economy and boldly walk off with our profits, and ultimately prime state land, we recline and take solace in the thought that some good will come out of this MOU as is!

    This is hallucinatory because the risks set out in this article from the MOU, clearly shows the negative future financial impact Sandals will have on our share of the profits as a state. So I cannot understand why on earth, we would be begging them to come here.

    RELATED PARTIES TRANSACTIONS

    This is the nemesis of these sort of agreements or partnerships. It gives Sandals the opportunity to skillfully obscure billions in revenues , trade at advantageous prices and inadvertently hike up expenses making all of their money before profits are declared and shared with T&T. It leaves many avenues open for the state to get a minute portion of the profits or large portions of very minute profits.
    This cannot be left as is:

    “…The Government acknowledges that Sandals intends to establish subsidiaries, affiliates or associate companies to hold the Management Agreement, operate the Resorts and to otherwise perform its role…”.

    It would also take business opportunities away from Tobagonians with regards to transport, tours etc. as Sandals preforms it’s roles through the hire of its own subsidiaries. This quells the hopes of the average local taxi driver and tour guide. It also contradicts the dream we have of economic stimulating activities through the very presence of a Sandals in Tobago.

    Agriculture
    If quality and quantity is the determining factor as to how our Agricultural Sector will benefit from Sandals then why isn’t there a part of the agreement which requires the company to submit a list of their requirements beforehand(by this I mean when budgeted) so that our farmers can collectively prepare in advance to meet the demands.
    It does not seem that we would in any way be given a fair chance to supply this market which operates on prime state land and out of our very expensive 3 billion dollars state buildings.

    Furthermore, the employment of an undefined number of foreigners to key positions within Sandals can lead to exorbitant salaries which adds to the company’s expense mechanism of reducing the overall profit share of the risk taking state of Trinidad and Tobago.

    To add insult to injury, the mention in the MOU of an undisclosed number of month long management meetings annually in an undisclosed number of hotel rooms creates opportunity for Sandals to erroneously mix up guests occupancy with employees’ occupancy and hamper our revenue ,thereby lowering our profit share.

    If this agreement is the guiding factor for the ratification of any future contract with Sandals, we the citizens of T&T and our state will be the only losers.
    We talk continuously about benefits that this project would bring but to move from this dream to reality, we need to pay attention to areas in this MOU where operating expenses can be hiked up and revenues obscured and FIX THEM!

    We need to wake up from this dream and think about the money ,before Sandals sets us up to get MEAGRE PROFITS from which they would make SURPRISE demands for property expansions and maintenance projects that we cannot sustain and sadly play into a well-crafted plot for them to have first preference to buying prime property in our diamond island Tobago.

    If it is profits we are after we need to address these major loopholes.

  3. Everybody is talking like Sandals/Beaches is profitable.
    Do we know this for a fact?
    Yes, they turn over a lot of money, but were it not for these sweetheart deals–where their investment is near zero–then would this brand fly?
    A valid question would be to closely examine the business model of the existing franchises on other islands and compare what those projects have netted by way of 1) profits, 2) employment od nationals & 3) ROI for the territorial government that invested in the hotel.
    It would be interesting to hear how such a project would be funded and rolled out in Greece…or in the fjords or in LA or Hawaii.
    Would the governments there be liable to hold all the risk the way that T&T is being asked to?
    With all due respect to Butch Stewart and his brand, Sandals is not so special.
    The same way that Mario Sabga reverse engineered Burger King and Starbucks and came up with Burger Boys and Rituals, so to can anyone else with a like mind decode a Sandals resort and come up with something like…
    Slippers.

    1. Hi Dennis,
      The first question in response would have to be – ‘Profitable for which party?’ my sole concern has been the Public Interest…the other point is that the model Sandals uses is not the model being proposed for Tobago – in 23 of its existing 24 resorts Sandals owns the property – ie they bought or built the place…in Tobago it is being proposed that the T&T Treasury will donate the land, pay for the design, building, fittings and furnishings after which we will then offer incentives and exemptions to Sandals…that is just plain wrong in my view and I do not know anywhere else that has done that…the Tobago deal is way beyond Sweetheart, it sometimes seems like an Arranged Marriage in which an inexperienced youngster is paired-up with a seasoned campaigner, all under proper rituals and so on eh…
      You see?

      Thanks for joining-in…

      Afra

  4. Does not the THA Act (#40 of 1996) vest all State lands in Tobago to the THA? If so, who are the “owners” of the land in question? Does the THA have a position on this matter? And thank you Mr Raymond for your energy and effort.

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