What are the lessons learned in these examinations of the State-owned hotels in T&T? These are large-scale Public Private Partnerships (PPPs) and that approach is being increasingly adopted by our government in this period of deficit budgeting, so this review is a relevant one.
In this article I will set out the general arrangements, the T&T arrangements, the Tobago Sandals MoU and the closer examination of the State-owned hotels. Investment policy and the prospects for privatisation will be considered in conclusion.
The arrangements for the existing State-owned hotels in T&T are that the State paid to set up the hotels – land, design, construction, fitting and furnishing – which are then operated by hoteliers under the terms of Management Agreements. Other hotels in the Caribbean, from what I have seen, were built by the hoteliers, with the host states granting tax and other concessions in return for that outlay. The proposed Tobago Sandals, under the terms of the MoU, had the State paying for the resort and also agreeing to grant tax/duty/work permit concessions together with facilitating transfer-pricing arrangements. There were no guarantees in relation to either local content or employment.
The Tobago Sandals negotiations were being conducted secretly by our government, who were relying on the public’s trust to proceed. They operated under the cover of that tremendous intangible, the Benefit of the Doubt. In this sorry case, there were to be no benefits, of that there can be no doubt.
Those terms were entirely in Sandals’ favour, so just who negotiated that deal on our behalf? I don’t know of any other deals anywhere else in which the State made all the capital investment and also granted those heavy concessions. The silence from the Tobago Sandals supporters is eloquent.
Turning to the State-owned hotels, the lessons seem to be along a common thread, despite the perceived differences in performance.
That hotel cost $390M since its construction in 2000 and was described by Minister Gopee-Scoon as having lost $276M in the 11 years between 2008 to 2018. These estimated costs do not include the $138M paid to private shareholders of the failed hotel. e TecK reported to the JSC that “…with Magdalena…for every dollar revenue it earns, its operating cost in 2017 was $1.70. It was $1.68 in 2016…”. A new operator, Canadian-based Sunwing Airlines, has reportedly made recent proposals for the management of that hotel, but that is beyond the scope of this article.
This hotel has been under refurbishment since 2008, at an estimated cost of $634M. This PPP is of particular interest as it is the only one in which the Management Agreement is available. It can be assumed to be profitable, given the Minister’s statement that Corporation Taxes were paid for the years 2015 to 2018.
Estimates based on the reported taxes paid show apparent discrepancies which raise questions on possible transfer-pricing and the oversight roles of the e TecK professionals and Board of Inland Revenue officials. Although that Management Agreement contains no confidentiality provisions, the annual audited accounts of the hotel remain unavailable. Those accounts are prepared at our expense, in accordance with that Agreement.
This hotel has cost $630M in design, construction and fitting/furnishing, since its opening in 2008 – the land was stated in UDeCOTT’s 2007 audited accounts to be $224M in value (pg 36). Altogether, an investment of an estimated $854M in Public Money.
It was declared by UDeCOTT Chairman, Noel Garcia, to be a highly-profitable venture for the State, this impression was fortified by Minister Paula Gopee-Scoon’s statement of 1 May 2018. None of the sensible questions as to the interpretation of those figures were answered, so we do not know the rate of return. One is once again left with an impression of secrecy in this PPP.
The Secret Accounts
The Hilton Trinidad and Hyatt Regency must both have proper audited accounts as that is the standard which is followed by those companies.
If the Hilton Trinidad or Hyatt Regency were losing money those hoteliers would have exited a long time ago, which is what happened with Tobago Hilton.
Obversely, if our State-owned hotel investments were making good rates of return our politicians would not stop talking about it. The remaining question is inescapable –
‘So how bad is it?’
What is the State’s investment policy for this sector? Is there a Target Rate of Return?Why are these secret arrangements allowed to exist? What is the actual rate of Return for Hilton Trinidad and Hyatt Regency?
Prospects for Privatisation
Does the State have a legitimate right to participate in this arena? Some private hoteliers regard this as a case of ‘crowding out‘, in which the business sector is taxed, only for the State to enter the arena as a serious competitor. Obviously, that will rankle the private sector players and one has to ask – How does Privatisation fit into this discourse?
One can readily accept that without State investment, it is extremely unlikely that hotels would exist on the scale of either Hilton Trinidad or Hyatt Regency, which does not erase the question. Given that successive governments have been unable or unwilling to explain the rationale for holding these substantial investments, why do we persist?
So what would a proper prospectus include? The audited accounts and Management Agreement must be a part of a prospectus if investors are to give serious consideration to buying those properties.
The value of those properties would be estimated by examining the underlying commercial arrangements and their performance. In the case of Hilton Trinidad, the Management Agreement ends in 2023.