A (DRAFT) SYNOPSIS OF THE ROLLOUT OF THE HAWKSBILL CREEK AGREEMENT
By Professor Gilbert Morris
This is a draft synopsis of the rollout of the Hawksbill Creek Agreement. It will show how Freeport was at the apex of every development conversation around the globe and the most powerful men and the wealthiest corporations had interests in Freeport.
There is nothing in Hong Kong or Dubai or Estonia, that was not imagined for Freeport. It is a tragedy that successive held the holy grail of development in their hands, and still - to this day - we seem utterly ignorant concerning the true import of this beautiful piece of development poetry called: THE HAWKSBILL CREEK AGREEMENT!
Note: I have benefited in preparing this note from close analysis of the Royal Commission Report on Freeport (1971), (on which I did my undergraduate law thesis), and the marvellous history: “Grand Bahama” by Peter Barratt (which every Bahamian child should read), and the colonial archives at the Codrington Library, at All Soul’s Collage.
THE SYNOPSIS:
John Ker (1673-1726) - a Scotsman - had the idea of Nassau as a Free port, which was stolen by the Speaker of the Bahamas parliament. Governor Woodes Rodgers arrested him. The idea died.
John Ker (1673-1726) - a Scotsman - had the idea of Nassau as a Free port, which was stolen by the Speaker of the Bahamas parliament. Governor Woodes Rodgers arrested him. The idea died.
In the same period, Sir William Pitt proposed The Bahamas and Bermuda as free ports, following a Dutch model.
In 18th C. Dominica and Jamaica were established by Britain as the first regional free ports to transship and store Spanish bounty.
South Caicos - Turks and Caicos Islands - was also a pastoral colony (free port) in the Windward Passage between the Caribbean Sea and Atlantic Ocean. It was so significant that the Spanish, French, English and Portuguese agreed - copying the Peace of Cateau-Cambresis 1559 - not to raid each other after passing South Caicos.
George III King of Great Britain and Ireland and after 1801, the United Kingdom (1760-1820) ordered a free port established at Bahamas during his reign.
August 4th 1955 The Hawksbill Creek Agreement (HCA) was signed by The Hon. A.G.H. Gardiner-Brown, Acting Governor of The Bahamas with Mr. Wallace Groves, President of the Grand Bahama Port Authority Limited.
The HCA was modelled on Hudson Bay Company (founded in 1670) in British Canada.
NOTE: Sir Stafford Sands was without doubt a genius, and a man of stout independence of mind, who dominated his colleagues with sheer ability. He wrote the agreement -top to bottom - and understand profoundly its larger legal and economic import, which few besides Maurice O. Glinton QC, seem to understand at all.
There are several key innovations in the agreement but the most important matter to understand is: IT'S NOT A CONTRACT! It is a Sovereign Grant (As the Commission of Inquiry recognised. And that means the Licenses of Freeport constituted a Parliament, (which means local government of a 19th century sort) was implicit in the Agreement. But it also meant that the Port Authority and the Government could not alter the agreement without the consent of the Licensee; even though they did so routinely.
The Royal Commission Report on Freeport, (1971) noted:
a. The powers of the HCA were not contractual, but sovereign
b. Nowhere is the power to grant licenses expressed in the HCA
c. The Agreement could not be altered or repealed without the consent of the GBPA
The "Six Nos" of the Hawksbill Creek Agreement are central to its value, they are:
a. No income tax
b. No capital gains
c. No real estate tax
d. No property tax
e. No excise tax
f. No custom's duties
The first major deal by Wallace Grove was an OPM structure used by Aristotle Onassis and was with D.K. Ludwig and it was for shipbuilding. Ludwig dredged the Harbour in exchange for 2000 acres.
To get cash out of the deal, Ludwig sold his Harbour side land to US Steel Corporation.
In 1955, Groves next deal was with the National Container Corporation (NATCON) which was a subsidiary of Owens Illinois Corp. NATCON established an area in East Nassau known as "The Gap", for retrieval of timber for the making of cardboards.
In 1958, Groves commenced the Freeport Bunkering Company. Gulf Oil Company invested $1 million dollars into the project. Business was very slow. But in March 1960, the US government for the sake of Texan oil interests, imposed a quota on residual fuels imported to the US. The US Majors then used Freeport to Bunker and transship other fuels for US markets, as a question of type of fuels and capacity for optimum loads.
NOTE: The strategic value of Freeport based on the economics of shipping, tanker sizes and US law was Freeport's geo-strategic position at the intersection of the Northwest Providence Channel and the Gulf Stream. This gave further strategic value to the Panama Canal, resulting in trade finance savings for smaller Eastern seaboard ports that could lean on Freeport for "right sized" shipments.
In 1959, Barclays Bank and a police station were established at downtown Freeport.
By Fall of 1959, there were 6 large international companies licensed in Freeport, there were 40 miles of paved roads and the Harbour was completed. The first ship to call was: SS Samos, a Greek vessel, 7,268, 441 foot long.
By 1960, the Freeport terminal was exporting in winter months, 922,000 barrels to the US, plus an increase in the number of ships calling.
In 1960, Graduate Students arrived from Cornell University to do one of two comprehensive studies on Freeport and the impacts and future of the Hawksbill Creek Agreement. Primarily they found that of 3,340 souls, 300 were white, but they controlled nearly 70% of the total wealth of Freeport.
NOTE: The study is instructive, but only as a historical document. Their approach was a development model unsuited for an island. (Bahamian Geologist Mr. Ezekiel Hall, speak often to this question). That is, the approach to developing island cities begin not with the interior of the island, but the coasts. The coasts teaches us how to live on an island and regulates land use organically. We ought to have developed Freeport from the water’s edge backwards into the interior. The location of the downtown merely generates costs, and major inland hotels on an is colourful idiocy.
As funds came in, elements of prosperity emerged: Alfred Browning Parker, Frank Lloyd Wright architect, designed the airport terminal, the St. Paul's school, and the Carvel Club. He also designed and built homes for Ludwig, Groves and Jack Hayward, son of Sir Charles Hayward. (after Government House, these were the largest houses in the Bahamas).
1960 was the apotheosis of Freeport:
On July 1st 1960, a Supplemental Agreement was completed, which acknowledged the Port Authority's completion of its obligations under the conditions of the original agreement. Another 50,000 acres were granted to the Port Authority under the terms of the original agreement. The Supplement also required the Port to build a 200 room luxury hotel by Fall, 1963.
Clause 4 of the Supplement mentions establishment of a "municipal government" but with no stipulations.
NOTE: Recall, I argue that local government was implicit in the Hawksbill Creek Agreement.
Groves contracted Taylor International to master plan 108,332 acres for the development company.
In 1961, the Bahamas Governor arranged an 'interview' between Sir Charles Hayward of the Fifth Cleveland Companies and Wallace Groves. Hayward bought 25% of Grove's equity for $1 million pounds. A New York investment banker Charles Allen bought another 25%.
In this same period, the "three corner" negotiations took place between Groves (Port), Ludwig and US Steel for the building of a cement company. The Bahamas Cement Company was a subsidiary of US Steel.
In a codicil, the Bahamas government guaranteed US Steel 12 year monopoly on cement manufacture for the entire Bahamas. The dredging made Freeport one of the four largest manmade Harbours in the world.
Groves was negotiating at the same time with Canadian financier Louis Chesler. Together they formed the Grand Bahama Development Company. Groves (The Port) contributed 102,000 acres. Chesler contributed $12 million in cash. This land became known as "Lucaya".
Harland Bartholomew was retained to plan Lucaya.
In the same year Grand Bahama became the first option official "down range station" for Cape Canaveral.
In 1962, Groves landed shiphandler Freeport Trading Company, to support bunkering.
In the same year, James Rand - investor of the dial mechanism for telephones - and former President of Remington/Sperry arrived to live on the island in his yacht "The Galaxy". He built and donated the "Rand Memorial Hospital" and the John Harvard Library, after the founder of his Alma mater Harvard University (renamed Charles Hayward after Groves sold).
Groves initiated with his partners the Bell Channel Development, adding value to the land bank. On October 20th of that same year, China Daily newspaper, the official paper of the People's Republic at the time carried the headline: "Another Hong Kong is Born", referring to the global buzz about Freeport.
NOTE: Land purchases in Freeport acted as a hedge against inflation. From 1958 to 1974, land in Freeport essentially doubled in value every 3 years.
In 1963, the new Anglican Church opened it doors, Mackey Airlines established once a day service to Palm Beach, the Grand Bahama hotel was completed, named Lucan Beach, with a full fledged casino licensed by exemption from the prohibition on gambling (which became the subject of another Commission of Inquiry), and 2000 acres were dedicated to a wildlife sanctuary.
In 1965, the first headwinds emerged when that February the New York Times did a feature raising questions about the economic culture of Freeport, several hundred tons of oil spilled into the sea, a young politician named L.O. Pindling came to Freeport and warned that amidst prosperity, Bahamians were suffering, at the same time a ship wrecked in the 17th century, owned by the Conquerer of Mexico Hernan Cortes was found off Grand Bahamas containing $9 million dollars of silver and two in tact cannons.
Freeport was so hot as a destination that there were not enough rooms to house tourist. Groves, not one to lose a dime, leased the SS Italia, with 1400 rooms. And so it was that or a time, the largest hotel in the Americas - from Canada to Argentina - was a ship.
Additional ships were added, MV Calypso, MV Lucaya etc, and such returns were made that the revenues were used to develop 511 acres with roads and infrastructure.
In 1965, Louis Chesler sold 200,000 (at $13.00), of his shares on the open market with another 500,000 shares to be held for further sale (at $14.00). All shares were taken by London and South American insurance companies. Land sales in that year grossed $30 million.
In that same year, an amendment to the HCA was negotiated. The agreement recognized that the Port fulfilled every condition of the Supplement Agreement. Under the amendment, The Port Authority agreed to build 1000 middle income homes, together with 200 in 18 months.
The 200 home site came to be called "Hawksbill".
NOTE: I grew up there from about age 12 and attended the Mighty Hawksbill High School; then the largest in the Caribbean.
The Port agreed to build a school to accommodate 1400 students, two clinics and gave $10,000 toward town planning in Eight Mile Rock.
The Amendment did two things worthy of note:
a. Almost all of the initiatives were beyond the Port's boundaries given resonance to the notion of a Greater Freeport
b. The Amendment had to be approved by four fifths of the licensees
This then gave some credence and shape to Clause 4 of the previous Supplement concerning "municipal administration"
In 1967, an election year, the Wall St Journal and the Economist drew sharp distinctions, concerning the disproportion in the level of prosperity resulting from the Freeport experiment. Liberal minded persons believed that the people of Freeport, and not the investors alone should have been made prosperous.
By 1967, Freeport came to the notice of the District Attorney of New York who viewed the "Las Vegas" elements in Freeport as evidence of a deeper nefarious culture of criminality. This led to the 1967 Commission of Inquiry on Gambling. The commission expressed grave concerns about the number of "highly paid consultants" who were also ministers in the then UBP government.
NOTE: Make no mistake, there was an explicit criminal element to Freeport’s rise, particularly after the fall of Cuba to Fidel Castro in 1959. (America’s wealthiest and its crime families sought an outpost near the US, but beyond US law, as their private playground; first in Panama in 1903, then Cuba, then The Bahamas.
In that same year (1967), rumours began to fly about Groves selling out of Freeport. The Port sold both the supermarket and the telephone company, and there was a sense that ideas had run out.
A deal was afoot: a majority of the shares of the Grand Bahama Port Authority were to be exchanged for shares of Benguet Consolidated a Manila based gold mining company, traded on the New York Stock Exchange. In connection with this transaction, Groves and The Rt. Hon. L.O. Pindling, MP - Prime Minister of the Bahamas - had already staked out several stipulations:
a. Give notice to government on new licensees above a certain investment amount
b. Give notice on planning arrangements for Freeport to be coordinated inland wide
c. Give notice of any rate changes for utilities
d. Government acquired 7.5% equity in the Holding Company of the Port, amounting to 162,973 shares
e. Government requested seat on board and "open book accounting reviews
NOTE: I regard this change as both invalid and unconstitutional. The Agreement is NOT a contract, but a “Sovereign Grant”. Even with the agreement of the Principals of the Port Authority, the agreement could not - in my view - be altered without the consent of the “Parliament of Licensees”.
The Port Holding Company was now listed on the New York Stock Exchange!
The Philippine government held up the transaction for a short period because of the Bahamas government's involvement. But approved it in 1969.
In that same year, Fifth Cleveland built a 19 story building - the tallest in the Caribbean at the time - Casa Bahama.
In 1969, a Harvard Professor and tax expert Richard Musgrave produced a student for the introduction of property taxes in the family Islands. When he came to Freeport, he argued that: "time would come when Freeport would be developed to a degree that some or all of its rights, powers and obligations under the agreement would be transferred to a local authority".
In 1969, this came to a head with the "Licensee Revolt": the government attempted to impose a fee on all existing work permits. The Licensees forced the issue to Arbitration against the Port and the Government, arguing that their businesses had been disrupted without proper consultation. Sir Randolph Fawkes MP was retained as council.
Sir Lyndon O. Pindling, MP frustrated with the large white business community in Freeport, said the following: "In this city, where regrettably almost anything goes, some opportunities have come to Bahamians ...but they... nevertheless are still victims of an unbending social order, which if it now refuses to bend must be broken".
This came to legend as the "bend or break" speech.
The Port Authority paid the Arbitration fees, saying this fight was between the Licensees and the government. The government tabled amendments to the HCA. They stalled. The government asserted itself on immigration causing several businesses to go bankrupt when their owners could not return to Freeport.
NOTE: This was ultimately a question about power. Sir Lynden - feeling the pall of the British habit of high handedness - felt a need to assert that he was in charge everywhere in the Bahamas. However, such was the Sovereign Grant - a new constitutional category - that his method was the wrong approach. Something as advanced as the Hawksbill Creek Agreement required skill forensic financial engineering and masterful diplomatic aplomb.
In 1970, Benguet Consolidated reported on its financial performance. Total income from Freeport was $77 million. In order to comply with Philippine tax laws, a Panamanian corporation was formed called "Intercontinental Diversified". This company held all non-Philippine shares for operations outside the country. The separation as completed in 1972. (The Bahamas government's 7.5% was likely diluted).
By 1970, BORCO was the world's largest de-sulfurization oil refinery. It was owned by the best of brands: New England Petroleum - 65%; Standard Oil of California - 35%. In 1970, throughputs grew from 250,000 barrels to 500,000 barrels per day, one of the largest in the world. The confidence in Freeport saw the introduction of an 8 cent stamp featuring the Harbour at Freeport, with the world Development" emblazoned on it.
In 1970, The Princess Group built a 400 room hotel, together with a 12 story hotel named Crown Plaza Resort. Under this arrangement, the Port ended up with and finished the International Bazaar.
Groves - now lauded - retired in 1970. Keith Gonsalves became chairman. His achievement was a total buyback of all outstanding shares, including Chesler's and those a Benguet and Intercontinental Diversified maintained its listing accordingly.
By this time, tourists were 500,000 in arrivals with five 18 holes golf courses in operation.
In 1971, fear struck the shareholders of the Port - Intercontinental when another a Royal Commission was announced on a Review of The Hawksbill Creek Agreement. The Commission found that the government acted erroneously in curbing immigration controls unilaterally. It found that the Port needed to show greater commitment to training Bahamians. As result, the Port committed immediately to a $1 million dollar scholarship fund, with commitments of $250,000 per year for four years.
The Commission's final statement was as follows: "We hope Freeport is not destined as a foreign outpost, but as an integral part of the community, carrying the Bahamas image, maintaining Bahamian loyalties, promoting Bahamian security, and uplifting the Bahamian economy."
In December of 1973, Howard Hughes, the richest man in the world, was rumored to be a guest at the Xanadu Hotel. It turns out that he was not merely a guest, but had sealed the 12th and 13th floors; which caused some intrigue since hotels normally eliminate the 13th floor. Hughes died in 1976.
The larger and seismic shift took place in 1975: Intercontinental Diversified announced a recapitalization of its shares, in a three way deal involving the completion of the alienation of Groves' equity and the acquisition of those shares by Jack Hayward and a newcomer, Edward St. George; who become Jack's partner through one of the first ever "leveraged buyouts in financial history.
This buyout led to the delisting of the Port's shares, and the disappearance of all references to the government's fabled 7.5%.
Two further events in this earthquake were significant:
a. Edward St. George was made Chairman of Intercontinental Diversified and Jack Hayward was made Chairman of the Grand Bahama Development Company.
b. In October 1975 the Bahamas Government sponsored an economic conference, with a Plenary Session, that concluded by vote, that the government should "abolish" the Port Authority.
NOTE: Edward St. George never enjoyed the unencumbered reign as previous chairmen had. His tenure was always contested, and was a test of survival. This mean explain how after 1975, rather than Lear accomplishments, followed by extensions in and to the HCA, his tenure was a series of formal and informal capitulations, the blurred the lines of the roles of the HCA and the government, which the Royal commission said should be observed vigorously.
St. George set out on a global promotional tour over the next 3 years. He extended the airport, negotiated pre-packaged Freeport vacations, and the count of local Bahamian Licensees trebled in those three years. Crucially however, Freeport seemed to lose its identity as an industrial centre to which tourism and development were coordinated and collateral, as opposed to a disjointed nexus of industrialization and leisure tourism.
The US aided in this to ease crowding in a Florida airports by establishing pre-clearance facilities at Freeport.
Over the next 5 years, Freeport lurched from one prospect to another. However, the land generated boom stopped cold when the government in a bid to control foreign ownership of land in the Bahamas, passed the Immovable Properties (Acquisition by Foreign Persons) Act. This threw Lucaya into disarray.
Also in 1975, Freeport gained another type of notoriety: it entered the Guinness Book of World records for the largest marijuana bust in history. 40 tons of marijuana were confiscated at Freeport by Bahamas police and the DEA. It was estimated that 40% of all drugs imported to the US came through the Bahamas. The impact of drug, the riches of which were displayed openly in Freeport, infiltrating every aspect of society, was that the official US State Department view of Freeport was it was a risk to US national security.
This view was confirmed 9 years later in the Commission of Inquiry on Drugs and Corruption, which make world wide news as Mr Pindling himself was implicated.
During this period, a Pharmaceutical plant was added to Freeport's industrial base and new cruise ships were added in delivering tourists. A curious initiative was being negotiated at the same time: a $3 billion dollar coal-fired plant - then 3 times the value of Bahamian GDP - with the objective of supplying Florida with power undersea, since - again showing the geostrategic position of Freeport - Florida needed power generation but could not anticipate approvals.
It was a moment in which, the Port, the Bahamas government and the Florida government were unconcerned about the environmental impact on Freeport.
Between 1970 to 1990, Freeport's fortunes could be seen in the numbers:
a. In 1970, the Census report showed that in Freeport, by 1980 - if trends continued - Bahamians would be outnumbered by expatriates and Haitians
b. In 1970, 60% of all executive positions were held by foreigners and whites, and manpower Survey showed that Expedia tee held 64% of skilled technical positions
c. In 1970 the population of Grand Bahama increased by 43%, largely in my view from insular-island migration from Nassau, Abaco and Andros
d. In tourism, between 1960 and 1970 tourism grew from 40,000 per annum to 500,000, one of the largest increases in economic history. (The question is how were the revenues from this increase registered and apportioned?)
e. By 1979, it had fallen back to 300,000 and rose up over 550,000 again, representing 28% of gross Bahamas numbers.
f. Freeport benefited from its Port facilities in the cruise business, which would often retool and refurbish at Freeport and in those days, the average cruise stay was 5 days.
In 1987, Freeport Harbour received 1,447 cruise ships, 43 warships, and other commercial vessels equal to 11.86 million gross registered tonnage. 90,000 ton of Limerock was exported from Freeport, Grand Bahama international airport served 476,000 stopover passengers, with charters from Italy and a Germany adding to that number, placing great stress on the 300 formal and 1,400 informal rooms available in Freeport. And in 1992, Sir Freddie Laker opened the "hub system", which though it failed eventually - owing to his financial dealings outside Freeport - it paved a path for airlift development for Freeport.
The Bahamas Air Sea Rescue Association (BASRA) provided support services in this period and grew to become one of the most prestigious organizations in the Bahamas, proved by their partnership with the US Coast Guard.
The 1990s saw the arrival of Hutchinson Whampoa in an arrangement that annulled the management dominance of the Port Authority's chairman for the first time in its history.
During this period their were 2000 Licensees of which 550 were builder investor Licenses. Freeport had a unique feature in the ownership of duplexes, which often came with an investor builder's permit. This means that many young men could develop their properties under license and generated both an economic boomlet and a culture of financial independence, leveraging the duplex.
NOTE: During the late 1980s and 1990s, Freeport fell into a time warp: there was an attempt to revive the Free Trade Zone in the East of Freeport around the old US airbase. These plans fizzled. The Grand Bahama Poultry Company, Leader Beverages, Winn Dixie, GB Foods and Sunshine Foods, Caribbean Paints all had varying levels of success and failure. The sustainable business still seemed to be ones with direct connections to the Port Authority.
There seemed, again to be no strategy to pace the development of companies for domestic services and supply to industrialization to ensure sustainable demand through population growth. Even Groves - whose tenure was wildly successful - merely exercised the topsoil of Freeport's potential. Now that genuine financial engineering and technical economic insight was necessary, Freeport seem to stall and default to residual income from locals, the people who benefited least from Freeport's development.
50% of the Freeport Power Company was sold to an American concern; and resold to another global player in the last 8 years. The Cement Company fell in the mid-80s, revived in a new manner by Bahama Rock in a barter arrangement. BORCO stopped refining petroleum products and volatility made storage options more profitable; since storage meant more efficient recurrent revenues. Syntex - a prestigious name locally, the grantor of many scholarships for Bahamians - ceased produc
