The Cayman Islands government may be new, but many of the issues they are set to face are not. Near the top of the agenda is what to do about the For Cayman Investment Alliance with the Dart Group, specifically if and how to proceed with negotiations over the portion of the deal known as the National Roads Authority Agreement.
As the People’s National Alliance government was on its way out in mid-May, ahead of the 22 May election, Dart dropped out of discussions for the time being, and requested the release of value-for-money analyses performed by consulting firm PriceWaterhouseCoopers. Accordingly, government disseminated two reports drafted by PwC – one from October 2012 examining the second amended version of the NRA Agreement, and one from May 2013 examining the third amended version of the NRA Agreement.
Government and Dart have already signed the second amended version, whereas the third amended version was not signed, although Dart has indicated it was ready to go ahead with either version of the NRA agreement. For now, however, the second amended version is the status quo.
Agreeing to agree
In both versions, the core of the agreement remains the same. Dart will extend the Esterley Tibbetts Highway all the way to West Bay, and government will close a corresponding section of West Bay Road to facilitate Dart’s redevelopment of the former Courtyard Marriott site, with other new hotels possible in the future.
Overall, the For Cayman Investment Alliance also involves Dart closing and remediating the George Town landfill, and creating phase one of a new waste management facility between Midland Acres and Breakers in the district of Bodden Town. That’s meant to enable Dart to embark on further residential development of Camana Bay, but with four members of the new government representing Bodden Town, the idea of putting a landfill there now seems a bit less certain, at best.
The rationale for breaking out the NRA Agreement from the broader alliance was, essentially, to cut off a piece that was easy to chew, so that country could get its new highway and Dart its new hotel as soon as possible. Indeed, as it stands now, part of the new highway is open, the rest is nearly finished, and Dart has started work on the new hotel.
However, as does tend to happen sometimes in these situations, the basic NRA Agreement was soon itself the subject of further discussions and a target for ancillary wheeling and dealing. For example, the two versions of the NRA Agreement now also contain provisions related to the Barkers area, public beaches, Sunrise Adult Training Centre, and land near Smith Cove and elsewhere.
Odds and ends
PwC’s analyses of the two versions of the NRA Agreement show the kinds of manoeuvring by public officials and Dart in their quest to demonstrate that the deal showed both sides were getting value for money.
The October 2012 analysis of the second amended NRA Agreement showed government incurring costs of some US$91 million in order to get benefits of US$68 million. The March 2013 analysis of the third amended NRA Agreement showed government incurring costs of some US$78 million in order to get benefits of US$78 million.
The PwC’s value-for-money analyses do not factor in the government granting Dart tax and fee reductions and waivers of up to US$53 million over a period of several years (for projects other than Dart’s first new hotel).
The value of the following items did not change from the October 2012 analysis to the March 2013 analysis: highway extension construction (US$37.3 million), new Barkers Road construction (US$1.2 million), land for the new highway (US$1.6 million), cash paid by Dart to government (US$5 million), new West Bay Public Beach park (US$3 million), pedestrian/bike paths (US$1 million), and land near Camana Bay for a new Sunrise Adult Training Centre (US$700,000).
Those benefits from Dart total nearly US$50 million.
Meanwhile, in both the second and third amended NRA Agreements, government’s cost to monitor the Esterley Tibbetts and Barkers Road construction remained at US$800,000, and the value of closing the old Barkers Road stayed at US$1.7 million.
Those costs to government total US$2.5 million.
Money for the road
In some cases, while the elements of the deal remained the same, the value of those elements changed between the second and third amended NRA Agreements. Most notably, the value of the closure of West Bay Road was pegged at US$73.3 million in the October 2012 analysis but was pegged at US$55.4 million in the March 2013 analysis.
To arrive at the value as a cost to government, PwC took the estimated value of how much Dart’s land will increase in worth as a result of the road closure, and divided that in half (because the land beneath the road has no practical potential value to government).
In the October 2012 analysis, PwC was provided with two valuations (one by a government contractor and one by government), each estimating that Dart’s land would increase in value by about CI$120 million as a result of the road closure. PwC took that figure, divided it in two, and converted it to US dollars to get to a value of US$73.3 million.
In the March 2013 analysis, PwC followed the same procedure, but this time was provided with three valuations (one by a government contractor, one by government and one by a Dart contractor). PwC went with the government’s valuation because it was between the other two valuations. In this case, government estimated that Dart’s land would increase in value by about CI$91 million. PwC converted that figure to get to a value of US$55.4 million.
The difference between the two estimates of the value of the West Bay Road closure reduces the ‘cost’ to government by nearly US$18 million, which in itself is more than the total difference in cost to government between the second and third amended NRA Agreements.
The other major difference in cost between the second and third amended agreements is government expected a cost of US$7.3 million in tax breaks related to Dart’s first new hotel under the second amended version, but that was revised to US$10.5 million in the third amended agreement. That’s because Dart changed its plan to renovate the old Courtyard Marriott and demolish and build a new hotel instead. Accordingly, that necessitated more development fees and import duties to be waived.
On the other side of the ledger, according to the third amended NRA Agreement, Dart had agreed to widen the stretch of Esterley Tibbetts between Camana Bay and the Butterfield roundabout, with a value of about US$10 million.
Swap SMB for Barkers
According to the second amended NRA Agreement, government agreed to extinguish the existing and public right of ways (worth about US$3 million) to Seven Mile Beach on Dart’s land. In exchange, Dart agreed to create a new public beach farther north up West Bay Road (worth about US$7 million).
According to the third amended NRA Agreement, government again agreed to extinguish public right of ways through Dart’s land along Seven Mile Beach. In exchange, Dart had agreed to create a new public beach – however, in the Barkers area, not on Seven Mile Beach (worth about US$4 million). Additionally, Dart had agreed to give government land near Smith Cove (US$3.5 million).