Whitehouse hotel sale in the best interest of the country

— Says PM Golding

BY ALICIA DUNKLEY Senior staff reporter dunkleya@jamaicaobserver.com

Wednesday, January 12, 2011

PRIME Minister Bruce Golding says there was no mystique about his administration's decision to begin talks with Sandals Resorts International (SRI) on the proposed sale of the Sandals Whitehouse hotel in Westmoreland.

The decision to sell the property, Golding told Parliament yesterday, would bring "an acceptable closure to the sordid ordeal that has been a burden facing (his) government since it took office" in 2007.

"The arbitrator's decisions are yet to come. It will be a long time before the loans that were incurred to fund the project are finally repaid. What we have done is to staunch the haemorrhaging and start the exit process. It is not the end of the matter but it is the beginning of the end," the prime minister said.

Sandals Whitehouse is the property for which the Urban Development Corporation (UDC) in 2001 entered into a joint venture for construction with Gordon 'Butch' Stewart's holding company, Gorstew Limited, which also owns the Jamaica Observer.

Under that arrangement a tri-partite company, Ackendown Newtown Development Company Limited (ANDCo), was formed with the UDC holding 37 per cent, the National Investment Bank of Jamaica (NIBJ) 30 per cent and Gorstew 33 per cent. The joint venture agreement provided for a 20-year lease of the property upon completion of construction to Gorstew, which manages the hotel through its Sandals brand.

That construction should have run from July of 2001 to December 2002 at an estimated cost of US$60 million, however, disputes, delays and massive cost overruns pushed that to 2005 and the costs escalated to US$117 million, an overrun of US$43.3 million.

In 2009, ANDCo undertook further expenditure of US$3 million to remedy construction defects that had subsequently been identified and which had caused a legal fuss with Sandals, which insisted it would not damage its world-famous brand by accepting substandard goods and services.

Yesterday, Golding said "having considered all the facts and circumstances, the Government took the decision to cut its losses and sell its interest in the hotel property in order to extricate itself from an arrangement that has proven to be disastrous to the Jamaican taxpayers".

He, however, said that because of the particular arrangements regarding the property, the normal procedures for divestment, by way of advertisement and competitive bidding, were not considered appropriate for a number of reasons.

Among the reasons he gave was that Gorstew was already a part-owner of the property through its shareholding in ANDCo. Based on the terms of the 2005 lease, Gorstew had a right of first refusal in the event that ANDCo disposed of the property. In addition, he said the property was the subject of a long-term lease to Gorstew which has 14 years left to run and which would make it unattractive to a prospective third-party strategic purchaser, who would naturally wish vacant possession.

Further, the terms of the lease and the projected rental income were unlikely to attract financial investors at a price satisfactory to the government shareholders, he said, adding that Gorstew, having the right of first refusal referred to above, would be placed in an advantageous position in such a bidding process.

Golding noted, too, that the location of the property "off the beaten track" would make it a "hard sell", especially in a period of economic recession.

"The Government therefore decided to enter into negotiations with Gorstew for the sale of its interest in the property. In April 2010, with the agreement of the parties, Cabinet approved the appointment of R Danny Williams, OJ, to serve as facilitator to negotiate the terms of sale to Gorstew," Golding told Parliament.

But those reasons given by Golding are now being probed by Contractor General Greg Christie who last week announced that a high-level team from his office had commenced the process of evaluating the documentation on the particulars of the negotiations, for the sale of the Sandals Whitehouse Hotel to SRI, in which he claimed "its functionaries have allegedly been secretly engaged".

Golding directed all relevant government agencies to co-operate fully with the OCG in the conduct of its investigation.

The prime minister, in his statement, insisted that while disputes still remained unsettled as to the liability for the cost overruns, as well as suits filed by Gorstew for compensation in the amount of US$28.8 million for losses it suffered as a result of the failure to complete and deliver the project on schedule and compensation for brand damage, the sale decision was in the best interest of the country at this time.

"However, make no bones about it... in the final analysis, the taxpayers of Jamaica will bear a substantial portion of the more than US$120 million that has been spent on a project that was not properly conceived and very badly executed," the prime minister said, cautioning that "it is not yet over".

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Whitehouse hotel sale in the best interest of the country