DECCO, a subsidiary of Dart Enterprises, could be granted a 99-year master lease on the land earmarked for the cruise ship berthing facility in exchange for developing the project.

Backbench legislator Cline Glidden Jr., who is heading up the government’s efforts to build a cruise ship berthing facility, made the announcement during a presentation about the project at the Marriott Beach Resort on Wednesday.

“The developer would be at risk for the majority of the investment, and the only way to achieve the total vision was an integrated finance plan that includes all available revenues, grants the developer a lease over residual lands commensurate with the funding shortfall and for a period [long enough] to allow the developer to make back his investment with an agreed profit,” said Mr. Glidden

“Depending on the risk and investment period, this lease could be between 21 and 99 years.”

The berthing project is mooted to be built on eight acres of reclaimed land to the north of, but not including, the cargo port. Mr. Glidden said that there could be a cost of $100 million on reclaiming the land plus $200 million on constructing the project, which included $62 million that he said would be spent on infrastructure at the dock and around the George Town area affected by the construction project. However, these costs would not be known until the developer had put forward a proposal that was acceptable to government.

Framework agreement

The government had explored financing options but was not willing to enter into a situation whereby the cruise lines themselves invested in the infrastructure, Mr. Glidden said.

“Government does not have the money to go out and invest in all the consultants, all the architects and all the work that is necessary... looking at the market today, cruise investment continues to grow but not as much in the Caribbean.

“Grand Cayman had grown as one of the most important ports in the Western Caribbean but now it is being threatened by new ports. Company investments in Cozumel, Roatan, Jamaica and others are pulling capacities [originally] destined to Grand Cayman. The cruise lines themselves have made significant investments in those ports so what we see is a model for new cruise ports being driven mainly by the cruise lines themselves where the intention is to monopolise revenues on board ship as well as on shore,” explained Mr. Glidden.

Master lease

The master lease that would be granted to DECCO would allow it get a satisfactory return on its investment, while avoiding Cayman being beholden to cruise lines’ own interests in the construction project, Mr. Glidden said.

A number of income streams have been identified in order to make the proposal attractive to developers.

“Project income will be derived from additional cruise usage fees, some of which may be guaranteed by preferential berthing agreements,” he said. “There will be a master lease of residual property with other income to be negotiated...

“When we refer to a master lease of the residual property, for clarity, government wanted to remove the risk of the development of the residual property. [For example] if the repayment is $20 million and we’re able to get, through preferential berthing, $10 million, the remaining half of that will be paid for by the master lease of the residual property. So the developer would pay the $10 million dollars; they would then be responsible within the limitations agreed by government to make sure that remaining property is able to give them the profits that are required to pay them the $10 million and whatever profits are needed,” said Mr. Glidden.

Risk transferred

He noted that government did not want to be in the business of depending on the success of whatever would be established on the additional land, in order to be able to finance the project. He said that he had seen questions and concerns regarding the government entering into projects without making the money to be able to sustain them, but in this case the risk was transferred to the developer, who would have exclusive rights to build a cruise dock on Grand Cayman.

“The developer will have the land and will have the responsibility to make that land work. But the risks associated with whether that land works or not is not something that will affect this project,” he said.

Mr. Glidden revealed that a framework agreement had been discussed that provides a commitment for the parties to negotiate a binding agreement and explore financial options plus provide a business structure for the deal and its subsequent schedule, he added.

The business plan presented by the developer would identify project costs, revenues derived from cruise operations, financing plans, including the level of borrowing and projections of costs and revenues from residual land, and revenue share proposals based on a benchmark of 1.6 million passengers per year.

“There is a possibility that the existing $12 to $14 [cruise passenger tax] could be used as revenues to help as well,” he said.

“Business plans will be subject to approval from government and the Port Authority, and both construction and finances will be done on a competitive basis, subject to government approval,” he said. “Government wanted to be protected and ensure that the costs of the project be restricted, because costs will be reflected by the period of time that the lease has to be given to the developer.”

Concession agreement

A series of agreements would be made subsequently including a concession agreement awarding the developer the right to execute the design-and-build documents that set forth conditions of construction, and berthing agreements, in which cruise companies put forward the fees to be collected.

“Until we determine what the final cost is and what the shortfall is based on what the cruise lines and other revenue streams are willing to make up, what we’ve given to the developer in broad framework terms is to say that we’re willing to give you the lease; we can’t tell you what period of time that lease will be until we get those numbers.

“But we’re willing to do the lease, give you a range and the commitment to agree on a period time of sufficient length to justify that investment and risk... this broad framework agreement is enough for the developer to know that, within those restrictions, they can go out and make an analysis and plans to come back to government and justify why they need the lease to be 21, 25, 35 years,” he said.