Okay, here’s what we’re going to do: you’re going to give me your cell phones and I’m going to lock you in this room and let you read this article. You can take notes, but I’m going to take them away from you when you’re done and burn them because this article is my intellectual property and there are commercial sensitivities involved. There will be a quiz at the end, and if you get anything wrong, I keep your cell phone and I get an option to buy your shoes. Why? Because I say so. Got it? Good. Now hand over the phone.
JUST KIDDING! Who do I think I am, right? The Mayor of the CBRM?
CBRM Council, 22 November 2017. (Spectator photo)
You can take all the time you like to read this article. I apologize right now for its length, but making sense of the latest shenanigans in the Cape Breton Regional Municipality (CBRM) is not for the faint of heart. As I said in the headline, it’s been a real SHIP — as in, Sydney Harbour Investment Partners, our port promoters — show.
It all started with one of those surprise, last minute, in camera Council meetings Mayor Cecil Clarke loves to call. Word went out last Tuesday there would be an in camera session about something related to the Port of Sydney on Thursday at 10 am. At that session, Council was treated almost as badly as I was threatening to treat you at the beginning of this article — they had their cell phones taken away, they had any notes they took as they attempted to come to grips with this something related to the Port destroyed, they weren’t allowed to tell reporters what they were discussing.
After a second, in camera session on Monday November 20, Council came out into the open to vote on what turned out to be a matter related to the development of a container terminal on Sydney harbor. They would pass two motions at that meeting. Here’s the first one, which Council approved by a vote of 12 to 1. (Bless you, District 6 Councilor Ray Paruch, and your stubborn insistence on transparency):
That the Cape Breton Regional Municipality enter into an Option and Development Agreement with Sydney Harbour Investment Partners Inc. and that the Mayor and Clerk be directed and authorized to execute the Option and Development Agreement presented between the Cape Breton Regional Municipality and Sydney Harbour Investment Partners Inc., acting in its capacity as general partner for Sydney Harbour Investment Partners LP, that was presented to Council on November 20, 2017, and that the Mayor and Clerk be authorized to execute the Port Facility Lease and Agreement of Purchase and Sale contained in the Option and Development Agreement in accordance with the terms and conditions set out in the said Option and Development Agreement. That in the event a sale of the Port Site is required as a result of the inability of the Municipality to obtain consent to a 99 year lease agreement; that the lands be conveyed to SHIP by way of an Agreement of Purchase and Sale, which document shall contain all rights, conditions, benefits and protections in favour of the CBRM as exist in the Lease Agreement attached to and forming part of the Option and Development Agreement.
Option & Development
Before we attempt to break that down like a five-person tent in a thunderstorm, let’s listen to what the busiest lawyer in Sydney had to say about it. Jim Gogan introduced the agreement to Council by saying it was the product of over a year and a half of negotiation and…I’m afraid I’m going to have to stop him right there.
Negotiation of a development agreement was cited as a reason for granting SHIP (then Harbor Port Development Partners, HPDP) its initial, two-year exclusivity agreement in June 2015. Here’s Gogan himself in an Issue Paper he presented during the 16 June 2015 meeting of council:
The exclusivity agreement also contemplates the Development agreement…The Development agreement would be exercised when the project has fully materialized. The details for this agreement are subject to negotiation between CBRM and HPDP…
That’s two and a half years ago.
And even if actual negotiations began “only” 18 months ago, how does that jibe with the pressure Council was put under last December to extend that exclusivity agreement from two to five years? Pressure brought to bear months before the initial agreement actually expired? Council was told the signing of Ports America as a terminal operator meant the project had momentum, that things were progressing rapidly, that the iron was so exceedingly hot it simply had to be struck right at that very moment.
How do you go from that sort of urgency to, “Well, actually, our port marketers spent the next 11 months hammering out a deal with…the CBRM?”
The Stranger Things fans among you will know what I mean when I say that I left that meeting on Monday feeling like I was leaving the Upside Down.
Which brings me to my next gripe — the agreement was presented to Council on 16 November and they voted on it on 20 November. They had access to the documents they were supposed to be analyzing only at the Civic Centre. They were expected to master an agreement the Mayor himself described as “complex” in five days.
Would this be a good point to remind everyone that said deal took at least 18 months to negotiate?
Is time a luxury we allow only port developers and the Mayor of the CBRM?
Note that SHIP Inc is now “acting in its capacity as general partner for Sydney Harbour Investment Partners LP.”
Sydney Harbour Investment Partners LP is a new entity. How new? Well, it was registered in Quebec on 31 October 2017 and as of today (November 22) it has not been registered in Nova Scotia.
Limited partnerships are a type of corporation often formed to carry out projects on timelines. They consist of a general partner — in this case, Sydney Harbour Investment Partners Inc — but can also have additional “limited” or “silent” partners who, in theory, invest money but have nothing to do with the management of the corporation. According to Quebec’s Registraire des entreprises, the other partners in SHIP are Albert Barbusci and Canderel Maritime Ventures Inc.
For the record, a “Commanditaire” is a limited partner while a “Commandité” is the general partner. As you can see, in this case, there is really no difference between the general partner and the limited partners — the general partner is a company made up of the two limited partners. I asked a Quebec lawyer who told me this is a standard setup intended to limit the individual liability of each partner.
Canderel Maritime Ventures Inc was founded in 2015, is majority owned by Canderel Management Inc and lists Canderel’s VP of finance, David Hawrysh, as its president and secretary.
To jog my memory, I looked up SHIP Inc again and found that its shareholders are Albert Barbusci and Canderel Maritime Ventures Inc. Barry Sheehy is listed as “Secretary” but not a shareholder. Barbusci is president.
The CBRM’s port development deal, then, is with Barbusci and Canderel.
Good to know, right?
So, let’s look at that deal (or as much of it as we’re permitted to see).
The only detail provided to the public came from a letter from Richard Deslauriers of Pricewaterhouse Coopers (PwC). Deslauriers, a partner in PwC’s Montreal office, was retained by the CBRM to provide “independent” verification of the terms of the development agreement, because nobody is more independent than a paid consultant. (Added bonus: EVERYTHING about this deal is based in Montreal — SHIP, Barbusci, Canderel, Deslauriers…)
According to Deslauriers’ letter, which Gogan read aloud during the public portion of Monday’s meeting:
To facilitate SHIP’s development of the project, CBRM and SHIP negotiated an Option and Development Agreement, whereby CBRM grants SHIP certain, specific items. These include:
The option to lease lands comprising an area of approximately 431 acres located in Edwardsville for the purpose of developing a wharf and a container terminal. This is referred to as the PORT SITE.
The option to purchase the freehold title to lands comprising an area of approximately 1,000 acres for the purpose of developing a multi-tenant logistics site. This is the LOGISTICS SITE.
Let’s compare what Deslauriers says is in this development agreement with what Gogan told Council would have to be in it in an Issue Paper he presented to them in December 2016. He was pushing Council to extend HPDP’s exclusivity agreement (which he wrongly dated to 2014 in his document) by five years. Among other things, he argued the extension was needed to give HPDP time to “develop a final consortium agreement as well as a final sale/lease and development agreement with the CBRM.” (In other words, the same argument he’d made for the initial exclusivity agreement a year earlier.)
In that final sale/lease and development agreement, he told Council, it would be “key” that:
HPDP be given the option to lease the properties known as the Sydport Greenfield Site and the backlands for a period of 99 Years or to purchase the property for $10 million which is equivalent to the purchase and other associated costs in the acquisition of these properties.
What is the difference? Well, as far as I can see, it’s that now, even if by some miracle of the Lord Jesus the province gives the CBRM a charter and it can enter into a 99-year lease, when the deal is executed, SHIP will be given the option to buy the 1,000 acres designated as the LOGISTICS SITE. I think this is what Councilor Paruch was getting at when he said they’d locked themselves into a deal where they would lose control of a public asset.
I understand, of course, that signing a 99-year lease for a public asset is almost the same as selling it outright but it’s not quite the same and the distinction clearly mattered enough to someone that the “buy” option was built into the agreement.
And let’s remember — the 1,000 acre logistics park (I still can’t bring myself to say “Novazone”) is Canderel’s baby. Their role in this deal is to develop the park. And Deslauriers’ letter says something odd about the park. After noting that the “proposed transaction” will allow the CBRM to recoup its investment in the greenfield site and collect taxes for services it provides the Port Site and the Logistics Site (seriously? It took 18 months of negotiation to make sure the CBRM broke even on the deal and got paid for providing municipal services? I wonder what SHIP’s opening offer was?) he adds that it will:
Incite SHIP to develop the Project quickly, in particular the Logistics Site where most jobs are likely to be created, without taking on any risk by making investments itself.
How is SHIP being “incited” to develop the project quickly and why the focus on the Logistics Site? And then there’s this:
The Proposed Transaction also recognizes the need to create a competitive environment that will contribute to SHIP’s ability to successfully develop the Project.
What do you suppose that means?
The second motion passed by Council (by the same 12-1 vote on Monday) provides a little more information:
Lump Sum Payment:
When the option agreement is exercised with Sydney Harbour Investment Partners Inc. in relation to the Port Site, the payment of $10,000,000 will be held in reserve and will be used in lieu of borrowing for capital purposes until the reserve is depleted. The equivalent borrowing amount shall not be increased as a result of this reserve which will result in an accelerated debt repayment and resulting in increased available operating funds.
CBRM CAO Marie Walsh told me that while the motion only mentions the Port Site, that $10 million price applies to the “overall agreement,” meaning the Port Site and the Logistics Site.
It will be paid up front regardless if it is a lease or sale. We will use it in lieu of borrowing which will accelerate the debt repayment and thereby increase available operating [funds]. We would have put it directly on the debt however we would be penalized heavily from Municipal Finance for early payment.
In that 2015 presentation to Council, Gogan said the development agreement “contemplates three areas of compensation for CBRM.” He then listed them as:
A) A lump sum payment to CBRM
B) An annual lease payment payable to CBRM
C) A royalty based annual revenue [sic] stream based on traffic at the Port
I asked Walsh who told me that the $10 million will either be the sale price of the land or the 99-year lease price (that works out to about $100,000 a year for the 1,500 acres). As for the royalty, she said:
[T]here have been additional amounts negotiated which will reflect the Project’s success.
Those “additional amounts” were not discussed during the public portion of the meeting and as we are not allowed to see the contract, we have no idea what they are.
So when does this Option and Development Agreement kick in?
That is spelled out in the “HPDP’s duties” section of the exclusivity agreement signed in 2015:
The first thing that strikes me is that this development agreement was to have been finalized between the CBRM, HPDP and the “strategic partners” (plural) that would “form the basis of the commencement of the project.” It says at the outset HPDP was to assemble a “consortium of equity investors, and other necessary entities which would be required to initiate the construction of a container terminal, leading to the eventual operation of the container terminal.”
But this development agreement is between the CBRM and Sydney Harbor Investment Partners LP which is made up of Barbusci and Canderel. SHIP assembled a consortium of two, neither of which is a port operator or a shipping line. One of which (Canderel) came on board specifically to build the logistics park. There is no entity in this consortium charged with building a container terminal.
And if Ports America is on board to operate the terminal, why was Ports America not mentioned in the agreement? Back in 2016, when Gogan was telling council what would have to be in the development agreement, item two was:
Ports America will obtain reasonable tax concessions, tax abatements or incentives to make the Port of Sydney a viable port in the international market. These concessions may come in part from all three levels of government. The CBRM’s ability to provide tax concessions or abatements will need to come from the provincial government.
CBRM have drafted these powers in the initial draft of a CBRM charter.
Sydney-Whitney Pier MLA and Minister of Municipal Affairs Derek Mombourquette and Glace Bay MLA and Minister of Business Geoff MacLellan attended Monday’s in camera meeting. Mombourquette remained to address the open session. Remarks by various Councilors made it clear the two ministers spoke, in secret, to Council only, about the CBRM Charter.
Why this would be a subject for an in camera meeting puzzles me. Surely any discussion of a municipal charter between our elected municipal representatives and our elected provincial representatives should be a matter of public record? And yet, it was not.
No concessions for Ports America were discussed during the meeting, nor were they mentioned in Deslauriers’ letter (unless that’s what the rather cryptic line, “The Proposed Transaction also recognizes the need to create a competitive environment that will contribute to SHIP’s ability to successfully develop the Project,” refers to.)
In fact, Ports America wasn’t mentioned at all.
The second thing that strikes me about those conditions that will trigger the Option and Development Agreement is that “identifying a viable scheme for the operation of an international container terminal” doesn’t sound like “securing a terminal operator and shipping line” to me, but surely that is what it must mean, right?
Delivering construction costs shouldn’t be that difficult — wasn’t the Chinese Communications Construction Company working on that? (Whatever happened to those guys? Did anyone ever see their report?)
And the last piece, agreeing the financial return of the CBRM, seems to be what they’ve been working on for the past 18 months.
Are they about to announce SHIP has met all the conditions necessary to trigger the Option and Development Agreement? The Mayor hinted that there could be an announcement by Christmas — but he also admitted, at the end of the meeting, that no shipping line has been secured. Can he possibly be suggesting a group that took 18 months to negotiate a deal with the CBRM is going to lock down an international shipping line in a matter of weeks? Or is he hinting that he’s ready to pretend SHIP has done what it promised to do and take their $10 million? What if the conditions necessary to trigger execution of the deal have changed? They could have, we wouldn’t know, we aren’t allowed to see the agreement.
Taxpayer vs Citizen
CAO Walsh made a point of stating during the meeting that protecting the interests of CBRM taxpayers had been their main goal during the negotiations with SHIP.
In the process, however, they trampled all over the rights of citizens.
Jim Gogan actually stood before Council on Monday and extolled the virtues of the “process” by which they had chosen an “independent third party” to “verify” the Option & Development deal for council’s benefit — meaning, they called for bids from consultants, they read them, they chose a winner.
Most people would not find that process so very wonderful, but you have to view it in the context of Sydney’s port development. Remember, we tapped a federal bureaucrat with no relevant experience to head our Port at a salary of $200,000 a year. We hired an amateur historian and a former advertising executive to market our port because one of them approached the Mayor at a budget consultation session and gave him a pitch about the Great Circle Route. We hired a young man with a three-week “Port Executive Certification” course under his belt to head business development. We appointed an interim board made up of elected officials and let them preside over the port corporation for two years.
Really, it is starting to seem rather wonderful that in this one, small port-related thing the CBRM did follow something resembling a “process.”
But it doesn’t make up for forcing a complicated financial deal through Council in too short a time, hiding the details from the public, privileging “commercial sensitivities” over the citizens’ right to know, meeting in secret, allowing Jim Gogan to represent both the CBRM and SHIP (which, let’s face it, is what he’s doing — otherwise, wouldn’t SHIP have wanted a representative at those meetings?) and inviting provincial ministers (who happen to be local MLAs) to address you in secret about public matters (the CBRM charter).
Our Mayor has most of our Councilors so cowed, they seem to be suffering from some form of Stockholm Syndrome: “Yes, he locked me in a room and took my cell phone away and tried to make me vote on a deal I’d barely had time to read but he let me ask questions of the CBRM staff and they were so nice about answering them.”
What kind of municipal leader treats his fellow elected representatives and staff like that? On what planet does it make sense to spend 18 months negotiating a deal and then allow an elected body only five days to read it, digest it and vote on it?
Planet CBRM, apparently, where, with the exception of Councilor Paruch, everyone accepted this behavior.
And for their pains, they were thanked, by the Mayor, in open session, for their “blind faith” in him.
You couldn’t make this stuff up.
Watch that 1,500-acre space.
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