CPA issues caution on casino-support infrastructure

The Commonwealth Ports Authority has cautioned the Tinian Legislative Delegation in carrying out infrastructure developments in support of the hotel casino on the island-municipality of Tinian.

In a letter sent to the Tinian lawmakers, Carlos H. Salas, executive director, said gaming activity has the potential to stimulate the economy on the island as well as support its future development.

However, unless Tinian Dynasty Hotel & Casino would be able to arrange regular air transportation for its clients, it is difficult to conclude that it would be successful in tapping the demand of the gaming industry.

Salas noted that Ricondo & Associates, airport project feasibility consultant, has made a sensitivity analysis which showed that there will be additional revenue to the ports authority if Tinian Dynasty begin flying its customers to the island and increase the occupancy of the hotel. However, these additional enplanements were not considered in obtaining an investment grade rating because there is no proven Asian market or sufficient infrastructure to support the influx of tourists.

CPA hired the services of Ricondo & Associates last year to assist the ports authority in obtaining an investment grade rating on its outstanding debt. An evaluation of the rating agencies — Fitch IBCA and Standards & Poor’s — would prove CPA’s capability to pay its debt.

The study revealed that it would be extremely difficult for the ports authority to incur additional debt until such time that the CNMI tourism market has improved.

Since the Asian financial crisis began more than a year ago, visitor arrivals in the Northern Marianas have suffered a double-digit decline which has led to the closure of many businesses on the island.

Furthermore, the study believes that a new runway is needed to help provide non-stop service to and from Asia but a demand must first be made proven through the use of non-stop service to West Tinian Airport with a fueling stop on Saipan. “Apparently, no airline is convinced of such demand and, therefore, none have committed to serving the market,” Salas said.

The study added that it is premature to fully estimate the full revenue potential resulting from the gaming activities of numerous casinos on Tinian. A market demand and financial analysis prepared by Ernst & Young on the first five years of operation of Tinian Dynasty would result in approximately some $52.8 million in taxes in the first year, increasing to $64 million on the fifth year.

In addition, gaming taxes based on gross revenues after junket costs are deducted would be $20.4 million in the first year and $24.6 million on the fifth year.

This early, it is difficult to estimate the gaming taxes for Tinian Dynasty for its first year of operation which will not be completed until May 1999. As of November 1998, the study could not document any gaming junkets and Tinian Dynasty has yet to reflect profitability.