General Audit Chamber: APS still faces significant vulnerabilities

GREAT BAY--While the coverage ratio of the General Pension Fund of Sint Maarten (APS) reached a record high in 2024, the General Audit Chamber notes that the fund still faces significant vulnerabilities.

The Audit Chamber points out that the current contribution rate of 18% does not fully cover the costs of the scheme, which means that investment returns remain crucial for APS to meet its obligations. Local investments in particular continue to experience delays, valuation challenges, and uncertainty about future returns. According to the Audit Chamber, questions remain about the risks these projects carry and their contribution to the long-term position of the pension fund.

The Sint Maarten Investment Company (SMIC), which manages APS’s local portfolio, was also highlighted in the report. The Audit Chamber observes that SMIC has not yet delivered positive returns, adding to the concerns about the viability of local investments. The report stresses that greater transparency and accountability are needed regarding the performance of SMIC and the criteria used for local project selection.

Despite these concerns, APS closed 2024 with a profit of ANG 43.2 million, a turnaround from a loss of ANG 84.1 million in 2023. The coverage ratio improved from 109.1% in 2023 to 114.1% in 2024, the highest level since APS’s establishment. According to APS, this improvement was mainly driven by international investment results and an increase of the actuarial interest rate from 3.75% to 4.0%.

In its report, the Audit Chamber further notes that execution of local investment projects is lagging behind. Limited market comparables complicate valuations, and cash flows from some investments remain uncertain. The Chamber points to the importance of improving reporting standards, introducing clearer selection criteria for local projects, and ensuring that pension funds are not exposed to unnecessary risks. While local investments can contribute to national development, the Chamber emphasizes that they must be structured carefully to safeguard pensioners’ interests.

The Audit Chamber makes several recommendations, including:

• Increasing transparency regarding adjustments to the actuarial interest rate;

• Strengthening reporting and disclosure around local investments;

• Improving accountability for SMIC’s results;

• Presenting clear and realistic scenarios on the future of indexation for pensioners.

𝐋𝐨𝐜𝐚𝐥 𝐀𝐏𝐒 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬

Mary’s Fancy Plantation / De Castro: Purchased in 2014 for an eco-hotel project. Although demolition and construction permits were granted in 2019, no progress has been made. The project was suspended in 2023 due to rising costs and lack of an operator and is now “low priority.” Book value was written down by XCG 2.45 million in 2024, reducing it from XCG 8.11 million to XCG 5.66 million. The project generates no cash flow, creating losses and pressure on the coverage ratio.

Professional Office Park: Acquired in 2016 as part of a government debt settlement. Intended for office development, progress has stalled for years. The vacant lot was meant for APS’s headquarters, but delays and high costs left it idle. The buildings generate some rent, but future plans remain uncertain.

Parking Lot next to Government Building: Received in 2016, originally planned as a parking garage with commercial space. Preparatory studies have been done (soil, feasibility, surveys) at a cost of XCG 403,000, but no construction has started. The land generates limited rental income for occasional events.

Oryx Investment Property (Welgelegen Road): Affordable housing project of 62 homes. Initially intended for full sales, but shifted to a mix of rental, lease-to-own, and mortgage financing. By end-2024: 14 rented, 26 lease-to-own, 22 sold. Book value fell from XCG 22.39 million to XCG 18.27 million. Settlement of construction defect disputes is ongoing but expected to favor APS.

Overall, local investments are plagued by delays, valuation issues, and legal disputes, with limited or uncertain returns. This leaves fund participants without clear insight into their value or future contribution.

𝐋𝐨𝐜𝐚𝐥 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐧𝐠

Rainforest Adventures Loan: APS holds a 68% stake in a senior secured loan dating back to 2016, with minimum 6% interest. The loan was restructured after Irma delays, but repayment problems persisted. Interest payments resumed in mid-2023, but no restructuring agreement was signed by end-2024. APS recorded a further impairment of XCG 5.9 million, bringing total impairment to XCG 8.3 million.

Sint Maarten Investment Company (SMIC): APS’s wholly owned subsidiary, tasked with managing local investments. Formalized under a Service Level Agreement in 2024. However, SMIC continues to post losses, with its value written down to zero due to negative equity. The initial loan to SMIC was converted into share capital, but no returns have materialized.

Governance of SMIC: Although supervised by the CBCS, governance remains weak. Start-up costs have been high without measurable results. APS’s request for tax exemption on local investments is still undecided, leaving SMIC’s tax position uncertain and potentially risky for the fund.

The Audit Chamber acknowledges the cooperation of APS during the audit. The report, titled Financial Statements APS 2024, is available in both English and Dutch and can be accessed on the website of the General Audit Chamber: www.arsxm.org

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