Pollution problems are scaring off potential tourism developers at a former US Navy base, an insider said yesterday.

"Cleaning up the mess isn't the problem. It's the liability after you supposedly clean up the mess,'' he said.

The source -- who is close to the baselands' redevelopment scene -- added: "The liability is definitely part of the reason the old US Naval Annex in Southampton hasn't been developed yet.'' He was speaking after The Royal Gazette revealed the US Navy pumped raw sewage into the cave system underneath the Annex, which is now known as Morgan's Point and is earmarked for a major tourist and housing development. Caves under the site are also full of old oil, which leaked from storage tanks, and hazardous heavy metals like mercury, lead and cadmium.

The source said the spectre of massive claims for damages from anyone falling ill with a pollution related disease was alarming for developers. He said: "Any potential investor wants to reduce their risk. At present, Government owns the liability and nobody is going to seek to buy a liability from you.'' The insider was backed by Shadow Finance Minister Grant Gibbons, who led negotiations with the US when the United Bermuda Party was in Government.

Dr. Gibbons said: "I think that's fair. That's one of the issues we always faced with any developer, particularly if it had been a US-funded resort development because in the US, although this is changing to some degree, anybody involved in redevelopment of land which was polluted was at some risk from legal liability.

"The situation is a little different in Bermuda and that's something we looked into when we discussed developments at Morgan's Point. This was discussed extensively and is a part of any redevelopment cost.'' The original developers earmarked to develop the site, Morgan's Harbour Investment Limited, had the plug pulled on their $300 million proposal by Development and Opportunity Minister Terry Lister.

Bermuda-based BEAM Ltd, which lost out on the original bid, has since been given time extensions to allow them to prepare a feasible plan and sort out a concession package with Government -- including indemnity for the potential clean-up costs of the land.

Pollution at baselands Dr. Gibbons hit out at claims by Mr. Lister that the UBP should shoulder the blame for not making enough fuss about the mess when the US Navy quit its bases in 1995.

Mr. Lister said it would have been different if more pressure had been put on the US then and an "angry row'' had broken out on the day they left.

And Dr. Gibbons accused the ruling Progressive Labour Party of "dropping the ball'' after Canada last year won a one-off, no-fault settlement of $100 million for work on former US bases in Newfoundland, which were opened under a deal similar to the agreement which allowed the US Navy to set up in Bermuda.

He said: "Angry rows is not the way we operated and, more importantly, we don't believe that angry public rows are the way to solve disputes between countries, particularly between countries like Bermuda and America, which have shared so much over the years.

"The US is obviously a very important ally to us and an angry row is not the way this should be dealt with but we must remember it was Mr. Lister who said the US had no moral leadership and referred to the US Navy leadership as people who killed for a living.

"This is not how you get results and we hope the PLP is not naive enough to believe it is. It doesn't work on a community level and or on a diplomatic level.'' Dr. Gibbons added that it was "probably useful'' for Britain to become involved in negotiations and hire consultants Environmental Resources Management to prepare a fresh report to put pressure on the US but stressed Bermuda/US relations were the most important factor.

He added: "When the Canadian Government got a $100 million deal, that was the point when a lot of the work and pressure applied on the US should have picked up.'' And Dr. Gibbons pointed out that in 1995 and 1996 the US forked out $5 million for a proper sea wall at the ex-Naval Air Station in St. George's and struck a deal to help with the cost and running of the Island's air traffic control system.

"Clearly we feel in the longer term it was the American government which was the tenant and it is their appropriations committees which will provide the money for mediation or compensation,'' he said.

"In the end, it's the relationship between Bermuda and the US government which is going to be most important and that's where the current Government has misunderstood the issue and perhaps dropped the ball.'' Mr. Lister could not be contacted for comment last night.

The US left behind tons of oil and potentially deadly asbestos and heavy metals when they left Bermuda and despite environmental reports prepared for the Bermuda Government the US government insists there is no "imminent'' danger to health, its condition for a payout.