Category: Private sector

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Addressing the CLICO Issue

Introduction
Rumours that the region’s largest conglomerate CL Financial Limited (CL) was experiencing difficulties were confirmed at a dramatic press conference in Trinidad two Fridays ago, hosted by the Governor of the Central Bank and including CL’s chairman Lawrence Duprey and Finance Minister Karen Nunez-Tesheira. At the press conference it was announced that the group, better known by its founding acronym CLICO, had approached the Government of Trinidad and Tobago for a line of credit to meet some unusually large demands for withdrawals from CLICO Investment Bank (CIB), a subsidiary of CL.

The initial deal seemed clean, clinical and simple enough. The government and the central bank would take control of CLICO Investment Bank (CIB) while the assets and liabilities of CIB and another subsidiary, Caribbean Money Market Brokers (CMMB) would be transferred to state bank First Citizens. At the same time the Minister of Finance announced that the government and the central bank would guarantee the assets of depositors and policy holders at CLICO, CLICO Investment Bank (CIB), CMMB and British American Insurance by the injection of cash. In return CL was expected to give up vast swathes of its empire including its 55 per cent stake in Republic Bank Ltd (worth billions of dollars), its interest in Methanol Holdings Trinidad Ltd, which owns and operates the world’s largest methanol plant, and share its equity interest in CLICO and British American Insurance.

Jitters and praise
The government and the central bank were praised by the TT business community for their prompt and mature response and jitters appeared calmed. But things turned a bit sour when the government sought to pass necessary legislation to provide it with the remaining powers needed to extend supervision over insurance companies and to facilitate the transaction. The country’s Opposition Leader accused the government of having engaged in a hostile takeover; the press revealed that both the central bank Governor and the Minister of Finance had been connected with cashing out of deposits with CIB; Mr Duprey brought in UK Senior Counsel to advise him on the transaction while the government brought in financial specialists to assist in the valuation of the assets and in the restructuring of the companies. It was also reported that the Memorandum of Understanding among the central bank, the government and the Group was still being “clarified.” The government did however get the legislation that it wanted.

Guyana
The guarantees of policies and deposits by the Government of Trinidad related only to third parties and only in respect of the companies with which the memorandum was to be signed. They did not extend to other subsidiaries of CL Financial including the Guyana subsidiaries and those which are indebted to CLICO Guyana. Of particular interest to Guyana therefore is the impact on policies including annuities and deposits with CLICO Guyana, and deposits with Republic Bank (Guyana) Limited (RBGL), a subsidiary of the Trinidadian parent whose majority shareholders are those entities being taken over.

Let us look at the last first. Chairman of the local RBL and Managing Director of RBL Trinidad Mr David Dulal-Whiteway announced that government’s gain of Republic Bank’s shares from CL Financial is only an interim measure to secure financial support from the state and will not involve operational control of the bank. The Guyana Association of Bankers (GAB) gave full support to RBGL in a late-night statement issued on January 30 in which it welcomed the decision of the Trinidad Central Bank to intervene to support CL Financial Limited. It noted that commercial banks locally “held excess liquid assets of $29.6B or 71.6% above the statutorily required level,” and that “depositors can feel very confident and assured that the stability and integrity of the local financial system is guaranteed.”

CLICO Guyana, in which two of the three directors are Trinidadian, issued its own statement through its CEO Ms Geeta Singh-Knight in which she announced that the statutory fund (required by the Insurance Act 1998) of the company which is a separate entity within the CL Financial Group was “in good standing”; none of its assets are intertwined with CLlCO [TRINIDAD] or CLlCO Investment Bank”; and that developments involving its parent CL Financial Limited have no financial impact.

Meeting
On the day the news broke in Trinidad, Minister of Finance, Dr Ashni Singh summoned a meeting with CEO Singh-Knight and Commissioner of Insurance Maria van Beek. He wanted to ascertain the extent of exposure, if any, of CLICO Guyana to the events in Port-of-Spain and requested the company to supply to the Commissioner of Insurance by last Monday further “information on the financial status of the Group, details of the transaction agreed with the authorities in Trinidad and Tobago, and of the implications of these developments for the operations of the Group as a whole and the Guyana company in particular.”

Nothing further has been said publicly by the Minister who appears to have committed a procedural error of judgment since the better thing to do would have been to meet with the two parties consecutively. The public has not been told whether all the information requested has been provided and analysed and the Commissioner of Insurance has been silent.

Like Trinidad, CLICO Guyana takes money on deposit from the public but because of the Bank of Guyana’s interpretation of the law the company does not require a licence from the Bank of Guyana to do so. As a result the responsibility for supervising CLICO’s financial operations falls entirely under the Commissioner of Insurance and the office should have been far more proactive than it has been in this matter. There is a lot at stake, including insurance policies, annuities and pensions, and huge sums invested in the company by the NIS.

Monitoring
President Jagdeo announced that his government was watching the situation closely, and trying to put into context the scale of any potential problem the company may encounter, noting that CLICO (Guyana) makes up just three per cent of the country’s total financial assets. The President who has appointed the company’s CEO to the GuySuCo board added that the only problem he could envisage in the short term was a mismatch between liabilities and assets.

Then late on Friday Deputy Governor of the Bank of Guyana, Dr Gobind Ganga said that the central bank is “very much concerned” at the financial crisis within the CL Financial Group and confirmed that the bank is tracking every bit of information being provided on the issue as it develops – hardly a clear statement in these circumstances.

Such statements may sound good but what is needed is critical analysis of factual information, particularly given the attention span of politicians. The discussions between the government and the company seem to emphasise “investments or dealings with sister companies CIB or CLICO (Trinidad),” which can cause dealings with other related entities to be overlooked.

So far no one seems to be dissecting the 2007 financial statements, or requesting a copy of the Memorandum of Understanding and asking that the relevant transactions for 2008 be made public. It cannot be too hard to determine the liquidity situation of the company or the exposure to related parties – the issues that sparked the crisis in Trinidad. CL’s financial statements for 2008 are not yet out but the regulators in Trinidad have obviously requested and received them.

A limited financial perspective
The audit of the Guyana company’s books for 2008 is in progress and only the 2007 statements audited by Deloitte and Touche are available. I therefore sought some updated information from Ms Singh-Knight who was most forthcoming and extremely helpful.

The 2007 financial statements, which regrettably are not that reader-friendly and could benefit from significant enhancements, state that the company is a wholly-owned subsidiary of CL Financial Limited. At December 2007 it owed CLICO Trinidad $1.2 billion (representing 10% of its total assets) and reduced this balance in 2008 to $800 million. This amount is interest free but repayable on demand. Does the Memorandum of Understanding permit the deferral of the debt in the interest of the Guyana company or not?

The net assets of the company at December 31, 2007 amounted to $11.7 billion of which $1.2 billion was classified as current assets but which included accrued investment income of $500 million, largely from related parties. In the bank at that date was $127 million. Its current liabilities or payables are stated at $1.7 billion including the $1.2 billion owed to CLICO Trinidad. The company treats all policy holders’ funds as equity and these include $8.030 billion in Ordinary life policies, including annuities. The holders of these annuities can surrender their policies and expect to receive payment within one week.

The company’s primary investments are in Caribbean Resources Limited (CRL) and CLICO (Bahamas) Limited. At December 31, 2007, investments in these entities totalled $1.5B and $6.0B or 13% and 51% of total assets respectively. Investments in the Berbice Bridge Company Inc (BBCI) total $1.8B, or 16% of total assets bringing total investments in three related entities to 80% of total assets.

20090208_table
Source: CLICO Guyana Annual Report 2007

The last annual return filed by CRL was for 2001 and therefore updated information was not available for our review. The investment in CLICO (Bahamas) Limited, an insurance subsidiary of CL whose 2007 financial statements are available on the internet, represents approximately 30% of that company’s assets.

The Guyana company’s financial statements describe the investments in the Bahamas company as Fixed Deposits, which is misleading since that suggests a banking type deposit. In fact, despite the auditors of the two entities bearing the same international name, the Bahamas company in its corresponding account includes the amount not in Equity but as Annuities under the broad heading Future Policy Benefit Reserves.

It is apposite to note that as the 2007 financial statements indicate, the company is in breach of section 55 of the Insurance Act 1998 which requires that 85% of the statutory fund be held in Guyana. One now has to wonder whether the company has taken steps to remedy this situation.

Bahamas company
The CRL investment is guaranteed by the troubled CL Financial group while the investment in the BBCI would clearly not be liquid. The Bahamas company too has its own problems with the auditor’s report containing an Emphasis of Matter noting that 59% of the company’s assets were invested in a related company, CLICO Enterprises Limited. The audited financial statements did not show an amount due to the Guyana company at December 31, 2007 in its related party notes, but annuities total 70.0M Bahamian dollars, of which Guyana would hold 42%.

On August 21, 2008, AM Best Company Inc, a financial services credit rating organisation, downgraded CLICO (Bahamas) Limited’s financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to “bb” from “bbb-”. The outlook for both ratings is stated as “negative.” The ratings for Colonial Life Insurance Company (Trinidad) Limited were similarly downgraded on February 2, 2009 as news broke of its troubles and both companies were placed “under review.”

Conclusion
I was informed by the company’s CEO that it has met all demands for funds since the news broke. The last thing the company needs is an unusual demand from its policy holders. What is now very important is for the Minister of Finance, the government and the Office of the Commissioner of Insurance to ask the right questions and to get hard information from the company. Now that everyone has been before the cameras and has had their photo opportunities, the hard work must begin.

It is not enough to downplay the impact of any potential difficulties and we should not forget that the NIS up to December 31, 2005 (the last date for which financial statements have been released) was heavily invested (to the tune of $7.7B) in the company. Unfortunately Ms Linda Gossai, a member of the scheme’s investment committee would not disclose to me the extent of its current investment, claiming that she does not “keep those figures in her head.” Instead of simply tracking information on the issue as it develops, the Bank of Guyana needs to start thinking whether, like Trinidad, there are regulatory issues which need to be addressed with respect to what amounts to deposit taking by some insurance companies.

The Bank of Guyana should have long contacted its counterpart on a confidential basis for a copy of the Memorandum of Understanding and to have an informed basis to deal with its concern. Too many people just seem to be waiting and that is not good enough at any time, let alone now. It is also clear that the Office of the Commissioner of Insurance simply does not have the resources, the authority or apparently the will to deal with issues like these. The local authorities should act quickly by first obtaining and analysing the relevant information and having further discussions and agreement with the company, and then following this by a visit to Trinidad and The Bahamas to meet with the relevant persons. Delay only drags the situation out, which is not good for either the company or the economy.

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David – a Goliath of a man

David de Caires was very clear on what Business Page was about – the dissemination of financial and economic information and discussion of ideas and issues aimed at enhancing the business culture and environment. He was quick but polite in recognising my sometimes not too subtle attempts to inject extraneous matters into Business Page. His use of the editorial pen was surgical and sharp, always accompanied by the reassurance that if I “put it in a letter” I would have a better chance at publication. On this occasion, as we mark his passing, I take the opportunity to break his rule, hoping that he would understand how extraordinary are the circumstances and implications of his departure.

Even though over approximately twenty-five years or so I had the privilege of knowing him as client, editor-in-chief and friend, my initial impression of him of awe and admiration remained undiminished to the very end. Much has been written and said of David – the enduring nature of his contribution to the country that he loved, including the reconstruction of the Camp Street Avenue as a Y2K project, the rehabilitation of the Theatre Guild, the launch of the Stabroek News in 1986, his contribution to the ideas for an independent Guyana with the publication New World, his success as a solicitor and his role as guide, mentor and friend to so many in the field of journalism.

But there was another side, a personal side, to David that was equally extraordinary. He was human to the bone. My first experience was shortly after I had returned from Grenada with a young family and was told by state officials in a state-dominated economy that as I had worked for the Grenada government, I was blacklisted and could not be employed in any state entity in Guyana. I had met David through his law partner, Miles Fitzpatrick, who had also served the Bishop regime in Grenada. David would certainly never had heard of me, but his words on being told by Mr. Fitzpatrick of my situation were that they would “give me a brace” with an offer to me to provide professional accounting services to their law practice.

It is no disrespect to anyone to state that that was the beginning of one of the most satisfying and stimulating professional relationships Ram & McRae has had with clients throughout its more than two decades of existence.

His incisive questions on audit matters and instant grasp of issues raised by us were a testament to the breadth and depth of his intellect. The relationship was characterised by mutual respect for each other’s profession, during which never was Ram & McRae asked to do anything remotely unlawful or unethical. There was no question in Mr de Caires’s mind that simple decency, patriotism and calls for good government and governance carried with them an obligation to act within all laws, that if you make profits you should pay your taxes, that the flip side of the coin of privilege is responsibility. He felt that accounting and accountability were not a responsibility reserved for companies, but also wherever public funds or interest were involved, including the Camp Street and the Theatre Guild projects which he insisted must be audited.

My partner Robert McRae recalls the occasion when David and he both got stopped by traffic cops. In David’s case, the fitness for his vehicle had expired and while admitting that his driver was careless, David took full responsibility for the lapse and recognised that the police were totally in order. According to McRae, even as they were being held, David saw as a positive that the police were doing their job without caring who he was!

His respect for professionalism, for ethical conduct, for accountability and good governance was no doubt his motivation for the launch of Business Page.

He wanted the page to be an unvarnished record of business and related issues that was informed, fair and balanced. Crusader as he was, the only goal, weapon and vessel was the truth.

His unfortunate but honourable battle with the government over its withdrawal of ads from the Stabroek News has been widely acknowledged, but he was also disappointed at the behaviour of some of the captains of industry and leaders of the private sector who also used ads to express their displeasure over the content of critical news articles and Business Page. He recognized, however, the difference between the strict duty of a government and that of the private sector, and while he would often say that Business Page cost him friends and the newspaper, advertising revenue, he never entertained any thought of discontinuing the page or replacing me as contributor.

We had our own skirmishes over editorial deadlines − which the Sunday Editor would attest that I mostly missed − and the sometimes unnecessarily strong language I used to express myself.

He would constantly remind me that the English language is so wide and flexible that the same idea could be expressed in much more palatable words, and of course be free from libel!
But David was also a friend with whom the closest secret can be shared and advice sought. In that regard there are only two other persons in whom I had such confidence – former President Desmond Hoyte and Elder Eusi Kwayana. David was ever willing to lend that ear, to share an anecdote or to offer advice that was measured, sound and uncannily right. It did not require of him any special effort to demonstrate extraordinary humility and while I have known him on a first-name basis for years, never was I not aware of the uniqueness of the man or has my awe and respect of him been dimmed.

I suppose, however, that even with that close and long association I admired, but never truly appreciated his greatness. If I had to put a label on him it was that he was a capitalist, even if a liberal one. Yet many of his friends were socialists, if not Marxists.

He saw the strong criticisms of businesses in Business Page and the views of market economics as contributing to their refinement and enhancement. He was an intellectual giant, a workaholic with the patience for even the most modest among us.

He was at once a David, the nimble tactician, and a Goliath, a force of power. He came from a privileged class but not only did he not seek to benefit from that class, but actually cultivated relationships outside of it. While others would talk about multiracial values and conduct, David actually lived them and offered us what is, I believe, an outstanding example of those values.

It may be idealistic but certainly not idle to ponder what Guyana would have been if his vision and values had been shared by politicians over the last fifty years or so. To those in his later profession, he has left a legacy of commitment to excellence, quality and values that should be the goal of all journalists. For him the progression from New World to Stabroek News was a mere step, inevitable and logical. For those who now bear the responsibility of carrying on his work, or hoping to walk in his footsteps, that will require giant leaps.

Guyana is a better place for having benefited from his presence, his contribution, his insights and his ideas. All Guyanese at home and abroad are better informed because of the brave new world of Stabroek News. Those who use the Camp Street Avenue are safer and more comfortable for his tireless efforts to rebuild the avenue. The arts community is richer because of his faith that the Theatre Guild could be and was restored.

With the passing of Mr David de Caires, founder and Editor-in-Chief of the Stabroek News, Business Page has lost its creator, guide and friend. David’s commanding personality, considerable intellect, unusual humility and an unshakeable commitment to truth in all its forms, made him a truly remarkable man, a legend in his lifetime and the quintessential gentleman.

To his wife Doreen, children Isabelle and Brendan and their families, Business Page extends its condolences.

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GO-INVEST – Investment and reality

Introduction
As we conclude the series of columns on the QA II privatisation, we turn our attention to the Guyana Office for Investment (GO-INVEST), an entity established in 1994 under the Public Corporations Act 1988 to replace GUYMIDA, an agency with similar objectives closed down soon after the change of government in 1992. GUYMIDA had operated a very structured process for incentives including tax holidays but as is so often the case we throw the baby away with the bath water and there is no documented evidence of the experiences, lessons and mistakes of that agency that would have avoided some of the failures we are now witnessing.  The functions of the GO-INVEST as set out in the Order creating it include the facilitation of investments though the identification of investment opportunities and providing profiles for such opportunities.

These functions were expanded in 2004 with the passage of the Investment Act that reposed in GO-INVEST responsibility for setting up and operating the Secretariat of the Investment Promotion Council (IPC). In fact it is that Act that placed GO-INVEST in the eye of the QA II storm since GO-INVEST is required to, “at least once annually, review and recommend to the Government alterations in the Priority Lists for Investment categories under section 2 of the Income Tax (In Aid of Industry) Act” – the section that allows the Minister of Finance to grant discretionary tax holidays and to “annually recommend to the Government alterations to the regime of fiscal incentives established for investment including incentives relating to tariffs and taxes, import duties and to export-oriented enterprises.”

Any amendments to the regime of fiscal concessions should therefore have emanated from GO-INVEST and the haste with which Bill # 14 was passed to restore wide-ranging discretionary concessions to the hands of the Minister of Finance was another case of the abrogation by the politicians of a function embedded in the law to be performed independently and professionally. The considerable reduction in the scope for discretionary concessions under a change in the law in 2003 was not only a condition of the multilateral financial institutions and donors but was a way to provide better and more transparent governance. That the status quo is being restored so soon after our exit from the IMF programme is surely not reassuring.

Confusion
My enquiries concerning this area of GO-INVEST’s statutory responsibility suggest complete confusion at GO-INVEST about whether or not some of its directors are even aware of, let alone, discharge this responsibility. It was simply unbelievable how difficult it was to obtain from that source a copy of the GO-INVEST Order and how confused persons are as to whether the functions of the IPC have been taken over by the National Competitive Council headed by President Jagdeo. We shall leave for later the accomplishments of that council, expenditure on expensive consultants, the usefulness of no less than six ministers sitting around discussing matters that have been fully ventilated and decided on more than a decade ago, and why we need to borrow $5.4 billion dollars on what, from occasional publications issued by the National Competitiveness Council, appears to be a complete waste of resources. Just think of the many better uses to which that money can be spent.

The executive head of GO-INVEST is Mr. Geoff DaSilva, a long-time PPP activist in Canada whose appointment as Minister of Trade ended with his replacement by Mr. Manzoor Nadir of the TUF. GO-INVEST’s acting chairman is Mr. Keith Burrowes who heads a number of other government controlled entities. Apparently because the government treated QA II principally as a privatization the role of GO-INVEST was secondary to that of the PU/NICIL headed by Mr. Winston Brassington. GO-INVEST did take a lead salesman’s role in representing the transaction and in language not quite suited to an investment promotion agency attacked “the very small cabal of self-appointed business leaders” who had called for an apology from President Jagdeo for his widely criticized response to business leader Yesu Persaud’s call for the rest of the private sector to be granted similar concessions as QA II. Repeating the language of the President, GO-INVEST described a statement by the Private Sector Commission as “reflecting ignorance of the privatisation framework.”

No head
While falling short of an apology, it must have taken some guts then for Mr. DaSilva at the PU/NICIL’s seminar on taxation to admit that “we made a mistake” in awarding tax holidays to two of QA II’s companies, an admission that none of the other players in the saga has so far had the courage to make. At the time of the seminar the misrepresentation of the $50 million per annum rent had not yet been revealed, nor was the claim about a textile mill, a misrepresentation that has so far gone unacknowledged by GO-INVEST, an agency that had described as “totally dishonest” an innuendo by the Private Sector Commission.

GO-INVEST has had no chairman for some time and the acting position is held by Mr Keith Burrowes, who is, among many other public offices he holds, the Chairman of the Guyana Chronicle, which was another entity cheerleading for the QA II deal. While the Guyana Revenue Authority is represented on the Board there has been no private sector representative since the withdrawal of Mr David Yankana several years ago on account of ill-health.

The dangers
Mr. DaSilva’s presentation at the July 29 Taxation Seminar emphasised the “investment projects of 285 companies totaling US$835M” between 2002 and 2008. He announced that these projects had attracted some 1006 concessions in the form of duty free concessions for machinery, equipment, vehicles and furnishings amounting to sixteen billion dollars between 2005 to June 2008. Mr. DaSilva’s paper did not offer any reason for giving the investment projects for one period while stating the incentives in the form of tax exemptions for a considerably shorter period. In fact not all of the 285 entities are companies and it would have been instructive for Mr. DaSilva to have indicated the value of the concessions granted to the self-employed and other unincorporated businesses that continue to deprive the country of billions of dollars of tax revenue each year. In effect these businesses get more in the form of concessions than they pay in the form of taxes or benefit they provide to the economy.

The public is understandably still concerned about the revelations of the QA II details but there is a bigger picture in which there has been exposed a massive failure on the part of key government agencies and officials to discharge a professional quality of coordination, due diligence and necessary follow-up work on concessions granted to investment projects. The entities are set up and officials are paid, often tax-free $US to do a professional job for the taxpaying public, not to act as servants to politicians.

Matching the numbers
GO-INVEST’s numbers have always attracted attention for their lack of support and in their 2006 Budget Focus, Ram & McRae commented that the GO-INVEST “seems to have its own measure of identifying projects, the investments made and the jobs created. This time [2006] it appears to have out-done itself with the minister’s statement that it [GO-INVEST] has facilitated nearly 140 private sector projects, representing investments of $68Bn which generated an additional 9,000 jobs.” Those numbers translate into an average of 65 jobs and an investment of $485M per project or $7.5M per job. Even the economic powerhouse China could not attract such investments! Focus had also noted that the Finance Minister had announced in his 2005 budget presentation that seventy-five investment projects had been facilitated by GO-INVEST which should have created 1,900 direct jobs and the firm suggested that it was unfortunate that the Minister in his presentation in the following year did not indicate how many of the 1,900 jobs were actually created.

Co-incidentally no investment or job numbers were announced in subsequent budget speeches.

Mr. DaSilva also told the seminar that only about 60% of the investments are notified or facilitated by Go-Invest. Adding the remaining 40% would put investments between 2002-2008 at US$1.4 billion or in private sector investment. How do these numbers match up with other data in the economy?

2001     2002      2003     2004     2005    2006      2007

Active employed (thousands)           121      120       115        115        117          117          118
Active self employed (thousands)     11        10           9               9               7             7            7
Taxes paid by Self-employed ($M)    725    778       887            993            919       1,030      1,243
Source of information: National Insurance Scheme & National Estimates

Mr DaSilva usually dismisses questions about Go-Invest’s numbers by questioning the effectiveness of the National Insurance Scheme but the GRA which actually grants concessions sits on his board in the person of one of its officials, some of whom have been sent on leave in relation to a high profile tax-evasion scandal. Are we to believe that the GRA is so generous and careless about the billions of dollars of concessions that it grants every year or that the NIS is still troublingly inefficient and expensively incompetent after sixteen years?

Taking a tax holiday
There is undoubtedly a high degree of underreporting by businesses to the GRA and the NIS and many Guyanese taxpayers including companies that are audited do not wait for tax holidays but take them, adding another dimension of “discretion” to them. But Go-Invest’s role is the promotion of investments not tax evasion, even as it expects the GRA to do a better job particularly since up-front concessions are given for investments that are often overstated. There is no single instance of the revocation of concessions or the prosecution of those businesses that provide false information to get concessions from the GRA.

Fanciful
A close examination of the investments for which concessions have been granted by the GRA on the recommendations of Go-Invest leads to questions about some of the information published by Go-Invest. Here are some examples obtained from comparing GO-Invest’s information with that contained in the financial reports of public companies and other verifiable sources.

Sterling Products Ltd is stated as having been granted concessions in 2004 for machinery, equipment and vehicles for an investment of $600M. According to the financial statements of the company the amount invested in 2004 and 2005 was $155 M.

The DDL subsidiary TOPCO is stated as having invested $800M in 2004 and 2005. In fact the bulk of the investment was done in 2003 while the total investment by all DDL subsidiaries in 2003-2005 was under $800 million.

Caribbean Containers Inc, another public company is shown as having invested $310M in 2004 and 2006. In fact, the company’s financial statements show capital expenditure for those years of $6.9M.

The same G&C Sanata Company Inc. that has been described by QA II as abandoned for fifteen years is shown as having invested $800 million in 2005 while CGX is shown as having invested $12 billion or US$60 million.

The same level of casualness appears with regard to private companies including clients of Ram & McRae whose investments in their books are nowhere close to those reported by Go-Invest, while in the case of the Omai/IAMGold/Bosai there seems to be evidence of double-counting with the payment by Bosai to IAMGOLD being shown as an investment.

Conclusion
QAII has been more than an embarrassment for this government. It has been a revelation of how government business is transacted, public assets are sold, tax concessions given away and the public is misled by, to use the words of Go-Invest “a very small cabal” of political functionaries and professionals who seem willing to compromise their professionalism to meet the objectives set by politicians. All of the key players involved, the President, the Minister of Finance, Cabinet, the Privatisation Board, PU/NICIL, Guyana Revenue Authority and G-Invest have been found terribly wanting.

The fact that during the revelation of this saga the law was changed to facilitate even looser action by these persons and institutions must be a great cause for concern and reinforces the view that legislation was introduced to legitimise the unlawful.

There is clearly a need to review the operations and mandate of each of these offices and functions with the requirement for considerably more rules-based decisions carried out in a system of proper checks and balances. Too much is at stake for the revenues, assets and welfare of the nation. The rest of society including the accounting profession needs to demand a greater say in these matters.

Next week we will look at the Auditor General’s Report for 2006.

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Brassington confirms QA II rent at $12-17 million annually

Introduction
Contradicting several earlier statements about the rent the Government would be getting from the lease of 20 acres of land to Queens Atlantic Investment Inc. (QA II), Executive Head of the Privatisation Unit and the state-owned company NICIL, Winston Brassington, in an e-mail to me last week confirmed that the rent is “between 12 -17 M per annum  Yrs 2-5 and in Yr 6 (2013) it will be approximately G$45 M.”

You may very well wonder how Mr. Brassington would rent 20 acres of the most valuable land in Guyana and not know the rent by a margin of close to 50%. Having advised the Privatisation Board that the rent is $12 million only to be publicly corrected that at the rate per square foot specified in a leaked document authored by him, the amount has to be $18 million, Mr. Brassington needs to give himself ample wriggle room. This is as astounding as it is dangerous from the person who this country has placed in a position where he negotiates individually with all sorts of investors and other persons doing business with Guyana. He travelled often to Russia to negotiate with Rusal before another give-away of our country’s non-renewable resources and was mainly instrumental in the purchase of generating sets for GPL late last year costing millions of US Dollars. His recommendations are accepted by the Privatisation Board and Cabinet with the same conviction that a fundamentalist Christian would accept the Bible.

Half true
The answer about the rent came in response to persistent efforts to have Mr. Brassington confirm a number of matters that have surfaced since the tax concessions to QA II became an issue on June 5, 2008. These questions included the price and proceeds from the sale of land to Guyana Bank for Trade and Industry (GBTI) and the date of payment by John Fernandes Limited (JFL) of the sum of $320 million for land sold to that company in 2007. Mr. Brassington confirmed that GBTI paid G$201 M but in relation to the timing of the JFL proceeds he would only say that the “JFL transaction was only completed in March 2008”, which can lead to the inference that no monies were received until 2008. In fact there were two payments made by JFL in 2007 and the balance paid in 2008.

Mr Brassington has refused to answer my follow-up questions particularly about the correctness of the Privatisation Unit holding on to money that should properly have been paid into the Consolidated Fund and for information on the expenses incurred and dividends paid by the Privatisation Unit (PU). In fact all that was new from Mr. Brassington during the week was a press report of him saying that “previous privatisation processes have created ad hoc accounting processes in Guyana.” His incorrect line has been that the proceeds of privatisation have to pass through NICIL, a limited liability company which he claims incorrectly can only pay dividends into the Consolidated Fund after its accounts are audited. It seems that Mr. Brassington does not appreciate that interim dividends are permitted under corporate law and it is not unusual for companies to pay more than one such dividend during the year as Banks DIH has been doing over the past couple of years.

More abuse of the Consolidated Fund
Only monies legally due to NICIL or any of its subsidiaries would be subject to Brassington’s accounting but certainly not monies due directly to the Government such as on the sale of property including shares, land and other assets not owned by NICIL or its subsidiaries. At least some of the land sold to JFL falls into this category and the proceeds should have been paid into the Fund but are instead retained by the PU/NICIL under the control of Mr. Brassington.

Mr. Brassington refused to provide me with the names of the directors of NICIL or copies of its audited financial statements for the year 2006 while noting that the 2007 accounts are with  the Auditor General for audit. NICIL as a company operating under the Companies Act 1991 has been in breach of that Act with respect to the filing of any annual return to the Registrar of Companies as it is required to do nor are its financial statements and reports tabled in the National Assembly.

Such disregard for the country’s supreme and other laws, for good conduct, transparency and truth would in any society where the rule of law prevails, have resulted in the most severe sanctions against those responsible. The political opposition and so-called civil society including the accounting and legal professions have a public duty to act to stop this lawlessness. What is the meaning and relevance of the Constitution and the laws if professionals could ignore them if only to show loyalty and obedience to the politicians?

Deja vu
Two years ago, this column was very critical of Mr. Brassington’s conduct in its March 12, 2006 issue when it wrote about the improper means and tactics applied to corral workers’ funds of the National Insurance Scheme and depositors’ funds of the New Building Society for the Berbice Bridge. I reported then that Mr. Brassington even sought to have me postpone an article and give him time to get some necessary paperwork done by the NIS! The necessary paperwork was a letter enclosing, among other things, an irrevocable special power of attorney and requesting the NIS’s co-operation in having the voluminous agreement and four schedules signed one day later. The Privatisation Board was given the same or less time to endorse Mr. Brassington’s recommendations on the QA II deal.

Just as an aside, in that March 12 article one of the subheadings was Making the unlawful lawful as we see with the QA II tax holiday law!

For all the vast proceeds from privatization that are  now being boasted about, only $7.3 million was paid into the Consolidated Fund in 2006, $1.4 million in 2006. The manner of drawing  up the National Estimates does not allow the reader to determine how much was paid in in 2007 or is budgeted to be paid in in 2008.   Where then is the GBTI money and the JFL funds amounting to more than half a billion dollars? Is this another Lotto Fund scandal where the money is used for all sorts of unauthorized payments such as the $20 million to Courtney Benn Construction for breach of contract relating to works for the Kingston phantom hotel?

The tax seminar
Mr. Brassington obviously enjoys the confidence of the President and with his control of perhaps hundreds of millions of public funds he was indeed well-placed to organise the Taxation Seminar last month. While the Seminar scored poorly on organizational arrangements – a head table of 13, no recording and just one microphone for 200 persons – it was certainly well orchestrated and controlled. The seminar was organised for a Cabinet Day so that after the Finance Minister had left the meeting with his two colleagues from Cabinet and the Privatisation Board there was no one authorised to answer questions on policy from an audience consisting of several state executives and accountants anxious to learn the tax system. Mr. Brassington gloated over the $24 billion proceeds from privatisation since 1994 when he took over but he did not say that in the process the nation lost control of several key assets including Bauxite to Rusal which we then turn around and give a tax holiday! That is hardly how successful privatisations are measured.

Much was said too about transparency but let us not forget that had information not been leaked to the press there would have been no Seminar. In my contribution during the Question and Answer session I pointed  to an apparent conspiracy by the PU, Go-Invest and the company to misrepresent information fed to the public on the QA II investment, drawing attention to some of the statements made by Messrs. Brassington and Da Silva and how they differ from the facts that have surfaced from documents written by Mr. Brassington and agreements signed between the QA II group and the Government.

I pointed out too that Mr. Brassington’s creative explanation for the charge to JFL compared with the rent agreed to be paid by QA II, led to no other conclusion but that the PU either overcharged JFL or was undercharging QA II.

At the Seminar, Mr. Brassington lavishly praised for their contribution to the success of the privatisation programme the Privatisation Board made up of three Cabinet Ministers including the Minister of Finance who chairs the Board, and representatives from labour, business and consumers. My enquiries suggest that even allowing for the imbalance of the political influence Mr. Brassington gets the Board to arrive at a desired result by submitting to them his recommendations often with no more than a few hours notice. I understand too that the Board has dispensed with its sub-committee that had as its principal responsibility the examination of proposals and tenders and has transferred this task entirely to Mr. Brassington with whatever political input and direction that may apply.

Different rules
Astoundingly, in a recent article in the Kaiteur News Mr. Brassington is quoted as saying that “Previous privatisation processes have created ad hoc accounting processes in Guyana” and that “What you did not have was adherence under the law of how you distribute a company’s assets.”

That this statement would have been made at a Seminar to disabuse accountants of their ignorance of the tax laws was outstanding for its sheer arrogance and  uninformed ignorance! It is Mr. Brassington who does not understand the law and who created these “ad hoc” and unconstitutional arrangements that are so blatantly abused by the PU/NICIL. Has Mr. Brassington ever read the relevant sections of the Constitution or the financial rules or sought guidance on how these operate?

Where is the Auditor General?
As a non-statutory body, the Privatisation Unit is no more than part of the Ministry of Finance and so it has sought legal cover under NICIL, the state-owned company that Mr. Brassington operates without observance of the laws. Money that should constitutionally be placed into the Consolidated Fund are spent by the PU/NICIL as it now likes to call itself, to create a huge bureaucracy including legal expertise, and to by-pass the parliamentary process for authorizing the expenditure of public funds.

These are matters so significant that one would have expected the Auditor General to have paid particular attention to it and to comment critically thereon. These funds are on the same level as the Lotto Funds in that they are public monies that are required to be deposited in the Consolidated Fund under Article 216 of the Constitution. The Lotto Funds are too infamous to miss while equally huge sums of a similar nature go unnoticed by the Audit Office. In fact that Office should feel accused by Brassington’s claim of “ad hoc accounting processes”.

Conclusion – many cheques but few balances
It is clear that far from being efficient and transparent, the privatisation process is shrouded in secrecy and is managed without regard for elementary rules of good governance, the rule of law and knowledge of accounting. Much of the resources of this country have been given away in many cases for a pittance, in a process involving many cheques but few balances. This Unit and NICIL under Mr. Winston Brassington ought to be investigated by the Economics Affairs Sub-Committee of the National Assembly.

If that body fails to act, then some public-spirited citizen(s) should invoke the provisions of the Companies Act and demand an investigation of the operations of NICIL and its alliance with Mr. Brassington’s Privatisation Unit. We should not simply excuse and exonerate public officials’ improper and unlawful acts by attributing those acts to unaccountable politicians. They must be held equally accountable and culpable.

Next week we will look at the role of Go-Invest, the other partner in the saga.

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Letter: Question for Mr. Sukhlal

I refer to the letter ‘Guyana Times is not published by Global Printing & Graphics’ (SN 27/07/2008).

Instead of dealing with the ever increasing number of issues swirling around the Guyana Times and Queens Atlantic II, its CEO Mr. Sukhlal engages in disparaging statements about me. He is free to enjoy his opinion, however malevolent or misguided. Since Mr. Sukhlal seems so informed about professionalism and so committed to ethics he should stand up to the peddling of less than half-truths by public officials with regard to transactions affecting public property and involving his paper the Guyana Times.

Mr. Sukhlal has other urgent problems requiring his attention. A good beginning would be to ensure that his paper complies with the law requiring it to state who its printers are. Then he should check on the true rent to be paid by QA II for the first five years. When he has done this he should tell his readers who look to the Beacon of truth whether it is really $50 million. Next he should expand his really suspect knowledge of the history of Sanata and when the property was “abandoned”. Such mistakes and misrepresentations raise doubt about another of his assertion – clean up cost of $1.5 bn. rather than the G$400 million the group’s principals have been telling others.

Admittedly it will cost a couple of pennies to clean up the mess caused by the distortions, misrepresentations and mistakes by his group and the public officials who at times appear to be spokespersons for the group rather than holders of the public trust.

Half-truths and misrepresentations do not fit well with the motto of the paper Mr. Sukhlal part owns. Or is that too an exaggeration of his interest?