Category: Private sector

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Bank of Guyana disposed of Clico assets on Friday

I learnt to my consternation that at the Clico Head Office last Friday, the Bank of Guyana (BoG) purported to dispose of assets of the beleaguered insurance company. Consternation because by that time the BoG and its attorneys should have been notified or ought to have known that it was unlawful for it to act as liquidator, and that under section 449 (b) of the Companies Act 1991, it was guilty of an offence.

Consternation too because among the high officials participating in the activities last Friday were Ms Marcia Nadir-Sharma, attorney-at-law and Deputy CEO of NICIL, which should have no hand in matters relating to the liquidation of Clico assets, or any other Clico matters, period. Instead Ms Nadir-Sharma acted as the co-ordinator of the proceedings. Commissioner of Insurance (ag), Ms Tracey Gibson, also an attorney-at-law, and Mr Maurice Solomon, Chartered Accountant, were also among those present.

My understanding is that the government might be interested in the huge building in Camp Street to house government ministries, and NICIL which has earned quite an unfavourable reputation over the past few years, would be in a conflict of interest. This building has a market value of $1,503M. I understand, however, that the highest bid was $450M.

Ms Gibson has been unavailable to perform her statutory duty under section 150 of the Insurance Act to allow members of the public to inspect documents filed under that act, but presents herself at a liquidation process in which her office has no legal, statutory or moral role. In fact, had her office acted as the law required it to in relation to Clico, we would not now be in this eleven billion dollar mess. It must be said, however, that Ms Gibson was not Commissioner while policyholders’ money was being shipped unlawfully out of Guyana and took no active part in Friday’s proceedings. If she was there at all, then it ought to have been to see that no hanky-panky took place. Now, let us see what she is going to do about the improprieties she witnessed.
For his part, Mr Maurice Solomon is a long-standing director of the board of NIS which is responsible for the ill-advised and poorly supervised multi-billion dollar investment in Clico, the timing, probabilities and consequences of full recovery of which are in considerable doubt. My information is that at the proceedings, Mr Solomon was variously described as the “BoG representative” and as “the Liquidator.” Interestingly, Mr Solomon’s firm is also the auditor of the New Building Society to which Clico sold its shares and which is now to be brought under the FIA!

At the apex of this, is the Bank of Guyana and its Governor Mr Lawrence Williams, prepared to ignore section 449, other provisions of the law and an order of the court.

Today, days after the issue of the amended order by the Chief Justice (ag) revoking the appointment of the Bank of Guyana as liquidator, the Deputy Governor of the Bank is quoted as making official pronouncements regarding Clico’s liquidation, not only compounding the section 449 offence but acting in contempt of the order by the court. But this is Guyana – where the law is routinely, casually and flagrantly breached, where professionals abandon the rule of law in favour of silence and profits, where the press is missing at crucial times, and where all of this is sanctioned or permitted by those responsible for upholding and enforcing the law. It is time to say that Guyana ‘really gone,’ that there is no hope for our bleeding country.

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Liquidating CLICO: Avoiding the pitfalls – part 2

Introduction
As I write this column from Trinidad, I notice that the news in the print media and the discussion and talk shows are about the financial implications to the country arising from the collapse of Clico. The TT$12 billion owed to some quarter million Clico Trinidad depositors represents about a quarter of the TT$49 billion national budget, indicating the significant ‘adverse multiplier’ effect on the economy. It is interesting, however, to observe the contrasting sentiments in the two countries, one close to the top of the economic wealth league in the Caribbean, the other close to the bottom. In Trinidad, the first response by the state was to go to the National Assembly and to make appropriate legislation. In Guyana, it was a resolution, of dubious legal force.

More than one year later, the Senate in Trinidad and Tobago is still grappling with the implications of the failure, and the Finance Minister and government senators remind the population that every time money is paid to Clico investors, it is coming from their taxes. In Guyana all the ruling politicians seem to care about is how soon the cheques will be ready. Of course at this stage, the Government of Guyana has not put a single cent into Clico and by a perverse coincidence, it can actually gain millions from capital gains taxes and withholding taxes on the interest paid on some of the so-called insurance policies.

I believe the contrasting responses are due in part to the fact that there exists in Trinidad some level of a political culture while in Guyana, there is none. And that the public is far more informed, savvy and courageous than its Guyana counterpart. Or it is because in Guyana elections are coming up while in Trinidad they have already had theirs. In Guyana, taking from the Treasury to which the whole country contributes to fund repayment of high-risk investments made by a relatively small number of persons is regarded as a sign of leadership to be admired and applauded. In Trinidad, they worry about the impact of the bailout on the economy, and while there is sympathy for the persons with life insurance policies and for those credit unions that had invested in Clico’s high-interest EFPA, the general feeling is that those who invested millions in those annuities did so out of pure greed and ought to have known the risk associated with a 7-8 % rate of interest when the market rate was 3-4%. The feeling is that the loss is a consequence of such risk-taking and should not be underwritten by the taxpayer.

Huge NIS loss
That sentiment should have equal validity in Guyana. In any country, persons deciding to invest tens of millions – and in the case of the NIS, billions of dollars – in a company should at least have had the good sense to ask for that company’s most recent audited financial statements. Rather than taking the word of the Clico’s directors and its salesmen whose only interest was huge commissions, they would have noted that Clico actually admitted in its 2007 financial statements, without quantification, that it was in “non-compliance” with section 55 of the Insurance Act requiring that 85% of its statutory fund be invested locally.

The NIS which has around seven and a half billion dollars invested in Clico has an Investment Committee on which sits one of the country’s senior accountants and one of its senior bankers. Should the workers or the taxpayers of this country suffer to the tune of those billions while those individuals are not even called upon to explain their poor judgment, if not outright negligence? This then raises the question whether the reluctance is due to the fact that the chain of responsibility might lead to the Finance Minister and the President and his cabinet who would have been involved, at some time, in the decision on the investment of those billions. No wonder that the powers that be are unwilling to comply with the NIS Act and make public the 2008 annual report of the NIS which, despite the statements of the Chamber of Commerce and FITUG has already lost tens of millions in interest alone on its Clico investments. In Guyana, there is no need to inform oneself before making high-sounding pronouncements or extending accolades.

The auditors
In my view it was also remiss of the auditors Deloitte and Touche not to have insisted that Clico quantify the extent of the non-compliance by the company with section 55 of the Insurance Act and not to have qualified their audit opinion in that regard, including noting in the audit report, the extent of the breach. Instead the auditors on April 23, 2008 gave a clean opinion on the 2007 financial statements, about ten months before the company collapsed. The only comment in their report is a statement under the heading ‘Report on Other Legal and Statutory Requirements’ to an unquantified statement tucked away in note 28 to the financial statements.

An equally or perhaps even more critical issue is that the auditors, by only dealing with section 55, is saying that the investment made by Clico is not impaired, which is clearly and dangerously wrong.

Unfortunately in Guyana this is passing without any comment from the accounting profession or any investigation by the accounting regulator, the Institute of Chartered Accountants of Guyana. This must surely be an issue for the liquidator, the Official Receiver or the President’s promised inquiry into the collapse of the company. And an issue too for those who may yet lose tens and hundreds of millions – and in the case of the NIS billions – of dollars of the capital invested in the company.

A unique country
Clearly then not only does Guyana have its own unique set of problems, but the need to protect the sacred cows takes precedence over accountability, while the long term is defined in terms of the electoral cycle, with the close of the current cycle merely one year from now. It was therefore important for the President to tell the policyholders that none of them will lose a cent, even if he did not say where the money will come from and equally significantly, does not appear to understand some of the implications of his own proposals. For example, at his National Cultural Centre meeting, the President included as a potential source of funds, the sale of a portfolio of policies. If that is indeed the intention – and that would not be a bad idea – any sale of what are effectively liabilities would have to be accompanied by matching assets which have long since evaporated across the Caribbean Sea. That approach does not provide funds but allows the continuity of the policy, though most likely on altered and less favourable terms.

Legal advice
In closing last week, I made bold to recommend to the Bank of Guyana that it should seek out the advice of the top legal brains in the country as it proceeds with the liquidation. I called for sober thinking and careful action, for it to avoid the attraction of pandering to irresponsible political leadership or endorsing false expectations. It may not be true that cheques are already being prepared in Camp Street, but for sure the Bank of Guyana has published an advertisement in the newspapers inviting policyholders to visit Clico Guyana’s office at 191 Camp Street, Georgetown on specific dates and to take along their policy contracts and a valid form of identification “to facilitate processing,” whatever that means.

Instead, under section 77 of the Insurance Act, the liquidator is required to give to the policyholder notice of the value of the policy as determined by the actuary and the policyholder has fourteen days to dispute the amount. That does not seem to be happening, and if it does not, it would breach the act under liquidation as it was under judicial management which specifically barred Ms Singh-Knight from any role in the judicial management.

As desirable as it might seem that everyone should get back their money, it is hardly open to the government or one of its most senior officials to be openly flouting the law. The government has the wherewithal to amend the law as it sees fit. Confronted with a similar kind of bailout, the US enacted several pieces of legislation including the Emergency Economic Stabilisation Act of 2008 under which the Troubled Assets Relief Programme (TARP) was created. Trinidad also passed special legislation to deal with Clico. Let us not engage in illegality and if we need to amend the law to achieve a desired objective, so let it be.

No role in liquidation
I will deal with the priority of payments later but for now, I continue to entertain fears about the course the liquidation process is taking. I called the Governor on a number of occasions this past week only to be told he was in a meeting/on the telephone. Unusually for him, he never returned my calls. I also called on the telephone, and am aware that a person called at the Office of the Commissioner of Insurance, seeking to inspect and to procure copies of documents deposited under the act, a right provided under section 150 of the Insurance Act.

The person was told that the Commissioner was busy on Clico and would not be able to meet with him for several weeks. Does the Commissioner not know that she has no role in Clico’s liquidation?

Statutory duties
Let us recall that Clico’s winding-up was ordered under Part V of the Companies Act 1991. There are some drafting problems apparent in the relevant provisions of the Insurance Act and the words ‘mutatis mutandis’ should surely have appeared in that act since the Companies Act does not deal with the unique insurance animal. But some things are clear and their breach constitutes an offence.

For example, before taking any action as liquidator, the person appointed is required to notify the Registrar of the appointment and give security in such manner as the court may direct; and must provide the Official Receiver with information, access to, and facilities for inspecting the books and documents of the company. There is nothing to indicate that this has been done.

It is not clear whether section 366 would apply in Clico’s case where a Judicial Manager had preceded the appointment of the liquidator. This section requires a statement of affairs to be prepared and submitted to the Official Receiver, containing some very detailed information on assets, liabilities, creditors, etc. After receiving this statement, the Official Receiver is required to submit a) a preliminary report to the court on the company’s capital; b) its estimated amount of assets and liabilities; c) if the company has failed, the causes of the failure; and d) whether in his opinion further inquiry is desirable as to any matter relating to the promotion, formation or failure of the company, or the conduct of the business thereof.

Generally, a statement of affairs is an absolute prerequisite in receiverships and liquidations and I do not see how or why it should be different in the case of an insurance company that was under judicial management. Indeed, the statement of affairs would seem to be a necessity if the judicial manager is to account for his/her stewardship.

The Official Receiver may also make further reports, stating among other things, whether in his opinion any fraud has been committed by any person in relation to the company since the formation thereof, and any other matters which in his opinion it is desirable to bring to the notice of the court.

Stop press
I have just learnt that the Chief Justice has amended the Order naming the Bank of Guyana as the liquidator of Clico and has instead named Mr Lawrence Williams, the Governor of the Bank. That amendment would seem to have been necessary to bring the order in line with the Companies Act which does not allow a corporate body to be a liquidator.

This is more than a change of form, and has important implications for the person appointed. It is a personal appointment and Mr Williams now assumes personal liability for his actions. Since it is a winding up by the court he must act strictly in accordance with the act. If he wants to appoint an attorney-at-law or other agent to assist him in the performance of his duties, he needs the sanction either of the court or of the committee of inspection provided for under Part V. He may, however, without special approval, appoint an agent to do any business which he is unable to do himself which would suggest those acts requiring exclusive skills which he does not have, such as customs brokerage. Since it is a personal appointment and his powers are conferred within the pillars of the act, Mr Williams will not be able to delegate any of those powers but must exercise them personally.

As Governor, Mr Williams did not seem too concerned about the statutory provisions that set the legal parameters within which the Bank of Guyana as liquidator had to operate. The advertisements for the sale of properties did not suggest that the Bank was au fait or concerned that such sale required that the properties be vested in the liquidator. With personal liability at stake, the need for care is greater.

Within days of this column’s assessment of pitfalls, abysses and craters littering the path of liquidation and my belief that the role of the Chief Justice (ag) in the winding up of Clico is far from over, have been borne out. Old people have a saying, ‘More haste, less speed.’ The new liquidator should take note.

Next week, I will look at Clico’s debts on liquidation and the statutory order of priority.

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Liquidating Clico: Avoiding the pitfalls

Introduction
My notes of the meeting which President Bharrat Jagdeo held with policyholders of the failed insurance giant Clico Life & General Insurance Company (SA) Limited, or Clico, for short, quote him as saying that “Everybody will get back every cent of their money.” The meeting took place at the National Cultural Centre and provided the opportunity for the President to tell policyholders about his administration’s arrangements for them to recover the billions of dollars which they had all but written off following the collapse of the Guyana company about one month after the dramatic meltdown of the Trinidad and Tobago parent which sent a financial tsunami across the Caribbean Sea.

I believe that the President will come to regret the generosity of his boast. Liquidation is a long and winding road with pitfalls, abysses and craters along the way. It is a hugely technical task. There has never been a liquidation of this magnitude and this complexity ever undertaken in Guyana. It involves novel issues of both legalities and illegalities with the potential for adversarial challenges at almost every stage, particularly given the President’s apparent desire to treat the whole issue as a public relations stunt rather than a serious legal process. Troublingly, the President has signalled that he intends to control the process, an illegality which would be compounded if the Bank of Guyana as liquidator allows him to take charge.

Cheque writing
The initial evidence is not encouraging. Last Thursday, as the President was in full political flight, he turned to the Governor of the Bank of Guyana and enquired from him “when would the cheques be ready?” Uncomfortably, the Governor could do nothing but to indicate that he would work with the President’s time-frame. He too may regret those words.

A liquidator is not simply a cheque writer or some backroom clerk. He becomes a legal officer and his actions are subject to challenge and review by the court. His appointment is made under the Insurance Act 1998, but the liquidation is carried out under the provisions of the Companies Act 1991. As I will attempt to show, the winding-up provisions of the Companies Act are not only deficient at best, but do not cater for the specialist type of animal that insurance business is. That means that periodic recourse to the courts for guidance and direction may be necessary, as well as recourse to the archaic Insolvency Act which has in some cases over-lapping, and in other cases, conflicting provisions. We will get into a more detailed discussion on these later, but for now here are some immediate challenges to what the President has proposed.

Some initial challenges
Section 74 of the Insurance Act under Part XII – Intervention, Judicial Management and Winding Up provides as follows:

“In the case of an insurer which carries on both long-term and general insurance business:

a) the assets representing long-term insurance business funds shall be available only for meeting the liabilities of the insurer attributable to that insurance business; and

b) the other assets of the insurer shall be available only for meeting the liabilities of the insurer attributable to its other insurance business.”

What this says is no commingling, cook in separate pots.

And let us turn to section 77 of the same Act which provides in subsection (1) that “where an insurer is being wound up by or subject to the supervision of the Court or voluntarily, the value of a policy of any class or of a liability under a policy required to be valued in the winding up shall be determined by an actuary; and the liquidator, in the case of all persons appearing by the books of the company or association to be entitled to or interested in policies granted by the company or association, shall give notice of that value to such persons and in such a manner as the Court directs.”

The person to whom such a notice is given has two full weeks to dispute the amount so stated. There goes the Governor’s 2-3 weeks estimate.

An unholy mess
And here is where it really becomes both interesting and confusing. The court has ruled as “unauthorised, illegal and unenforceable” one of the principal debts owing by Clico to “policyholders,” that is some nine billion dollars in Executive Flexible Premium Annuities. Clearly, such debts do not fall under section 74 (a) or (b) and the question has to be resolved whether any money, however small or from whatever source, can be paid by the liquidator to any such “policyholder.” And lurking in the background is the Financial Institutions Act 1995 (FIA) which includes additional procedures that might be relevant to these transactions.

What we have here is an unholy mess created by Ms Gita Singh-Knight as CEO of Clico with her illegal transmission of funds to another Clico company; Ms Maria van Beek as Commissioner of Insurance and her poor oversight; the Bank of Guyana that failed to act in the face of the illegalities; and their political masters, the President and the Finance Minister. I believe the role of the Chief Justice (ag) in the winding up of Clico is far from over and he will have to call on all his immense legal talent and capacity for gruelling research to clean this stable called Clico.

Some help
But let us look back a bit. Less than one week before the meeting at the NCC, the Chief Justice had ordered that the Guyana company be wound up and that the Bank of Guyana be appointed the liquidator. It must be remembered that the Bank of Guyana had already been functioning as the Judicial Manager of the failed company, following an application by the then Commissioner of Insurance Maria van Beek, who later departed these shores after being shot in one of the still-to-be-solved crimes of recent times. Following that incident the Insurance Act was amended to place responsibility for the insurance sector within the Bank of Guyana which has been in control of Clico since then, incredibly with direct control being exercised by Ms Singh-Knight.

That role by the Bank of Guyana should certainly help the liquidation process since it would have been in possession of vital information about the state of the company’s finances and the demands which it, as liquidator, would be confronting. The ruling by the Chief Justice was instructive in that he addressed unequivocally the conduct by Clico which had led to its failure. The company through its attorney had gone to court in an effort to stem the liquidation process. The success of that strategy required it to establish that the statutory fund did not apply to the nine billion dollars it had received under Executive Flexible Premium Annuities.

Ring-fence
The Chief Justice found that it was not open to Clico to contend in the proceedings that it had been acting illegally in contravention of the FIA. He ruled that the company was estopped from contending that part of its business transactions (the Executive Flexible Premium Annuities) was not in the nature of insurance business and therefore “unauthorised, illegal and unenforceable.”

While we may boast of having ring-fenced the country’s financial sector, we certainly left a gaping hole through which billions were illegally sent out of the country. This ruling is a vindication of the position long since taken in these columns that the EFPA that were being issued Ponzi-style, were financial instruments and not insurance policies. It is unthinkable given the widespread marketing of these annuities that the Bank of Guyana was not aware that a major entity was issuing instruments in contravention of the FIA. It can hardly be to its credit to say in its defence that it was relying on the Commissioner of Insurance as the principal regulator for the insurance sector to do her work.

No wonder that the company and the government would not want the list of persons who were paid out in the company’s dying days to be made public. It would embarrass too may and dim the much vaunted gloss. But wait, section 150 of the act provides that every document deposited with the Commissioner of Insurance under the act shall be open to inspection and copies thereof may be procured by any person on payment of such fee as the Minister may direct. In my view, the fee payment applies only to making copies, not the inspection which is a matter of statutory right.

Globe Trust
This column will address the financial and legal implications of the major elements of the package announced by the President, but before I do so I think it would be useful to comment on some of the allegations and slanderous statements he made at his meeting about persons associated with another failed institution, Globe Trust and Investment Company Limited. The President would have appeared less uninformed had he sought from his legal officers the facts surrounding Globe Trust. In that matter, the Bank of Guyana had moved to liquidate the company without following the steps required by the law. The court ruled against the Bank, noting serious regulatory failures by that body over the operations of Globe Trust.

To save the institution in which many low income African-Guyanese had placed their life’s savings, the directors of the institution explored a number of options including government input to save the institution. Neither the Bank of Guyana nor the government supported such a move. Similarly the Bank of Guyana did not support a re-organisation plan which the directors had asked me to prepare. In other words not only was the Bank of Guyana derelict in its oversight duties in relation to Globe Trust, but from day one it seemed determined to shut down the poorly managed, undercapitalised, nascent financial institution.

Unfathomable
And when it finally got its way and an administrator and later a liquidator appointed, the Bank of Guyana did not support the issue to Globe Trust of a banking licence which would have made it a very attractive and valuable proposition. It is unfathomable why those who had the power to save the institution would not do so. It has been close to eight years since the Bank of Guyana has been in control of Globe Trust. During that time it has not faced a single challenge from anyone, even though then Chief Justice Carl Singh’s finding that the Bank of Guyana had been partly to blame for Globe Trust’s failure, provided a good cause of action. For the President to accuse anyone of being responsible for him not honouring his government’s commitment to pay the small depositors of the institution is complete nonsense and utter deception. Since he wants to appear generous to African Guyanese, let him keep his promise. Since he thinks I have the power or the influence to stop him, I publicly and seriously promise not to stand in his way.

The maligned directors
The President also gave the audience the impression that the directors of Globe Trust had taken money from the institution to buy shares in it. The President should not be so loose with the truth. Called upon to increase its capital base, some directors mortgaged their houses to provide security for a book entry transaction to increase the company’s share capital with the corresponding entry being a loan account. No money was paid to any of those directors. Rather, it was an act of blind faith, born of pressing need and demonstrative of exceptional selflessness by those persons in an effort to save the institution following the introduction of the FIA and its stringent rules about capital base.

The President once again promises an investigation into Globe Trust in which the government has not put a black cent. But he is linking it to an investigation into Clico into which billions of public dollars are being paid. We will wait and see whether that oft-made promise is a not too cleverly-disguised attempt to take the pressure off the government increasingly pressed to investigate Clico and bring to justice those who breached the laws and shipped billions of dollars of Guyanese funds including more than six billion dollars belonging to the workers of this country via the National Insurance Scheme, about which incidentally the President said practically nothing.

Next week: I will begin an analysis of the legal hurdles and financial challenges that the liquidator would have to overcome and the policyholders of Clico would have to accept. In the meanwhile I would strongly recommend to the Bank of Guyana that it seek out the advice of the top legal brains in the country. This is time for sober thinking and careful action. Not for pandering to irresponsible political leadership or endorsing false expectations.

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The case for the Marriott Hotel – conclusion

Introduction
As yet, other than saying that Atlantic Hotels Inc is a public-private sector partnership, the government and its handmaiden NICIL have been silent on where the money to build a hotel in Kingston to be operated under the Marriott label will come from. We have heard about some group operating in Grenada that has run into problems in that country and have heard that some friends may be interested. The fact is we do not know. Meanwhile NICIL is proceeding with speed to identify a contractor to begin construction of the hotel.

Where indeed is the money going to come from? Last week, in part 2 of this series on the decision by President Jagdeo to build a hotel, I wrote that it would take more than investigative journalism to ascertain the labyrinthine sources from which the funds for the hotel would be derived. That it would take an enquiry with full powers to demand information and explanations. And that it would need to look into the books of the Consolidated Fund, NICIL, Guysuco, the Lottery Funds, and other unknowns at this stage.

The strategy of no systems
As this closing piece argues, the first stage in a strategy of misusing money is either to have no system or to undermine the existing system and then exploit its weaknesses. Add to the mix opaque rules such as those dealing with the Lottery Funds, spice it up with an entity that depends on you for its survival (Guysuco), have a few non-accountable entities at the ready (NICIL) and neutralise with carrots those likely to oppose (the leadership of the opposition) and have ready a sufficient number of persons who would be prepared to execute your work. It would help if the press and the public are uninformed or apathetic. When all these forces serendipitously come together, you are on top of the galaxy, with Zeus and Atlas at your side.

There are sufficient secret or hazy sources which could provide some if not all the funding for the hotel. With the role of the Leader of the Opposition becoming increasingly a sinecure, with so many prepared to do the work out of fear or favour, with the carrots dangled to emasculate individuals and groups accustomed to handouts, the government is almost guaranteed not even a whimper of opposition if it decides to use one of these hazy sources to finance the hotel.

A consolidated mess
Despite the boasts by the government, the Consolidated Fund is in a mess. In its 2008 report, the Audit Office reported that it had received confirmation from the Bank of Guyana that the government was holding in special accounts, outside of the Consolidated Fund, some $35.031 billion. But that was the only certainty. The Audit Office’s assessment of the balances held in the special accounts indicated that thirteen accounts with balances totalling approximately $7.868 billion appear to be funds that are transferable to the Consolidated Fund. Of those thirteen accounts, nine reflected static balances totalling $4.778 billion over the last five years; amounts of $10.980 billion held in Other Ministries/Departments Bank Accounts; and twenty inactive bank accounts.

The 2008 report tells of a new and an old Consolidated Fund and it would be fair to assume that the new would be an improvement on the old. Wrong again. The New Consolidated Fund bank account reflected a balance of $2.376 billion compared with an overdraft of $11.602 billion as stated in the cash book as at December 31, 2008. This represents a difference of fourteen billion dollars but was probably considered not too important and so no effort was made to reconcile the difference in the two amounts.

You would think that there would be some serious effort by the government to resolve this mess. Year after year, even as the quantum of the special funds keeps increasing, the only word coming out of the Ministry of Finance is that it is addressing these matters.

Contingencies Fund and the lottery
Then there is the Contingencies Fund provided for under the constitution and the Fiscal Management and Accountability Act 2003 which allows the Minister of Finance, on being satisfied that “an urgent, unavoidable and unforeseen need for the expenditure has arisen (a) for which no moneys have been appropriated or for which the sum appropriated is insufficient; (b) for which moneys cannot be reallocated as provided for under this Act; or (c) which cannot be deferred without injury to the public interest….” to approve a Contingencies Fund advance. This account has been ripe for systematic abuse, year after year as routine payments are made well outside the criteria set out in the law.

Increasingly it seems that the public interest is determined not by law or the technocrats but by the President and the other politicians. And in any case, if expenditure for Carifesta and Amerindian Month could qualify, then maybe with a little bit of a stretch, so could the President’s Marriott.

Then there is the President’s former favourite, the Lottery Funds. I say former because I now believe that his new favourite, based on value and opacity, is NICIL, which I will return to presently. Either as Finance Minister or as President, Mr Jagdeo has unconstitutionally and unlawfully made or authorised payments out of the Lotto Funds totalling $3.097 billion during the period 1996 to 2008. These funds are closely hidden away and spent purely at the discretion of the President on such things as $20 million given to the Commissioner of Police to acquire a steel band; paying to bring Indian cultural groups to Guyana; funding the construction of mosques; Amerindian activities; youth awards; empowerment activities, etc.

If the truth were ever to be told, we might even hear that the Lotto Funds will finance the President’s Buxton initiatives.

The PNC’s black hole
Why the government accounts are in such a mess is hard to imagine. Yes, there was a black hole ten-year period beginning in 1981 when we had no audit reports, and while that in itself was unlawful and unacceptable it did not mean that there was necessarily any major improprieties. But the deteriorating situation over the past five years or so probably has to do with the supine leadership of the political opposition; the departure of Goolsarran from the Audit Office and the quality of staff there; Jagdeo’s increasing boldness if not contempt for accountability and the total failure of the Public Accounts Committee to do any serious work.

Guysuco
This state-owned entity is now pivotal to a matter that is pivotal to a hearing of a matter by the Privileges Committee of the National Assembly. In that matter, the Speaker of the Assembly has ruled that a prima facie case has been made out against one minister of the government. The National Assembly is in recess and it is not known when the matter will come up. Both numerically and qualitatively the composition of the committee weighs heavily in favour of the minister and he may come out of it unscathed. The role of Guysuco in that matter is best left until it is dealt with, not because one attorney-at-law has said – wrongly – that it is sub judice, but for more practical reasons.

What can be said now, however, is that despite a clean audit opinion, Guysuco has not been properly accounting for its land sales. In November 2007 four hundred acres of land were transferred from the corporation to the government and in May 2008 another two hundred acres. The disposal proceeds of those lands do not appear in the books of the corporation. Nor are lands disposed to Republic Bank, GBTI and Demerara Bank.

NICIL
Where did this money go? Even if it was gifted to the government, it should have been accounted for as a distribution. It was not. One probability is that the money went to NICIL which has now replaced the Lottery Funds as the slush fund of choice. It is bigger, more opaque, more convenient and therefore more useful as a fund to be used for anything and everything. NICIL has received hundreds of millions as privatisation proceeds, including lands sold to John Fernandes Limited, GBTI and Queens Atlantic Investment Inc. It is also a rent collector and incredibly an asset fund manager to build roads for the GGMC from which it received $1.8 billion in 2007 and 2008.

The law defines most if not all of these as public moneys which should therefore be placed in the Consolidated Fund. NICIL is many things, but it is not even part of the Consolidated Fund. Its objects set out in its corporate documents do not allow it to do many of the things it purports to do. But it is convenient and, being a private, state-owned company is outside of the formal government accounting rules. The Privatisation Unit that was set up as a department of the Ministry of Finance is not even listed as a budget agency which seems to exclude it from the strictures of the Fiscal Management and Accountability Act. The stage is therefore set for NICIL to do the kind of work which it has been doing for some time and with an increasing sense of impunity.

LCDS: the big one
But even NICIL may be overtaken by another vehicle to channel public moneys into questionable investments. And that is the LCDS funds. As we see with Mr Fip Motilall and the road to Amaila, such funds are already being used by the government, even before their receipt. That I fear is the wave of the future. It would not matter how many lives and jobs in forestry and mining are sacrificed, how many royalties are foregone and how many entrepreneurs and their investments are jeopardized, it is politically expedient for the government to have full control of the LCDS funds.

As a major forester described the matter, the ‘S’ in LCDS stands for sacrifice to be made by the forestry and mining sector as they are strangled by draconian regulations and the commitments by President Jagdeo to the Norwegians. Currently the income from forestry and mining flows to the operators and the government, while jobs are provided for both coastlanders and members of hinterland communities. There is a perception that the persons making the money from these sectors are not supporters of the government, and in consequence, they are dispensable and will be sacrificed to the LCDS.

LCDS funds flow directly to the government which alone decides how they will be spent. If it wants to support a particular project or person, all it has to do is put it in the context of the LCDS as in the case of Amaila and Fip Motilall. And if another project – like a hotel – is not that easy, just prefix the project with the word “green.”

Conclusion
The Office of the President has spent scores if not hundreds of millions on LCDS already. It does so without accountability and transparency. The Audit Office has turned a blind eye to that and to the misdeeds of NICIL. The government can count on the office doing the same with LCDS. And if perchance the hotel succeeds, the government can always sell its interest to a friendly partner.

The case for the Kingston hotel then has little to do with tourism and a top-of-the-line, international standards hotel. When built, it will be a monument to the extent to which egomania has gripped President Jagdeo, testimony that civil society is dead and it will explain why Guyana lags far behind even the smallest Caribbean island, barring Haiti. It will be our beacon of arrogance and attitude to spending public funds on the one hand, and the cowardice of a nation on the other.

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The case for the Marriott Hotel – part 2

Introduction
Last week I wrote that the Government of Guyana through the instrumentality of President Jagdeo was about to enter the tourism sector as a major investor while simultaneously getting out of a major lucrative investment in the telecommunication sector from which it, or rather the increasingly infamous NICIL, received some $3,458,000,000 in dividends. Business Page noted that these decisions, are taken in the name of the people of Guyana, without consultation, logic or justification.

The government and its handmaiden NICIL, completely ignoring the calls by the press and the taxpayers of the country for information on the decision, have taken the investment in the hotel one stage further. The Atlantic Hotel Inc, a creature of NICIL of which NICIL’s CEO Winston Brassington and its Deputy CEO Ms Marcia Nadir-Sharma are the sole officers on record, has put out an advertisement for pre-qualification applications from contractors to undertake the construction of a hotel and entertainment complex in Georgetown.

According to the advertisement the works comprise the construction/erection of a 275,000 square foot compound that will include:

(i) A 200,000 square foot hotel facility; and

(ii) A 75,000 square foot “entertainment complex” outfitted with common services areas/amenities that will be the site for a casino, restaurant, nightclub and other unfinished spaces available for retail.

Keeping the promise
Readers will recall that Mr Jagdeo was embarrassed after an earlier attempt to have a Marriott hotel built at the same location, and after substantial sums of money had been forked out by NICIL on sewerage diversion, consultancy and other big ticket items of expenditure. Of course NICIL, which is chaired by the Minister of Finance and includes some top ministers, does not file annual returns, and with its officers failing to provide the press and the public with financial information, accurate figures on the actual amounts expended cannot be ascertained.

Jagdeo is one president who appears not to tolerate being embarrassed. The impression is conveyed that he has pursued a Marriott Hotel because that is what he had announced. One might ask, for example, why it could not have been a Hilton, or an Inter-Continental or a Holiday Inn, each of which might have offered a better deal, including making an actual investment in a hotel.

No FIA, no Procurement Commission
If any Guyanese wants to understand why Jagdeo is not interested in a Freedom of Information Act, just look at NICIL, a company that breaks the law on a daily basis. If any Guyanese wants to understand why there will be no Public Procurement Commission under Jagdeo, just look at NICIL, a company that has flouted the Procurement Act with impunity in the past.

The stage is being set once again for the flouting of the constitutional and statutory arrangements regarding procurement. One taxpayer and citizen has challenged NICIL’s role in the award of the road contract to Fip Motilall. That challenge has regrettably been stalled by a slothful court system even as Mr Motilall’s failure to start the G$3.4 billion contract on time is being tolerated and ignored by the government. In fact, the role of the government has been reduced to periodic bulletins to the nation of the location of the most tracked ship. According to Minister of Public Works and Communication Robeson Benn, the ship, like that of Antonio in Shakespeare’s Merchant of Venice has successfully navigated the storms, is now out of the Bermuda Triangle and should soon be home to help in delivering hydro-electric power to the nation, another of President Jagdeo’s promises.

Even if there was ever a probability that the penalty clause in the road contract would be imposed, Mr Benn has now made the case for its non-operation by a plea of act of God by Mr Motilall. From commencement to conclusion the road contract to Mr Motilall has been tainted. It characterises so much that is illegal, improper, immoral and irrational, in a haste to deliver on President Jagdeo’s promises, including the new hotel.

The birth of a hotel
First touted as a government/private sector partnership, Atlantic Hotel Inc is at this stage a 100% state-owned company. You would think then that with a strict Fiscal Management and Accountability Act the task of knowing where the government will find the billions to build the Kingston hotel is an easy one. After all, that Act defines public monies and lays down the rules for their accounting and expenditure. You could not be more mistaken.

It will take more than investigative journalism to ascertain the labyrinthine sources from which the funds for the hotel will be derived. It will take an enquiry with full powers to demand information and explanations. It needs to look into the books of the Consolidated Fund, NICIL, GuySuco, the Lottery Funds, and other unknowns at this stage. It may even reveal that some public officers should be charged for the glaring breaches of the Fiscal Management and Accountability Act. But then reality in Guyana does not work in such structured, legal and proper ways.

Under Cheddi Jagan there was a Privatisation Unit which was a department of the Ministry of Finance. That proved too inhibiting and so NICIL was resurrected as a hybrid called NICIL/PU. But that also required some semblance of accountability. So the twain parted and NICIL became the front for a number of misdeeds. And now NICIL has created its own company, Atlantic Hotel Inc, a company that was born, secretly as from an unsuspected pregnancy. The child will be even more wayward than the parent. It is that child that has now placed the advertisement, apparently convinced that it could ignore section 24 of the Procurement Act. This is what that section states:

(1) Public corporations and other bodies in which the controlling interest is vested in the State may, subject to the approval of the National Board [the National Tender Board which the government uses as the substitute for the National Procurement Commission], conduct procurement according to their own rules or regulations, except that to the extent that such rules and regulations conflict with this Act or the regulations, this Act and the regulations shall prevail.

(2) If funds are received from the Treasury for a specific procurement, then the corporation or other body shall be obliged to follow the procedure set out in this Act and the regulations.

(3) Employees of any procurement entity who by their job description are responsible for procurement shall declare their assets to the Integrity Commission.

The Procurement Act, as readers of this column are aware, covers not only the procurement of goods but also services, including construction services. Maybe the two executive officers and the directors of NICIL wrongly believe that by the creation of a subsidiary they are insulating that subsidiary from the reaches of the law. That by the funds for the hotel coming from its parent NICIL and not the Treasury, the provisions of the Procurement Act will not apply. This may not be how the nation sees it or how the law was intended to operate. But the government has other motives and the force of power on their side. That is all they need in practice, if not in law.

Breach of faith and the CIOG
Before I consider the possible sources of the funding of the hotel some general points seem to be in order. Under this new dispensation of direct government involvement in the economy, no business is safe from unfair competition by the government. The government gave valuable land and support to Buddy’s which realised a vast capital gain by selling out to Princess. Now the Princess, under foreign ownership, is criticised by President Jagdeo as a below par hotel, deserving of competition from the government. Unlike Robert Badal, a Guyanese, the Princess Hotel would feel intimidated to challenge the government on bad faith. But would they have paid such a vast sum for Buddy’s Hotel had they known in advance of the impending Marriott? And indeed would Badal have bought the Pegasus if he had known that he would sooner rather than later be facing stiff competition from the government?

Would any investor feel confident enough to even approach the government with any business ideas and initiatives if it cannot trust the government to keep information confidential, or worse, to use it for its own benefit and against the interest of the investor, possibly as a competitor? Competition is of course necessary and beneficial to the consumer, but that must at a minimum assume that the competition will be fair and proper. The PSC cannot criticise the government on the competition issue only on internal flights because the GDF may affect the business of one of its leaders. It must take a position on principle in relation to all businesses. Its failure to address the issue on principle rather than on the basis of personal interest will seriously affect the country’s image as a credible host country for investment.

That can hardly be the focus and intent of the expensive National Competitive Strategy on which the government spends billions of dollars of borrowed funds and for which the Chairman of the Private Sector Commission is the principal cheerleader.

The raison d’etre of the Kingston hotel has hardly been justified to a skeptical Guyanese public, but it seems that big-time gambling is the new strategy of the Jagdeo administration. The CIOG has arrived at a convenient relationship with President Jagdeo while the Christian community has given the appearance of being more concerned about individual lifestyle choices than by policies that will affect the nation.

To be continued