Category: Public sector

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Kingston Hotel: Crooked or Foolish Deal?

On Thursday the cream of the private sector would be gathering at the Kingston Marriott to celebrate what a leading private sector representative described as an impact investment, i.e. an investment in a company that not only provides a financial return to the investor but also social and environmental returns as well. One example of such a company would be one that produces solar lighting for those without access to electricity, while another would be one producing low cost mini-computers (tablets) for the needs of deprived kids.

In both economic as well as financial terms, the Marriott Hotel provides neither a financial return to the investor, in this case a Government company named Atlantic Hotel Inc., nor any social benefit to the community. Let us see what the Government has had to put into the investment:

1. Land with a market rental value of $1 US per square foot has been leased to the company at half a US cent per square foot, i.e. 1/200 of its worth.

2. The land is estimated to be worth around US$75 million but the company can buy it at any time within 99 years for US$1 million. This model practically tells the investor to rent for next to nothing for the next ninety eight years and then exercise the right to purchase in the 99th. year when the present day value of $1 million will be worth approximately US$491, using an 8% discount rate.

3. There is a concept of a negative rent and the nominal rent being paid is effectively a payment to hold an option for 99 years.

4. Investment in GT&T which has produced billions of dollars in dividends was sold for $30 million to partly finance the government investment in the Marriott. At least $20 million of this sum has been lent to AHI at zero rate of interest and not repayable until after fifteen years. In today’s value that US$20 million paid after fifteen years is worth US$6.3 million, using an 8% discount rate.

5. The Government has given a generous tax holiday to the company including ten years for taxes on income and twenty years on duty and taxes on imports.

6. The Chinese contractor, which was awarded the contract even before it registered to do business in Guyana, has paid no corporate taxes on its profits, nor as is widely suspected were its all-Chinese labour force subject to tax on their income or to NIS.

7. All the development costs including multiple but useless studies, sewage diversion, interest during construction, and administration costs have been borne by NICIL, another Government company whose chairman is Dr. Ashni Singh, the Finance Minister, and is therefore not recoverable.

8. In addition to the more than US$20 million given to the company interest free for fifteen years, the Government is putting in another US$4 million by way of equity on which no return is guaranteed.

Now, here is the kick: none of the concessions injected by the Government is given any value in how control of the company is exercised. Another Chinese investor – ACE Investments Inc. – who invests US$8 million dollars in equity is given control of the company while the government becomes a minority shareholder!

Because Brassington as the sole director of AHI has decided that details of the investment are a private, commercial matter, no one is sure that ACE is prevented from exercising its controlling interest by selling its shares at any time and capitalise on all the concessions the Government has put into the company! This is either a foolish deal or a crooked one.

No doubt the top brass of the Private Sector Commission will be at the opening to give praise to the Government and so I hope that its Chairman Ramesh Persaud who is an accountant and is in the business of finance would be willing to answer the following questions:

• Should a value not be placed on all the non-equity inputs in the company, including tax concessions, land rent concessions and costs borne by NICIL for the benefit of AHI not recorded in AHI’s books?

• Does it make financial sense that the price to be paid for a share by an investor coming in when the project is operational is the same as that paid by an original investor who has also made valuable cash and non-cash inputs?

• Is the PSC aware that that is the nature of the arrangement with ACE?

• Is the PSC aware that the Shareholders’ and Share Subscription Agreement were entered into in 2013 when the project and its financing were almost completed?

• Does the PSC agree with the decision to dispose of shares in GT&T earning hundreds of millions to be invested in ANY investment that produces no return for fifteen years?

• Would IPED of which the Chairman of the PSC is the CEO lend money or make advances to any person on the terms on which NICIL is lending AHI?

I have not heard anyone make the case that the Marriott was conceived as a social investment for the benefit of any deprived individual or class of individuals, whether economically disadvantaged, physically impaired or socially underprivileged. In fact, a five star brand does quite the opposite – it is expensive, exclusive and selective. So any suggestion of a socially impactful investment is clearly nonsense.

There has been some disingenuous attempt to make the financial case for the project using some heavily doctored projections contracted by Winston Brassington. The economic case is even weaker. Does any rational person say “international brand X operates in Guyana and I must therefore visit that country”? Or does a rational person not say “I am thinking of visiting Guyana so let me see what my hotel options are”? No investor decides against coming to Guyana because HSBC or UBS (international banks) does not have a presence here so why do we think that an international hotel is any different?

A local, actual example also undermines the economic argument. The GMSA plans to host the PPP/C presidential candidate at a forum and decided that it would be held at the Pegasus. The President and some members of the GMSA were overruled and the venue was suddenly changed to the Marriott. Is there an economic benefit to the switch from a business which pays tax to the Government to one that does not? The GMSA example is the beginning: we can expect business to be diverted to the Marriott to make the financial case for the Marriott. The economic case is at best minimal.

I do not think any Guyanese does not welcome the Marriott brand but did it have to come at such an expensive cost to the taxpayer and as an investment by the government rather than by the private sector? Scarce resources are about choices. Does the PSC really think that the Marriott is a more impactful project than an investment in University of Guyana, or a better equipped and paid police force?

Finally, there are several legal issues which the project has raised, issues of constitutional violations, illegalities and misfeasance in public office. The project and those who have been part of the improprieties will be in the news for some time to come.

There is of course a part two to all of this in the form of the proposed Casino. We will leave that for a later date.

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AHI’s incorporation for the purpose of building a five-star hotel preceded every study

In his letter (‘SN should not have published Ram’s letter’ SN, April 3) Mr Winston Brassington insists that I have misrepresented the facts about the construction contract and the feasibility study for the Kingston Hotel. He persists with his “story” that a feasibility study was carried out before the signing of the construction contract and cites in support, NICIL’s Chairman and Finance Minister Dr Ashni Singh’s statement in Notice Paper No 12 of the Tenth Parliament on February 15, 2012.

That statement was made in response to a question whether there was a feasibility study done prior to agreements being signed. Dr Singh’s clever answer was: “Yes, there was a market Feasibility Study conducted by the Marriott Hotel Group and one conducted in 2010 by an independent American firm which is being updated to 2012.”

Dr Singh was asked about one thing and he answered another. A feasibility study and a market feasibility study are two very different concepts, with the latter being narrow in scope and coverage while the other is quite comprehensive. A feasibility study is a study carried out to determine the viability of a proposed project and addresses key areas such as country, political, economic, social and industry analysis, a market analysis, a technical analysis, an environmental analysis, a financial and investment analysis, analyses of production, management and supply, Porter’s Five Forces (competition) analysis, management and manpower requirements and availability, marketing and administrative expenses, and detailed financial projections with clearly articulated assumptions on cost of capital, interest, inflation and exchange rates, room occupancy by month, rack rates and discount rates for rooms. The depth of the study will be determined by the size of the investment and the risks involved.
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Distorting history by PPP

Last Sunday, on our way to the Whim APNU+AFC rally, our group stopped at Babu John, Corentyne for the benefit of those who had not previously visited the gravesites of Dr Cheddi and Mrs Janet Jagan. The site was well kept and we were encouraged by a goatherd watching his flock to shed our deference and enter the enclosure.

While Dr Jagan’s place in Guyana’s independence and anti-colonial struggle cannot be disputed, not everyone accepts him as the Father of the Nation. Neither the National Assembly nor the constitution, the voice of the people, grants such a unique accolade to anyone, and it is hardly up to a political party to make such a determination for inscription on his tombstone. But our visit also revealed issues that were beyond opinion or truth.

The tombstone of Dr Jagan describes him as the Founder of the PPP in 1950 and that of Mrs Jagan describes her as the Founder of the PPP in 1951. They cannot both be right! Indeed, they are both wrong.

The founding of the PPP was preceded by the setting up in 1946 of the Political Affairs Committee, credit for the founding of which is attributed by Dr Jagan in the West on Trial to himself, Mrs Jagan, Ashton Chase and Mr HJM Hubbard. That committee began political work around the country and soon, nationalists like Martin Carter and Eusi Kwayana (then Sydney King), were actively involved.

Two parallel developments at the time were the formation of two Discussion Circles, one in Buxton chaired by Kwayana and the other in Kitty chaired by Dr Jagan. Among the leading personalities in the Buxton Circle were Byron Lewis and Edmond Forde, who still lives in Buxton, Sewe Sankar Sanjogee (Sadhu) and Rampersaud Sawh, both of Vigilance. The two circles met on different evenings of the week (Friday and Sunday respectively) and Jagan and Kwayana occasionally exchanged visits on behalf of their respective circles.

It was the Buxton Circle, at a meeting chaired by Kwayana, which passed a resolution that a political party be formed to represent the workers and the peasants of Guyana. A similar resolution was later passed by the Kitty Circle at its meeting chaired by Dr Jagan.

In the meantime, additional persons had joined the PAC, including Martin Carter, ‘Boysie’ Ram Karran and Kwayana. In January 1950, approximately twenty persons comprising members of the PAC, members of the two Discussion Circles and other persons, including IVO Cendrecourt and Frank Van Sertima, gathered at the Progressive High School in Regent Street and formed the PPP. There was no single founder as both headstones erroneously claim.

I am sure that the conflicting and misleading headstones were not intended to rewrite history. But even innocent errors must be corrected, since juxtaposed, they make nonsense.

Two other points were noted by the group I was in. If this is intended to be a national site then for the nation’s sake, replace the colours of the PPP with those of the country. The second is the awful and backward state of the sanitary facilities. There are only pit latrines, some of which are still under “construction”, and none of which has running water. Using them sickens the stomach. The only source of water is the ubiquitous black tank located to the northern side of the platform about fifty yards away from the latrines.

The PPP encourages diplomats, international visitors, persons from around the country, and most of all ladies, to mark the death anniversary of Dr Jagan at Babu John. It is a disgrace, embarrassment and insult to expose them to such unhygienic and undignified conditions. It is too, an insult to the memory of Dr and Mrs Jagan, and conveys an impression of Berbicians that is wholly undeserved. Something has to be done to fix this grave indecency.

I made a bet with two members of the group that once the matters are raised publicly, the General Secretary of the party will quickly take action to fix both the historical errors and the physical [in]conveniences. He may even seek a more embracing solution by facilitating the establishment of a Jagan Foundation, one of the functions of which can be the management of Babu John (Mr Nandlall, please note, and stop the revisionist attempt in relation to the spelling).

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Police should have been called in immediately over forgeries at registries

I understand from the article ‘Probe underway at Deeds, Supreme Court registries over forged documents’ carried in the Stabroek News of March 30, 2015 that the investigation referred to is an internal investigation. Apart from the seriousness of the apparent improprieties, the matters involved high profile companies with serious reputational risks at stake.

The report suggests that the relevant authorities accept that a fraud was committed but first want to determine whether any staff member may have been involved. That is troubling. I am not aware that the registries have the capacity to carry out fraud investigations and indeed whether it is proper for them to do so. Not surprisingly, such internal investigations seldom seem to produce any results or effect.

Because of the seriousness of the matters and to ensure that there is no tampering with records or potential witnesses the police ought to have been called in immediately and certainly no later than the date when the court decided that documents submitted to it should not be treated as valid.

I certainly hope there is no further delay and that the police are called in immediately.

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Caution: Bridge Company helping to sink leaking NIS

Introduction
Recently the NIS has made news on two scores: the first that it will not receive any dividends on its investment in preference shares in the Berbice Bridge Company Inc., and the second that there are more than 1,500,000 contributions which have not been credited to the workers’ account.

I was disappointed rather than shocked when I saw Ms. Doreen Nelson, General Manager of the NIS, sitting passively next to her Chairman Dr. Roger Luncheon announcing that persons were not coming forward to help clear up the contribution mess in the NIS. Ms. Nelson knows that his statement contradicts the experiences of many contributors who try, sometimes for years, to persuade the NIS that the contributions recorded in its records are less, sometimes significantly so, than the actual contributions they have made over their decades of working life and contributions.

A client has been engaged in frustrating correspondence for more than four years persuading the management of the Scheme that his entitlement is a pension rather than an Old Age grant. I myself have had fifteen telephone calls to Ms. Nelson over the matter and all I hear is that the NIS is looking into it. Frustrated with the delay, the poor fellow travelled to Guyana from the USA over the Christmas holidays only to be told that it was Christmas time and the matter would have to wait until the holidays were over!

I reported this to the General Manager several weeks ago. She said that was not good.
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