Category: Public sector

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The Amaila Falls Road Project – whose synergy? – part 2

Introduction
Very little would be known about Synergy Holdings Inc but for a remarkable display of journalistic persistence that deserves an award for champion investigative reporting, not derisive and unpresidential talk about the fabulous five unnamed “bitter old people.” The only “official” information available on the whole saga, other than the heady and often misleading pronouncements from the President and the Head of the Presidential Secretariat are:

1. the Request for Proposal issued by the Government of Guyana/National Industrial and Commercial Investments Limited (NICIL); and

2. a press release issued by the Ministry of Finance dated April 15, 2010 seeking to justify the award of the road contract to Synergy.

The successful bidder has been largely invisible, incommunicado and silent, apparently out looking for equipment and setting up an office it can call its own. From there it will direct and oversee the upgrading of 85 km of roadway, construction of 110 km of virgin roadway through forests and pontoon crossings at the Essequibo and Kuribrong rivers, and clearing a pathway along the roadways to allow for the installation of 65 km of transmission lines. No easy task.

Cake-shop, rum shop or talk shop
The roads and bridges have to meet certain standards that would allow for the passage of heavy vehicles under all conditions, including the torrential and sustained rainfall which takes place during several months of each year, often making even well-constructed roads impassable. The roads are not only for the purpose of transporting machinery, plant, personnel and supplies to the site located on the Kuribrong River which is a tributary of the Potaro River. They will need, over decades, to be in a constant state of repair to allow for regular traffic in some of this country’s most difficult terrain.

That the nearest current access point is the airstrip at Kaieteur Falls gives an idea where the hydro-project site is located, and what would be involved. Mr Motilall and his company are in diverse businesses with a range of skills, but road-building capacity and experience are not among them. How he managed to convince President Jagdeo and Winston Brassington’s NICIL that he could also build roads is a mystery. To actually build roads in such harsh and demanding conditions within the timeframe would require a miracle.

But for Guyanese this is not a matter of words in the cake shop, rum shop or talk shop, among the young, or any group of grumpy and bitter old people. If the road works do go wrong – and it will not need Murphy’s Law for that to happen – the entire hydro-project will be at risk and the centrepiece of the country’s LCDS in trouble. If we are to avoid that, we have to get it right every step of the way, every metre of it. Like the people of Uganda where Synergy’s connections are labouring over the construction of the Bujagali hydro-power facility, we will be left with a white elephant and a massive debt. The economy is already carrying the cost of the GuySuCo’s investment debts. Another mistake of that magnitude will be crippling. As the largest investment this country has even undertaken, this project cannot absorb further incompetence or corruption.

The bond and the insurance company
The construction has to take place within eight months, an ambitious and possibly unrealistic deadline set by no less a person than the President himself. To demonstrate the government’s seriousness, the RFP specifies that time is of the essence for the completion of the contract. If the contract is not substantially completed within that time the government of Guyana/NICIL can call in the bond issued by the Hand-in-Hand Insurance Company for the performance of the contract. But there is where things get murky and messy.

Part of the package to be submitted by the bidder is a bank bond (emphasis mine). Such a bond was not submitted by Synergy. It is possible that Mr Fip Motilall’s attempt to secure a bank bond did not succeed for the simple and practical reason that the country’s several banks did not consider Synergy a good risk for the project. Since the bank bond is a required content of the proposal submitted for consideration, failure to submit one should have led to an immediate rejection of Synergy’s bid.

Synergy could not get a bank bond so it presented to the Government/NICIL an insurance bond instead. No one knows what went on behind the closed doors of NICIL and whether there were any consultations among Synergy, NICIL and the Hand-in-Hand Insurance Company Limited (HIH) that led to an agreement that a bond issued by an insurance company would be accepted by NICIL as a substitute. This has never been publicly addressed by any of the parties and all we have is an unidentified source in the insurance company saying that it is relying on the commitment of the government/NICIL to the project as its security for the issue of the bond. None of the parties has sought to deny this. What happens if things go wrong and the government seeks to enforce the bond?

The Bank of Guyana’s role
The implications go beyond non-compliance with the RFP. It exposes policy holders of the insurance company to a potential loss of three hundred million dollars which would imperil its capital base and its operational capacity. It is as though Hand-in-Hand has learnt nothing from the experience of its subsidiary the Hand-in-Hand Trust (HIHT) which lost several hundreds of millions of dollars in Stanford and would have to consider itself lucky that the Bank of Guyana, as the financial sector regulator, did not step in and enforce the law regarding the impairment of capital.

Since that hit to HIHT’s financial statements, the Bank of Guyana has been assigned the role of regulator for the insurance sector and it ought to have considered whether the bond places the insurance company under any significant risk. The BoG should be concerned about the poor track record of the insurance company to carry out proper due diligence as so damningly demonstrated by Professor Clive Thomas in an exchange with Hand-in-Hand CEO Keith Evelyn.

Act 2 Scene 1 NICIL
But such considerations only matter to the few who are concerned whether the bid process was serious and legitimate. The steps towards, and the circumstances surrounding the award of the contract, invite the question as to whether or not the winner of the bid was decided in advance.

Enter NICIL, a state-owned company increasingly at the centre of much of government action that is wrong, illegal and unconstitutional and for which it has become a vehicle of convenience.

NICIL was never formed to do what it is now doing. It is a company operating under the Companies Act and the Public Corporations Act set up with its first purpose being to subscribe for, take or otherwise acquire and hold shares, stocks, debentures or other securities of any company, co-operative society or body corporate. To divert sewerage pipes, to hijack and hold public monies, to build roads and administer funds of the Guyana Geology and Mines Commission are simply out of its remit.

Here is a company that cannot keep its own books but was retained to keep the accounts of the Berbice Bridge Company Inc. In umpteen years it has not filed an annual return in accordance with the law but its CEO can find the time to perform corporate secretarial services to another company. As recently as March 2010, it continued to display its commingling role in state assets by shuffling property between Property Holdings Limited, NICIL and the Privatisation Unit, all of which are headed by Winston Brassington.

Its very role in the Synergy contract makes the whole transaction malodorous.

The Procurement Act
I now turn to an examination of that role. The Procurement Act 2003 regulates the procurement of all goods and services by a procuring entity. “Procurement” under the act means acquisition by any means, including purchase, rental, lease or hire-purchase, of goods, or services, or of construction services. A “procuring entity” is any ministry, department, organ or other unit, or any subdivision thereof, of the government that engages in procurement.

The Procurement Act allows for various types of tender boards while the Procurement Regulations 2004 sets out the value threshold that determines the type of board under which a particular tender would fall. With a value of $3 billion, the Amaila Falls Road Contract brings it squarely under the jurisdiction of the National Tenders Board.

NICIL is not the procuring entity but according to the RFP is the vehicle through which the Government of Guyana has acted to advertise for tenders and select the successful bidder. It is not known whether the government obtained advice on the matter from the Attorney General, its principal legal adviser, or whether NICIL acted on the advice of its in-house attorney Ms Marcia Nadir-Sharma, or whether the matter was considered by anyone.

What is known is that there is no provision in the Procurement Act for the National Tenders Board, or the government, or indeed any other tender board to delegate any of its powers and obligations under the act. I have seen correspondence issued by NICIL in respect of the Amaila contract and in none of it does NICIL indicate that it is acting as an agent for the government or any ministry.

To be continued

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The Amaila Falls Road Project – whose synergy? – part 1

Introduction
The US$15 million contract to Synergy Holdings Inc. for the first phase of the Amaila Falls Hydro-electric Power Project (AFHEP) has drawn intense scrutiny from the two independent dailies. It is difficult to say which element of the award of the contract is – to borrow a word from Dr Roger Luncheon – more ‘sinister,’ the method and the vehicle used by the government first to direct and then defend the contract to the awardee, or the attempt by the awardee to mask its incredible incapacity to perform such a contract. There is big money involved, if not from this phase of the project, then later from the real prize, the construction of the hydro-power plant with a price tag of several hundreds of millions of US dollars.

The characters in this extravagant saga make an interesting cast with the lead role being played by the versatile and ubiquitous National Industrial and Commercial Investments Ltd (NICIL), a company that has been at the centre of almost every questionable big ticket transaction undertaken by the government. NICIL is described as the government’s shareholding arm, but it has an unholy alliance with the government’s privatisation arm called the Privatisation Unit, with which it shares a common CEO, Mr Winston Brassington. Behind or – depending on the way one looks at it – in front of NICIL is a politically studded board of ministers and government insiders headed by the Minister of Finance Dr Ashni Singh. NICIL’s corporate secretary is attorney-at-law Ms Marcia Nadir-Sharma. And on the other side is a man whose incredible talent for self-promotion deserves its own Oscar and whose major assets are his political connections and his determination.

Silence not synergy
The storyline is one of intrigue on a Machiavellian scale. The two lead actors both play more than one role. One President appears literally out of the Caribbean Airlines sky to tell us that hydro will allow us within the next three years to use only renewable energy in the production of electricity. The other president assures us that Guyanese will soon be paying for electricity half of what we now pay to the Guyana Power and Light Inc and later, our electricity rates will be the cheapest in the world, a claim which even a professional propagandist might not feel comfortable making.

There is a fair cast of naysayers, their warnings muffled by the intense propaganda, while several members of the Low Carbon Development Strategy (LCDS) cast have taken time-out. With hydro-electricity being the centrepiece of the LCDS, one might expect them to be more vocal, to consult and to convince. Yet, not a single voice has been heard from this amorphous group that plays its part in the chorus line. Silence is not synergy.

The many-headed hydra
Every time Guyana believes that it is closing in on one set of improprieties another raises its head – or the impropriety is legalised. The Synergy deal – in the most common sense of the word – shows that impropriety has more heads than a hydra, more tentacles than the octopus. For years, accounting for and spending of the Lotto funds has been an obsession of the Audit Office. A few years ago there was the infamous Queens Atlantic Investment Inc privatisation and concessions, followed by the single sourcing of drugs from the President’s friends.

Then last year it was Clico from which some benefited despite incompetence, improper conduct and possible illegalities. In the case of Synergy, as in its purchase of hundreds of millions worth of drugs from India, the government uses a middleman, a friend of the President. Except that in the case of Synergy, there was a supposedly independent tender process.

Not only was the Amaila contract process flawed, it was in breach of the Procurement Act, subliminally confirmed by Head of the Presidential Secretariat Dr Roger Luncheon who said that the contract was awarded via a competitive bidding process within the specified guidelines.

And guess who specified those guidelines? Dr Luncheon’s famous circumlocution is often regarded as no more than a cause for humour but it always masks some serious truths. He did not tell the nation that the contract was awarded under the Procurement Act; he said that the award of the contract to Synergy Holdings was made via a public tender done within the provisions of the Act. What he does not say is that the administration of a government tender has specific rules that would not allow a private company like NICIL to be engaged in the tender process.

The absent opposition
That raises questions about another no-show in the whole saga: the political opposition, the whole lot of them. Belatedly, the PNCR has announced that it is calling on the government to submit all proposals connected with the project to the National Assembly to ensure proper accountability and transparency. That party must enjoy being insulted and embarrassed for it must know that a mere call on the Jagdeo government is insufficient to bring about any results. A call is the easiest thing to make – all words, little effort and no action.

Such calls should be left to individual citizens with no other practical options. It is more than three weeks since I called on the parliamentary opposition and the people of Guyana to demand an enquiry into the award of the contract to Synergy, and for it to be stopped.

It has been left to individuals and the press – described by President Jagdeo as the new opposition – to do the investigations and the hard work of exposing the illegalities and improprieties, which may or may not add up to corruption.

The AFC and GAP-Roar seem to have been incapacitated into silence, learning nothing from Mr Motilall, that incapacity in Guyana is not an impediment.

Civil society, including the professionals and their bodies, has been paralysed by fear of their own shadow and apprehension about the response.

We have been reassured about Synergy’s credibility not due to its President and CEO, but the role of Sithe Global Power LLC which is described in the Request for Proposal as the Project Manager and in a joint press statement issued on April 5, 2010 by the Ministry of Finance as the project sponsor, which I assume is something like a godfather. Not only can both descriptions not be right but there are significant legal, operational and financial implications between them that need clarification.

‘Bigging up’ Sithe
That false description perhaps stems from what may be an attempt to ‘big up’ Sithe Global Power, LLC to compensate for Synergy’s demonstrated incapacity to execute any but the most insignificant contract. It is convenient, but misleading to tout Sithe as the project sponsor of Uganda’s Bujagali Hydro-power project when in fact the sponsors are Industrial Promotion Services (Kenya) Limited and SG Bujagali Holdings Ltd, an affiliate of Sithe. This information is readily available to our professional associations which could have at least checked on Sithe and the Bujagali project which has run into all kinds of technical, financial, environmental problems.

Through the pivotal role of Uganda’s National Association of Professional Environmentalists, within months of the World Bank’s January 2008 announcement of financial closure, an Inspection Panel appointed by the Bank concluded, following a 17-month investigation, that the benefits of the Bujagali project had been overstated and its risks understated.

That could easily be the case of Amaila where the decider-in-chief President Jagdeo displays an amazing naiveté on technical issues and appears to be misled by the most simplistic numbers on complex issues. He accepted McKinsey’s calculation that our forests are worth US$580 million per year and has so far not challenged Synergy’s numbers on the price at which it would sell power to the Guyana Power and Light.

The Public Utilities Commission
And here is where another interest comes in – the Public Utilities Commission (PUC). Is it aware of a long term Power Purchase Agreement under which GPL will take all of the energy generated by Amaila, or of an ‘Assignment of Receivables Agreement,’ which ensures the payment via pass-through payment from end use customers? Electricity tariffs come within the purview of the PUC and it would therefore have been incumbent on that body to satisfy itself that Winston Brassington, Chairman of GPL was not a party to or exerted any influence on the negotiations leading to those agreements, that they were properly made and that all the implications for rate-setting have been addressed.

Like Bujagali, failure to rigorously evaluate the Amaila project can spell a major financial disaster which the citizens of the country will have to bear long after Motilall and the politicians have departed Guyana.

It is not something that we can address only after it has happened. It will be Guyana’s mess, obligations and burden. It cannot wait.

To be continued

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Questions have made many in government uncomfortable

This letter was submitted to the Guyana Chronicle as a response to an extensive article captioned, ‘Finance Ministry slams Christopher Ram’s latest journey of speculation and misleading statements.’ Seven days after it was sent in, it still has not appeared.

The only reason I can think of for the three-page April 20 response by the Ministry of Finance (which appeared in GC on April 21) to my letter appearing in the Sunday Stabroek and the Kaieteur News of April 18 is that my exposure of the corrosive effect of first and second generation corruption, conflicting actions within Low Carbon Development Strategy (LCDS) policies, the questionable award of the Amaila Falls Road Project contract to Synergy, a mini-company owned by a political friend, Mr Fip Moitlall, the dubious role of the politically-directed National Industrial and Commercial Investments Limited (NICIL) and the repeated, costly and embarrassing mistakes by Finance Minister Dr Ashni Singh, has made many personally uncomfortable, to the extent that a rancorous public rebuttal became necessary. I refuse to reciprocate by descending to that level. Instead, out of respect for the Guyanese public’s right to the truth, I will rebut, point by point the April 20 diatribe by the Ministry of Finance.

The ministry challenges me on the LCDS implications of the NICIL-awarded road contract given to a friend of the political family, so reminiscent of another such case involving the Ramroops, friends of the President. In that case, tens, and possibly hundreds of millions of dollars of tax concessions, rent reduction and other benefits were engineered for the Ramroops by NICIL whose board is chaired by Dr Singh.

In a famous misunderstanding of the law, the concessions were subsequently approved by Cabinet and granted under the hands of the same Dr Singh.

When Mr Yesu Persaud asked for such concessions to be made widely available, President Jagdeo publicly abused him, directing NICIL’s CEO Winston Brassington to lecture Mr Persaud about the tax laws. Two days after Jagdeo’s abuse, in Business Page I examined for readers the relevant concessions legislation and pointed out that it was the President, Drs Luncheon and Ashni Singh, Messrs Winston Brassington, Geoff DaSilva and the entire Cabinet and Board of NICIL that needed some tax education. No one should harbour more embarrassment from that exposure than Dr Singh who, wearing three different hats, should have been aware of the provisions of the legislation and of the extent of his powers to grant such concessions. Synergy seems to be a case of history repeating itself.

Neither of the two drafts of the LCDS contains any calculation of the carbon emissions from the construction or operation of any of the development schemes outlined in the second draft.

Under the Guyana-Norway Agreement, there are two penalties which could apply – one for increasing deforestation, and the other for the timber cleared for the access road to the dam site. How I arrived at the USD 14.2 million for a road-associated potential penalty is technical and takes up valuable editorial space.

I have posted the details on my website chrisram.net (see box below), but I doubt that the Ministry of Finance is concerned about facts and figures.

Note on Penalty calculation
In the two drafts of the LCDS there is no calculation of the carbon emissions from the construction or operation of any of the development schemes outlined on pages 25-36 of the second draft, December 2009. It is not possible to derive the Ministry’s statement today from the single paragraph on Amaila Falls on page 25 of the LCDS document.

Under the Agreement, there are two penalties which Norway could levy. One penalty is for increasing deforestation, and one penalty is for the timber taken off the upgraded 85 km and new 110 km of all-weather access road to the dam site. The 110 km of new road would generate 0.19 MtC (million tonnes of forest carbon). The MoU values the forest carbon at USD 18.35/tC, and the penalty rate is four times the value, so the road-associated penalty is USD 14.2 million. This penalty is due if the deforestation from the roadworks pushes our total for 2009-2010 above the generous Norwegian allowance of 0.45 per cent of total forest area. As the draft LCDS does not discuss the deforestations associated with the development projects listed on pages 25-36, and the President’s Office of Climate Change has issued no calculations, we should be prudent in pointing out this hazard.

Whether or not the road does cause that excess deforestation, the second penalty may apply. Under the MoU, the total timber extraction should not exceed the mean national total for years 2003-2008 (total extracted volume, in table 2 on Enabling Indicators of the Norway-Guyana MoU and Joint Concept Note). That mean total is 481,226 m3 and includes raw logs, roundwood (poles and posts), and chainsaw lumber converted to its roundwood equivalent with the conversion factor of 0.4 used by the Guyana Forestry Commission. If the logs from the roadworks do not lead to log production rising beyond that agreed limit, then is log production elsewhere in Guyana being limited to make space under the limit for the Amaila Falls road logs? No agency in the government, nor the Forest Products Association, has indicated an intention of localised restrictions on log production. Page 39 of the LCDS indicates presidential assurance that large-scale loggers can continue their business-as-usual.

If they were, they would also take note of Janette Bulkan’s letter published by Kaieteur News on March 29, in which she pointed out that the Environment Impact Assessment (EIA) of 2002 on the Amaila Falls project available on the website of the Environment Protection Agency was for a much smaller project.

The document acknowledges that an expansion of capacity would require a fresh EIA, but that would get in someone’s way.

Further, the ministry’s attempt to confuse my stated concern about the Synergy road contract with hydro is artful, and even dishonest. The two are clearly separate but have come to represent the modus vivendi of this ministry in particular, and the government in general.

As a private company, NICIL is not subject to the stringent rules of the Procurement Act and the Fiscal Management and Accountability Act (FMAA). It is subject to lower standards of accountability under a political board that includes Drs Luncheon and Singh and Messrs Robert Persaud, Geoff DaSilva and Winston Brassington. To divert attention from “NICIL/ Government,” the Ministry of Finance in its April 20 statement conveniently introduces the Ministry of Works, which was not once mentioned in the Amaila Project Request for Proposal issued by NICIL.

That unholy combination is not unlike the Privatisation Unit/NICIL hybrid, which allows it, chameleon-like, to be and act like a government department when it is convenient, as in this case, and like a private company when it does not want the constitution, the FMAA and the rules of accountability to apply.

Let me correct some of the other issues which the Ministry of Finance chose to distort.

Queens Atlantic
I had objected to the illegal concessions granted to that company. To the extent that a person fails to honour his/her investment commitment, the concessions should be revoked. The only investment of substance by QA has been the newspaper which was not even included in its investment proposal seeking the hundreds of millions of concessions. But if the Lord gives, who else dares take back?

The Berbice River Bridge
My objections were all of a financial nature. They were:

(1) Winston Brassington’s attempts to have me withhold a Business Page article for one week. It turned out that he needed that week to get the Roger Luncheon-led NIS to invest in the bridge.

(2) The massive tax concessions given to everyone involved, even tangentially, in the bridge.

(3) The fact that despite these concessions, a Berbician car owner pays twenty times as much to use the Jagdeo Bridge as his Demerarian counterpart pays to use the Burnham Bridge. I did not realise at the time that unlike the Burnham Bridge, cyclists and pedestrians in Berbice could not cross their bridge.

RUSAL
In negotiations led by the President and Mr Brassington, we have given away our bauxite to a company owned by a Russian oligarch Oleg Deripaska, a man with a reputation for strong tactics and for lavishly entertaining foreign officials, and who like some of our own top people, has had his own visa problems. (See London Guardian, October 31, 2008.) RUSAL is now actively engaged in union-busting in Guyana and yet earns the tacit admiration and undisguised support of this administration.

Arising out of its secret negotiations with President Jagdeo and Mr Brassington, RUSAL has been granted exemptions from just about everything, including the bauxite levy.

But to divert attention, the Ministry of Finance chooses to speak of jobs. As if Mr Deripaska came to Guyana to provide employment, rather than obtain free bauxite for his Russian plants, acquired under circumstances that can still excite!

Finally, let me remind the Finance Minister that I have challenged his knowledge of the sinister history of the VAT rate, conflicts of interest involving his ministry and the Audit Office, and his veracity in the National Assembly over a $4 billion payment to GuySuCo. No space was found in his ministry’s three page production to enlighten citizens on where he stands on any of the issues raised, or, on where any of the issues raised stand.

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Guysuco needs drastic surgery to ensure survival – conclusion

Introduction
Today’s column is my conclusion of GuySuCo’s Strategic Blueprint prepared by a special taskforce appointed by the President following the disastrous performance of the state-owned entity in 2008, recording its lowest sugar production since 1992 and the highest financial losses ever. Following the presentation of the blueprint, the government terminated its contract with Booker Tate but then recruited its top Caribbean executive and one of Booker Tate’s nominees to the board as its CEO – a decision that baffles observers and insiders alike.

To recap, parts one and two which appeared on March 14 and March 21, dealt mainly with a review of the 2008 audited financial statements, drew attention to the huge loans which were soon to mature but which would require significant help from the government for the corporation to repay. In part three, I sought to reduce to reality the economic contribution of sugar to the country which had for years been placed in the high teens. In fact, measured in terms of constant prices, in 2008 sugar contributed 5.9% of GDP, placing it seventh in ranking, while in terms of export earnings it earned the country considerably less than the earnings from gold. In 2009, sugar’s contribution to GDP was unchanged, but in terms of export earnings, sugar earned less than half that of gold. Even in rural Guyana, sugar is an old and ailing king, gradually giving way to commerce, other economic activities, or simply waiting on Western Union.

With respect to taxes, sugar makes a negative contribution, receiving from the treasury a host of subsidies, exemptions and concessions. In 2010 direct cash injections to the corporation are likely to exceed $10 billion on top of the $4 billion paid to GuySuCo to help it meet its debts. Ostensibly the $4 billion was to purchase a yet to be determined area of land, for a yet to be determined price per acre, and fully under cultivation. Part four dealt with issues of corporate governance as well as the corporate governors many of whom were brought in, like Horace’s dei ex machina, and given the task of turning around the corporation under the chairmanship of sugar unionist turned politician turned public servant, Dr Nanda Gopaul. In part five we began a review of the plan itself, and in this final part we look at some of the most important elements of that plan.

The production target
The plan revolves around a production target of 400,000 tonnes of sugar by 2013, including 110,000 tonnes from Skeldon. Optimistically the architects of the plan indicated that “initiatives were in place to bring this forward.” They also expect direct consumption sales from 10,000 tonnes of sugar in 2009 to 60,000 tonnes in 2013 with the major increase.

I say optimistically because even under the new direction, the corporation has found it almost impossible to achieve its targets, despite being in possession of constant data about the acreage under standing cane. For example, in May 2009, production for 2009 was projected at 250,000 tonnes, still short of the 290,000 January latest estimate, but described as secure. Production for the year turned out at 233,000 tonnes. 2010 production in the plan was stated at 321,000 tonnes, but a few months later the Minister of Finance announced a target for the year at 280,000 tonnes. For their optimism the Minister will sink close to G$10 billion in 2010, in addition to the G$4 billion in the land deal referred to above. It is hard to avoid the conclusion that targets are the result of circular guesswork than of any serious cooperative efforts by the field managers and the army of accountants now in control of the corporation.

Hercules or Don Quixote
Indeed it seems that the turnaround artists were themselves confused because Table 17 of both the April and May versions of the plan project production to rise to 439,000 tonnes in 2014. This will require not merely a Herculean effort but a miracle on the scale of the Second Coming.

Equally optimistically, the plan assumes no problem in disposing of all the sugar produced, whether in domestic, value-added, refined or bulk form. Caricom sales are expected to increase between 2009 and 2015 from 5,700 tonnes to 200,000 tonnes. Of this refined sugar sales are projected at 120,000 tonnes by 2016. This will have to be achieved even as the corporation lost its marketing director in a bizarre incident in which she was allegedly excluded from a meeting for being no more than a couple of minutes late. If that action was intended to teach the incumbent a lesson, it backfired damagingly for the corporation is now without this most important resource.

One further comment on the refined sugar sales: the plan assumes the invoking of the CET at the rate of 20% and the continuation of the sugar refinery in Trinidad for the duration of the plan period. Basic research would have alerted the plan’s architects that the Trinidad refinery was coming to the end of its extended life. That refinery was shut down completely at the end of April 2010. With this information, perhaps we will see another version of the plan and worse for taxpayers, a request for still more billions of taxpayers’ dollars.

The place of the people
Human resource is as important to production as marketing capability is to sales. The plan seeks to reduce departmental labour cost as a percentage of total departmental costs from 54.4% to 41.0%. It is expected that this will be achieved as a result of increased mechanisation, the restriction of costs of cultivation of one hectare from approximately $640,000 to $490,000, and an accompanying decline in labour numbers from 18,541 in 2009 to 15,660 in 2010, falling eventually to a precise 12,599 in 2015. While the plan recognises the corporation’s labour force as critical to its objectives, it seems particularly weak on human resource management. There is little or no understanding, as is evident in the document, of people being the most important resource in the industry. This is probably because there is no relevant human resource interest or competence to be found amongst the authors. While production and its related activities are only possible through people, only grudging references to employer/union relations have been made and interestingly enough, the management and supervisory ranks are not identified as stakeholders.

Such a perception can hardly motivate these groups of employees to buy into a plan hinged on production, rather than productivity and people. There is a deafening silence about the rate of voluntary departures of critically skilled personnel, while incidental reference is made to training – not necessarily based on any needs analysis or identified in a normal training and development plan.

The intention to off-load health centres and community centres respectively to the government and the Sugar Industry Labour Welfare Fund (of all places – an indication that not many of the plan’s authors know what the fund does), is clearly symptomatic of the corporation’s apathy towards the communities amongst whom it operates and who supplies its workers and its managers.

The trees from the forest
At times the plan seems to think that operational decisions of a routine nature are a substitute for real strategy. How else does upgrading the curricula at the Port Mourant Training Centre, revising training programmes for management trainees, and filling the position of Drainage and Irrigation Engineer get elevated from routine management activity to strategy?

The plan makes some strange decisions about the authority of the HR and IR functions which is now to be concentrated at the head office. This, according to the authors, is to allow estate managers to concentrate on yields and field and factory production. As if labour takes a back seat in all of this. One can only assume there is a superior collective intellect for the high-flight decision to remove HR from under estate managers, and for placing in a grey area the accountability for the state of industrial relations on the respective estates.

Political choices and moral hazard
The plan restructures the eight estates into two regions and Skeldon. The regions are headed by a regional director who reports to the deputy CEO, Mr Rajendra Singh, a hurried appointment in 2009 of someone with no experience or expertise in sugar or high-level management, other than having been a non-executive director of the corporation earlier. Given his resumé, Mr Singh is unlikely to display the skills indicative of a capability of moving up, and the government may find itself in the uncomfortable and reluctant position that it will have to prolong the services of Mr Hanoman. When the story of GuySuCo is told, the cost of political decisions will rank far higher than the cost of labour.

Underlying the thinking behind the plan is the assurance that the government will be there providing the financial brace and shielding the authors from any scrutiny of their quixotic assumptions and follies. The authors could confidently assume that the government will convert more than G$27 billion into equity, funded by the workers of the country to whom the government refuse to give more than US$175 per month as a tax-free allowance to cover their mortgage interest relief, children, dependents and educational allowances, and of course their cost-of-living basket.

That assumption comes from the assurance by Agriculture Minister Robert Persaud that Guysuco is too big to fail. I take a very different view: Guysuco is too big to save. As long as Guysuco retains its existing configuration, it will continue to remain in intensive political and financial care – courtesy of mind-boggling ineptitude indecision by the President who had ignored the readings of the tea leaves by Booker Tate, and the irresistible and pathological tendency of the political administration to interfere in everything.

Conclusion
This is not the first turnaround plan done within the past few years. Many of the same recommendations had been made by Booker Tate over the past couple of years, but the difference is that the new and not improved one comes with a demand and an expectation of such huge billions to keep afloat some estates and activities that should have been terminated years ago. The plan is an act of cowardice – no bold independent decisions but strictly following political instructions to the letter. With this high-powered board, one would have expected something with more courage, substance and vision. None of these is present. No wonder that GuySuCo would not share the plan with stakeholders or subject it to any independent scrutiny.

The 2010 first crop will soon come to an end and it is likely that production will again be off-target. We should prepare ourselves for the excuses, to be followed by another turnaround plan. And possibly more taxpayers’ money.

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Guysuco needs drastic surgery to ensure survival – part 5

Introduction
In today’s column I will begin a review of GuySuCo’s Strategic Blueprint announced by President Jagdeo on January 8, 2009, following the installation of an interim board he appointed to steer the local sugar industry out of its field of inefficiencies, tonnes of red ink, and punt-loads of government subsidies. Dubbed by President Jagdeo a “turnaround plan,” and by the plan itself as a blueprint for success, the plan and the interim board were a reaction to the low-point of production by the corporation in almost two decades, and to the danger that the corporation was staring down the barrel of insolvency. Unlike previous studies on the corporation and the industry, the strategic plan is a hidden document, accorded the utmost secrecy, not available to economists and analysts, politicians or taxpayers who, by virtue of having to pump billions of dollars to keep the corporation afloat, must be considered the corporation’s current major stakeholders.

There are several versions of the Strategic Blueprint, but the one on which this column is based is dated May 2009. The first point to note is that the architects of this multi-billion dollar blueprint acted partly on oral instructions for the terms of reference for their work. They proudly refer readers to the website of the Office of the President which sets out the mandate given to them by President Jagdeo, and also make reference to a press report quoting Minister of Agriculture Robert Persaud. They promptly complied with instructions from Minister Persaud, who directed them that it was “an appropriate time to make changes to the organisational structure of the corporation, starting at the management level.” No thought about starting at the activity level, such as separating agricultural, factory and value-added activities, since presumably that was not the instruction.

Strategic deficiencies
The product is an unfortunately limited document that did not seek first to ascertain why and how GuySuCo got there, where the politicians wanted to take it, and most importantly whether what the politicians wanted made any business sense. The government presented to the team a political, if unwritten plan. At the most acquiescent level, a professional team would have developed a business plan, which this document is clearly not. It considers only those matters on which instructions, or more accurately directives, were given. The team is a mainly public sector group, the members of which with the notable exception of Ms Geeta Singh of Clico, have very little commercial experience. Not surprisingly then, excluded from the plan is any reference to consideration of such sensible possibilities as estate closure, and more daringly, private sector participation in the corporation, by sale or joint venture. They were unprepared to confront the reality of an inevitable failure of the corporation if it retained all 8 estates, factories and 20,000 workers.

It was clear too that they could not deal with the poorly considered idea by President Jagdeo to invest hundreds of millions in the Skeldon Sugar Modernisation Project, compounded by the calamitous decision by him, against the better advice and judgment of the experts, to bring in inexperienced Chinese as the contractors.

Chinese power
The President ignored the reality that the factory was in a mess, and rejected advice that the contract be cancelled. The money outstanding could then be paid to a competent contractor to finish the job. But politically, it was easier to persist with the Chinese while blaming Booker Tate. The trouble is that that course has had serious financial costs, including thousands of tonnes of sugar lost, and a similar number of hours of senior GuySuCo time spent on increasingly difficult negotiations with the contractors. A meeting locally with a Chinese government representative and visits to China proved equally difficult, if not unproductive. It was a display of Chinese power versus Guyanese amateurism, experiences which could be useful as we negotiate an even bigger contract for the construction of the Amaila Falls hydropower project. The indications are that we are about to repeat that political adventurism, only this time on a bigger scale.

The writing had long appeared on the wall that the selection of CNTIC as the preferred contractor was heading for disaster. They could not get their team together, their project management capability was less than what the project required and as early as 2005, the project itself was already behind schedule.

The plan did not examine the fundamental problems of the industry, and similarly, glossed over in one page what it called the state of the industry, incredibly under three headings: current cash position, production history and projected 2009 production. It could not bring itself to admit that the Skeldon Project contract price had escalated, demanding a disproportionate amount of time, draining the cash resources of GuySuCo of billions, and starving the other estates of critical capital and operating expenditure. What little was left had to be spread among all the estates, good and bad alike.

The President had always signalled his unwillingness to accept these unpalatable facts and that the corporation was unlikely to show any profits for several years to come. He and the board concealed such vital information behind a mask of financial and political propaganda, saved temporarily by the weakening of the US$ against the euro, and the increase in complementary quantity that gave the corporation some breathing space until 2008.

Like the President, the interim board seemed equally unwilling to accept the fact that the corporation would not survive if it retained Uitvlugt, Wales and LBI, and if it did not reduce its workforce by several thousands. Like the President, the politically-minded interim board could not understand that good-paying jobs do not come from bailouts, but rather from new and dynamic businesses. Robert Litan, who directs research at the US Kauffman Foundation which specialises in promoting innovation in America reports that between 1980 and 2005, virtually all net new jobs created in the US were created by firms that were 5 years old or less. GAWU might lose some members, and the ineptitude of many of the politicians would be exposed, but I am not sure that would be such a bad thing. Sugar workers are hard-working and resourceful and will not sit idly by. They will go out there and find better jobs, jobs which are less demanding and offer greater security.

An industry, not a company
The other fundamental flaw of the plan is its total concentration on the corporation – again because that is what the team was told to do – rather than addressing the problems of the industry. GuySuCo is not an island, but is at the centre of an industry. Its success depends on the success of the industry, and if the industry does not have a future, neither does GuySuCo. Because it was told to come up with a plan in the “shortest possible time,” the team never did any analysis of the industry, including the private cane farmers, or of the dwindling labour and talent pool from which it would be required to draw exceptionally committed employees if the plan is to half-succeed.

The Skeldon project anticipates the participation of private operators, yet no attention is paid to this group with which the corporation would have to compete for labour. Unlike the corporation which can count on state subsidies and which the Minister of Agriculture says is too big to fail, these private operators will make hard decisions on economic and financial grounds. GuySuCo has guaranteed hundreds of millions of dollars of bank loans to those operators. The private operators will be concerned about having to share the costs of the inefficiencies of the Skeldon Factory, the uncertainty of the market and the unpredictability of the weather.

Irrationalities
Absent too is any indication that the turnaround team did any work on a market analysis so necessary in the light of the new trading arrangements in the once highly subsidised and profitable EU markets, and the developments within this region. One of the first rules in business planning is that you start with the market and build around that. Instead this plan starts with an obsessive commitment to production of 400,000 tonnes annually from 2013, with 110,000 tonnes from Skeldon. One has to wonder too, whether the team knows that the corporation is almost always too optimistic in its projections and production. In its secret deal with the government, the corporation is disposing of choice land currently under cultivation at Diamond, accounting for 18,000 tonnes of sugar annually,which it claims will be made up by ‘recommended’ strategic measures at Blairmont. It must be a sign of extreme desperation that a professionally prepared plan would sell land under cultivation just when it seeks to expand production and then incur additional heavy capital expenditure of G$3 billion on which it admits that returns will not be very large in the early years. The only thing that I can think of as more ridiculous than the sale is the purchase of the land by the government, which will now have to convert agricultural land to housing development.

But it is easy for the plan to engage in such irrationalities. Its authors do not state what they consider a reasonable return on capital or acceptable measure of profitability and success. Most of the corporation’s land is held on peppercorn lease rental from the government – $1,000 per acre per year – and it would add to the absurdities for the corporation to pretend to sell land it does not own and for the government to buy its own land. The plan is premised on continued subsidies of all sorts, most of which are not, however, disclosed. The industry’s contribution to GDP is now about 7% and it is the major beneficiary of government subsidies, of which the land sale is just another example.

False economies, accounting
The plan is also based on some false economies such as the imposition of a fixed average cost for cultivation of $490,000 per hectare. If this is an arbitrary determination by the accountants who predominate in decision-making in the corporation, then the impact will be felt in production and productivity, negating the gains so excitedly touted to the Economic Services Committee of the National Assembly.

I will close by noting two points about costs and their behaviour which the plan does not address. It does not appear that sufficient or any attention was paid to the question of costing and management accounting. It is wrong for the corporation to make decisions only on the basis of the field cost per tonne. To return a profit requires the entity to sell at a price that covers total cost. On that basis, cost per pound was approximately US forty cents in 2008, and not much less in 2009.

The second is that in any project analysis, if the marginal cost exceeds the marginal revenue, each additional unit produced increases the entity’s losses. It does not appear that this point was considered in the plan. I should add that it does not matter whether the sugar produced is then used for value-added, such as the Packaging Plant. For what that means is that that plant will be using over-priced raw material. Better to buy from third parties and do the packaging – assuming that it would make sense to do so.

Next week, I will wrap up this series and move on to deal with other fast-moving developments taking place.