Introduction
Earlier this week I sent to Mr Winston Brassington, the head of Atlantic Hotel Inc, (AHI) the company financing the construction of the hotel complex a number of questions dealing mainly with the construction phase. I was hoping that I could address the issues in today’s Business Page. However, Mr Brassington in a telephone call initiated by me explained that events at the Guyana Power and Light Inc prevented him from addressing my questions but promised that I would have a response by tomorrow (Monday). Out of respect for that commitment, I will await his response.
Meanwhile Guyanese learnt from no less a person that a member of the Board of the controversial NICIL, AHI’s wholly-owned parent, that AHI has found all but US$8 million to complete the construction of the complex. At the end of 2011, NICIL had advanced to SCG International (Trinidad and Tobago) Ltd the sum of $2,036.7 billion, or the equivalent of US$10 million, as a 20% advance payment on the US$50.9 million contract. Since that date NICIL received some US$25 million from the sale of the government’s share in GT&T (with a balance of US$5 million) to come. This suggests that NICIL/AHI have secured financing for at least US$35 million to US$40 million, leaving a gap on the construction cost of some $11 million. Since the total cost of the project was budgeted at US$41 million against the US$50.9 million price contracted with SCG, one is left to speculate whether the US$8 million shortfall figure given by Dr Luncheon is to cover the entire contract cost or the difference between what NICIL/AHI have secured from the US$40 million privatisation proceeds.
The unclear Luncheon
business pageNot surprisingly and not for the first time, Dr Luncheon’s statement is less clear than the country deserves and adds nothing to another document which I have seen. The document, an Agreement between the Guyana and AHI, dated April 14, 2011 and signed by Winston Brassington on behalf of AHI and Mr Dhanraj Dhanpaul, CEO (ag) of Guyana Office for Investment (go-Invest) on behalf of the Guyana Government, states as follows:
That AHI was formed with the objective of building and operating a minimum of 150-room hotel (revised in 2010 to 197 rooms) and an entertainment complex (including a casino, nightclub and restaurant);
The Developer, through its owners (current and prospective), has represented to the government that the Undertaking is currently in the tender stage for construction, with a projected timeline for the anticipated commencement of construction being Q2, 2011 with a construction timeframe of 2 years, following the conclusion of a contract with a Contractor, to deliver the substantial portion of the undertaking;
The Developer will own the Hotel and Entertainment Complex which shall be operated by third parties; the Hotel will be operated by the Marriott; the casino, nightclub and restaurant will be operated by other third party operators to be identified. All income earned and expenditures made will be in the name of the Developer, with the Operators being paid an operator’s fee for services provided.
The owners of the Developer have further represented to Government that the Undertaking will contribute to the development of the Guyanese economy, more particularly the hospitality sector and have therefore applied to Government for concessions.
Government negotiates concessions and dooms Pegasus
Of course, the owners of the developer are the same Government with which Mr Brassington made the agreement. And note that the only hint that the AHI will sell the property is in B above – “current and prospective owners.” And under the Agreement the new facility is being granted for ten years exemption from corporation, property and withholding tax (including the payment of interest and dividends to debt providers and equity holders. Additionally the developer has received an undertaking that it will be granted a licence to operate a casino.
Additionally, the developer is guaranteed relief from duty and excise tax on capital repairs or replacements including machinery, equipment and buildings costing more than US$10,000. And on top of that, the developer is entitled to a “one-off” retrofitting of the project within ten years if so required for a period of ten years (sic) from the commencement of commercial operations.
There is absolutely no way any investor can compete with AHI’s project unless it receives similar concessions. It is either that the hotel will make super-profits or competitors will simply be run out of business. These concessions spell the death-knell of the Guyana Pegasus and possibly the Princess Hotel as well. The only other entity in Guyana that came close to such generous concessions is the Ramroop-owned Queens Atlantic Inc, lending credence to the rumours that the investor will be the same group.
The Agreement as signed has no conditions regarding ownership and it means that AHI can sell the hotel one day after completion with all the massive concessions which amount to a windfall to whoever the buyer turns out to be.
The Guyana Government has now taken on the role of venture-capitalist and procurer of concessions, licences and permits for an unknown entity(ies) which is not willing to invest any money upfront. It is hard to think of any similar arrangement across the Caribbean!
The wrong feasibility
Now that it is becoming almost certain that AHI is risking taxpayers’ money for the benefit of some private investor/s, one must wonder why the Government went to such lengths to convince the public that the project was feasible. If the project was undertaken for resale, the only feasibility was whether or not there would be takers of any offer of sale of the hotel on completion. And with such sweeteners the only thing one has to fear is diabetes, not a shortage of buyers. But that is another part of what seems to have been an elaborate but not too hidden plan to fool the Guyanese public while building a project for selected friends of the Government.
We wait to hear what Dr Luncheon and Mr Brassington will tell us next.
The construction
Now this is another story. Recall that when AHI conceived the project its budget was US$41 million based on its drawings and specifications. It went to tender on that basis. So when SCG sent in a tender for US$65 million, AHI said to SCG please go and do an alternate design meeting Marriott’s standards. SCG came back with a design but this time costing US$51 million but excluding several costs and most importantly that relating to Leadership in Energy and Environmental Design (LEED) certification. What SCG was effectively telling AHI is that if you wish to have LEED certification then you must pay for it. And Mr Brassington said yes. Now that we are cutting corners on statutory deductions, changing design specifications and eco-features we allow the contractor to dictate to us about quality certification.
Having been duped by SCG, the Chinese contractor, on the importation of labour – although Guyana had the final say in work permits – the next danger for us is who is looking after the interest of AHI in ensuring that we do not have a similar experience in the quality of the material used or in supervising the execution of the work by the contractor. Earlier this week I was being regaled with the post-modern technology and material being employed on the cut-price contract. Well maybe that explains why none of the local consulting engineering firms was retained by AHI to look after its interest.
Supervision
One experienced engineer expressed to me considerable doubts about the ability of AHI to put together a competent team to deal with the international contractor, SCG. According to the engineer, AHI has stepped well out of its league, even though the internet made it easy to research the experiences of other countries using Chinese contractors with Chinese labour.
He suggested that persons who negotiate building works contracts should have an understanding of building components, building codes and current construction practices. Of course, the contractor on a project of this size should have a Quality Manager whose primary responsibility is to meet Quality Assurance/Quality specifications. But contractors are mainly interested in maximising profits which comes from reducing costs, and so AHI must satisfy itself and specify the steps embedded in the process to ensure that quality assurance and quality control matches the agreed plans and specifications.
Price v quality
AHI would have needed to ensure, even before construction started, that it had in place a team to manage the construction supervision, including the ‘Engineer’ who will sign off on the final product and approve design changes. While only a limited amount of information has reached the public, the several volumes of contract documents – probably written in one of China’s languages − would comprise of specs and drawings. Within the specs are written quality responsibilities for the contractor, eg a spec for cast in place concrete would require the contactor to submit product data for the cement, concrete admixtures, mixing requirements of concrete plant if readymix concrete is used, a concrete mix design, certification that the plant is certified, type of aggregate used, tests used, certification of the readymix trucks, etc. Similarly there are specifications for formwork, reinforcement, survey, safety, code compliance, electrical, mechanical, windows, masonry, and so on.
It is true that we negotiated on price. The question now is whether AHI knows whether it has compromised on quality.
Next week: Conclusion