Introduction
Even before the debate on the 2012 Budget begins, it is overtaken by an event not outside the control of the government, but well within it, an event that has been in the pipeline for years. Drs Jagdeo and Ashni Singh and their loyal servant Mr Winston Brassington had been speaking about, offering and negotiating to sell the government’s 20% shareholding in the telecommunication company Guyana Telephone and Telegraph Company Limited (GT&T) for at least three years. Yet the Finance Minister could not find a place in his 87 page speech to alert the plebians that an investment that brought in around US$2 million per year was in the final stages of disposal.
Guyanese must thank Cabinet Secretary Dr Roger Luncheon for the timeliness of the announcement at a press conference just one day after the decision by Cabinet to sell the pearl of the cacique crown for US$30M ($6B) to a “Chinese company” whose name, incredibly, Dr Luncheon could not remember. Guyanese would find it difficult to accept that Dr Luncheon, who also sits on the Board of NICIL under the chairmanship of Dr Ashni Singh and which is legally the owner of the shares, does not know the identity of the buyer!
NICIL
For close to two decades NICIL has acted like it does not know that it is subject to an Act called the Companies Act with which it ought to, but does not comply. As a result, NICIL has practically zero experience in complying with the law and may need to be reminded that the certificate representing the 20% shareholding in GT&T is in fact held by NICIL which must also sign the transfer form to pass ownership to the Chinese company.
The CEO of NICIL is Mr Winston Brassington who has been at the centre of all the major sales/disposals of state assets and who has impressed the Guyanese public with his ability to carve up transactions in which the Guyanese taxpayers are often the biggest losers. Except that in the case of the Berbice Bridge Company, Mr Brassington’s iconic show of private-public sector partnership, the big losers are both taxpayers and commuters. The taxpayers suffer as a result of the excessively generous concessions which have been given to the investors in the Bridge Company, and the commuters, as a result of some of the most exorbitant rates for a river crossing anywhere in the world. Just by way of reminder, NICIL recently waived hundreds of millions of dollars of interest (payable to NICIL) so that the private investors could be paid theirs!
Apparently intending to impress the media, Dr Luncheon whose performance as Chairman of the National Insurance Scheme has been exceptional for all the wrong reasons, volunteered to the media that the Chinese company had “conducted its due diligence and decided to purchase the shares.” What the public needs to know is not what the Chinese did but what the government did in arriving at a fair price for the 4,125 shares which it has owned for more than twenty years. Under a 1991 agreement between the Hoyte administration and ATN of the US Virgin Islands, the government received a 20% stake in the new company that took over the assets and liabilities of the Guyana Telecommunications Corporation in a process that itself raised eyebrows. To put the latest transaction into perspective, what the people need to know is how NICIL/Cabinet arrived at the sale price, not how the buyer arrived at the purchase price.
The changing profile of the international investor
The experience in many countries is that the Chinese – and one assumes that this is neither a phantom nor a pseudonym – are more likely to sell, rather than buy, a pig in a poke. They will have looked after their interest and we ought to have looked after ours. The question is, did we?
Unless Guyana is becoming the playground for Chinese investors, the nationality of the investor is surely intriguing, since we now have a picture of one set of Chinese investing in GT&T and another investing in the competing LTE GoG network. There must be something that the Chinese know about Guyana that the ordinary Guyanese does not, but hopefully it is not too late to learn. It is well known that the Government of China invests abroad, ostensibly through private individuals and companies. With their unimaginable reserves, a managed exchange rate and a colonizing mentality, China has been throwing its power around the Third World including Guyana.
They seem willing to get involved in sugar, bauxite, hydro-electricity, airport expansion, Guyana Power and Light, ferries and bauxite, many of which have benefited the Chinese disproportionately.
Led by Mr Jagdeo, there has been a fundamental shift in the profile of investors in Guyana. The implications for Guyana in the medium term can be fundamental, although this is not to suggest that the GT&T share sale is part of some bigger picture.
The strange silence of the Minister of Finance
GT&T is regulated under the Public Utilities Act, and one wonders whether the government had notified the PUC of the proposed sale of its holding in the company and whether, in view of the nature of the company, the identity of the buyer ought to have been similarly communicated.
Unfortunately, there are too many persons of influence and power who think that the law is an ass, and need not be observed or obeyed. Hence, it may be wrong to assume that the buyer has taken advice that as a substantial shareholder under the Companies Act 1991 (10%) it must give written notice to the company within fourteen days of becoming a shareholder.
Given this scenario it is not beyond the realm of possibility that in doing its “due diligence,” the Chinese may not have met with GT&T and might have relied on assurances from the same Mr Winston Brassington, the second-in-command negotiator-in-chief for the government.
What is more disturbing is that the share sale agreement was concluded on Wednesday April 4, less than one week after the Minister of Finance presented the 2012 National Budget to the National Assembly. By then, the discussions with the Chinese – in which the Minister would have played a major part – must have already arrived at the framework of an agreement including the price to be paid to the government.
But the Minister of Finance chose to remain silent on this major development and the budget he presented did not include any income from the sale of these shares.
NICIL again
The frightening possibility is that this money will be put into NICIL’s hands, later to be paid into the Consolidated Fund only if and when the Board of NICIL – which is chaired by the Minister of Finance and which includes Cabinet ministers and as said above, Dr Luncheon – decides to pay a dividend. The law does allow for the payment of interim dividends by all companies, but if NICIL’s directors choose not to pay any dividends, there is little recourse available short of court action.
Meanwhile, NICIL will be free to spend the $5 billion dollars it receives from the Chinese as it pleases, including on the Marriot Hotel which NICIL is bent on financing whatever the perceived risks associated with the industry and the project. It is clear that NICIL has now abandoned any pretence of being the Privatisation Unit of the Ministry of Finance which ensured that proceeds of privatisation transactions went direct to the Consolidated Fund.
By interposing NICIL in the mix, that direct relationship no longer exists, and Dr Singh as Minister of Finance must wait until Dr Singh as Chairman of NICIL’s board of directors decides to pay a dividend before he could bring any money into the public coffers. That just does not sound kosher.
There is some hope from a precedent from a couple of years ago when dividends payable by GT&T to NICIL went into the Consolidated Fund, bypassing NICIL. Parliamentarians, the public, the University of Guyana and the country’s pensioners await with interest the course of the Budget deliberation and whether the Minister of Finance will follow that course and amend the revenue numbers in the Estimates to include the $5 billion.
If he does not, we know then that the fears that the Minister administers at least two budgets – one for the Consolidated Fund and the other for NICIL – are in fact justified.
The agreement
Now back to the agreement. It was always incongruous for the government to be a player (shareholder) in a sector as well as the regulator (PUC), a principle that applies as much to telephones as it does to the media, or any other business.
On that basis, the sale is welcome, although there are disturbing signs that the previous administration has been paving the way, at taxpayers’ expense, for its associates to enter the sector and enjoy major benefits.
In the disposal of shares, a sensible negotiator would contract a price that is cum div or ex div, meaning whether or not outstanding dividends go to the buyer or the seller. GT&T would be concluding its 2011 financial statements in time for April 30 filing deadline. It will probably have its AGM shortly thereafter at which the question of dividends for 2011 will be considered. Since the government-Chinese agreement is made in 2012 the government as the seller could have done one of two things about the 2011 dividends: agree for the buyer to receive the dividend but paying for this in the purchase price, or selling the shares while retaining the right to the dividend.
Dr Luncheon did not mention whether this was considered, nor, unfortunately, did any of the media ask him the question.
We will look at this in the concluding part next week.