Tag: Privatisation Unit

Introduction
Contradicting several earlier statements about the rent the Government would be getting from the lease of 20 acres of land to Queens Atlantic Investment Inc. (QA II), Executive Head of the Privatisation Unit and the state-owned company NICIL, Winston Brassington, in an e-mail to me last week confirmed that the rent is “between 12 -17 M per annum  Yrs 2-5 and in Yr 6 (2013) it will be approximately G$45 M.”

You may very well wonder how Mr. Brassington would rent 20 acres of the most valuable land in Guyana and not know the rent by a margin of close to 50%. Having advised the Privatisation Board that the rent is $12 million only to be publicly corrected that at the rate per square foot specified in a leaked document authored by him, the amount has to be $18 million, Mr. Brassington needs to give himself ample wriggle room. This is as astounding as it is dangerous from the person who this country has placed in a position where he negotiates individually with all sorts of investors and other persons doing business with Guyana. He travelled often to Russia to negotiate with Rusal before another give-away of our country’s non-renewable resources and was mainly instrumental in the purchase of generating sets for GPL late last year costing millions of US Dollars. His recommendations are accepted by the Privatisation Board and Cabinet with the same conviction that a fundamentalist Christian would accept the Bible.

Half true
The answer about the rent came in response to persistent efforts to have Mr. Brassington confirm a number of matters that have surfaced since the tax concessions to QA II became an issue on June 5, 2008. These questions included the price and proceeds from the sale of land to Guyana Bank for Trade and Industry (GBTI) and the date of payment by John Fernandes Limited (JFL) of the sum of $320 million for land sold to that company in 2007. Mr. Brassington confirmed that GBTI paid G$201 M but in relation to the timing of the JFL proceeds he would only say that the “JFL transaction was only completed in March 2008”, which can lead to the inference that no monies were received until 2008. In fact there were two payments made by JFL in 2007 and the balance paid in 2008.

Mr Brassington has refused to answer my follow-up questions particularly about the correctness of the Privatisation Unit holding on to money that should properly have been paid into the Consolidated Fund and for information on the expenses incurred and dividends paid by the Privatisation Unit (PU). In fact all that was new from Mr. Brassington during the week was a press report of him saying that “previous privatisation processes have created ad hoc accounting processes in Guyana.” His incorrect line has been that the proceeds of privatisation have to pass through NICIL, a limited liability company which he claims incorrectly can only pay dividends into the Consolidated Fund after its accounts are audited. It seems that Mr. Brassington does not appreciate that interim dividends are permitted under corporate law and it is not unusual for companies to pay more than one such dividend during the year as Banks DIH has been doing over the past couple of years.

More abuse of the Consolidated Fund
Only monies legally due to NICIL or any of its subsidiaries would be subject to Brassington’s accounting but certainly not monies due directly to the Government such as on the sale of property including shares, land and other assets not owned by NICIL or its subsidiaries. At least some of the land sold to JFL falls into this category and the proceeds should have been paid into the Fund but are instead retained by the PU/NICIL under the control of Mr. Brassington.

Mr. Brassington refused to provide me with the names of the directors of NICIL or copies of its audited financial statements for the year 2006 while noting that the 2007 accounts are with  the Auditor General for audit. NICIL as a company operating under the Companies Act 1991 has been in breach of that Act with respect to the filing of any annual return to the Registrar of Companies as it is required to do nor are its financial statements and reports tabled in the National Assembly.

Such disregard for the country’s supreme and other laws, for good conduct, transparency and truth would in any society where the rule of law prevails, have resulted in the most severe sanctions against those responsible. The political opposition and so-called civil society including the accounting and legal professions have a public duty to act to stop this lawlessness. What is the meaning and relevance of the Constitution and the laws if professionals could ignore them if only to show loyalty and obedience to the politicians?

Deja vu
Two years ago, this column was very critical of Mr. Brassington’s conduct in its March 12, 2006 issue when it wrote about the improper means and tactics applied to corral workers’ funds of the National Insurance Scheme and depositors’ funds of the New Building Society for the Berbice Bridge. I reported then that Mr. Brassington even sought to have me postpone an article and give him time to get some necessary paperwork done by the NIS! The necessary paperwork was a letter enclosing, among other things, an irrevocable special power of attorney and requesting the NIS’s co-operation in having the voluminous agreement and four schedules signed one day later. The Privatisation Board was given the same or less time to endorse Mr. Brassington’s recommendations on the QA II deal.

Just as an aside, in that March 12 article one of the subheadings was Making the unlawful lawful as we see with the QA II tax holiday law!

For all the vast proceeds from privatization that are  now being boasted about, only $7.3 million was paid into the Consolidated Fund in 2006, $1.4 million in 2006. The manner of drawing  up the National Estimates does not allow the reader to determine how much was paid in in 2007 or is budgeted to be paid in in 2008.   Where then is the GBTI money and the JFL funds amounting to more than half a billion dollars? Is this another Lotto Fund scandal where the money is used for all sorts of unauthorized payments such as the $20 million to Courtney Benn Construction for breach of contract relating to works for the Kingston phantom hotel?

The tax seminar
Mr. Brassington obviously enjoys the confidence of the President and with his control of perhaps hundreds of millions of public funds he was indeed well-placed to organise the Taxation Seminar last month. While the Seminar scored poorly on organizational arrangements – a head table of 13, no recording and just one microphone for 200 persons – it was certainly well orchestrated and controlled. The seminar was organised for a Cabinet Day so that after the Finance Minister had left the meeting with his two colleagues from Cabinet and the Privatisation Board there was no one authorised to answer questions on policy from an audience consisting of several state executives and accountants anxious to learn the tax system. Mr. Brassington gloated over the $24 billion proceeds from privatisation since 1994 when he took over but he did not say that in the process the nation lost control of several key assets including Bauxite to Rusal which we then turn around and give a tax holiday! That is hardly how successful privatisations are measured.

Much was said too about transparency but let us not forget that had information not been leaked to the press there would have been no Seminar. In my contribution during the Question and Answer session I pointed  to an apparent conspiracy by the PU, Go-Invest and the company to misrepresent information fed to the public on the QA II investment, drawing attention to some of the statements made by Messrs. Brassington and Da Silva and how they differ from the facts that have surfaced from documents written by Mr. Brassington and agreements signed between the QA II group and the Government.

I pointed out too that Mr. Brassington’s creative explanation for the charge to JFL compared with the rent agreed to be paid by QA II, led to no other conclusion but that the PU either overcharged JFL or was undercharging QA II.

At the Seminar, Mr. Brassington lavishly praised for their contribution to the success of the privatisation programme the Privatisation Board made up of three Cabinet Ministers including the Minister of Finance who chairs the Board, and representatives from labour, business and consumers. My enquiries suggest that even allowing for the imbalance of the political influence Mr. Brassington gets the Board to arrive at a desired result by submitting to them his recommendations often with no more than a few hours notice. I understand too that the Board has dispensed with its sub-committee that had as its principal responsibility the examination of proposals and tenders and has transferred this task entirely to Mr. Brassington with whatever political input and direction that may apply.

Different rules
Astoundingly, in a recent article in the Kaiteur News Mr. Brassington is quoted as saying that “Previous privatisation processes have created ad hoc accounting processes in Guyana” and that “What you did not have was adherence under the law of how you distribute a company’s assets.”

That this statement would have been made at a Seminar to disabuse accountants of their ignorance of the tax laws was outstanding for its sheer arrogance and  uninformed ignorance! It is Mr. Brassington who does not understand the law and who created these “ad hoc” and unconstitutional arrangements that are so blatantly abused by the PU/NICIL. Has Mr. Brassington ever read the relevant sections of the Constitution or the financial rules or sought guidance on how these operate?

Where is the Auditor General?
As a non-statutory body, the Privatisation Unit is no more than part of the Ministry of Finance and so it has sought legal cover under NICIL, the state-owned company that Mr. Brassington operates without observance of the laws. Money that should constitutionally be placed into the Consolidated Fund are spent by the PU/NICIL as it now likes to call itself, to create a huge bureaucracy including legal expertise, and to by-pass the parliamentary process for authorizing the expenditure of public funds.

These are matters so significant that one would have expected the Auditor General to have paid particular attention to it and to comment critically thereon. These funds are on the same level as the Lotto Funds in that they are public monies that are required to be deposited in the Consolidated Fund under Article 216 of the Constitution. The Lotto Funds are too infamous to miss while equally huge sums of a similar nature go unnoticed by the Audit Office. In fact that Office should feel accused by Brassington’s claim of “ad hoc accounting processes”.

Conclusion – many cheques but few balances
It is clear that far from being efficient and transparent, the privatisation process is shrouded in secrecy and is managed without regard for elementary rules of good governance, the rule of law and knowledge of accounting. Much of the resources of this country have been given away in many cases for a pittance, in a process involving many cheques but few balances. This Unit and NICIL under Mr. Winston Brassington ought to be investigated by the Economics Affairs Sub-Committee of the National Assembly.

If that body fails to act, then some public-spirited citizen(s) should invoke the provisions of the Companies Act and demand an investigation of the operations of NICIL and its alliance with Mr. Brassington’s Privatisation Unit. We should not simply excuse and exonerate public officials’ improper and unlawful acts by attributing those acts to unaccountable politicians. They must be held equally accountable and culpable.

Next week we will look at the role of Go-Invest, the other partner in the saga.

Introduction
The President’s postponed Privatisation and Taxation Seminar finally gets underway this Tuesday at Le Meridien Pegasus, on a by-invitation only basis. I am touched at the unusual number of enquiries about my travel arrangements which I hope reflect an interest in my welfare and are unrelated to the seminar. The invitation does not include a programme, which is probably still being worked on, as the government this week was cleaning up the relevant incentives legislation which it passed with much fanfare in 2003 and then misunderstood and misapplied for five years. Hopefully the sponsors of the seminar will tell us how much their failure has cost the nation and how the government plans to regularise all the improprieties since the hurriedly introduced legislation does not. I understand that the seminar will be addressed by Messrs. Winston Brassington, Geoff DaSilva and Khurshid Sattaur of the Privatisation Unit, Go-Invest and the Guyana Revenue Authority respectively, all associated with the Queens Atlantic Investment Inc (QAII) deal that has raised serious concerns about governance, accountability, the rule of law and competence.

Readers will recall that when Business Page entered the exchange on the QAII deal on June 8 it sought mainly to clarify some issues arising from statements made by President Jagdeo on the perceived tax concessions given to QAII. As early as then, this column suggested to the newly established Guyana Times that it run its own story on the concessions and called on the government to observe its own laws and disclose in the Official Gazette information on the fiscal incentives granted, as required by section 37 of the Investment Act 2004. The whole truth from those with access to the relevant information would have avoided much of the speculation among members of the public who have become cynical with the knee-jerk reactions and piecemeal, half-accurate information from the government. The consternation generated is partly responsible for the corresponding deluge of information which well-placed members of the public have volunteered, and that highlights serious credibility problems particularly for the Minister of Finance and the agencies under his control.

Without exonerating the Cabinet and very specifically the Minister of Finance for the disastrous public relations and credibility problem caused by the handling of this matter, the role of the Privatisation Unit (PU) headed by Mr. Winston Brassington has been seriously exposed by a document I received earlier this week titled Privatisation Board/Cabinet Submission dated May 3, 2007. It is clear from that document that Mr. Brassington was prepared to rush the Privatisation Board – which includes Ministers Robert Persaud and Manniram Prashad – into an agreement with QAII. Notice of the meeting to consider the application for concessions was given even before the application had been received from the company,  and within one day of an unsigned application involving hundreds of millions of dollars, the PU had not only considered but could actually recommend the concessions sought. To place that into perspective, my experience is that it takes the Unit more time to return a simple telephone call!

Schedule of planned construction
According to QA II the project should have started in 2007, but for reasons unknown there has been a delay of about one year. Making allowance for this the investment programme of QAII will run into 2013 as follows:

Without seeking to understate the group’s much hyped promised investment, the only project set for completion within a year is the printery, with the construction of a hardware warehouse and a bonded duty-free pharmaceutical warehouse scheduled for completion in two years. Contrary to what the President had said the only commitment on a textile mill is for a feasibility study to be completed within 18 months, while two full years are expected to elapse before a 3½ year construction of the antibiotics plant, to be followed five years later by the construction of the Research and Development Facility. In other words the 600 jobs will be a long time in coming, if they come at all, and so too, will the much emphasised US$30 million investment. In any case they will be very welcome, and assuming that the investors have been acting in good faith, Business Page wishes them well.

Where is the newspaper?
What is striking in reading the application by the company and the recommendations of the Privatisation Unit is the absence of any reference to the printing and publishing of the newspaper which in fact is the first real venture to materialise and which would have benefited, if not directly then indirectly, from any concessions granted to the other companies. The paper is being produced at the Sanata Complex for which QAII companies have received approval for concessions for all kinds of building materials, generators, etc.

The proposal by QAII assumes that the group will benefit indefinitely from the sweetheart arrangements it has with the government for the purchase of drugs, and speaks of being “able to order and retain buffer stocks to prevent drug shortages, which is a recurring problem with the existing system.” It does not explain, and nor does Mr. Brassington explore, the relationship between the retention of buffer stock and the vast advance payments the group receives from the government for the purchase of drugs. What if this arrangement comes to an end – does the project stand or fall on this?

The lease payment
Messrs. Brassington and DaSilva have told us that the country will receive $50 million dollars in rental per year, pegged to the US$ and adjusted for US inflation. Brassington’s document tells us otherwise. These are the arrangements:

i. The lease of the land and buildings for 99 years at the US $ equivalent of G$50/annum per square foot (payable in G$ at the prevailing exchange rate) subject to:

a. A rent free period of 5 years for the printing and dying section/with storage. This area is estimated to be approximately 6 acres; and

b. A 60% reduced rental for the remaining 14 acres for the first five years commencing from the date of execution of a lease agreement.”

While from year 6 the rent will be the equivalent of G$43.5 million in today’s money, during the first five years it is a mere $18 million for 871,200 square feet of land plus the building, and here I am giving Mr. Brassington the benefit of his miscalculation since he reckons it will be only $12 million. Let me say as well that I believe that the government’s financial experts are confusing indexation with the discount rate, but that is not an issue for this column even though the implication is a cost to the country.

Professional valuators value property including land by reference to recent transactions in the same or similar areas. In 2007 the government charged John Fernandes Limited $320 million for 6 acres of land in the same complex, so that on a proportional basis, 20 acres of land to QAII will be valued at over G$1 billion dollars.

To convert a capital value to an annual lease payment, professional valuators as a rule of thumb divide the capital sum by ten years, which would put the amount of the annual lease for the 20 acres at over G$100 million. In other words, the lease payment is reduced by over $80 million per year for the first five years with the building thrown in free! And in each year thereafter, the reduction is approximately G$50 million.

Expedient law-making
We will look next week at other issues concerning the Privatisation Unit whose very existence in law is doubtful and which takes advantage of its questionable legal status to engage in creative governmental accounting. For now we turn attention to the bill tabled by the Finance Minister this past Thursday designed to restore discretionary concessions being granted by the political directorate. It is a complete reversal of the 2003 repeal of a 1970 provision in the Income Tax Act which allowed the President to remit taxes where he had felt it was “just and equitable” to do so.  The 2003 repeal was explained as the elimination of the broad discretionary power to concede amounts of income tax payable and under some extremely narrowly defined conditions such as “natural disaster, disability, mental incapacity or death” and only if it was expressly provided for in a tax act. Five years later Bill # 14 of 2008 empowers the Minister of Finance to make regulations for the remission of all or part of the tax payable by any person or category of persons subject only to negative resolution of the National Assembly! In respect of discretionary waivers, we are now worse than we were 38 years ago, let alone 5!

If passed in its present form, the bill could render meaningless critical sections of the Financial Administration and Audit Act even as it fails to legitimise all those concessions given since 2003 based on a wrong interpretation and application of the Income Tax (In Aid of Industry) Act, including tax holidays granted to non-companies. It is possible that since the Minister and those under his control are the only persons with access to that information and further, since there appears to be no intention to comply with section 37 of the Investment Act 2004, there is nothing to correct.

The last hope is that the Audit Office will highlight the improprieties and one hopes the almost two year delay in the publication of the 2006 Audit Report has allowed the Office enough time to do a thorough job, including the Investment Act section 37 omissions. The bill now allows the Minister of Finance in his discretion to grant tax holidays in respect of infrastructural development for an indefinite period as opposed to existing legislation which does not include infrastructural development and limits tax holidays to ten years. It will also allow the Minister to grant tax holidays to value-added wood processing, rice millers and chicken farms, sugar refining and of course to the QA II investments like textile production, new pharmaceutical products (new to science or to Guyana?) and the processing of raw materials to produce injectables. Instead of limiting tax holidays to 30 + room tourist hotels the Minister will now be able to grant these to any tourist facilities, the definition of which he will decide for himself.

The bill
It maintains the geographical as well as the industrial-type classes of investment for which the Minister can grant tax holidays so that in practice, once the activity creates new employment in a widely defined range of economic activities that leaves out mainly financial and distribution services, it  can benefit from the Minister’s generosity. The scope of this legislation in my judgment and experience borders on the reckless, and if this is the government’s considered view then it may as well abolish Corporation Tax altogether.

Conclusion
Business Page offers no prize for guessing who will finance all this extravagance – of course it will be the salaried workers in the more legitimate and formal businesses and the consumers in the form of VAT. Coupled with the generosity of the politicians to some entities, this is a dangerous piece of legislation that shows how little the powers understand the tax system and how it works.

I hope that the debate on the bill in the National Assembly will be lively and that it will resonate with civil society and the trade union movement. Most of all I hope that that debate starts at the seminar or else more difficult times will lie ahead for the working and unemployed poor. And I hope too that the International Financial Institutions that have helped so much to avert economic disaster are now paying attention.