Archive for the ‘Public sector’ Category

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GPL has to be accountable, transparent and efficient

Saturday, June 15th, 2013

I refer to the letter ‘Deferred Tax was not included in GPL’s rate computation’ (SN, June 13) written by Mr Nizam Ali of Nizam Ali & Company, the firm which audited the 2012 financial statements of Guyana Power and Light and which signed the Final Return Certificate (FRC) for GPL’s proposed tariff increase of 26.7%.

Perhaps Mr Ali did not see press release No 33 issued by GPL and dated May 8, 2013, so I quote for his benefit the last sentence of paragraph 2 of the release which states:

“The GPL Final Return Certificate (FRC) was accompanied by a Notice of Compliance issued by an independent firm of accountants and GPL’s 2012 audited accounts that show GPL losing $7.6 billion in 2012” (emphasis mine).

My letter clearly stated that GPL did not lose $7.6 billion but $4.872 billion – almost the entire difference between the two figures being the movement on the Deferred Tax Account of $2.746 billion in the financial statements.

Unfortunately, Mr Ali, with whom I have enjoyed a professional relationship going back to 1974, did not address the inconsistency of a write-off of deferred tax on losses simultaneous with a proposal for a tariff increase to which GPL claims it is automatically entitled and which will return it to profitability.

Among the points I made in my letter is that if the increase is ‘approved’ by the PUC then the deferred tax asset that was de-recognised in 2012 would have to be re-recognised in 2013 as profits start to flow and tax losses recovered!

Mr Ali condescendingly asserts that the proposed tariff increase has moved from the announced 17% in April to 26.7% in June because “simple maths would show that the required increase of 17.8 % for the year when applied to the shortened period of eight months would amount to 26.7% (12/8 x 17.8%).”

The application of this “simple maths” were the increase to be implemented ‒ to use GPL’s words ‒ at the end of September, would require either that rates go up by 68%, or GPL back-bill the difference, the possibility of both of which has to be immediately discounted.

The “simple maths” concept ignores too that using the formula and everything else being equal, come January 2014, rates would go back down! Mr Ali’s effort to explain his firm’s role in the tariff issue is understandable if not complete. But more importantly, it does not relieve GPL from its duty to be accountable, transparent and efficient. Sadly, the evidence is that that is too tall an order for a Brassington-Dindyal led GPL to do voluntarily.

Only the PUC, exercising its regulatory powers and duties can force public hearings not only into the costly and poor decisions and execution by GPL’s board and management at places like Vreed-en-Hoop and Canefield, but also to address the relevance, interpretation and operation of an investor model licence where the licensor is the government and the licensee is a wholly owned and directed government company.

Electricity is central to the economy, social well-being and the country as a whole for the scale of waste that GPL represents.

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Cheddi Jagan International Airport Corporation racks up heavy losses; questions about where the income goes

Sunday, June 9th, 2013

Introduction
For several years I have drawn attention to the matter of annual reporting by the Cheddi Jagan International Airport Corporation (CJIA), an entity established under the Public Corporations Act. I could not understand why the Audit Office which does the corporation’s audit, the Public Accounts Committee or someone, anyone, was not asking, nay demanding, that the law be complied with, with respect to the laying of accounts and reports in the National Assembly. So while there was incompetence on the part of Minister Robeson Benn who is the subject minister and of the Public Accounts Committee and the Audit Office, there was a question too whether the corporation did enough to counter speculation that it probably was unaware of its obligations under the act. It took them all more than a decade before the public was able to see for the first time any seemingly independent information on the corporation.

Income Statement Summary 2002 – 2010
2013.06.09_Table1

Source: Audited financial statements

The income statement which shows the financial performance of the corporation does not make a pretty picture. Apart from the year 2002 when incomplete, unreliable and meaningless figures were prepared, for each of the years from 2003 to 2010, the corporation has been losing money. I would discount the year 2002 because no balance sheet was presented and it is virtually impossible for any professional auditor to report on the income statement in the absence of a balance sheet. Our Audit Office did. That and subsequent financial statements raise troubling questions about the quality of the financial statements which in violation of internationally accepted auditing standards are signed not by any of the directors but by the Chief Executive Officer and the Manager, Commercial and Administration.

What compounds the danger is that again, the statements bear no indication that they were approved by the directors. Of course the names of directors, whoever they are, seem to be a closely guarded secret although the name Ramesh Dookhoo as Chairman appears in the newspapers from time to time. Indeed up to late this past week he was reported as lamenting the chances of recovery of an advance of some US$20.7 million paid to the Chinese contractor who apparently has conducted some soil testing at the location.

Before dealing with the detailed numbers, I wish to do two things: look at that corporation’s accumulated losses since its inception against a background of the huge commitments which the Jagdeo and Ramotar administrations are seeking to impose on this country, and second, whether the corporation has provided the information which by law it is required to do.

Compounding losses
As at December 31, 2010 the corporation’s accumulated losses (incorrectly described by the Auditor General as a Net Loss) stood at $2,626 million. In a column last July titled “No such thing as a free chow mein”, I quoted Transport Minister Robeson Benn as announcing as the rationale for the airport expansion project that “we [meaning the government] had to enter into an agreement because we had a very narrow window in September where a Chinese Vice Premier came to the Caribbean with several billion dollars to fund projects and it was the only opportunity we had then to fund this undertaking.” One can accuse Minister Benn of many things but clearly he is an honest man even if he must have known how stupid it would sound that a government would embark on a $30,900 million project simply because someone was making the money available, on credit.

He must know that having a new airport will not automatically attract new airlines, but will immediately incur additional costs. Next week’s column will look at the contract signed with the Chinese, but for now maybe Mr Dookhoo might care to tell the public how the CJIA proposes to finance the huge Chinese debt and whether this will have to be borne out of the Consolidated Fund.

Non-compliance
As the following extract shows, the Minister/corporation has failed to comply with the requirements of the Public Corporations Act, section 64 of which states:

(1) A corporation shall not later than six months after the expiry of each calendar year, submit to the concerned Minister a report containing —

(a) an account of its functioning, throughout the preceding calendar year in such detail as the concerned Minister may direct; and

(b) a statement of the accounts of the corporation audited in accordance with section 48 (relating to accounts and audit).

(2) A copy of the report mentioned in subsection (1) together with a copy of the report of the auditor in relation to the same period shall be laid before the National Assembly not later than nine months after the expiry of the calendar year to which it relates.

It is a sad reflection of the National Assembly and the cavalier approach of Minister Benn that he would lay before the National Assembly incomplete reports of a major corporation for which he has ministerial responsibility. Unfortunately the CJIA is not the only such entity with the GGMC having been another recent example. This suggests a need for some quality control and professionalism which is currently missing in this regard in the National Assembly and its secretariat.

Income Statement
Before we comment on particular line items, it is important to note that the corporation has been unable to obtain a clean audit opinion for its entire existence. This is because it has failed to address the valuation of fixed assets amounting to close to $3 billion taken over from the Ministry of Public Works and Communications, a failure that affects both the income statement and the balance sheet.

With that explanation, let us return to the Income Statement with emphasis on the year 2010. On the basis of presentation, content or technical standards, the financial statements of the CJIA compete strongly with the Georgetown City Council for the worst financial statements published in Guyana. Readers are confused between the primary statement and what should be a note expanding and explaining the particular line item, so that an item shown as Security Fees in the primary statement is described as Departure Fees in Note 8. For the years 2002 to 2004 the Income Statement shows that no depreciation was charged, a requirement of International Financial Reporting Standards.

Readers will probably have noted that the 2010 income was lower than that of 2009, the reason being what appears to have been a change in accounting policy with respect to Govt/IDB Contribution. Accordingly, the 2009 income would have been unusual and the 2010 revenue represents the normal income. Now there is something very unusual about the income, a situation that has implications for the constitution and accountability.

Dealing with income and profits
According to Note 8 to the financial statements, “all revenue earned and collected from aeronautical services is transferred to the Ministry of Public Works. CJIA Corporation is financed by 37.5% of every departure.” While allowing for the poor and nonsensical choice of words, we cannot ignore the fact that the auditor of this corporation is the state Auditor who knows the constitution. He would or should know the requirements of the Public Corporations Act. Section 4 makes it pellucid that a public corporation established under the Act is a body corporate: it owns it has an independent existence. The Act gives no role to a ministry in the operation of any corporation except under section 23 which empowers the concerned minister “to give to a corporation directions of a general character as to the policy to be followed by the corporation in the exercise and performance of its functions.”

The Act requires a corporation to set up a general reserve fund into which its profits, or such part of these as are specified by the concerned Minister, are to be placed. Where only a part of its profits are placed in the reserve fund, the corporation is required to pay the other part into the Consolidated Fund. The Auditor General must surely know that the payment of some 62.5% of the revenue of the CJIA is a breach of the Act as well as the constitution. His opinion should have been qualified and he should have drawn this to the attention of the Ministry of Finance.

Someone, probably from the National Assembly/Public Accounts Committee needs to ask the Auditor General and the Minister of Public Works to account for the sums paid to it by the CJIA. Based on the 37.5% which the note states is used to finance the corporation, it means that in 2010, the amount paid over to the ministry was $514,758,000. There is no indication in the National Estimates that that money was paid into the Consolidated Fund.

Balance sheet
There is nothing that seriously stands out in 2010 except perhaps some $300 million of work-in-progress and a bank balance of $176 million, down from $414 million in 2009. Amazingly, the 2010 Statement of Cash Flow not only has no comparative (2009) figures but is incorrectly prepared while the 2009 financial statements have no Statement of Cash Flow. Is it possible that they could not balance it?

Balance Sheet Summary 2002 – 2010
2013.06.09_Table2

Source: Annual audited financial statements

Next week, Business Page will look at the contract for the airport expansion.

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The rise of inequality

Sunday, May 19th, 2013

Introduction
This article draws heavily on a commentary in Ram & McRae’s 2013 Budget Focus. One of the issues identified in the segment of the commentary dealing with inequality, a companion of poverty, is a National Minimum Wage for Guyana. Since then, the Minister of Labour announced a National Minimum Wage for the private sector of $35,000 per month, $8,000 per week or $200 per hour. I have not seen the report of the committee appointed by the Minister of Labour which made the recommendation, but it would be interesting to learn of the statistical, economic and social factors that could inform the anomaly of a private sector minimum wage that is considerably lower than the public sector minimum wage.

Another issue dealt with in the commentary was education and its relevance to poverty. Well, in an ironic twist, in what is now more than a rumour, a senior government official is selling their Pradoville 2 house for more than two hundred million dollars, an example of inequality whereby land belonging to a poor community can be expropriated and handed out to the politically powerful to be enriched.

It is not that inequality is a uniquely Guyanese phenomenon. In fact, a couple of years ago, four then famous and powerful men ‒ Hu Jintao, David Cameron, Warren Buffett and Dominique Strauss-Kahn – who would not usually have a lot in common, were all worrying and warning loudly about the dangers of a rising gap between the rich and the rest. Mr Hu put the reduction of income disparities, particularly between China’s urban elites and its rural poor, at the centre of his pledge to create a “harmonious society.” Mr Cameron said that more unequal societies do worse “according to almost every quality-of-life indicator.” Mr Buffett, one of the world’s richest men, has become a crusader for a higher inheritance tax, arguing that America risks an entrenched plutocracy without it. And Mr Strauss-Kahn argues for a new global growth model, claiming that gaping income gaps threaten social and economic stability. Mr Buffett may be surprised to learn that we abolished our inheritance tax, which we called estate duty, as a form or economic recovery.

(more…)

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Keeping it in the Family

Sunday, March 31st, 2013

Introduction
For decades, perhaps in some cases even close to a century, family businesses have formed the backbone of the Guyana economy. Some of these, like Psaila Bros., Rodrigues Limited, the Wright Brothers (Russian Bear) Bettencourts, Elias and Sons, D. M. Fernandes Ltd., R. B. Gajraj and Sons Limited, Jaikaran’s Drug Store, may have faded out of national memory. Some are in transition such as A. Mazaharally & Sons Ltd., A. Amerally and Sons Ltd., Toolsie Persaud Limited., A.H. & L. Kissoon Ltd. and Rahaman Soda Factory Ltd. We recall too the name B. & J. Khan and Daughters suggesting no sons.

Then there are a few family businesses which have survived but are not particularly active such as C.R. Jacobs and Ltd. and Central Garage Ltd. Of the still surviving and active family businesses John Fernandes Limited is perhaps the most successful, and prominent, growing into, by acquisition and organic growth into a conglomerate although A. Gafoor & Sons Limited has grown into a huge operation in its chosen line of business. And let us remember too that Banks DIH Ltd started as D’Aguiar Bros Limited and that Bookers itself that once was the B in British Guiana was once Booker Bros.

Why some of those family businesses succeeded while others failed requires much more than a newspaper column and would make an interesting study for the resourceful student of the University of Guyana. Indeed, such a study would make for a good book.

(more…)

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Soul for sale: The Marriott saga conclusion

Sunday, March 10th, 2013

Introduction
Well, Mr Brassington has done it again. Like he did to me over the Berbice River Bridge Company, he wanted me to hold back a column while he committed NIS money to the Berbice Bridge. On this occasion he needed a weekend to respond to my questions on his Marriott. Well it turned out that ten days were not enough to provide answers to what I thought were straightforward questions. Maybe he was too busy.

I am sorry if I piqued readers’ interest or led them to believe that the public will receive first hand, honest-to-goodness truth to questions we are all dying to have answered. I apologise to you all for leaving you without any answers to a string of questions which I have put to Mr Brassington. It was his undertaking that made me not divulge the questions last week.

But if there does come a time when Guyanese officials are made accountable for their abuse of office, when they can no longer make promises which they have no intention of honouring and when they will have to deal with public money in a lawful and transparent manner, Winston Brassington will surely be listed among the pantheon. For him, the indictment will be long and damning: complicity and execution of NICIL’s illegalities; the Amaila Road contract to ‘Fip’ Motilall; the privatisation of the Sanata Complex and the illegal concessions to Queens Atlantic Investment Inc; his hinterland road-building exercises with GGMC billions; his shenanigans with fund-raising for the Berbice River Bridge Company Inc; and now the Atlantic Hotel Inc of which he remains the sole director, Chairman and CEO.

Expertise or conviction?
I had understood from someone in the engineering fraternity that there were concerns including a criminal conviction of one of the persons reportedly involved in the supervision of the construction of the hotel. So I asked for the name, expertise and experience of the firm or individuals looking after AHI’s interest in the construction of the building; if it was an individual, the person’s qualifications and experience in projects of this magnitude; whether the position was advertised and who was responsible for the selection; who the person reports to and whether that person was provided with all the documentation, specifications and drawings for the foundation, plumbing, electrical, concrete pours, curing period for different aspects of the concrete work, steel size and resistance capacity, etc; and I asked about the number of non-compliance reports submitted to date by AHI’s representative.

On the contractual deals with Marriott International I sought from Mr Brassington information on the precise role of Marriott International in the design and construction stages of the contract; the basis and the amounts payable and paid to Marriott for the two phases; whether withholding taxes were deducted from those payments and remitted to the Guyana Revenue Authority; and whether the contract for the management of the hotel has been signed and sealed. I also subsequently asked for copies of the contracts with the Marriott.

The mysterious private sector partner
The project has always been promoted as a public-private sector partnership with the Grenada- based Zublin identified as the/a partner. Of course, the term private-public sector partnership can mean whatever one wants it to mean. To clarify the point and satisfy concerns expressed by cynics that Zublin was never seriously involved and was merely a red herring, I asked Mr Brassington whether the discussions/negotiations with Zublin had been concluded and for him to confirm the percentage of the shareholding Zublin would take and the price for each share issued.

After all the hotel would be worth much more than the actual amounts paid to the contractor. If we divert for a moment and look at the financial statements of Atlantic Hotel Inc as at December 31, 2011 we see the flawed accounts signed by Mr Brassington and given a clean audit opinion by the Audit Office. Only the Guyana dollar equivalent of the payment to the contractor has been recorded in the accounts. It is a matter of public knowledge that NICIL has spent not inconsiderable sums in infrastructural works; it must also have paid Marriott several millions for services provided while it is reported that a huge sum has already been paid to the engineers looking after the country’s interest. None of these costs are reflected in the books of AHI and must have been paid by NICIL, which engages in so many disparate activities that it can be confident that the Audit Office would be unable or uninterested in identifying those costs which are properly chargeable to the hotel company.

And surely those concessions which Mr Brassington has negotiated from Go-Invest have a huge value which must be factored in any price. The selling price of the shares in the hotel should therefore exceed the actual cost giving rise to a huge profit. Of course, Director Brassington will argue, quite incorrectly, that the profit belongs to the company and can only be distributed by way of dividends.

To return to the identity of the buyer which Dr Luncheon has indicated has already been agreed, I asked Mr Brassington about the alternative arrangements that AHI/NICIL have put in place in case Zublin is no longer interested. Some people think that the name Atlantic is more than a coincidence since there is another beneficiary of state largesse with Atlantic in its name. Or is it a ‘brother’, peeved that he was forced out of the business the first time around?

SCG
The public will recall that Mr Brassington had said that the contractor SCG International (Trinidad and Tobago) Limited (SCG) had insisted on the exclusion of Guyanese from its labour force, apparently because we are not up to their standard. But my failure to see such a clause and my prior experience with Mr Brassington compelled me to ask him a direct question: where in the contract does it state that the labour force is Chinese only? To put it politely, he did not tell the truth.

Readers will recall that I reported in an earlier column that an official search I had carried out at the Companies Registry came up with the astounding fact that SCG was not legally permitted to carry on business in Guyana. So I asked Mr Brassington whether he or his legal secretary had checked to see whether SCG is incorporated or registered in Guyana before entering into a multi-billion dollar contract with them. It was almost laughable that following the column frantic but improper efforts were made to register the company with the Registrar.

At large is whether the company has registered with and is complying with the income tax and NIS laws of Guyana. The laws of Guyana treat such omissions as extremely serious and one can be sure that the GRA could step in with heavy boots when it finds out. That is surely how SCG should have been treated.

One of the requirements for registration with both these bodies is that the company be registered or incorporated in Guyana. Since it has not been registered, it is a fair assumption that the previous suggestion that the company is excluded, or has excluded itself from the tax and NIS laws of Guyana is more than justified.

Readers will recall that SCG, in bringing down their tender price from US$65 million to US$51 million, had indicated that it would exclude a number of works and the critical certification of which the government boasts. I have asked for the estimated cost of the several other elements of the project which SCG excluded, whether funding for those works and the balance of the contract price had been sourced.

Conclusion
Mr Brassington has chosen to ignore direct questions from a taxpayer and citizen of this country. He is shielded by equally opaque politicians who could not be bothered about answering questions from anyone. Democracy and accountability have been turned on their heads, or dumped into the Atlantic next to the hotel.

There is nothing more that civil society can do. All the questions have been asked while any answers have been provided by the media itself. It is the new democracy, the new dispensation. There is no room for questions.

To summarise, the government has embarked on the conception, construction and financing of a $10 billion hotel built with taxpayers money but from which taxpayers labour was explicitly excluded in a collusion between the Government of Guyana and the Chinese construction company. The hotel will be sold to God knows who at a price which has not been determined. The hotel comes with concessions extending in some cases to twenty years – itself historic.

Meanwhile we claim that we cannot afford to increase the subvention to the University of Guyana, equip our regional hospitals and health centres, pay better pensions or solve the problems at the NIS.

It is a new model of development.

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