The tragedy of NICIL – Act 2

Today I return to the article on NICIL (National Industrial & Commercial Investment Ltd) which I started two weeks ago but which I interrupted to conclude my 20th anniversary piece on the banking system. In what was referred to as Act 1, the directors were identified and financial summaries set out. It became apparent that the preparation of financial statements was a matter of political convenience and provided no information that could be considered useful to understand how and for whom NICIL operates. Events since January 6 have convinced me that the Institute of Chartered Accountants of Guyana has no serious interest in addressing the complaints against the Chairman of NICIL and his spouse and even worse that some members of the institute actually advise the executive of NICIL.

We recall that NICIL was incorporated as a company under the Companies Act Chapter 89:01 on July 18, 1990, but began functioning in 1991. NICIL enjoyed an incestuous relationship with what was called the Privatisation Unit of the Ministry of Finance which had been set up to carry out the Government’s privatisation programme. Moneys earned from the privatisations, including the shares in GBTI were paid into the Consolidated Fund.

But then someone had the bright idea that NICIL could function in capacities other than an incestuous relationship; it could actually raid the Consolidated Fund by the mechanism of vesting. So, convoluting and contaminating the relationship further, the same parties, the Ministry of Finance, Cabinet, the Privatisation Unit and the directors of NICIL, all of whom were appointed by Cabinet, signed in 2002 a Management Co-operation Agreement appointing the Privatization Unit, described as a semi-autonomous organ, as exclusive manager of NICIL. Under the agreement all privatization expenses would be funded by NIICIL, even though, let it be remembered, director Luncheon said NICIL was a private company. But demonstrating its unique brand of integrity, NICIL agreed that any privatization of NICIL’s assets would be in accordance with Privatization Policy Framework Paper (PPFP) of 1993.

What does NICIL do?
When NICIL was incorporated it had to include in its constituent documents the objects of the company and its financial statements disclose that “the primary objectives of the Company ‘NICIL’ is that of subscribing for, taking or otherwise acquiring and holding the Government shares, stocks, debentures or other securities of any company, co- operatives societies or body corporate.”

Now how NICIL moved into diverting sewerage, building roads in the hinterland on behalf of the Guyana Geology and Mines Commission, setting up a company to build a hotel and paying NCN to move its transmitting facilities, is not clear. But this was not the only perverse matter disclosed or not disclosed in successive annual reports of NICIL. Its financial statements disclose that properties vested or transferred by the Government to the company are brought into the books at a nominal value, in accordance with IAS 20 (para 23). A closer read of IAS 20 (para 23) tells us differently.

IAS 20
IAS 20 says that a government grant can take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity (my emphasis), and that it is usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair value. Fair value is closer to market value and is clearly different from nominal value. The paragraph goes on to state that an alternative course that is sometimes followed is to record both asset and grant at a nominal amount, but this alternative treatment must surely be justified by circumstances. Since many of the properties are vested with a view to sales negotiated even before vesting, nominal value is clearly an inappropriate policy.

Some accountants might even argue that IAS 20 does not apply to NICIL because IAS 20 deals with government grants which it defines as “assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the company.”

The transfer of these assets has nothing to do with the operating activities of NICIL which by its own admission is not an operating company but at its most honourable, serves to facilitate the disposal of state assets in an orderly manner.

The law
It seems to me that from a legal standpoint the so-called vesting takes place in a principal-agency relationship with NICIL acting as the agent of the Government whose assets they are. The perverse convolution is simply to use NICIL as the vehicle to circumvent Articles 216 and 217 of the Constitution which set out clear rules for accounting for government revenues and incurring government expenditure.

Let us assume that neither the CEO nor his deputy understand some of these technicalities or practices. But surely Ms Nadir-Sharma, who was expounding on the Companies Act 1991 and its application to NICIL only a few months ago, must be aware that the Act specifies the contents of the directors’ annual reports. These must include the following:

1. the affairs of the company, each of its subsidiaries and their principal activities;
2. changes in fixed assets of the company and each subsidiary;
3. a statement by the directors on their proposals as to the application of the profits of the company and of its subsidiaries.

To ensure that these matters are not excluded the Companies Act requires very specifically that where “the directors’ annual report does not contain a statement required by [the] section to be included in it or contains a statement which is false, deceptive, misleading or incomplete, the auditors of the company shall, so far as they are reasonably able to do so, include in their report on the accounts of the company … a statement or correction giving the information required by this section.”

There is a high probability that Mr Deodat Sharma, the Auditor General has no knowledge of this requirement and consequently is unable to fill in the information. Mr Sharma serves not as an independent auditor but chooses not to contract out NICIL’s audit. He does the same with NCN, another rogue company when it comes to compliance, good governance and accountability.

It is really painful that we tolerate such ineptitude from the government’s principal operating company. This brings to mind a question posed by a reader who enquired whether the annual reports tabled by various agencies of the state are subject to any review or scrutiny of the Public Accounts Committee. Sadly, the answer is that this has never happened and the practice is merely to place the document on public record; nothing more.

Some other comments
The paucity of information and disclosures frustrates any serious attempt at commentary on NICIL’s financial statements. Indeed, the paucity extends to disregard for entire accounting standards including IAS 10 Events after the Reporting Period. However the report for the year 2009 is interesting if only for one reason. In that year NICIL put some $166,241,000 in NCN about which nothing was ever said by the Minister of Finance who is NICIL’s Chairman and who in 2009 had allocated to NICIL in the National Estimates the sum of $54 million.

In other words, NICIL, whose Chairman is the Minister of Finance, gave to NCN three times as much as he gave to NCN as Minister of Finance. These advances coincide with the move of NCN’s transmission facilities to facilitate the construction of Pradoville 2, where Mr Jagdeo and some of his ministers have appropriated unto themselves valuable state property at below market value, or to use NICIL’s words, nominal value.

Surprisingly NICIL which from time to time holds billions of dollars in the bank discloses in its financial statements only modest sums for “Interest and other income.” It is public knowledge that NICIL also receives several millions of dollars annually in rental but without a note showing the separate amounts of interest, rentals, etc, it is difficult to determine whether all the income is properly accounted for.

The National Assembly has passed a motion for an investigation of NICIL. I believe that this investigation of NICIL’s operations would have to be very far reaching and include an examination of the assets of those who may have benefited. I have lost all faith in the Institute of Chartered Accountants of Guyana and it is public knowledge that certainly in respect of NICIL, the Audit Office is either inept or compromised. It is unfortunate that the Public Accounts Committee does not insist in reviewing the annual reports and financial statements of NICIL. Their rushed preparation, inept audit and simultaneous laying of NICIL’s reports for several years have nothing to do with good governance, respect for the law or accountability. It is meant to silence critics.

The real tragedy of NICIL is that it has simply got worse.

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