The fiasco over at Kingston

Berbice Bridge Company update
In the introduction to last week’s post, I related an exchange of letters I had with the Berbice River Bridge Inc. in which I had requested access to certain public documents of the Berbice Bridge Company Inc. In response to the reply by the Company Secretary of BBCI that I provide justifiable reasons, I indicated that the law did not require me to give any and I restated my request, giving the company two working days to provide me with access. I am pleased to report that within that time, I received a letter from the Company Secretary advising me that the company had been advised that I am entitled to access and could visit the registered office within normal working hours. I commend the directors of the Bridge Company for their responsible action in this matter. 

Small as that matter may seem, it is a significant development in corporate compliance as companies, their directors and officers become increasingly aware that they are required to comply with the Companies Act to which accountability and transparency are central.  

At the time of sending my first letter to BBCI, I also sent similar letters to Mr. Winston Brassington of NICIL and Ms. Marcia Nadir-Sharma of Atlantic Hotel Inc. (AHI). Neither Brassington nor Nadir-Sharma has responded to those letters or reminders sent one week later. In the reminder letter I indicated my intention to pursue the matter as legally advised. The disregard and contempt of the law by Brassington and Nadir-Sharma can no longer be tolerated or excused on the grounds of age, inexperience, incompetence or ignorance.

NICIL and AHI have retained just about every law firm in Georgetown in the belief that they can limit the number of firms professionally free to act against them. So Brassington and Nadir-Sharma, two key officers of these entities, should know that the indemnification provisions of the Companies Act only apply to the director or officer who has acted honestly and had reasonable ground for believing their conduct was lawful.

Contempt for the law is hardly an honest act.

Years after spending billions of dollars in clearing prime land contiguous to the Atlantic Ocean and the Demerara River, relocating sewerage lines to allow for construction on the land, and long after signing a construction contract for US$51 million, Atlantic Hotel Inc., a government company decided to have a Feasibility Study of the project done by the Miami-firm CHR Consulting Services Inc.. The report on that study was issued in September 2012. Yet one year later, and only after relentless pressure has AHI, a wholly-owned government company, has provided to the public parts of that report.

The information was released by Winston Brassington just around the same time that he finally conceded in an interview with Johann Earle of the Stabroek News what he was being warned about long before committing more than US$20 billion of public funds in the project: that the project was never as strong as Jagdeo and he had been selling like salesmen of old. In today’s piece I look at the report and discuss it against some of the statements made by Brassington on the hotel construction of which is in progress.

I have no reason to doubt that the consultant preparing the Study is anything but a highly reputable company. Which then raises the question why the (revised?) Executive Summary would fail to mention that the study was conducted in 2010 as Mr. Brassington told the Stabroek News, and refer to the key changes, if any, made to the original report. Another key omission is that no one quite knows what the Terms of Reference (ToR) of the Study are and whether this included reproducing copies of all the advertisements by Brassington to demonstrate how transparent the process has been! 

Selective transparency
No one can miss the irony of course of AHI’s concept of transparency selectively excluding the publication of the report in its entirety or the overall conclusions on the financial feasibility of the study. In fact that conclusion ends with a number of assumptions which the consultants appear not to have subjected to any sensitivity analysis, a standard tool of financial analysis. Importantly in my view the document does not indicate whether a break-even analysis was carried out and what is the break-even point, i.e. the point at which revenue equals cost and there in neither a profit nor a loss. The document released does not indicate whether any of these were done but in their absence it would seem highly irregular and irresponsible to make a US$51 million investment based on such limited analysis. Brassington and NICIL are doing just that.    

The released document contains a section described as Overview of the Project, as provided by the Client. It does not state however whether the information was subject to any review; whether the rest of the report comprises information independently researched and tested by the consultants; whether the consultants visited Guyana to carry out their independent investigations and analysis; and whether they are responsible for the grave deception conveyed by the cover page: deckchairs on a sandy beach on the Atlantic Ocean!

Application of the Procurement Act
Before examining the document, a word about the status of AHI and the relevance of the Procurement Act.  AHI is a government company and, by virtue of section 24 of the Procurement Act, is subject to it. While generously reproducing the advertisements for investors and contractors the consultants do not help the reader to ascertain or understand whether the process of their appointment met the requirements of the Procurement Act or they were handpicked by Brassington to do a self-serving study with the scope conveniently defined.

And this leads to the even more serious issue of an unaccountable Brassington running amok with public funds. AHI is a wholly-owned subsidiary of NICIL, a company whose board of directors comprises several members of the Cabinet including the Minister of Finance as Chairman and the Head of the Presidential Secretariat. Incredibly the Board has appointed Brassington as the sole director of a Government company! It boggles the mind that this Board can elect one man – Winston Brassington, whose record of integrity and competence have been subject to sustained challenges – as the sole director of AHI. In that role, Brassington has been given complete control over billions of dollars in public funds, the power to commit the country to a US$51 million contract that excludes Guyanese from the work pool, and the sole discretion of what information the public should be given. What makes it even worse is that the only other officer of the company is an employee of the company of which Brassington is the executive head. Together they have failed to submit any annual report to the National Assembly or the Registrar of Companies since the company was incorporated in 2009!

Mr. Brassington can argue with some justification that the invitation for investors does not technically come within the Procurement Act but under the Privatisation Policy Framework Paper (PPFP). But even as he seeks refuge under the PPFP he runs into a commitment for transparency, something to which he seems to have an allergy. He wants to submit himself to neither but to be a law unto himself.  

The President of Guyana considers it obscene for anyone to question Brassington. My response is that it is reckless and irresponsible for his Government to appoint anyone as a sole director of a Government company. Even a privately owned public company is required to have at least two directors. What makes AHI different except for Brassington? Let us return to the report.

Here are issues of interest raised in the documents, taken largely verbatim. 

– That the hotel will be affiliated with the Marriott brand and will open on March 1, 2014.
– That all of the facilities in the city including Pegasus Hotel are “dated” with infrastructure and service standards below the anticipated quality of the proposed hotel.
– That the Princess Hotel is outside of the central business district and thus not an attractive option for a significant portion of the country’s business and government travelers.
– That a portion of the economic development initiatives outlined within the Market Area Analysis chapter (Chapter 3) of this report gain traction.  Among these is “the cultivation of a portion of Guyana’s crude oil”. Note that not even a summary of Chapter 3 was included in the document released by Brassington.  
– That the food and beverage  offerings  will be  positioned  higher  than  the  existing  facilities at the Pegasus and the Princess Hotels, and in line with New Thriving Chinese Restaurant with regards to quality and price point.
– That the property will be built according to all pertinent codes and brand standards.
– That the Marriott brand affiliation will materialize bringing significant amount of anticipated business from the United States.
– That the occupancy rates of the Hotel will be higher than that of the market;

Some of these assumptions are speculative, unreliable and procrustean. Under normal circumstances and using any rational yardstick, the usual adjustments for the the uncertainty of the assumptions would rule out the investment. No wonder then that Brassington is now admitting that it is a difficult sell. If he had not been so stubborn he would have realised it was always so. Now, having led the country into a speculative investment Brassington has to give away the Hotel to an investor whose identity he remains unwilling to disclose but who like Sithe Global wants for its investment a disproportionate share in the equity of the company.

Lop-sided equation
Here is the equation to which Brassington has committed the country: the government puts in US$20 million, the land and a generous package of concessions. It gets only one-third of the equity in the company. The unnamed investor on the other hand puts in two-fifths of the Government’s contribution but is given double the equity which the government receives.

So here is the consequence: on the US$15,500,000 invested by the Government but which is rated as debt, the yield is 0.0% while on the portion of the investment treated as equity (US$4,000,000), the anticipated yield is 16.6%, if there is a profitability, which is quite a big if.  In  total,  the  NICIL  debt  and  equity  investment  totals  US$19,500,000 and is expected to yield an aggregate return of 6.2%.  By contrast, the assumed private equity investment of US$8,000,000 is projected to yield a return of 22.2%.

It is an elementary principle of corporate finance that loan capital is rewarded before equity, but not too elementary or fundamental to be sacrificed by Brassington “to make the project attractive to private investors”. And even worse, completely oblivious to the Companies Act’s provisions the payment of dividends, Brassington is planning to raise Round 11 financing to pay dividends.

Brassington is clearly abusing his power as sole director of AHI to show contempt for the people of Guyana, giving us what little information he thinks we deserve. On this project, Jagdeo and he have led us into a cul de sac from which there is no easy exit. As the prestige projects conceived by Jagdeo and now so carelessly continued by President Ramotar have come under the microscope, their structures have proved porous and costly. Amaila topped the list for press coverage, no doubt because of the huge sums and the politics involved. On the Airport project Guyana made a US$20 million payment on mobilisation against mobilisation expenses of just US$1.2 million. And to make the Berbice Bridge avoid insolvency, NICIL gives up G$104 million annually and another G$10 million in interest. Collectively, the framing and financing of these projects represents a scandal of national proportion.

While defending public officials by the President is commendable when justified, it is improper for him to publicly abuse citizens, particularly when his government has made no effort to engage those making the criticisms. He should try to understand that all is not well over at NICIL and Atlantic Hotel Inc. and should do something about those entities. 

Next week I will turn my attention to the NIS, another entity in big, big trouble.

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