Luncheon and his ploys
Before turning to this week’s piece I will respond to a statement attributed to Dr. Roger Luncheon who at his press conference last week named Messrs. Ronald Ali, Anand Goolsarran and me in a “ploy orchestrated against Mrs. Singh [wife of Dr. Ashni Singh, the Finance Minister] of the Audit Office of Guyana.” The moniker “politician” can hardly exempt or justify careless and untruthful speech particularly when making serious allegations about others.
Dr. Luncheon should be aware that a formal complaint was lodged with the Institute of Chartered Accountants of Guyana (ICAG) by Robert McRae CPA, a partner of Ram & McRae, alleging a “conflict of interest between the Ministry of Finance and the Office of the Auditor General involving members Dr. Ashni Singh and Gitanjali Singh.” That complaint, lodged since July 9, 2012, had to name the two persons since investigations are held into conduct of members of the Institute, not offices. Mr. McRae lodged on the same date not one but two complaints with the ICAG, only one in which Mrs. Singh is named along with Dr. Singh.
With regard to Mr. Ali, I am not aware of any statement being made by him at any time on the matter. If any criticism can be directed at Mr. Ali, it is that the ICAG of which he is the President, has been unforgivably slow in pronouncing in a matter of national and professional importance falling within its functions. The ICAG has a duty not only to the public but also to the Singhs to rule on the complaints since it is totally unfair to its two highly ranked members to have professional complaints hanging over their heads.
As for prejudice to the investigation, it can hardly have escaped Dr. Luncheon that he and other members of the Cabinet are interfering with the investigations and in the process compromising the Audit Office. He must realise that Cabinet is not a disinterested party and for it to attempt to pronounce on a matter involving one of its own members is committing several improper acts – undue influence on the ICAG and on the Audit Office, as well as conflict of interest. Maybe this is Luncheon’s ploy to win further loyalty from an Auditor General who owes his appointment more to the political machinations in the PAC than to any professional qualification or competence.
My advice to Dr. Luncheon is that rather than speak on a matter on which he is so poorly informed, he should devote his attention to fixing the billion dollar mess in which the NIS has found itself during his 21-year tenure as Chairman.
We may not have noticed it but a quiet revolution has been taking place in Guyana: a revolution that places wealth accumulation as the national ethos. This revolution is not being led by a right-wing party like the TUF but by some leading members of the PPP/C whose founder was a committed Socialist and champion of the small farmer, the worker and the artisan. So ingrained is the new philosophy that a former President could refer disparagingly to a bicycle shop operator and the Minister of Agriculture could carelessly describe the country’s farmers, telling them they have to leave their subsistence mindset and aim to become wealthy.
Even if the Minister did not intend to write-off the thousands of farmers his choice of words reflected a paradigm that was a world different from that of Cheddi Jagan. That shift becomes apparent from a review of the manifestos of the PPP/C with each succeeding one reflecting reduced emphasis for farming and agriculture and an ascendant concept of megaprojects. Farming is not only about mindset but also about landholdings, access to capital, a national policy on imports and markets for their products. If farmers cannot sell five bags of Bora how will they sell ten, or fifteen or twenty?
The rationale for the shift in national policy – for which we should read party policy – has never been too clear. Maybe it is a local version of the Reagan-Thatcher philosophy, or the economic counterpart to top-down politics. Or the strange logic that if the government cannot manage or supervise smaller projects it is because it is really cut-out to deal only with mega-projects. But the architects of these grand projects must know that the scale of the failure becomes correspondingly greater as the size of the project increases. Of course, if the scale of the project is in any way related to the culture of corruption, then some kind of logic begins to emerge.
The first of those was the Skeldon Project which instead of transforming the industry has practically crippled its epicentre, the Guyana Sugar Corporation. Those who had counseled caution when the Plan was rolled-out were dismissed as anti-progress and prophets of doom. The big guns from GuySuCo were called out to defend the plan and the multi-billion expenditure it entailed. As has been their luck, taxpayers have had to fork out tens of billions to keep the Corporation afloat.
In its latest plan, the Government/GuySuCo are planning to continue many of the same policies and strategies but are hoping to achieve a different result; the only difference this time is that we now learn that even as the Plan is rolled out, the Corporation is without a board of directors. And we learn from the Unions that they have not been consulted on the plan.
Ignoring the lessons of GuySuCo’s Skeldon Project, and unable to supervise successfully even medium-sized road projects, Mr. Jagdeo then conceived some even more ambitious projects: a floating bridge across the Berbice River; a new airport terminal and extended runway at the Cheddi Jagan International Airport; a tourism hospital; a five star hotel; and the mother of them all the Amaila Falls Hydroelectricity Project. Having conceived of them Jagdeo then puts NICIL to execute them. NICIL has stumbled from one bad deal to another, sometimes using questionable legal means and most times flawed financial structures. Here is a brief on some of those cases.
Like Skeldon, the projections for the Bridge Company prepared and sold by NICIL’s Winston Brassington as viable were unrealistic and the actual performance has been way below those projections. Caught in a tangled web, the company then employs a mix of monopoly creation, crude creative accounting and an annual subsidy by NICIL of one hundred and fifteen million dollars to make the company appear able to meet its debt obligations. So far NICIL has failed to indicate the lawful authority under which it waives the dividends and deprive the treasury of much needed cash.
Interestingly, Brassington is now putting together a second bridge across the Demerara River costing about eight times that of the Berbice River Bridge. The conditions are very different: passengers have the benefit of a fast, reliable and inexpensive boat service; the NIS hands no longer able to be wrung for billions. We now await his projections.
The airport is another financial mess. Minister Robeson Benn, a non-financial person was given ministerial authority to sign – apparently without consulting the Attorney General – a near $30 billion contract with Chinese contractors. Unaware of critical components of the contract, Benn’s Ministry has agreed to a model similar to the one that is partly responsible for GuySuCo’s woes in respect of post-completion liabilities defects that may arise. Not surprisingly, poor contract design is now leading to crude execution. The Chinese contractor has been accused of transplanting their experience honed prior to the Beijing Olympics by forcibly removing Guyanese who are considered “illegal occupants”.
Following criticisms of the project, the Ministry of Public Works released a Feasibility Study dated April 2012 which, like BBCI, are based on unrealistic assumptions. The authors, without offering any evidence, seem to assume that Guyana will partially displace Argentina and Brazil as the intermediate stop for flights en route from North America to Africa and the Middle East.
It is not disputed that the CJIA needs a longer runway and that the terminal building needs expanding. It is also true that for much of the day the airport is under-utilised. So the concerns are really about a proper feasibility study, a carefully drawn up contract, the exaggerated contract price, justification of a US$20 million advance on against mobilisation cost of US$1.2 million, and adequate supervision of the project.
The Specialty Hospital is a mystery by itself. It has caused a hole in the Consolidated Fund as monies advanced from the Contingencies Funds were disallowed by the National Assembly leaving several millions in limbo. We will leave it to the accountants to find a solution. Meanwhile no one knows who will own the facility, who will operate it, who will have access to it and at what price, and how its ongoing and annual costs will be funded. You would think these are questions that would have been answered before the sod was turned. No, this project is different and special.
The Hydroelectricity project
Just as I did not believe that Christ would have voted in the Guyana elections and cause the PPP/C to lose its majority, I do not believe that it was God’s work to empty the Amaila Falls of water to settle the argument whether there was enough hydrological support for the Amaila Falls Hydroelectricity Project. There is no need to rehash the self-evident weaknesses of the financial structure of the project, all of which operated against Guyana. What remains of concern is the dishonest action by NICIL to resort, at the last minute, to independent consultants to “prove” that water flows will be no problem.
To rebut earlier studies NICIL sought another study, this time by the UK Halcrow Group. According to a statement released by the Government of Guyana that desk study “assured that there would be enough water all year round to guarantee sufficient electricity generation by the proposed AFHP.” The dry falls may be some divine response to Halcrow.
I agree with those who say that the water issue cannot ignore the fact that the project would be dammed (not damned!) and that weather patterns are not as predictable as they used to be. But there is no indication that 2013 was so unusual for that part of the project area to be dry just weeks into a dry spell. The Government should certainly have dealt more seriously with the concerns and recommendations of the two consulting firms Kaehne of Canada (2002) and Mercados (2009).
Ironically the Halcrow study was intended to discredit the Mercados Report on which NICIL relied on to justify the project’s viability. But the report’s conclusion about the “deficit in power generation” in months with low hydraulicity was found to be inconvenient. NICIL it seems rejected those sections of Mercados it found unpalatable but was willing to use anything favourable which it contained.
The Kingston Hotel – lower than junk
This Hotel is the combination of everything that was and is wrong with the other projects. NICIL set up a one director company (Atlantic Hotel Inc.) to build a five-star hotel with some secret private partner. It sold its 20% stake in GT&T from which it has earned billions of dollars in investments and gave it to AHI which used it to make payments on a lopsided contract with another Chinese contractor. Despite huge upfront investments by the Government the original private partner vanished, another mirage, another phantom.
AHI then canvassed the world for another private investor and according to it found one who has demanded control of the company. Having invested some US$19 million in actual cash and several more in various rights and concessions, NICIL appears to allow the investor to call all the shots, dictating how the US$19 million is to be treated. NICIL/AHI have agreed that the US$8 million to be invested by the unnamed private investor will be designated preferred equity while NICIL’s US$4 million is designated “non-preferred” equity qualifying for a return “only if cash permits”. Worse, the possible return is not cumulative so that if there is no cash for nine years but a huge windfall in the tenth year, the Government receives a one year return only.
The equity apportionment of two-thirds/one-third is fraught with dangers since two-thirds is all that is required for a special resolution to be passed allowing those shareholders to do most anything in the company. Again, that is how Amaila was being structured.
NICIL’s remaining US$15 million is an interest-free loan repayable when cash flows enable. That is lower than junk bonds status. Yet Winston Brassington has the gall to tell taxpayers that the money would have received next to nothing from the commercial banks! He thinks our memories are so short that we would forget that the money that has funded the project came from one of the most profitable equity holdings the country has had.
And like it did with Halcrow, NICIL suddenly and belatedly decided that a feasibility study is the way to go and contracted with a Miami-based company, outside of the Procurement Act. Now, after billions having been spent, NICIL has released a redacted version of the report with all the glowing projections. It is Skeldon, BBCI and Amaila all over again.
While the drive to make Guyanese better off is understandable, it is folly to think that every participant in an economy can become wealthy. The emphasis should be as much on development as it is on wealth. And whatever the goals, we must understand that process is important. The country’s money cannot be placed at the disposal of any single individual or handful of individuals as in the case of NICIL and outside the constitutional and parliamentary framework.
Projects must be properly considered and evaluated by independent persons before they are undertaken. GuySuCo should have taught us that we can ill-afford the consequences of poorly conceived and badly executed projects. We have a parliamentary body to oversee economic activities and projects. We should make full use of it.