Only $1,000M was requested for GPL’s operations and the National Assembly approved that; the warning of a tariff increase is nothing but scare tactics

Now more than ever I lose hope and faith in our politicians whose words speak louder than their action. But then I see some dishonesty, chicanery or fabrication that upsets me and makes me take up my pen.

In today’s (April 23) Stabroek News Messrs Brassington and Bharat Dindyal, Chairman and CEO respectively of the mismanaged Guyana Power & Light Inc are threatening a 17% tariff increase because of the $5.2 billion cut by the National Assembly. The reasons they give are so dishonest that I cannot help but recall the feigned outrage by Messrs ‘Fuzzy’ Sattaur and Martin Goolsarran when the NCN subsidy was cut last year.

Mr Dindyal was reckless enough to accuse the parliamentary opposition of “a poor understanding of the company’s operations.”

In fact it is more than likely that it is because they not only understand but know that the GPL is among the most poorly operated and managed companies in the history of Guyana that the opposition is reluctant to put $11,255 million in the company in 2013, following the $6 billion in 2012 for which there has been no accounting to date.

Assuming as I do, that Messrs Dindyal and Brassington are not dishonest, then it is they who do not understand. Here is what the Minister of Finance said in the 2013 Budget Speech about the $11,250 million to GPL.

“Budget 2013 therefore provides operating and capital transfers to GPL totalling $5.8 billion to support that company in meeting its cash flow requirements. It is worthwhile to mention that, in addition to the $5.8 billion budgeted to be transferred to GPL in 2013, Government is also budgeting a further $5.4 billion to be provided to GPL to support key projects such as the upgrade of its transmission and distribution network, the loss reduction programme, and other activities required in anticipation of the AFHP.”

They so comingle money that they probably do not even realise that only $1,000 million was requested for GPL’s operations.

The National Assembly approved that sum in full. It is nothing but scare tactics for Mr Brassington to warn about a potential tariff increase following the cut of $5,800 million which, knowing our parliamentarians, will be restored sooner rather than later, as happened last year.

And let me reassure Mr Dindyal that Guyanese understand what is going on in GPL including:

1. That at December 31, 2010 the company had an accumulated deficit of $2,008 million and was indebted to the Government of Guyana for $9,035 million in long-term liabilities, $1,189 million in current liabilities and $402 million in taxes payable, making a total owing to the Government of $10,626 million. The company’s indebtedness would surely have increased in 2011 and 2012, in addition to the $7,500 million it received by way of budgetary allocations in those years.

2. That over the approximately six years of the Brassington-Dindyal partnership at the helm of GPL, line losses have remained stuck at around 32% when they should be no more that 15% -18%. In other words inappropriate policies and inept management at GPL are costing the country in the range of $5,469 million and $6,641 million per annum, based on 2010 turnover.

3. That GPL has failed to table its 2011 Annual Report in the National Assembly which was due by the middle of 2012. The National Assembly should have told the Prime Minister to go and bring the report before we entertain any request.

5. That the cost of fuel in 2013, which accounts for a significant part of annual expenditure, is projected to be less than in 2012.

6. That the company’s procurement is no less tainted than national procurement.

7. That the management is not only incompetent but also overpaid. In 2010, twenty-nine management staff were paid a total of $271 million plus perks. This works out at $9,400,000 per year per person. That would have gone up in the two years since.

8. That GPL does not have the power to increase rates but only the Public Utilities Commission and only after public hearings. Maybe Messrs Brassington and Dindyal should put their threat to the test and open themselves to examination.

Finally, the duo’s spuriously precise 17% tariff increase reminds me of my days in Grenada when Bernard Coard advised me, “Chris, don’t say around 50. Say 47 or 53. People will think you are being honest and accurate.”

Conditional on the granting of any transfers to GPL, the National Assembly should have demanded the firing of the entire Board of GPL and their replacement by competent individuals. Messrs Brassington and Dindyal may mistake the temerity of our politicians as stupidity of our people. We know and understand what is taking place. And it is not good.

Serious questions remain on the exploding cost of the Amaila project

I welcome Mr. David Gopaul’s letter (‘Ram is attributing additional costs to the Amaila hydro-project based on pure speculation’ SN April 18, 2013) for providing me with the opportunity to ask him to obtain and share vital information about Amaila which Guyanese have for years been seeking. Before doing so I will briefly address his lengthy letter.

One approach could be to quote Mr. Gopaul’s preferred article in Hydro Review magazine which set out Canadian cost models for hydro projects that are conceptually, in terms of both engineering and financing, and technologically, different from Amaila; or I could choose to provide cost information on projects from the USA, Ethiopia, China and Turkey, which in each case is lower than Amaila’s. I could even refer him to Brazil which built a project of approximately the same size and capacity for US$350 million or US$2.2 million per MwH, or to the recent contract between Nicaragua and Eletrobras, the Brazilian state-owned utility company, to build a 250 MW hydroelectric power plant in southern Nicaragua, at a cost of US$700 million, or US$2.80 million per MwH. But I won’t because the explanations are right here in Guyana.

In writing on the subject of Amaila Mr. Gopaul can recall what I said about the PPP/C 2011 manifesto but conveniently forgets what has been said and written not by informed critics of Amaila’s exploding cost but by its very own sponsors. Here is what the Champion of the Earth and the opportunist “investor” Fip Motilall told the Hydro World in 2007: “The hydro project is expected to cost US$300 million, with a third of that devoted to building transmission lines to carry power from Guyana’s remote inland to its population centers.” Since the line would be almost the same for 100 or 165 MwH, the explosion in the cost would be mainly the plant.

And if Mr. Gopaul has problems with the Champ and Motilall as so many people do, let me draw his attention to a letter by Raphael Herz and Brian Kubeck of Sithe Global who on February 29, 2012, responding to a letter by Ramon Gaskin in the SN of February 14, 2012 wrote, “Mr Gaskin questions the cost of the Amaila Project, suggesting that a hydropower plant of this size would normally cost between $320 million and $360 million….. In this case, the construction cost of the hydropower facility of the Amaila project is in the range that Mr Gaskin suggests (emphasis added).”

If that does not convince Mr. Gopaul, then I cannot help him. Now for my questions to him:

– Does he consider the model proposed by Motilall/Sithe/Chinese the best technical and financial option to produce an optimal hydroelectricity facility at Amaila?
– Does he know and is he convinced that the technology to be used in Amaila would be state-of-the-art and not like the elephant the Chinese built at Skeldon for GuySuCo?
– Has he seen all the documents on the Amaila Project and if not would he join the call for these to be tabled in the National Assembly?
– Can he say when the final licence for the Amaila Project required under the Hydroelectric Power Act was or will be issued, and similarly for the Power Purchase Agreement between Amaila and GPL?
– Is he aware that Sithe has defended Amaila Project on fuel reaching US$200 per barrel while the current cost is under US$90 per barrel and the 20-year outlook is for reduced demand due to technology and alternatives?
– Would he please provide hard information to contradict the calculation that Amaila will cause the electricity tariff to increase for several years?
– Does he believe that Banks DIH, DDL and all those entities which have disconnected from the national grid will automatically return because of Amaila?
– Does he share the optimism that when Amaila comes on stream that Linden will automatically receive power from the National Grid and pay the national rates?
– Does he know of any public project that is feasible with borrowings at 8.5% and return on investment of 19%?
– Does he know of any government-guaranteed project which carries risk insurance of 12% of the project cost?
– Does he consider as realistic the assumption that GPL will reduce losses from 32% to 20% in six years time?
– Can he share with Guyanese his understanding of how power from Amaila will be distributed to Essequibo and the hinterland communities?
– Can he share with Guyanese his knowledge of how much of its existing plant and current fixed and operating costs GPL will continue to carry when Amaila starts to produce?

If Mr. Gopaul or anyone else would like a debate on Amaila, I respectfully suggest they have relevant and not pseudo-facts. And just in case Mr. Gopaul does not know the answers to my questions, I am sending a copy of this letter to the Prime Minister for his comments and response.

On the Line: Annual Report 2012 – Demerara Distillers Limited

Introduction
The conglomerate, Demerara Distillers Limited, which has as its flagship the world famous El Dorado rum, will be holding its annual general meeting next Friday April 26 when the directors will report on the performance and state of affairs of the parent company and its ten subsidiaries and one joint venture. One of those subsidiaries, Breitenstein Holdings BV, a Netherlands company has two distribution companies in the Netherlands and four in the United Kingdom. The joint venture is listed as a Manufacturing and Distribution company in Hyderabad, India. At least two of the subsidiaries – Distillers Gas Company (sic) and Demerara Contractors and Engineers Limited – seem to have disappeared from the radar, the first mentioned as dormant in a note to the financial statements and the second receiving no mention in any of the documents making up the Annual Report. Included in the financial statements of the group as Associate Companies are Diamond Fire and General Insurance Inc. and National Rums of Jamaica Limited, 19.5% and 33.33% of whose shareholding respectively is owned by the group.

The Guyana Stock Exchange, itself stunted by conflicts of interest and a tolerance of a culture of weak governance among the handful of public companies, has been far from impressed with the group, attributing to it one of the lowest Price Earnings (P/E) Ratio. The consolidated financial statements show that turnover of the company has risen by 11.5% but that there were declines in profit before interest and taxes (5.2%), profit after taxes (17.6%) and total comprehensive income by nearly 25%. The combined performance of the subsidiaries was flat. Turnover (sales) increased from $5,065 million to $5,173 million, or by 2.1%, less than the rate of inflation. Profit before tax of the subsidiaries remained the same but after tax profits fell from $352.4 million to $350.2 million, a decline of 2.1%.

2013.04.21_Table1

A significant contributor to the change was explained in the Chairman’s Report as due to a “deferred tax charge of $230 million as against $65 million in 2011.” No explanation was given for this increase, nor do the financial statements give any hint, particularly since there was no significant acquisition in fixed assets, a major factor in making a provision for deferred taxes, as the tax allowance is very often significantly higher than accounting depreciation in the first year.

The important stock market consideration, Earnings Per Share (EPS) of the company fell from $1.55 per share to $1.28 per share dragging down that of the group’s EPS from $2.01 to $1.74 per share. However, with the way Guyana’s media overacts to absolute numbers, the market price for the shares has not been adversely affected. Or perhaps the market is responding to an increase in the dividends per share from $0.48 per share to $0.52 per share. Incidentally, someone in the company should tell the Company Secretary that Guyana abolished cents as a unit of currency in 1998!

Continue reading On the Line: Annual Report 2012 – Demerara Distillers Limited

On the Line – Demerara Tobacco Company Limited: Annual report 2012 – Conclusion

Introduction
I closed last week by introducing a table which set out the transactions between Demtoco and other companies in the group. Of particular interest were the following charges:

2013.04.14_Table1

These charges are not only unusual for an entity that buys a branded product and does nothing else but sell that product to a single customer; they are also unlikely. The charges have two financial and fiscal effects. First, they transfer income from Demtoco to its group companies not in the form of dividends available to all shareholders. Second, to the extent that they are charged against income for purposes of the computation of taxes, they reduce the company’s taxable profits, and hence the tax payable by the company.

Continue reading On the Line – Demerara Tobacco Company Limited: Annual report 2012 – Conclusion

On the Line – Demerara Tobacco Company Limited: Annual Report 2012

Introduction
The Demerara Tobacco Company Limited (Demtoco), held its Annual General Meeting this past Tuesday April 2, 2013, kicking off the season of annual general meetings of Guyana’s public companies with a December 31 year end. All public companies are of course regulated under the Securities Industry Act and the Companies Act. And, too, they all fall to be taxed under the various tax laws of Guyana. Or do they?

70% of Demtoco’s shares are held by British American Tobacco International Holdings (UK) Limited which in turn is a wholly-owned subsidiary of British American Tobacco plc. (BAT), also of the UK. Cheddi Jagan, no slouch for an economist, used to love measuring the power of the international companies by comparing them with the size of Third World countries’ economies. He would have hated Guyana’s economy’s relative size compared with BAT whose turnover across the world is six times the GDP of Guyana.

Continue reading On the Line – Demerara Tobacco Company Limited: Annual Report 2012