Brassington confirms QA II rent at $12-17 million annually

Contradicting several earlier statements about the rent the Government would be getting from the lease of 20 acres of land to Queens Atlantic Investment Inc. (QA II), Executive Head of the Privatisation Unit and the state-owned company NICIL, Winston Brassington, in an e-mail to me last week confirmed that the rent is “between 12 -17 M per annum  Yrs 2-5 and in Yr 6 (2013) it will be approximately G$45 M.”

You may very well wonder how Mr. Brassington would rent 20 acres of the most valuable land in Guyana and not know the rent by a margin of close to 50%. Having advised the Privatisation Board that the rent is $12 million only to be publicly corrected that at the rate per square foot specified in a leaked document authored by him, the amount has to be $18 million, Mr. Brassington needs to give himself ample wriggle room. This is as astounding as it is dangerous from the person who this country has placed in a position where he negotiates individually with all sorts of investors and other persons doing business with Guyana. He travelled often to Russia to negotiate with Rusal before another give-away of our country’s non-renewable resources and was mainly instrumental in the purchase of generating sets for GPL late last year costing millions of US Dollars. His recommendations are accepted by the Privatisation Board and Cabinet with the same conviction that a fundamentalist Christian would accept the Bible.

Half true
The answer about the rent came in response to persistent efforts to have Mr. Brassington confirm a number of matters that have surfaced since the tax concessions to QA II became an issue on June 5, 2008. These questions included the price and proceeds from the sale of land to Guyana Bank for Trade and Industry (GBTI) and the date of payment by John Fernandes Limited (JFL) of the sum of $320 million for land sold to that company in 2007. Mr. Brassington confirmed that GBTI paid G$201 M but in relation to the timing of the JFL proceeds he would only say that the “JFL transaction was only completed in March 2008”, which can lead to the inference that no monies were received until 2008. In fact there were two payments made by JFL in 2007 and the balance paid in 2008.

Mr Brassington has refused to answer my follow-up questions particularly about the correctness of the Privatisation Unit holding on to money that should properly have been paid into the Consolidated Fund and for information on the expenses incurred and dividends paid by the Privatisation Unit (PU). In fact all that was new from Mr. Brassington during the week was a press report of him saying that “previous privatisation processes have created ad hoc accounting processes in Guyana.” His incorrect line has been that the proceeds of privatisation have to pass through NICIL, a limited liability company which he claims incorrectly can only pay dividends into the Consolidated Fund after its accounts are audited. It seems that Mr. Brassington does not appreciate that interim dividends are permitted under corporate law and it is not unusual for companies to pay more than one such dividend during the year as Banks DIH has been doing over the past couple of years.

More abuse of the Consolidated Fund
Only monies legally due to NICIL or any of its subsidiaries would be subject to Brassington’s accounting but certainly not monies due directly to the Government such as on the sale of property including shares, land and other assets not owned by NICIL or its subsidiaries. At least some of the land sold to JFL falls into this category and the proceeds should have been paid into the Fund but are instead retained by the PU/NICIL under the control of Mr. Brassington.

Mr. Brassington refused to provide me with the names of the directors of NICIL or copies of its audited financial statements for the year 2006 while noting that the 2007 accounts are with  the Auditor General for audit. NICIL as a company operating under the Companies Act 1991 has been in breach of that Act with respect to the filing of any annual return to the Registrar of Companies as it is required to do nor are its financial statements and reports tabled in the National Assembly.

Such disregard for the country’s supreme and other laws, for good conduct, transparency and truth would in any society where the rule of law prevails, have resulted in the most severe sanctions against those responsible. The political opposition and so-called civil society including the accounting and legal professions have a public duty to act to stop this lawlessness. What is the meaning and relevance of the Constitution and the laws if professionals could ignore them if only to show loyalty and obedience to the politicians?

Deja vu
Two years ago, this column was very critical of Mr. Brassington’s conduct in its March 12, 2006 issue when it wrote about the improper means and tactics applied to corral workers’ funds of the National Insurance Scheme and depositors’ funds of the New Building Society for the Berbice Bridge. I reported then that Mr. Brassington even sought to have me postpone an article and give him time to get some necessary paperwork done by the NIS! The necessary paperwork was a letter enclosing, among other things, an irrevocable special power of attorney and requesting the NIS’s co-operation in having the voluminous agreement and four schedules signed one day later. The Privatisation Board was given the same or less time to endorse Mr. Brassington’s recommendations on the QA II deal.

Just as an aside, in that March 12 article one of the subheadings was Making the unlawful lawful as we see with the QA II tax holiday law!

For all the vast proceeds from privatization that are  now being boasted about, only $7.3 million was paid into the Consolidated Fund in 2006, $1.4 million in 2006. The manner of drawing  up the National Estimates does not allow the reader to determine how much was paid in in 2007 or is budgeted to be paid in in 2008.   Where then is the GBTI money and the JFL funds amounting to more than half a billion dollars? Is this another Lotto Fund scandal where the money is used for all sorts of unauthorized payments such as the $20 million to Courtney Benn Construction for breach of contract relating to works for the Kingston phantom hotel?

The tax seminar
Mr. Brassington obviously enjoys the confidence of the President and with his control of perhaps hundreds of millions of public funds he was indeed well-placed to organise the Taxation Seminar last month. While the Seminar scored poorly on organizational arrangements – a head table of 13, no recording and just one microphone for 200 persons – it was certainly well orchestrated and controlled. The seminar was organised for a Cabinet Day so that after the Finance Minister had left the meeting with his two colleagues from Cabinet and the Privatisation Board there was no one authorised to answer questions on policy from an audience consisting of several state executives and accountants anxious to learn the tax system. Mr. Brassington gloated over the $24 billion proceeds from privatisation since 1994 when he took over but he did not say that in the process the nation lost control of several key assets including Bauxite to Rusal which we then turn around and give a tax holiday! That is hardly how successful privatisations are measured.

Much was said too about transparency but let us not forget that had information not been leaked to the press there would have been no Seminar. In my contribution during the Question and Answer session I pointed  to an apparent conspiracy by the PU, Go-Invest and the company to misrepresent information fed to the public on the QA II investment, drawing attention to some of the statements made by Messrs. Brassington and Da Silva and how they differ from the facts that have surfaced from documents written by Mr. Brassington and agreements signed between the QA II group and the Government.

I pointed out too that Mr. Brassington’s creative explanation for the charge to JFL compared with the rent agreed to be paid by QA II, led to no other conclusion but that the PU either overcharged JFL or was undercharging QA II.

At the Seminar, Mr. Brassington lavishly praised for their contribution to the success of the privatisation programme the Privatisation Board made up of three Cabinet Ministers including the Minister of Finance who chairs the Board, and representatives from labour, business and consumers. My enquiries suggest that even allowing for the imbalance of the political influence Mr. Brassington gets the Board to arrive at a desired result by submitting to them his recommendations often with no more than a few hours notice. I understand too that the Board has dispensed with its sub-committee that had as its principal responsibility the examination of proposals and tenders and has transferred this task entirely to Mr. Brassington with whatever political input and direction that may apply.

Different rules
Astoundingly, in a recent article in the Kaiteur News Mr. Brassington is quoted as saying that “Previous privatisation processes have created ad hoc accounting processes in Guyana” and that “What you did not have was adherence under the law of how you distribute a company’s assets.”

That this statement would have been made at a Seminar to disabuse accountants of their ignorance of the tax laws was outstanding for its sheer arrogance and  uninformed ignorance! It is Mr. Brassington who does not understand the law and who created these “ad hoc” and unconstitutional arrangements that are so blatantly abused by the PU/NICIL. Has Mr. Brassington ever read the relevant sections of the Constitution or the financial rules or sought guidance on how these operate?

Where is the Auditor General?
As a non-statutory body, the Privatisation Unit is no more than part of the Ministry of Finance and so it has sought legal cover under NICIL, the state-owned company that Mr. Brassington operates without observance of the laws. Money that should constitutionally be placed into the Consolidated Fund are spent by the PU/NICIL as it now likes to call itself, to create a huge bureaucracy including legal expertise, and to by-pass the parliamentary process for authorizing the expenditure of public funds.

These are matters so significant that one would have expected the Auditor General to have paid particular attention to it and to comment critically thereon. These funds are on the same level as the Lotto Funds in that they are public monies that are required to be deposited in the Consolidated Fund under Article 216 of the Constitution. The Lotto Funds are too infamous to miss while equally huge sums of a similar nature go unnoticed by the Audit Office. In fact that Office should feel accused by Brassington’s claim of “ad hoc accounting processes”.

Conclusion – many cheques but few balances
It is clear that far from being efficient and transparent, the privatisation process is shrouded in secrecy and is managed without regard for elementary rules of good governance, the rule of law and knowledge of accounting. Much of the resources of this country have been given away in many cases for a pittance, in a process involving many cheques but few balances. This Unit and NICIL under Mr. Winston Brassington ought to be investigated by the Economics Affairs Sub-Committee of the National Assembly.

If that body fails to act, then some public-spirited citizen(s) should invoke the provisions of the Companies Act and demand an investigation of the operations of NICIL and its alliance with Mr. Brassington’s Privatisation Unit. We should not simply excuse and exonerate public officials’ improper and unlawful acts by attributing those acts to unaccountable politicians. They must be held equally accountable and culpable.

Next week we will look at the role of Go-Invest, the other partner in the saga.

Letter: New GPC has not made full disclosure

The first response of QAII Executive Chairman to the Business Page Article on June 8 dealing with tax concessions to his companies, was to dismiss the suggestion about the impropriety of the announced concessions and adding for good measure that there was nothing further to be discussed.

Since then, faced with revelations that have obviously embarrassed more than just the group, and realising that it was not the group’s call whether or not there was indeed nothing further to be discussed, the group has embarked on a weekly full page public relations campaign including easy-to-disprove statements that must surely aggravate for them an already bad situation.

Their latest was a full page advertisement in the Stabroek News of Sunday, August 3, 2008, making unfounded and misleading claims and ignoring critical questions that speak volumes about those who are supposed to protect the public interest. It is not my intention to challenge the group on every point including its wishful boast about New GPC being the largest pharmaceutical manufacturing company or that Guyana is essentially self-sufficient in pharmaceutical and medical supplies. In fact with just 39% of its revenue derived from its own production in 2006, it is only the generous definition under the tax laws that qualifies New GPC as a manufacturing company while it only needs a few minutes on the internet to show just how idle is its boast about its size. And if Guyana is self-sufficient in pharmaceutical and medical supplies then Chairman Ramroop may wish to explain why we are importing hundreds of millions of these products each year.

Unable to deal with facts, the advertisement targets me, suggesting that I had disclosed information obtained under a professional engagement. Anyone following the exchanges in the press knows that I wrote only about the discount on the sale to QAII of the additional 30% shares in GPC by the Government. At no time was Ram & McRae involved in that transaction which took place more than two years after we had done a non-audit engagement for the group in respect of an advertisement for the purchase of a 60% stake. The company also states that they did not take our advice on the engagement we did have. They did more than that – they poached the very staff member who led the exercise for Ram & McRae. That staff member is now New GPC’s General Manager!

But I am not surprised at their half-accusation. If they show such scant respect for accuracy and truth in information on straightforward matters like the losses which the acquired company was incurring and the rental QA II are paying for the Sanata Complex, it is unlikely that they will respect anybody’s reputation including their own. Let us get this straight. The source of my information on the discount offered by Mr. Brassington’s Privatisation Unit (PU) was the 2003 audited financial statements of QAII, despite its delinquency in complying with the law requiring the filing of annual reports and audited accounts. And for confirmation just read page 24 of Winston Brassington’s Paper presented to the July 29 Taxation Seminar for his convoluted justification of a discount of $45 Million on the sale of the additional shares. Using simple arithmetic I had reckoned that it was at least $30 Million. Thanks Mr. Brassington for the confirmation. As for the assertion that GPC was making $300 million in losses each year, I have to plead professional confidence.

Now let me offer the group some advice. Just in case it has any residual concerns about my professional conduct they can lodge a complaint with the Institute of Chartered Accountants of Guyana which investigates such complaints. Their PR consultant can help them – he has experience with this, albeit unsuccessful.

And please would the group, in any other full page advertisement it is advised to take, state whether it considers it ethical to have a top official of the Georgetown Public Hospital Corporation – a major buyer of GPC’s products – sitting on the board of New GPC under a lopsided contract that is not in compliance with the procurement laws of the country? Or how it feels about the incentives legislation being changed to facilitate concessions wrongly granted to members of the group.

The role of the Privatisation Unit in the QAII deal

The President’s postponed Privatisation and Taxation Seminar finally gets underway this Tuesday at Le Meridien Pegasus, on a by-invitation only basis. I am touched at the unusual number of enquiries about my travel arrangements which I hope reflect an interest in my welfare and are unrelated to the seminar. The invitation does not include a programme, which is probably still being worked on, as the government this week was cleaning up the relevant incentives legislation which it passed with much fanfare in 2003 and then misunderstood and misapplied for five years. Hopefully the sponsors of the seminar will tell us how much their failure has cost the nation and how the government plans to regularise all the improprieties since the hurriedly introduced legislation does not. I understand that the seminar will be addressed by Messrs. Winston Brassington, Geoff DaSilva and Khurshid Sattaur of the Privatisation Unit, Go-Invest and the Guyana Revenue Authority respectively, all associated with the Queens Atlantic Investment Inc (QAII) deal that has raised serious concerns about governance, accountability, the rule of law and competence.

Readers will recall that when Business Page entered the exchange on the QAII deal on June 8 it sought mainly to clarify some issues arising from statements made by President Jagdeo on the perceived tax concessions given to QAII. As early as then, this column suggested to the newly established Guyana Times that it run its own story on the concessions and called on the government to observe its own laws and disclose in the Official Gazette information on the fiscal incentives granted, as required by section 37 of the Investment Act 2004. The whole truth from those with access to the relevant information would have avoided much of the speculation among members of the public who have become cynical with the knee-jerk reactions and piecemeal, half-accurate information from the government. The consternation generated is partly responsible for the corresponding deluge of information which well-placed members of the public have volunteered, and that highlights serious credibility problems particularly for the Minister of Finance and the agencies under his control.

Without exonerating the Cabinet and very specifically the Minister of Finance for the disastrous public relations and credibility problem caused by the handling of this matter, the role of the Privatisation Unit (PU) headed by Mr. Winston Brassington has been seriously exposed by a document I received earlier this week titled Privatisation Board/Cabinet Submission dated May 3, 2007. It is clear from that document that Mr. Brassington was prepared to rush the Privatisation Board – which includes Ministers Robert Persaud and Manniram Prashad – into an agreement with QAII. Notice of the meeting to consider the application for concessions was given even before the application had been received from the company,  and within one day of an unsigned application involving hundreds of millions of dollars, the PU had not only considered but could actually recommend the concessions sought. To place that into perspective, my experience is that it takes the Unit more time to return a simple telephone call!

Schedule of planned construction
According to QA II the project should have started in 2007, but for reasons unknown there has been a delay of about one year. Making allowance for this the investment programme of QAII will run into 2013 as follows:

Without seeking to understate the group’s much hyped promised investment, the only project set for completion within a year is the printery, with the construction of a hardware warehouse and a bonded duty-free pharmaceutical warehouse scheduled for completion in two years. Contrary to what the President had said the only commitment on a textile mill is for a feasibility study to be completed within 18 months, while two full years are expected to elapse before a 3½ year construction of the antibiotics plant, to be followed five years later by the construction of the Research and Development Facility. In other words the 600 jobs will be a long time in coming, if they come at all, and so too, will the much emphasised US$30 million investment. In any case they will be very welcome, and assuming that the investors have been acting in good faith, Business Page wishes them well.

Where is the newspaper?
What is striking in reading the application by the company and the recommendations of the Privatisation Unit is the absence of any reference to the printing and publishing of the newspaper which in fact is the first real venture to materialise and which would have benefited, if not directly then indirectly, from any concessions granted to the other companies. The paper is being produced at the Sanata Complex for which QAII companies have received approval for concessions for all kinds of building materials, generators, etc.

The proposal by QAII assumes that the group will benefit indefinitely from the sweetheart arrangements it has with the government for the purchase of drugs, and speaks of being “able to order and retain buffer stocks to prevent drug shortages, which is a recurring problem with the existing system.” It does not explain, and nor does Mr. Brassington explore, the relationship between the retention of buffer stock and the vast advance payments the group receives from the government for the purchase of drugs. What if this arrangement comes to an end – does the project stand or fall on this?

The lease payment
Messrs. Brassington and DaSilva have told us that the country will receive $50 million dollars in rental per year, pegged to the US$ and adjusted for US inflation. Brassington’s document tells us otherwise. These are the arrangements:

i. The lease of the land and buildings for 99 years at the US $ equivalent of G$50/annum per square foot (payable in G$ at the prevailing exchange rate) subject to:

a. A rent free period of 5 years for the printing and dying section/with storage. This area is estimated to be approximately 6 acres; and

b. A 60% reduced rental for the remaining 14 acres for the first five years commencing from the date of execution of a lease agreement.”

While from year 6 the rent will be the equivalent of G$43.5 million in today’s money, during the first five years it is a mere $18 million for 871,200 square feet of land plus the building, and here I am giving Mr. Brassington the benefit of his miscalculation since he reckons it will be only $12 million. Let me say as well that I believe that the government’s financial experts are confusing indexation with the discount rate, but that is not an issue for this column even though the implication is a cost to the country.

Professional valuators value property including land by reference to recent transactions in the same or similar areas. In 2007 the government charged John Fernandes Limited $320 million for 6 acres of land in the same complex, so that on a proportional basis, 20 acres of land to QAII will be valued at over G$1 billion dollars.

To convert a capital value to an annual lease payment, professional valuators as a rule of thumb divide the capital sum by ten years, which would put the amount of the annual lease for the 20 acres at over G$100 million. In other words, the lease payment is reduced by over $80 million per year for the first five years with the building thrown in free! And in each year thereafter, the reduction is approximately G$50 million.

Expedient law-making
We will look next week at other issues concerning the Privatisation Unit whose very existence in law is doubtful and which takes advantage of its questionable legal status to engage in creative governmental accounting. For now we turn attention to the bill tabled by the Finance Minister this past Thursday designed to restore discretionary concessions being granted by the political directorate. It is a complete reversal of the 2003 repeal of a 1970 provision in the Income Tax Act which allowed the President to remit taxes where he had felt it was “just and equitable” to do so.  The 2003 repeal was explained as the elimination of the broad discretionary power to concede amounts of income tax payable and under some extremely narrowly defined conditions such as “natural disaster, disability, mental incapacity or death” and only if it was expressly provided for in a tax act. Five years later Bill # 14 of 2008 empowers the Minister of Finance to make regulations for the remission of all or part of the tax payable by any person or category of persons subject only to negative resolution of the National Assembly! In respect of discretionary waivers, we are now worse than we were 38 years ago, let alone 5!

If passed in its present form, the bill could render meaningless critical sections of the Financial Administration and Audit Act even as it fails to legitimise all those concessions given since 2003 based on a wrong interpretation and application of the Income Tax (In Aid of Industry) Act, including tax holidays granted to non-companies. It is possible that since the Minister and those under his control are the only persons with access to that information and further, since there appears to be no intention to comply with section 37 of the Investment Act 2004, there is nothing to correct.

The last hope is that the Audit Office will highlight the improprieties and one hopes the almost two year delay in the publication of the 2006 Audit Report has allowed the Office enough time to do a thorough job, including the Investment Act section 37 omissions. The bill now allows the Minister of Finance in his discretion to grant tax holidays in respect of infrastructural development for an indefinite period as opposed to existing legislation which does not include infrastructural development and limits tax holidays to ten years. It will also allow the Minister to grant tax holidays to value-added wood processing, rice millers and chicken farms, sugar refining and of course to the QA II investments like textile production, new pharmaceutical products (new to science or to Guyana?) and the processing of raw materials to produce injectables. Instead of limiting tax holidays to 30 + room tourist hotels the Minister will now be able to grant these to any tourist facilities, the definition of which he will decide for himself.

The bill
It maintains the geographical as well as the industrial-type classes of investment for which the Minister can grant tax holidays so that in practice, once the activity creates new employment in a widely defined range of economic activities that leaves out mainly financial and distribution services, it  can benefit from the Minister’s generosity. The scope of this legislation in my judgment and experience borders on the reckless, and if this is the government’s considered view then it may as well abolish Corporation Tax altogether.

Business Page offers no prize for guessing who will finance all this extravagance – of course it will be the salaried workers in the more legitimate and formal businesses and the consumers in the form of VAT. Coupled with the generosity of the politicians to some entities, this is a dangerous piece of legislation that shows how little the powers understand the tax system and how it works.

I hope that the debate on the bill in the National Assembly will be lively and that it will resonate with civil society and the trade union movement. Most of all I hope that that debate starts at the seminar or else more difficult times will lie ahead for the working and unemployed poor. And I hope too that the International Financial Institutions that have helped so much to avert economic disaster are now paying attention.

A close-up look at the QA II deal

When the Ministry of Finance belatedly broke its silence last month on the concessions given by the government to Queens Atlantic Investment Inc (QA II) it asked Guyanese to ignore such considerations as transparency and the rule of law and sought to shift the debate to the “ultimate question that needs to be asked… whether these investments are a positive development for Guyana.” The two statements issued by the ministry within one day of each other contained what were some very categorical representations: that the package involved investments of US$30 million; that the investments by the group would create 600 jobs in Georgetown; and that a Memorandum of Understanding (MOU) was executed between Go-Invest and QAII in March 2008. The facts are different. They show how a serious erosion of the tax base by the extension of generous concessions unlawfully given to a favoured few contribute to the creation of an uneven playing field that instead of encouraging investment has the direct opposite effect. Such action entrenches and enriches a few and effectively creates a monopolistic situation at the expense of potential competitors and the economy in areas as diverse as construction, mining and forestry, with the ever loss-making Barama, exploiter extraordinaire of the country’s forest resources being the shining example.

For all the suggestions of bigness, QA II up to a couple of years ago had a share capital of fifty-thousand Guyana dollars (US$250) and the government should be interested in where the US$30 million dollars for the investments will come from. Even with generous and free financing by the state, the group has had to borrow hundreds of millions from the banking system, even as the parent’s books showed a negative net asset position.

Pattern of favours
The original investment in GPC was $460 million for a 60% stake in the company by Queens Atlantic Investment Inc. An additional 30% was acquired for G$200 million. It would have been reasonable and financially prudent for the additional shares to have been sold at a premium since they allowed QAII to consolidate its control.  In fact the Privatisation Unit sold the group the additional shares at what appears to be a discount of at least $30 million.

By way of an article earlier this week in the Stabroek News we learn that QA II’s main operating subsidiary, New GPC Inc, has benefited from special exemption from the tender process contrary to law, but as Minister Ramsammy says, with more innocence than information, in accordance with a cabinet decision – as though cabinet were paramount to the law. The New GPC has been handpicked for “major contracts” to procure medical supplies on behalf of the Ministry of Health and the Georgetown Public Hospital Corporation whose Medical Superintendent Dr Madan Rambaran is on the Board of GPC – another conflict of interest that is now so much part of public life in Guyana.

Free money
But the concessions go further: at December 31, 2006 the company had been advanced close to half a billion dollars by the Ministry of Health and the GHPC “to procure medical supplies on their behalf.” A government that taxes its citizens till they scream and that perpetually fails to refund overpaid taxes in a timely manner finances a supplier of products that can no doubt be procured directly and perhaps even at lower overall cost. The advance of $160M by the Ministry of Health and $314M by the GHPC alone accounted for well over 40% of the 2006 purchases by the company! Then the company turns around and invests $140M of that money in the Berbice Bridge Company of which $50M is in the form of a loan stock earning a tax-free interest of 11% and bonds of $10 million earning 9% interest.

For all its boasts about being the “Caribbean’s leading pharmaceutical manufacturer” the company’s production labour accounts for under 3% of turnover. At $47 million production labour barely exceeds depreciation – hardly evidence of any key focus on job creation. The company’s financial statements also show incredibly that it exports all its manufactured products and that it benefits from another general tax concession that is in violation of the country’s international obligations as pointed out in the Business Page of January 13, 2008.

The Fabulous Five
The above is a summary of various agreements signed by Dr Ashni Singh, Minister of Finance and Dr Ramroop of the QA II companies. These agreements make disturbing reading for the appearance of carelessness and lack of expertise on the part of the Privatisation Board, Go-Invest and the Ministry of Finance. These are some of the worst agreements I have ever seen in multi-million US dollar documents. There is no preamble linking “Supplementary Investment Agreements” to the so-called Memorandum of Understanding which the Ministry of Finance claims was signed in March 2008, or to any principal agreement. The agreements contain several blanks, and manuscript changes are not even initialled, a most elementary requirement that raises questions as to the dates of the making or modification of the documents. What is worse is that all the agreements preceded the much touted MOU, in one case by several months. Again any professionally done, arms’ length transaction would begin with a Memorandum of Understanding to be followed by supplementary agreements as certain details are worked out and pre-conditions are met.

Lots of toilets…
The claims by the government and the company in their public pronouncements of 600 jobs being created by the investments appear a gross exaggeration. In fact according to these documents the number is just half of that when the projects come fully on stream. A careful examination of the items approved for tax exemptions “for one year beginning from the date of signing the Agreement” reveals a surprising number of similarities between the items approved for Healthcare Life Sciences Inc and Health International Inc. Examples are one complete switchboard system; 500 x 5/8˝ steel rods; 1000 x 0.5 mild steel rods etc, 50 length 0.75˝ armor flex insulation; and one 500 KVA generator each. There is a carte blanche agreement for tax concessions on the contents of thirty-one pallets for Global Printing, and one must sympathise with the customs officer who has to determine whether they constitute “One complete printing press.”  The list of items for Healthcare includes only a few real big ticket items (500 KVA generator, one mini-van and two double cab pick-up and four forklifts) which along with the cables, breakers and switches hardly appear to amount to the US$9 million claimed to be invested by this company.

Some of the items approved for concessions appear to be more appropriate for domestic use while others are inflated. One of the entities (Global Textile) has approval for forty-six toilet sets, “12 ctns Briggs China lavatories” and “12 ctns white rf toilet express” while Healthcare Life Sciences has approval for another twenty toilet sets and twenty wash basins. This quantity of toilets seems surprising and yet there is nothing to suggest that any of these is for the newspaper company.

Kudos to the press
The story of QA II and its investments showed the Guyana media at its investigative and persistent best, helped no doubt by President Jagdeo’s own uninformed outburst. It has allowed us to see, admittedly in one instance only, of how state business is transacted behind closed doors by a few who consider laws a matter of (in)convenience and raises the troubling question of what else might be taking place with this and other favoured investors that the government does not wish us to know about. It exposes the serious and costly deficiencies on the part of the Georgetown Hospital and the Ministries of Health and Finance, the Cabinet, Go-Invest, the Privatisation Board and the GRA. It provides ample evidence of how this government is generous to their friends at the expense of the people. It is a failure of people and systems that allows the careless granting of concessions without a proper analysis of proposals submitted while the apparent absence of adequate follow-up mechanisms amounts to a gross dereliction of responsibility for which no one will be held accountable.

Still more questions
The revelation of these agreements does not mean that all questions have been answered. The famous MOU of March 2008 is still a state secret, and it is still not clear what pharmaceutical products the US$9 million dollar Healthcare Life Sciences Inc will manufacture that GPC cannot do or which of the two medical companies has been granted tax holidays. Or quite what kind of export Processing Zone one of the new companies, Health International Inc, will establish and how different that will be from the kind that has been called for by the private sector for many years but ignored by the government. Despite the continuing publicity, the government has not tabled the agreements in the National Assembly, fuelling fears that there may be even more to hide or that the government believes that accountability and transparency are a matter of form and not substance.

But the exposure has shown how important it is for the Privatisation Board and Go-Invest to be restructured and to include persons of competence and independence both at the directorial and executive levels. It is farcical to have the Minister of Finance not only sitting but chairing the Privatisation Board which makes recommendations to Cabinet which then instructs him to act on those recommendations.

The concessions and real monetary benefits the Ramroop Group has enjoyed make it practically impossible for any competitor – in any of the group’s activities – to operate successfully, a fact that should not be overlooked by those who are taken in by claims of those who seek further concessions. Let us understand that in creating effective monopolies we encourage high profit-seeking and prices, and stifle competition – the consumers’ best friend. This is not an anti-business or anti-investment position. The call for transparency and compliance with the law by those in power cannot be more urgent, even as we welcome new investments.

QA II concessions, the Minister of Finance and more conflicts

In the absence of a Ministry of Planning and Development, the Ministry of Finance takes on immense importance. I therefore publicly greeted the announcement of Dr Ashni Singh as Minister of Finance not as a fellow accountant with training in accountability – of course – integrity, competence, capacity for hard work and an independent streak, but as one who would be confident enough to control expenditure, rein in President Jagdeo’s capacity to ignore the strictures of the constitution in relation to the Lotto funds or to spend first and seek approval after, evident with the frequency and value of supplementary provisions requested in the National Assembly.

More than even the Ministers of Trade or Agriculture, the Minister of Finance is the point person with the private sector, and by his action and even pronouncements can directly affect investments, jobs, performance of the economy, interest and exchange rates and share prices. He is the subject minister for the NIS, the Bank of Guyana and the Guyana Revenue Authority (GRA), appointing their boards often with people of his choice and under his influence, and responsible for the Companies Act and a raft of other legislation. He decides who gets tax holidays, budget allocations (or not), and how insurance companies and financial houses are regulated. His knowledge of the tax laws, their role and operation informs his determination of not only the level of taxation in the country but also the fairness of the system and how the burden is borne by various segments of the tax-paying public.

The overflowing VAT
In the period since Dr Singh’s appointment in September 2006, he has tested the public’s confidence in him in critical areas with his relationship with the private sector and civil society often being at best, polite. In both years following his appointment, he not only broke with tradition but with the implied constitutional requirement (Article 13) to engage stakeholders in pre-budget consultations. He failed even to acknowledge a request by the women’s group Red Thread to meet him on the effects of VAT on women in particular. He did not correct a misleading date (September 15, 2007) on his 2007 mid-year report presented to the National Assembly in November 2007 despite this being drawn to his attention and it reported to have been behind related delays in 2007 by the Bank of Guyana and the Statistical Bureau to publish important information on the economy.

In his first full year as minister the National Assembly rubber-stamped some of the most expensive supplementary provisions ever made in the country ($18 billion), witnessed an unacceptable level of budget under-statements on revenue with VAT alone being under-budgeted by 76 % and the combined effect of two taxes that were supposed to be revenue neutral (VAT and Excise Tax) being under-budgeted by 48%.
The consequence of this was the steepest single year rise in the tax burden this country has witnessed for as long as statistics are readily available (see table below) and a massive 10% increase in the 7-year period 2000 -2007, putting Guyana in the league of rich countries despite the government’s inability to offer the poor and the unemployed basic assistance, or citizens, security, and the continuing flood of migration to any country that Guyanese can enter – legally or otherwise. Amidst all the confusion caused by some misleading statements on VAT from government spokespersons and the Guyana Revenue Authority, the Minister stayed behind a wall of silence. That silence was extended to the saga of the QA II concessions until his ministry responded to increasing concerns expressed by the public.

Tax to GDP ratio – selected years 1992 to 2007

1992     1996     2000     2004     2007

42%        40%          37%         40%         47%

Source: Ministry of Finance National Estimates

The intervention came in the form of a wordy four-page clarification from the Ministry of Finance on June 15 and a statement issued through GINA on June 16 responding to a Stabroek News article on the QA II saga on the same day. The clarification restated the government’s commitment to openness and transparency, claimed that fiscal concessions are rule-based and not discretionary, recounted the recent history of the law on tax holidays and sought to blame the saga on poor legislative drafting.

An examination of the statements, however, shows that they are misleading in terms of how the law is applied. The Minister had played a role in the QA II saga wearing several hats, some of which would have involved obvious conflicts and at least wearing one of those hats he should have realised that the law as passed and assented to by President Jagdeo did “not reflect Government’s intent.”

While it is true that the scope for tax holidays is limited to geographical regions and particular types of activities, it is far from correct to suggest that the tax holiday laws are not discretionary. The relevant section of the Income Tax (In Aid of Industry) Act quoted in the clarification provides only “that the Minister may grant an exemption from the Corporation Tax,” which can hardly be considered mandatory. Did the Minister and Cabinet restrict their consideration of the tax holiday provisions to Corporation Tax as the law provides, and not to income tax? In other words, did he give any preferred hotelier or other non-incorporated entity any tax holiday because it was “pioneering” and would he say what authority he used for doing so?

A stretch
Under the claim of transparency the statement refers to “substantial information on tax exemptions” included in annual reports of the Guyana Revenue Authority. It seems a real stretch to consider a total figure as “substantial information” when the quantified information applies only to concessions by the Customs and Trade Administration in respect of goods imported by or for a pot-pourri of products or sectors. There is no information on the beneficiaries of tax holidays and on any Income, Corporation or other taxes remitted.

While the President on the occasion when he castigated Mr. Yesu Persaud spoke of the concessions in the past tense, the Ministry’s statement confidently states that the QA II concessions are subject to approval by the GRA and the Ministry of Finance [sic]. Are we to believe that a matter taken to Cabinet in May 2007 had not been approved one year later and that the company would have proceeded with their multi-million dollar investment only with “subject to” approval?

The statements also tell us that the Minister is Chairman of the Privatisation Board which made the recommendation to the Cabinet of which he is a key member and that the decision by Cabinet was subject to approval by the GRA and the Minister of Finance – confusing to most ordinary minds. Since as the “clarification” states that “Cabinet’s decision is the definitive authority for subsequent decisions and actions,” do the GRA and the Minister have any discretion in the matter, whatever the law says to the contrary?

Pass the buck
But placing the blame on the framers of the 2003 legislation raises further questions. At the time of the 2003 legislation Dr. Singh was not only the Budget Director in the Ministry of Finance and should therefore have been concerned about the legislation’s potential revenue impact, but he was also a member of the board of the GRA as a nominee of the Ministry of Finance and in that capacity too should have perused the legislation both for impact and flaws. Yet it has taken two years after granting concessions under the act as Minister, before there has been any acknowledgment that the act is flawed.

The ministry’s statement also sought to place, incorrectly in my view, the concessions for QA II on the same level as the Berbice bridge for which there is separate legislation passed subsequent to the 2003 legislation (Act 3 of 2006), specifically exempting the income of and dividends and interest paid by the concessionaire from corporation, income and withholding tax, and income earned by contractors and subcontractors to be exempted from income tax for the concession period.

Given the confusing statements made by spokespersons who are either expected to know or apply the relevant laws, the proposed seminar on privatisation and fiscal concessions to be hosted by the Privatisation Unit (of the Ministry of Finance) on July 9 becomes all the more necessary, and it is clear that the list of participants should be widened. Moreover, while it is never good to hold up applications regarding investments it may be preferable to place such applications on hold pending corrections and clarifications.

But there is one final issue that neither the clarification nor the statement addressed. Under section 38 of the Investment Act 2004, concessions granted under the section of the Income Tax (In Aid of Industry) Act dealing with tax holidays require a procedural audit by the “Auditor General or any suitably qualified person” designated by him. The only professionally qualified accountant in that office is the wife of the Minister of Finance, which potentially could unfairly place her in the unenviable position of being associated with adverse comments on concessions that her husband would have granted. Whatever opinion is issued by the Audit Office and whatever Chinese Wall may have been put in place, this is a most blatant case of conflict of interest in a most important function of the country’s administration. The respective functions simply cannot co-exist and the Public Accounts Committee should immediately step in to end it.

Next week: BP turns its attention to the operations of the general tax laws under the watch of the President and the Minister of Finance.