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Soul for sale: The Marriott saga Part 1

Introduction
The so-called Marriott Hotel, a scheme conceived by former President Bharrat Jagdeo − after one of his friends failed in his bid to buy the Guyana Pegasus – blessed by Mr Jagdeo’s successor President Ramotar, facilitated by Dr Ashni Singh, his Finance Minister and Chairman of National Industrial and Commercial Investments Limited (NICIL), executed by Mr Winston Brassington, NICIL’s CEO, and defended by political heavyweights like Drs Luncheon and Gopaul, puts in the shade the questionable transactions undertaken in the name of the people of Guyana since 1992. That is no small achievement.

Over the years Business Page has lamented the manner and extent to which the PPP/C Government, having criticised the PNC for its conduct of the privatisation programme, has been willing to sell the public assets of the country, often under very questionable circumstances and not infrequently, to questionable people. One criticism that I have not heard of the PNCR was any failure to account for the proceeds of those deals.

The actions of the PPP/C have been contrasting. Sometimes the transactions were so extraordinary as to arouse public attention, resigned scepticism and outright accusations. Think of those illegal concessions to Mr Jagdeo’s friend Dr Ramroop, transactions which prompted Mr Jagdeo to describe Mr Yesu Persaud as needing re-education. It turned out that the ones who were ignorant of the tax laws were Mr Jagdeo himself, Dr Singh and Mr Winston Brassington. On other occasions Guyanese came to learn of the transaction from abroad, as in the award of large swathes of our forest to Vaitarna of India and the diversion of more than $600 million. Even after the major disclosure in the Times of India, the Jagdeo/Singh duo never informed the nation that the money was used to plug a hole left in the wake of the Clico debacle in which Mr Jagdeo and Dr Ashni Singh were joined by another Singh − Gita − as lead characters. And from Jamaica we learnt that the Government of Guyana had committed this country to borrowing billions of dollars from the Chinese − most of which will never reach Guyana − to carry out works at the CJIA, works the country neither needs nor can afford. Just let us ask Delta.

Trading Guyana
Business Page from time to time has lamented that the Government was selling out the store and later, that it was selling out the store again. We warned that there is no such thing as a free chowmein, prompting a tirade of abuse directed at me by a senior government official, accusing me of lack of patriotism, and working against the development of Guyana. Only this week I was reminded of Samuel Johnson’s aphorism “patriotism is the last refuge of a scoundrel.”

The Marriott project has all the hallmarks of the several misdeeds inherent in the Queens Atlantic imbroglio, the transgressions of Vaitarna and the silence and non-accountability of the airport expansion transaction. So what makes the Marriott Hotel so special? It is that unlike the other transactions that merely sold out the store, the contract for the construction of the so-called Marriott Hotel involves selling out Guyana and its soul. And as you read on you will marvel at the brass, the contempt and the lawlessness demonstrated by the officers of a company called Atlantic Hotels Inc.

‘Egregious’ is a word Business Page has often used to describe what has passed for accountability in Guyana. I now need to find a term that surpasses egregious in scale and scope. To date the Marriott revelations have centred on the Chinese whose appetite for Third World resources causes it to act like the beads-for-precious stones policy of the Europeans in the early days of discovering foreign lands. And it is a skill they have honed with great success in Africa, first because of that continent’s resources and second, because they found that where there is weakness, incompetence and corruption by the government and silence among the people, a football stadium or a road can go a long way. Especially if the road leads to a mine or forests.

A scheme called Atlantic Hotel Inc.
The recent protests against the misnamed Marriott Hotel project – Marriott is not putting a blind cent in the investment – have paid little attention to the role of two individuals, Winston Brassington, the sole director of Atlantic Hotel Inc (AHI) and Ms Marcia Nadir-Sharma, the company’s corporate secretary and in-house attorney. It is their hands and signatures that adorn many of the Marriott documents in which Guyana has relinquished sovereignty to the Chinese. Everyone knows that Mr Brassington and Ms Nadir-Sharma could not do what they continue to do without the express authority of the two Presidents, Dr Ashni Singh and the Cabinet.

But the importance of the role of Mr Brassington and Ms Nadir-Sharma is that Mr Brassington is the sole director, Chairman and CEO of AHI while Ms Nadir-Sharma is its only other officer, information published in these columns on August 8, 2010.

Here are some facts about AHI that seem worthy of ventilation. AHI is a 100% subsidiary of NICIL, for years a corporate outlaw. AHI was incorporated on September 3, 2009 with a share capital of one million Guyana dollars (sic). From its incorporation to its latest filing on record three days ago, the only shares issued have been 10,000 shares at $100 each in the name of NICIL. By Resolution of 28th September 2010 the company increased its share capital from $1M (10,000 shares @ $100 each) to $3 billion (300,000 shares at $10,000 each) prompting questions about Ms Nadir-Sharma’s familiarity with section 5 of the Companies Act 1991.

It is Mr Brassington and not the Govern-ment which signed every agreement with the Chinese company, Shanghai Construction Company, through its Trinidad and Tobago subsidiary, for the construction of the hotel. To get a good sense of the documents we can look at a letter dated October 1, 2011, supposedly sent by Mr Brassington in his capacity as Chairman of AHI to Mr Michael Zhang, General Manager of SCG International (Trinidad and Tobago) Limited presenting ten documents to Mr Zhang for “initialing.” Included in the package is an undated Letter of Acceptance from Mr Brassington to SCG informing it that its earlier tender was considered and resulted in a Memorandum of Understanding (MOU) for a Design-Build Contract for the precise sum of US$50,918,112.89. I have not seen a copy of the final contract, but it is likely that any further changes would be in SCG’s favour and not that of AHI or the Government of Guyana.

The MOU
The Memorandum of Understanding, dated June 14, 2011 and signed by Messrs Brassington and Zhang, notes that SCG had submitted a tender of US$65 million based on an original design but that the amount was considerably above the $41 million budgeted cost for the construction. The MOU goes on to state that SCG − and apparently no one else − was allowed to submit an alternate design meeting Marriott international design standards.

The MOU reflects a situation in which SCG went for the kill, realising that it had all the cards and that its opponent was either weak, compromised by circumstances or grossly incompetent. It demanded, in exchange for a reduction of US$14 million in the contract price, the following amendments to the initial contract document:

1. The removal of any obligation on SCG to pay all taxes, duties and fees, and obtain all permits, licences and approvals … placing these on AHI. Moreover, SCG demanded that it receive full exemptions from all taxes. Mr Brassington agreed.

2. That it be allowed to import any personnel who are necessary for the execution of the project. Mr Brassington agreed. It turned out to be 100%!

3. That its obligation to repay an Advance Payment under clause 14. 2 of the agreement be removed. Mr Brassington agreed.

4. That the principal provisions regarding Claims, Disputes and Arbitrations be deleted in their entirety. Mr Brassington agreed.

The result is a complete sell-out of every principle that served Guyana’s interest, an agreement that was re-written by SCG for SCG. And Mr Brassington agreed.

Conclusion
SCG in a letter to Mr Brassington dated May 18, 2013 said that its revised bid price does not include the cost of the promenade/boardwalk, LEED certification cost, PAYE package, health charges, NIS contribution, work permits and visa fees required by law.

It is not clear why it was necessary to refer to PAYE as an exclusion, since PAYE is borne by the employee and further, effectively granting to SCG a waiver of all or any part of NIS, a cost which by law is shared between employer and employee.

The contract price seems to exclude both. In return, all SCG was required to do was assist AHI to secure funding for the project of US$7 million to US$30 million.

Just what else the directors of AHI have done, how they managed to do it and the further absurdity of the Marriott project will be the subject of the next Business Page.

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Employee or independent contractor

Introduction
The quotation taken from a judgment of US Supreme Court Judge Wiley Blount Rutledge is as true today as when it was handed down in a case nearly seventy years ago. But it is perhaps even more relevant today than it was then, its relevance best understood against some of the practices by employers − sometimes with the complicity of the employees, and sometimes not.

Let me give a few practical examples. Suppose entity A has a defined organisation structure with stipulated qualifications and fixed salaries. And suppose entity A wants to employ a relative of one of its top brass, for a) a position that is not on the establishment; or b) the relative does not possess the requisite qualification; or, c) the relative possesses the requisite qualification, but is to be paid remuneration higher than the one fixed on the establishment.

Another is a government on which the budget authority has imposed an employment and wage freeze. Yet another is one which wants to circumvent the law requiring the deduction of income tax and NIS from employees’ earnings.

Many entities faced with these situations choose the route of engaging the person not as an employee but as an independent contractor.

And as the examples indicate, this practice is undertaken by all employers, governments and the private sector alike. I am surprised how many employers – and employees – think that once a position is labelled independent contractor, many of the obligations to which an employer is otherwise subject, do not apply.

Employers 2, Employees 0
There is a further and equally important consideration. Coverage under employment laws boils down to whether or not the individuals in question are ‘employees’ and whether or not the entity in question is an ‘employer.’ So if you fall and break your leg, the law to be applied often hinges on whether you are an employee.

And from a financial perspective, it has been estimated that classifying individuals as independent contractors instead of as employees might result in a savings of twenty to forty per cent of labour costs. No pensions, no medical, no allowances, no overtime, no nothing − just salaries.

So employers have everything to gain, and little to lose by defining a person as an independent contractor rather than an employee.

But this has serious public policy implications by characterizing an individual as an employee, which include protection under various employment laws as well as a requirement that PAYE must be paid. It is surprising that we do not hear in Guyana of more cases reaching the courts because the problem is both widespread and acute.

Ram & McRae, the accounting firm is often called on to advise businesses on the distinction between employer and employee and this column draws on some of the research undertaken in consequence thereof.

A real case
Two years ago, an interesting case came before the UK Supreme Court. The facts as set out provided a useful framework to determine the employer/employee question. The company, Autoclenz Limited had a contract to valet cars. Twenty valeters signed contracts with Autoclenz to provide car cleaning services. The contracts contained the following clauses indicative of a contractor relationship:

• There was no duty to accept work

• There was a right of substitution (to send the work elsewhere)

• They expressly described themselves as self-employed

• They paid their own tax

• They purchased their own insurance, uniforms and some materials.

In reality, Autoclenz Limited provided all the cleaning products and equipment and arranged group insurance cover. The valeters submitted weekly invoices to Autoclenz Limited for their work. Autoclenz Limited deducted a fixed sum for the provision of cleaning materials and insurance from the payment due each week. The valeters were responsible for payment of their tax and NIC.

Subsequently, the valeters brought claims to a tribunal seeking a declaration that they were workers and an order for Autoclenz Limited to pay them the national minimum wages and unpaid holiday pay under the Working Time Regulations 1998. Autoclenz Limited argued that the statutory rights were not available to them as they were contractors.

The courts
The tribunal decided in favour of the valeters on the grounds that the degree of control exercised by Autoclenz Limited fully integrated the valeters into its business and that the contract terms permitting the valeters to provide substitutes and suggesting a lack of mutual obligations did not reflect the reality of the situation. In practice, the valeters were required to turn up for work every day and to notify Autoclenz Limited in advance if they were unable to work. In other words, several of the terms were shams.

Autoclenz Limited appealed to the Employment Appeal Tribunal (EAT) which allowed the appeal in part and held that the valeters were not employees but that they were workers. This displeased both sides and so Autoclenz Limited appealed against the decision that the valeters were workers while the valeters cross-appealed against the decision that they were not employees.

The Court of Appeal reinstated the tribunal’s decision, dismissing Autoclenz Limited’s appeal and allowing the valeters’ cross-appeal. The Court of Appeal held that, when determining an individual’s status, tribunals should look at the actual legal obligations of the parties. It was not necessary to show a common intention of the parties to mislead. Autoclenz Limited appealed to the Supreme Court.

And so the case went to the UK Supreme Court which unanimously dismissed Autoclenz Limited’s appeal and upheld the decision of the Court of the Appeal that the valeters were employed under contracts of employment and thus entitled to receive the national minimum wage and statutory paid annual leave.

The principle
In the process the Supreme Court ruled as too narrow a long-standing rule that as long as the written contract is not a ‘sham’, its terms would prevail. Because of the hierarchy of courts in the UK, tribunals and courts will be able to set aside express contractual terms which are inconsistent with the reality of the relationship of the parties, without having to establish a common intention of the parties to mislead.

Even as the case wound through the judicial system, the judgment of MacKenna J in the case Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance was cited with approval. He said: “A contract of service exists if these three conditions are fulfilled.

(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.

(ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.

(iii) The other provisions of the contract are consistent with its being a contract of service … Freedom to do a job either by one’s own hands or by another’s is inconsistent with a contract of service, though a limited or occasional power of delegation may not be.”

Conclusion
My view is that the practice by employers deprives workers of significant rights and exposes them to serious obligations. As noted earlier their rights to protection by employers for industrial injuries and death are restricted if not entirely eliminated. And on the other hand the employer shifts his responsibility to deduct and pay over taxes and NIS which now become the obligation of the employee.

I am not hopeful that the government is keen or mindful of cleaning up a situation in which it is itself involved. Here is how. It may receive funding from the British to pay the salaries for some climate change consultant. By law, that money should be paid into the Consolidated Fund as grant and then paid out as an expenditure by way of an appropriation. This government has no appetite for such accountability. It is simply paid to the consultant as an independent contractor without taxes etc, being deducted and paid over.

I would like to see the GRA directing some resources and attention to this issue. It will bring in lots more tax revenues. And I hope too that the Attorney General and the Minister of Labour would direct their attention to any omissions in the law. They will protect the workers.

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The AG is the principal legal advisor to the government not the state

Even as one who still spends time teaching, I find it hard to engage Mr Anil Nandlall, Attorney General, not only because of his proclivity for misunderstandings and misrepresentations (on the Budget cuts, on the Lotto Funds), but also because his frequent pronouncements show extremely poor acquaintance and at times no acquaintance, with the finer points of the Constitution, and because of his chameleonic quality of rearranging facts to fit his circumstances. There was a convergence or, to use one of Mr Nandalall’s words, a concatenation, of these qualities in the recent news items in which he sought to arrogate for his office, authority over Bills passed by the National Assembly (SN, February 3, 6).

Let me recap the issue of the Bills that exposed Mr Nandlall and caused him to restate/reconfigure his story three days later. He told Stabroek News on February 3, 2013 that “The opposition bills have not reached the Attorney General’s Chambers… for [his] inputs.” Up comes the Clerk of the National Assembly saying not true: the Bill was there ever since. Cornered by facts, Mr Nandlall’s story changes to, “okay, but not on my desk” (February 6).

Meanwhile, by letter of February 4 in the press I noted for the benefit of the public, and hopefully of Mr Nandlall, that a Bill passed by the National Assembly is not an opposition or government Bill but that of the National Assembly. And that contrary to his claim of jurisdiction over Bills passed by the National Assembly, the Constitution and the Standing Orders of the National Assembly vested certain powers and duties only in the Clerk of the National Assembly (custody and despatch to the President), the Speaker (to correct patent errors), and the President (to assent or explain). While it is evident that Mr Nandlall was unaware of these finer points, Guyanese expect their Attorney General, whoever s/he might be, to appreciate the dangers of tampering, or of delaying tactics by a political appointee, thereby frustrating the constitutional requirement for the President to assent or explain within twenty-one days.

But here again Mr Nandlall’s elusive qualities come to the fore. Here are some of his unbelievable responses. He explains his loose nomenclature of opposition Bills as “descriptive labels … widely used in parliamentary Standing Orders the world over.” Mr Nandlall is obviously less informed about Guyana than he is about the world over, since the “descriptive labels” are used in Guyana only when a Bill is “introduced” as a Private Member’s Bill (Standing Order 51); or “presented” on behalf of the government (Standing Order 53). Since Guyana by itself is proving to be so onerous to Mr Nandlall, it is recommended that he leaves “the world over” to those who know a thing or two about it.

Caught as a central violator of the provisions of the Standing Orders and the Constitution, Mr Nandlall scurries for refuge in what he calls conventions “from the colonial days.” A little learning is truly a dangerous and damaging deficiency. In Mr Nandlall’s “colonial days,” there was no 21 days limit and Bills were required to be assented to by the governor, who was not a member of either chamber, called the Senate and the Legislative Assembly. Mr Nandlall might wish to refer to Dr Shahabuddeen’s discussion on the role of the governor under the 1961 Constitution on page 546 of his book Constitutional Development in Guyana 1621-1978. Under the 1980 Constitution there is a 21-day deadline for the President to assent or explain, while Article 51 of the Constitution makes the President an integral part of the Parliament.

But more importantly, I hope for Mr Nandlall’s sake that he would not argue, even in a corner shop, that a convention of limited historical validity can trump Standing Orders recognised in Section 9 of the Constitution Act, or the Constitution itself which is the supreme law of Guyana. There are many learned articles, textbooks and treatises (Dicey, Wheare, Jennings, Phillips, Fiadjoe, etc) on the place of conventions in any constitutional environment, whether one having a formal written constitution or one governed by an uncodified constitutional regime. They are easily accessible and comprehensible to the average person.

While asserting a convention violative of the Constitution and the Standing Orders as “having great utility,” Mr Nandlall’s conscience suffered no discomfort in his recent rejection of one of the most ancient parliamentary conventions, that resignation should follow a vote of no-confidence. And let me share with Mr Nandlall another convention which his government has rejected out of hand: that while a head of state can either assent or withhold assent, by convention, assent is always granted and not withheld. I now wait to see whether Mr Nandlall will compare this with the veto. He just might…

Shockingly, Mr Nandlall does not seem to know the basic functions he is appointed to perform. In order to buttress his misconceived assertion of authority over Bills passed by the National Assembly, he claims that he is “the principal legal adviser of the state apparatus.” Mr Nandlall is not. In fact, he is the principal legal adviser to the government (Article 112 of the Constitution). Maybe the Interpretation and General Clauses Act does not provide a definition which could help Mr Nandlall, but surely Article 106 of the Constitution dealing with the resignation of the “Government” should have guided him. In management there is an axiom that if you do not know your job requirements, you cannot do it.

All in all, Mr Nandlall’s positions are so devoid of rationality or consistency that he forgot that only recently he took the Speaker of the National Assembly to court. By his latest definition of his job as Attorney General, the man has taken his own client to court!

As we have come to learn, attorneys general are no longer blessed with the same judgment on the wisdom of silence as those of yesteryear. Hopefully, Mr Nandlall will learn as he goes.

Let me end by saying that I believe that the perpetuation of much of what we as Guyanese receive daily from the government and the Attorney General is a result of a largely ineffective political opposition and its battery of lawyers. Let us hope that they will not remain silent on this issue which involves a Bill they introduced and which involves both substantive and procedural constitutional points. And I hope too that the Speaker of the National Assembly Mr Raphael Trotman will now accept and carry out his duties in relation to Bills, seeking whatever advice and assistance he may require.

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On The Line – Banks DIH Limited 2012

Introduction
I have always been perplexed why companies in Guyana consistently ignore one of the most important considerations among their shareholders. This column has lamented, year after year and company after company, the absence of comments by companies‘ CEOs and directors in otherwise often very wordy annual reports on the performance of their companies’ shares on the stock market. Banks DIH Limited, the beverage giant has many things to be proud about with respect to its 2011-2012 performance and annual report – historic levels of profits, a strong balance sheet, good industrial relations, a stable management team and growth in share price of 37.5%.

We will get back to this shortly but let us consider first the financial statements.

Banks DIH is a company with two major institutional shareholders – Banks Holdings Limited of Barbados (20%) and Demerara Life Group of Companies (10.8%) – and one that is described as a substantial shareholder under the Securities Industry Act, Trust Company Guyana Limited (6.2%). Banks DIH is also the parent company of Citizens Bank Guyana Inc in which it has a 51% interest. Only two directors of Banks DIH (Messrs Clifford Reis and Errol Cheong) have any shareholding in Citizens Bank. The directors of the company presented their annual report and its audited financial statements last Saturday at a usually well-attended but usually uneventful meeting of its shareholders.

Performance

2013.01.27_Table1

Source: 2012 Annual Report

The company recorded an increase in turnover (sales) of 15.5%, the best increase in turnover over the past five years. However revenue for export sales remains minimal, 1.49% in 2012 and 1.24% in 2011. No doubt the directors of the Guyana company would reflect that one of the intents expressed in the Memorandum of Understanding of 2005 under which Banks DIH and Banks Holdings Limited did some cross-investing in each other was to market and distribute each other’s products in their respective home markets. Guyana’s domestic market will remain small for years to come and the company must sooner rather than later focus on the export market. Where the directors have reason to be very satisfied is in terms of the profits earned: a 25% increase over 2011 and a 30.4% increase in profit after taxation.

Strong balance sheet
As we look at the balance sheet we see a company that by standard analytical tools is strong. Current assets have increased by 21% while the smaller figure of current liabilities increased by 13%. As a result of the combination of these two variables the net current assets position has increased by 26%.

As the company continues its capital renewal and expansion programme, the directors have opted for an increase in long-term borrowings of $750 million which are expected to increase in the current year due to planned capital expenditure of some $5,124 million on several key operating assets including equipment for the soft drink, beer, water and CO2 plants and ice cream facilities and the renewal of its distribution fleet.

2013.01.27_Table2

Source: 2012 Annual Report

Helped by a sale of capital assets that brought in some $461 million and borrowings of $750 million, neither of which is addressed in the CEO’s or the directors’ report, net cash inflow for the year was $101 million, compared with an outflow of $728 million in 2011. The directors would no doubt be keeping an eye on the cash and bank balances even as they recognise that the “company’s continued success will depend on its ability to respond to the needs of a rapidly emerging middle class.”

Shares and their returns
Now let us return to the matter raised in the introduction to this column. Here is why I believe that for the more discerning shareholder, a commentary on share price and performance is important. Five years ago the group had after-tax profits of $898.1 million and paid dividends amounting to $400 million. Analysts use these numbers to arrive at a pay-out ratio with a low ratio indicating a policy of retaining its earnings rather than paying out dividends. In 2012, profits had risen to $2,776 million but the directors recommended and effectively limited dividends to $560 million. The pay-out ratio for the two years is 44.5% and 20.2%. This apparent change in policy is hardly likely to operate in favour of the aging and retired shareholder who depends on dividends, bank interest and modest pensions for their life’s income.

The graph below shows three variables for the group: net profit after minority interest (ie profit available for distribution), dividends paid and dividend plus growth in shareholder value. Dividends remain low, despite significant increase in after-tax profits.

2013.01.27_Chart1

Source: Annual Reports and Guyana Stock Exchange

2012 provided a windfall for shareholders in terms of the movement in the share price. When examined over the period 2007 to 2012, however, a different picture emerges. Net profit after minority interest over this period was $9,902 million of which $2,810 million was paid as dividends.

The amount of available profits retained by the group was therefore $7,092,213,000 and which should be reflected in the market value of the company’s shares. This has however only grown by $5,600,000,000, a shortfall of $1,492 million. If measured against the growth in shareholders’ equity, the shortfall is $286 million.

It is to the credit of the directors of Banks DIH, with one major exception who is no longer with the company, that they have avoided any acquisitive tendency for shares in the company, either for themselves or their associates. Directors Errol Cheong, Christopher J Fernandes, Richard B Fields, George G McDonald and Michael H Pereira all still own the same number of shares they did in 2005. CEO Clifford Reis has 187,500 fewer shares now while Andrew Carto has acquired 71,312 shares since then.

It would be interesting to see whether those companies, the year-end of which is December 31 will comment on their market price performance when they issue their 2012 annual reports and financial statements over the next few months.

Barbados investment
It seems like history since in reaction to a suspected take-over bid by the Trinidadian company Ansa McAl, Banks DIH entered into a mutual investment agreement under which Barbados Holdings Limited (BHL) took a 20% shareholding in the Guyana company in exchange for Banks DIH taking a 6.7% interest in the Barbados company. BHL has two nominees on the Banks board while the Guyana company has one director on the board of BHL from which dividends received in 2012 were $39.4 million while dividends paid to Banks Holdings Ltd, Barbados were $112.1 million.

Despite what may appear to be financial returns that favour the Barbados company, consensus among observers is that the arrangement has helped Banks DIH in more than just putting the takeover threat to rest. The turnover of the company increased by approximately 75% since the investment agreement and the company continues to express satisfaction in its “dedicat[ion] to the Principles of Good Corporate Governance.”

Governance
This column can be accused of a crusade in so far as advocating better demographic representation on boards of public companies in Guyana is concerned. A look at pages 4-9 of the company’s annual report shows the youthful vitality and the gender, age and ethnic diversity which make up Guyana. The personalities in the very attractive advertisements are nine women to seven men; in higher and tertiary education women outnumber men as they do (marginally) in the population as a whole. And no doubt women also make up a large part of the company’s employees and customers, yet as shareholders turn the pages, they enter a different world, where the average age of the population is north of 50, from which women are excluded and none of whom is an Indian, even among a band of eleven. The last time this company had a woman director was in 2006 when the wife of the founder of the company died. In fact the 2005 Annual Report lists twelve directors, including Mrs D’Aguiar, so it seems possible that the company can address this limitation without the need to amend its articles or retire any director.

Conclusion
The Board of Directors Report is well laid out and contains the basic information required by law except with respect to section 168 (g) of the Companies Act which requires the directors to state the directors’ proposals as to the application of the company’s profits, including its revenue reserves. This common omission of companies in Guyana is perhaps because directors consider that it is implied.

While neither the Chairman/CEO nor the directors have much to say about the future, an expenditure of over $10 billion over a three year period is testimony to their confidence in the future of the company.

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The tragedy of NICIL – Act 2

Introduction
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.

Conclusion
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.