ChrisRam.net

As with the first, the second installment of this column last week attracted a full length response from the Prime Minister Samuel Hinds which as far as I could understand pleaded with me “to help soothe anxiety about removing a historical subsidy.” I have no objection to doing so if Mr Hinds would share with me a copy of the Bosai Power Purchase Agreement and detailed information on the generation and distribution of electricity in Region 10.

Mr Hinds in his letter also cited ultra-conservative, anti-labour Margaret Thatcher’s handling of the coal industry in the seventies as a model against which to compare our 21st century Linden. As if to establish the firmness of his belief, his government then appoints two Bosai directors, Messrs Winston Brassington and Norman McLean, to investigate the Bosai-supplied electricity in Region 10, the genesis of the current unrest in that region.

Mr Hinds also reacted to my reference to the LEAP Completion Report and even sought to advise how I should “proceed to critique it.” After two weeks and despite assurances by the Minister of Finance that the report would be provided to me, I am yet to receive a copy.

Introduction
In last week’s column I reproduced a map of Guyana showing the administrative regions of the country. Region 10 is not a particularly large region and has been described as the only landlocked region in the country. But that understates its importance. Not only is it the country’s sole bauxite region but in terms of natural resources it also is a significant forestry region which LEAP had projected would witness increased annual production of about 5% per annum from 2004 onwards. The incomplete draft Completion Report spoke confidently of the number of activities taking place in the agriculture sector, allowing farmers to target specific high yield crops for the Guyanese and export market. It referred to a draft agriculture strategy having been tabled for discussion by LEAP and the Regional Agricultural Team, which when finalised, would guide regional agricultural development in the medium to long term.

Historically the fortunes of the region have been closely linked with that of the bauxite industry. But employment reduction at Linmine and Bermine and their successors has been significant over the years. Given that the sector now employs less than 10% of the 12,000 persons employed by the industry at its peak, the largely forgotten National Development Strategy (NDS), and Poverty Reduction Strategy (PRS) both articulated the need for significant expansion and diversification of economic activities. Not surprisingly then, the draft LEAP Completion Report identified a rapid transition to a diversified economic base as of particular importance in Region 10.

Importance of Linden
Linden’s location is strategic. It has the potential to become the hub for goods from northern Brazil and a key point in the Lethem to Georgetown corridor. But its importance within Guyana has been underlined during the current impasse in which road contacts and movement of goods and people between Regions 7, 8 and 9 and Regions 4, 5 and 6 have been brought to a virtual standstill.

Ocean-going vessels navigate their way to Linden with practically no problem, while the region also has various kinds of clay to spawn a major industry. With no threat from rising sea levels and a largely concentrated population many of whom are skilled artisans, the region has the capacity to provide its current population of approximately 45,000 with a standard of living that compares favourably with the rest of Guyana.

Transformational leap
LEAP was supposed to have provided that springboard with €12.5M provided by the European Union. The project had the kind of structure so loved by those overpaid international consultants who often have a first call on project funds. Overall responsibility for the project rested with the National Authorising Officer of the Ministry of Finance, while executive responsibility lay with the Project Steering Committee. This committee was responsible for approving the annual work programme and receiving regular technical and financial reports.

The government was expected to play the major role in supporting the transition from a bauxite town to a diversified community with the key five agencies being GO-Invest, National Industrial and Commercial Investment Limited (NICIL), the Forestry Commission, the Ministry of Agriculture and the Linden Economic Advancement Programme (LEAP).

The core component of the LEAP was the Business Development Services (BDS) oriented to providing “hand-holding” assistance to new businesses and SMEs as well as to help entrepreneurs to modernise and improve management skills. Whereas in the short to medium term BDS was expected to become a one-stop-shop in Linden to streamline queries and business solutions for existing and new entrepreneurs, the ultimate purpose was to turn it into an example of a driving force for business and economic development of Region 10.

Government stalled
The results of the LEAP are disputed. Ms Kathy Whalen, LEAP International Programme Manager was confident that LEAP achieved most of its set indicators and that new jobs were created and investors were attracted to the community. Many disagreed then, and now question those glowing reports against the background of the current state of the community. The absence of the Completion Report makes any assessment of LEAP a step in the dark while there is almost a blanket of silence over the successor Linden Economic Advancement Fund which the government brought their friends in to manage.

The government appears not to have acted on some of the suggestions made in the draft Completion Report including the need for an institutional arrangement for investment promotion and micro-credit activity. The draft recommended a jointly public-private financed and operated entity with the Government of Guyana continuing to make a credit line available.

The government dilly-dallied and as a result, arguably the richest region in the country was left to become a depressed community where residents are unable to meet the economic cost of basic necessities. Sadly, it took the events of July 18 to cause the government to establish two teams to look at electricity specifically and the wider economic state of the region. While those teams will have their work cut out, there are several options they would no doubt consider. Here are my brief comments on some matters they may wish to consider.

Electricity
1. Historically low tariffs have militated against any attempt not only at conservation but common sense. It appears that most consumers use electricity rather than gas for cooking and many of them keep on lights 24/7. At least one government representative agreed with a suggestion I made to him that the government buy a bulk supply of gas stoves which it can distribute to residents of the community, at a modest cost. This would have an immediate and significant impact on consumption and therefore the subsidy. Similarly the government can distribute energy-savings bulbs with the same effect.

2. The entire arrangement whereby the government supplies duty-free fuel to Bosai Services and pays the company to generate and supply electricity to the region has to be carefully scrutinized. The members of the team include GPL Chairman Mr Winston Brassington and its CEO Mr Bharrat Dindyal. GPL is of course a high cost supplier of electricity and by their presence on the team may also benefit from the kind of professional examination of electricity costs which will take place. No doubt too, there will be a thorough examination of the Power Purchase Agreement and the allocation of costs between various groups of users/consumers.

3. The team should also consider a more sustainable, lower cost alternative strategy for the medium term (3-5 years). Energy is critical to economic development and I understand from a document which was provided to me, that a regional energy plan, including the use of the region’s natural resources is being considered. This must be accelerated.

4. The region must not be forced into the national grid. This is as much an economic as a political matter. If the region can provide electricity at a lower cost, then it must be free to do so.

Economic issues and democracy
The potential of the region, like the rest of the country, has been stymied by lack of local democracy. For all the talk about budgets, the regions are at the mercy or fancy of the Minister of Finance while the Minister of Local Government appoints the Regional Executive Officers. The regions have no control over taxes and are required to deal with all kinds of garbage including plastic containers for which the central government collects more than one billion dollars annually. If ever there was one set of revenues that should be shared among the regions, the Environmental Tax is that one.

And it is not that revenue-raising is any new concept. As Article 76 of the Constitution states, “Parliament may provide for regional democratic councils to raise their own revenues and to dispose of them for the benefit and welfare of their areas.”

If this was in place, the region could raise revenues by way of tolls, charging for certain services, etc.

And while that would be at the regional level, the regions themselves will have a fair share of national revenues if the slothful parliament would do as Article 77A of the Constitution requires and make “law [to] provide for the formulation and implementation of objective criteria for the purpose of the allocation of resources to, and the garnering of resources by local democratic organs.”

Finally on this score, is the abomination of annual postponement of local government elections which some claim is unconstitutional. In depriving the people of their democratic, constitutional rights, the Parliament is proving to be the most undemocratic body in Guyana.

Next week I will conclude with some recommendations on the economic revival of Linden.

Introduction
It is now more than three weeks since what was intended as a five-day protest against the electricity hikes in the region took a dramatic turn for the worse on the very first day with the deaths of three protesters. By contrast, the talks between the government and the regional administrators to address the region’s problems have moved at a pedestrian pace, despite the political social and economic implications for Region 10 and other regions and sectors which have come to rely on the Linden passage, and of the danger of a deteriorating situation the longer the standoff continues.

Part 1 of this column which appeared two Sundays ago had as its central theme the arrangements for the supply of electricity in Region 10 and that the increases in tariff scheduled for July 1 of a minimum of 300% for consumption in excess of 75 kWh per month were hardly consistent with the progressive realignment of rates announced by the Minister of Finance only a couple of months earlier. The column was met by a response from Prime Minister Samuel Hinds who has ministerial responsibility for energy and who is also a Region 10 representative of the government in the National Assembly.

Instead of offering some pointers to addressing the economic and social conditions facing the community in one of the country’s richest regions, Mr Hinds resorted to the usual everyday currency of ad hominem pettiness and political banality to the level at which he as Prime Minister finds it necessary to point out that the percentage increases were not in a circular about the new electricity tariffs! But it is not necessary to respond to an explanation as to why the regional supply of electricity is exempted from regulation by the Public Utilities Commission.

What I found unbelievable was his justification for the supplier – Bosai – making a profit partly out of the national subsidy, a profit he linked to the company’s cash flows. The two are as related as apples are to mangoes! Surely a more logical link would be royalties and taxes paid to gross revenues – or even to the cash flows of the region’s two international bauxite operations. It is troubling that Mr Hinds can be so insensitive to the relevance or impact of the rate of the tariff increases, in many cases exceeding 300%.

It is an indictment for his government to ignore its duty to enforce the law including the Bauxite (Production Levy) Act, and that the Finance Minister would be willing to consider waiving royalty for any non-renewable resource, particularly for a company that is hugely profitable. Any country serious about managing its resources within a framework of an acceptable climate for foreign investors would pursue a fairly negotiated Double Taxation Treaty with that country. Separate, secret negotiations with strict confidentiality clauses may be useful between private companies but have no place in a transparent democratic environment in which one of the parties is the state.

From dream to LEAP
Linden, once the dream community of Guyana, now has an unemployment rate that ranks with the worst pockets in the country, with some saying – implausibly – that it is 70% while a leading government spokesperson conceded that it was somewhere around 25%. How it got here through a series of failed policies and market circumstances is beyond the scope of this particular column, but suffice it to acknowledge that within a short few years Linden came to be singled out by the European Union and the government for special treatment.

Under the Linden Economic Advancement Programme (LEAP), the EU provided €12.5M over a nine year period which ended on December 31 2010. Yet – incredibly – neither the Office of the European Union nor the Ministry of Finance was willing to provide me with a copy of the Completion Report on that project. Acting on the unlikely suggestion that I seek out an unofficial copy, I was provided with a draft, incomplete report with many key data missing.

According to that draft, the objective of the project was the creation/strengthening of viable and competitive enterprises and the generation of new long-term jobs contributing to improving the living conditions of the community in Linden and Region 10 and to reduction of social tensions. But the same draft identified as the purpose of the project was “the development of the local market for business advisory services and financial services in order to attract new national and foreign investment and increase employment opportunities.”

And if that was not enough of a mouthful, here is how the draft defined the key results of the project as:

● improved local capacity for economic planning, project design and implementation within the private and public sectors;

● improve business and finance sector;

● viable and competitive companies created;

● direct permanent jobs created by enterprises benefiting from loans and support services;

● laid off miners or unemployed youth receive training in employable skills;

● public officials trained in economic and regional development planning, project preparation, management and proposal writing;

● basic infrastructure upgrade.

A harsh assessment based on existing conditions in the region would suggest that the project was a huge failure. That would be unfair; the funds provided were clearly inadequate for the project’s ambitious objectives. My efforts to source relevant information from the Bureau of Statistics were even less successful and I was directed to the last census a decade ago. While that is surely disappointing, what is worse is the reluctance of key parties to make the Completion Report available since that robs the national conversation of useful information about the extent of the problem and strategies to deal with the economic malaise which the region shares with so many depressed communities in the country.

Failure of governance
Linden is a failure of governance, the laws and the constitution. This is what Article 77 A of the Constitution states: 77A. Parliament shall by law provide for the formulation and implementation of objective criteria for the purpose of the allocation of resources to, and the garnering of resources by local democratic organs. Nearly twelve years after that Article was inserted in the constitution, the inept National Assembly is yet to pass any such law.

But the governing party has simply made matters worse. The principal local democratic organ to which Article 77 A refers is of course the Regional Administration whose executive operations are headed by a Regional Executive Officer appointed by and accountable to a central government minister and whose funds are provided by another central government minister, the Minister of Finance.

It would be instructive to learn whether either of these ministers has had any extended conversation with the Chairman of Region 10 since the November 28 elections, let alone July 18.

Region 10 is an interesting region. It is not among the larger regions by size or population. The last census showed that it had a population of 42,000 persons or 5.5% of the total population and with a size of 19,387 km2, accounts for some 9% of the country’s 214,999 km2. Those statistics do not however reflect the region’s economic significance.

Administrative map of Guyana

Region 10 is the bauxite capital of Guyana with RUSAL living up to its international corporate reputation in exploiting the bauxite reserves at Aroaima while Bosai controls the Linden operations. Both entities have slashed the number of persons employed in bauxite, to about one-tenth of the numbers in the peak days. So while there is justification in the statement that Linden is no longer a company town, it still provides both companies with a pool of employees eager and willing to work even as they bear the cost of the illness-related externalities. For the three years 2009 to 2011, bauxite exports (tonnes) were: 1,406,908 in 2009, 1,135,817 in 2010 and 1,816,548 in 2011, bringing in export revenues of US$79.5M in 2009, US$114.2M in 2010 and US$133.3M in 2011.

Next week I will continue examining the region’s economic resources as I make the point that it contributes far more to the national treasury than it draws out.