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The economics of Linden and electricity rates – part 1

Region Ten is not a burden on, but rather a contributor to the state

Introduction
In the 2012 Budget Speech, Dr Ashni Singh, Minister of Finance said: “Currently, in Linden, electricity costs between $5 and $15 per kWh, while on the GPL [Guyana Power and Light] grid customers pay an average of $64 perkWh. The total cost of this electricity subsidy was $2.9 billion last year, the equivalent of 10 per cent of GPL’s total revenues. Starting from 2012, reforms will be initiated to the tariff subsidy with the aim of giving effect to a progressive alignment of the subsidised rates with the national rates that are applicable on the GPL grid.”[Emphasis added].

There are a couple of small things wrong with that statement. Linking the subsidy to the total recorded revenue of GPL is tenuous at best, and misleading under any circumstances. Linden is not on the GPL grid; it is provided with electricity produced by Bosai Mineral Services for sale to Bosai Minerals Group and to the community through Linden Electricity Company and the Electricity Cooperative Society. Third, a random survey of the electricity bills for the most recent period of five GPL consumers, all staff of Ram & McRae, showed an average of $55 per kWh, high but 14% lower than the charge stated by the Minister.

Nothing progressive
But what is patently misleading is that part of the Minister’s statement that speaks of a progressive alignment starting from 2012. Here are the increases which customers were being asked to pay before the tragic deaths which led to the rates being put on hold.

Source: Linden Electricity Company Inc circular

Anyone consuming 75 kWh or more of electricity will face an increase in their bill of at least 300%. In my group of five, the average consumption is 157 kWh. The increase applicable to them would be over 600% making it hard to find any word but deception to describe the Minister’s clever use of words.

This government which has a good sense of history has had twenty years to address the subsidised tariffs in Linden. Assuming a $5 per kWh in 1992, it would have required a semi-annual increase of roughly 6% to bring the tariff up to the same level as GPL. With fatal consequences, the government has attempted to do in one year what it did not do in 20 years.

Profiting from the subsidy
But the Minister is not the only person producing misleading information. Bosai Minerals Services Inc released recently a document described as an “Audited Operation report” showing that the company made a profit of US$233,000 in 2010. The public records however show that the company made a profit (before tax) of G$76,342,000, the US Dollar equivalent of $380,000. Since the company’s business is the operation of a power plant to provide electricity to its (group) bauxite operations and the community, it must explain this difference and whether it is permitted under the agreement with the Government of Guyana to make a profit from the subsidy.

There are other concerns about the electricity operations. The information the electricity company has provided on fuel costs needs explanation. Invoices for diesel imported by its parent company (Bosai Minerals) from the State Oil Company of Suriname show a lower cost of fuel than that reflected in the company’s income statement. Since its financial statements do not suggest that the company buys diesel from the parent company, the question is why does it not pay the same price from the same supplier as its parent.

A second concern has to do with the agreement signed with the government for the supply of electricity, a regulated service which would otherwise come under the Public Utilities Commission. The government has excluded Bosai from any regulatory obligation hence its freedom to charge rates that should have been fixed on a cost recovery basis. It seems incontrovertible that that would be the more appropriate basis since the supply serves the group and in some cases its service is specific to the group. For example, any plant capacity for the operation of the dust collector cannot be shared with the community charge while on the remaining plant, the pricing policy should be based on the marginal cost of providing electricity to the community.

Paranoia
A third concern I have touches on the government’s paranoia that if it applies the country’s laws to Bosai, the company will pull out. Perhaps that is the message – or threat – the company communicates to the government in private. We should not fall for that. Bosai and China are here not to develop Guyana but to guarantee access to raw materials. They need Guyana as much as Guyana needs foreign investment. Our failure to recognise that allows investors and Bosai in particular to exploit the country. Let us look at Bosai’s Income Statement for the years 2008-2010.

Source: Audited financial statements

Under the agreement with the government the company was exempted from the payment of property tax and royalty for the five years to December 8, 2009. The notes to the 2010 financial statements state that the company has sought a five year extension, but went on to state that no royalty was payable on sales during the period December 9, 2009 to December 31, 2010 and that no property tax provision to December 31, 2010 had been made.

Order 8 of 2005 indicates that the company is subject to royalty at the rate of 1.5% but to a zero rate for the first five years. I searched the Laws of Guyana but could only find statutory authority for a 3% rate and first saw a reference to 1.5% in a 1997 Mining Policy and Fiscal Regime by Prime Minister Samuel Hinds. Mr Hinds’ paper did not even mention the Bauxite (Production Levy) Act 1974 which was introduced to ensure that the country gets a fair share of the revenues from its natural non-renewable resources.

Mrs Da Silva and Mr Hinds
The Hansard of the debate on the Production Levy Act in the National Assembly of September 25, 1974 records then leading member of the United Force as saying: “These big multi-national corporations seem to think that because they are huge multi-million concerns, that because they are big and we are small and we need the revenue from our bauxite so badly for the economy of our country, that they should have the upper hand and be allowed to dictate [to us]. That time has passed.” If you can hear me, Mrs Da Silva, that time has returned.

Those whom her party now supports in the National Assembly are prepared to waive royalties and to ignore the Bauxite (Production Levy) Act for a hugely profitable company which was on target to recover its original investment in less than five years. Prime Minister Sam Hinds, failing to appreciate the difference between royalties and corporation tax, has ensured that under Order 8 of 1995, the company will pay only the greater of royalty and corporation tax. In other words, if the corporation tax payable exceeds the amount payable as royalty, no royalty will be payable.

Let us put that into context. In the three years 2008 to 2010, the bauxite companies exported some 4,659,317 tonnes of bauxite with an exchange value of US$325.2 M. For this, the country received no royalties.

And if 2010 was a good year, 2011 was a great one. Bauxite production shot up in 2011 by 68%, from 1,082,512 tonnes to 1,818,399 tonnes. If there was no technical or economic case for a royalty waiver in 2005, there can be no financial case for an extension of that waiver in 2011.

And there is one other point which may have escaped the Government of Guyana. Without a Double Taxation Treaty between Guyana and China the income earned in Guyana would under normal tax rules, be subject to tax in China. In other words, income we do not tax is effectively contributing to the Treasury of China. If only we are courageous enough to negotiate a fair deal with Bosai, and apply Guyana’s tax laws including the anti-transfer pricing provisions as necessary, the country will be better off.

Conclusion
And let us end today’s column on this note. Guyana is a 30% shareholder in Bosai. So that when Bosai paid one billion dollars in dividends in 2010, Guyana received $440 million of that in revenues, $300 million in dividends paid to NICIL and $140 million paid to the Guyana Revenue Authority as withholding tax. And that is on top of the $708 million received from corporate taxation! If only we did not waive all those other taxes!

Clearly Region Ten is not a burden on, but rather a contributor to the state.

Next week I will identify some specific solutions to the tariff question.

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No such thing as a free chow mein – Conclusion

Introduction
Today’s column concludes my review of the strengthening of economic relations between Guyana and China. Or more accurately between China and Guyana since for China the relationship seems all part of their global strategy aimed at accessing raw materials for its unlimited needs and appetite to sustain its rapidly growing domestic and export markets. China clearly understands the link between a country’s domestic economic policy imperatives and its foreign policy. It recently played host in Beijing to several political leaders and officials from countries across Africa at a China-Africa Co-operation Forum, pampering them with attention and banquets and dangling before them preferential loans.

Just briefly, Guyana’s failure to connect the dots contrasts sharply with China’s, and explains why Minister Robeson Benn can justify a US$138 million expansion at the Cheddi Jagan International Airport built financed by the Chinese, who according to Benn came by with the money which Guyana duly grabbed. Apparently no one bothered to consider whether the project fitted in with our debt profile, our investment strategies, our economic priorities and our foreign policies. A couple of years ago we were excited with Libya and Kuwait. Yet the PPP/C’s 2011 Elections Manifesto had not a single reference to Libya, Kuwait or China, or indeed to foreign policy.

Regardless of whether or not there is a Guyana policy, as a country China is rapidly becoming the dominant player in Guyana. The Indians, no saints themselves, who have long had a stronghold in Regent Street, are now complaining about the practices of the Chinese traders. If Guyana has a China policy it seems to run along these lines: whosoever will, may come, no questions asked, no visas required and no tax or NIS registration compliance.

Trade trends
A recent study shows China as one of the leading exporters to Guyana of car parts, tyres, fertilizer, pesticide, weedicide and fungicide. Its domestic appliances now dominate in the hire-purchase outlets. And of course the Chinese restaurant is found at almost every street corner in Guyana. But Chinese durables are also reality, notwithstanding the many jokes about the standards of their products.

But apart from these, China has also been a major supplier of capital projects. They supplied the Moco-Moco Hydroelectricity plant which has been defunct for several years and the rehabilitation for which the country was forced to consider seeking assistance from the Brazillians, and the Skeldon Sugar Plant which cost the country billions and like Moco-Moco, the rehabilitation for which GuySuCo had to turn to the South Africans and the Indians. The most recent fiasco import from China are the two roll-on, roll-off ferries for which more than rehabilitation will be required with questions being asked as to whether the vessels will ever be able to meet the needs for which they were acquired. We seem to have such infinite faith in the Chinese that we not only buy a pig in a poke from them, but one that says if the pig turns out to be a dud, tough luck, let the buyer beware.

Softly, softly
Less visibly until now, the Chinese are making significant moves into gold mining, and the local media recently revealed their anti-environmental practices at Imbaimadai and raised complaints that the Chinese enjoy more privileges than local miners. One particular cause of concern is that many of the Chinese found on these concessions may have entered Guyana illegally and in many cases only the lowest level job is given to Guyanese, if at all. Interestingly, the Guyana Geology and Mines Commission came quickly to the defence of the Chinese who it said were employed as skilled equipment operators. The statement did not offer any explanation for several of the foreigners working without the relevant documentation. But then there is more to the explanation than the GGMC was prepared to admit to.

The Imbamadai issue simply highlighted Guyana’s confused policy on Chinese immigration which first surfaced in in December 2010 when President Jagdeo pledged Guyana citizenship to Chinese nationals who were living here legally for seven years, and three-year work permits. The Guyana Citizenship Act sets five years as the benchmark for citizenship applications once persons are of good character and intend to continue living here, while work permits are usually available for one year only.

BOSAI and China Harbour
A Chinese controlled company – BOSAI – was caught in the Linden electricity storm when it was revealed that the subsidy in the national budget now proposed to be cut was paid by the government to the company to enable it to sell electricity to the community at a reduced price. When this was revealed in the media one of the companies in the BOSAI group then published a one page document that inclusive of the subsidy, the company was actually making a profit. The statement was completely inadequate for any analysis of the appropriate accounting in the company and how it accounts for cost. In other words, BOSAI could in fact be making much, much more out of the subsidy. Persons close to the company tell me that almost all the positions of any importance in the company are held by Chinese who are always either reluctant to provide information or would often and suddenly not be able to understand questions posed to them.

When BOSAI was granted permission to take over the Linden operations, it announced that it would be investing in an alumina plant here. Later we were told a subsequent feasibility study done by the company had shown this to be unprofitable. The original agreement, which has not been made widely available, was signed by Prime Minister Samuel Hinds who is supposed to be knowledgeable about the sector. But if the Government-BOSAI deal is a case of an agreement with an investor over the use of the resources not being made public, it cannot be as bad as the contract with the discredited Chinese company for the expansion of our major international airport that will cost us some US$140 million.

What is baffling about that contract with China Harbour Engineering Company (CHEC) Limited is that the man who engineered it in secrecy, former President Bharrat Jagdeo, is now calling for its review. That call was made after the disclosure by Jamaica’s Office of the Contractor General (OCG) that CHEC’s parent company, China Communications Construction Company (CCCC) and, by extension, CHEC have been blacklisted, since January 2009 by the World Bank, under the Bank’s ‘Fraud and Corruption Sanctioning Policy.’ Inexplicably, President Ramotar seems to have ignored Mr Jagdeo’s advice.

In Guyana’s interest
Any investment that allows for the profitable use of Guyana’s natural resources should of course be welcome, but only if it benefits both the investor and Guyana. Bauxite production in 2011 of 1,818,399 tonnes was almost double that of 2010 but Guyana gets very little out of it. On Friday I passed by a mined-out pond at the back of Amelia’s Ward and was astonished at the environmental legacy of the bauxite companies. On the other hand, the revenue that accrues to the country for all of this is next to nothing. This crazy policy has to be reviewed and it cannot be that whoever passes through waving bundles of US dollars should drive our investment profile.

On Friday I was in Linden. Yesterday I took someone to the airport. Surely any rational person would consider priorities in how to borrow and spend. Like so many communities around the country Linden needs development funds more than the country needs a state-of-the-art airport. By all means we should do something about improving safety and passenger convenience at CJIA, but can we afford to spend US$140 million just a few years after what we were told was a modernization of the same airport when whole communities need development and jobs?

We must not forget that the External Loans Act only allows external borrowings up to approximately two billion United States dollars. We are getting very close to that ceiling, some of which has been used to finance questionable projects, including those financed and involving the Chinese. In fact I would argue that we have already exceeded the ceiling if we include the Chinese loans appearing on the books of GuySuCo which the government will have to repay, since GuySuCo cannot. Indirectly too, the government will be committing to the payment on behalf of GPL to hundreds of millions in connection with power purchase by GPL from the Amaila hydroelectricity project.

Favouring Guyana
The first thing is that we need to understand the link between foreign investors, foreign policy and the domestic economy. Rather than go for a career diplomat to represent us in China, Guyana chose writer and academic Dr David Dabydeen as its ambassador, under the direction of Ms Carolyn Rodrigues, herself a newcomer to diplomacy. We need to have persons in these positions who would question why China has chosen Guyana for treatment that is even more special than that country extends to Africa.

At the China-Africa Co-operation Forum referred to earlier, President Hu Jintao of China pledged US$20B in credit for Africa over the next three years. There are roughly fifty countries on the African continent. Over a three-year period the US$20B amounts to approximately $133 million per year – in credit. China is not paying an awful lot of money for the economic opportunities and benefits it receives from Africa in the “form of crude oil, minerals, steel and agricultural products which have played an active role in lifting the Chinese people’s livelihood. Meanwhile, the continent also serves as an indispensable market with great potential for Chinese products…” according to the People’s Daily, the Communist Party’s main mouthpiece.

The new coloniser
China resents any suggestion that it is the 21st century new coloniser, preferring to use the label ‘strategic partnership.’ China’s economic offensive is matched by a media barrage that has so far not been able to dispel concerns that like the CHEC airport contract, investment deals involving China are opaque and open to corruption; that like BOSAI and the Imbamadai gold operations Chinese projects often import Chinese labour rather than develop local skills; and that as the workers in the Chinese stores in Georgetown can attest, Chinese firms exploit local workers.

There is no question that China has moved away from being just a manufacturer of cheap products. Other countries in South East Asia pay even lower wages. But China, supported by a huge military and internal police and with good infrastructure, is able to offer a stable location for business that has no equal at this time. Some may chafe at China’s human rights practices; its attitude to religion and its treatment of the Buddhists; its one child per family policy; how it puts down dissent or cleared communities to showcase itself for the 2008 Olympics. But none can deny its success as an economic powerhouse. It can and should be a partner, but not on its terms alone.

Conclusion
What we in Guyana must recognise when the Chinese come bearing gifts is that China’s foreign policy is driven by economic considerations which put Chinese interests at the centre. As its veto of UN sanctions against Syria has shown, China has little interest other than its own, regardless of how many lives are involved. It could not care too whether it riles the rest of the world with its strategy of building its own economy at the expense of other countries through an undervalued currency, trade barriers and state subsidies to its exporters. Even China’s friends like Kenya’s Prime Minister Raila Odinga grumble that his country imports a lot of manufactured equipment like tractors, ploughs and harvesters, and that it is time that Kenya should have its own tractor manufacturing plant.

In Guyana we need to learn two things – that there is no such thing as a free chow mein and to say ‘不’ or ‘bu’, the Chinese for ‘no.’

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The Attorney General completely disregarded the principles and authorities on bias in the matter of Mrs Singh’s position

Attorney General Anil Nandlall’s letter SN ‘The squabble over conflict of interest in the Audit Office is much ado about nothing’ July 13, 2012 refers. Mr. Nandlall accuses those who have taken a position on what he dubs as a “concocted” and “politically inspired” matter involving Dr. Ashni Singh as Minister of Finance and his wife Mrs. Gitanjali Singh of the Audit Office of not subjecting the relevant facts and surrounding circumstances to mature analysis.

I respond to make the following points not because I think Mr. Nandlall’s letter has any validity or merit but because of the position he holds as leader of the Bar of Guyana, and to counteract the mischief his letter created.

1. I wonder if the Attorney General considered the propriety of his public intervention in the matter, citing some weak and discarded legal authorities, while the Institute of Chartered Accountants of Guyana is considering formal complaints over the same issues.

2. If Mr. Nandlall had apprised himself of the relevant facts he would not have misled the country about Mrs. Singh’s service at the Audit Office. She could not and did not commence her career at the Auditor General’s Office in 1992 and worked continuously since then in that office. Mr. Nandlall and his colleagues might wish to believe that everything began in 1992 but the fact is that in 2001/2, Mrs. Singh was Director, Internal Audit at the Georgetown Public Hospital Corporation.

3. And for Mr. Nandlall’s further information, Mrs. Singh left that position because a conflict of interest question arose.

4. For someone who prides himself on accurate and precise language, not once in his several references to Mr. Deodat Sharma did Mr. Nandlall acknowledge that the current Auditor General is an acting appointee – no trivial matter. As the country’s Attorney General tasked with advising the President and the Government, Mr. Nandlall may wish to confirm whether the holder of that important constitutional office was appointed to the acting position in accordance with the provisions of the Constitution which require the advice of the Public Service Commission.

5. Completely disregarding the principles and authorities on bias, Mr. Nandlall asserts that there is no scintilla of evidence of an actuality of conflict. May I respectfully refer Mr. Nandlall to the Pinochet extradition case in which a decision of the House of Lords was overturned after it emerged that Lord Hoffmann was a director of Amnesty International, a party to the case. A second strong House of Lords court, without Hoffmann, came to the same decision during which time the senior law lord, Lord Browne-Wilkinson, and four other law lords criticised Lord Hoffmann for flouting the basic principle that “justice must not only be done but must be seen to be done”.

6. And as for Mr. Nandlall’s “actuality of bias”, may I refer him to the case of Guyana Telephone and Telegraph Company Limited No. 13-M/1999, in which Justice Carl Singh as he then was, said “whenever a test is required to be applied for the determination of allegations of bias, the test [is] whether a fair minded observer might reasonably suspect the existence of bias”. I assume Mr. Nandlall knows about Justice Singh’s ruling but I prefer not to speculate about his reason for disregarding it.

7. Amazingly and with no legal foundation to support him, Mr. Nandlall seeks to apply the practice of one profession by analogy with the written Code of another, a sin of commission that is beyond legal heresy. As an accountant and attorney-at-law I submit that Mr. Nandlall’s analogy between the legal and accounting professions is misinformed, misconceived, misleading and unworthy of the learned Attorney General. Practitioners of the two professions are subject to entirely different Codes of Ethics. Lawyers describe the circumstances under the rubric “bias”: for accountants, it is an independence issue.

In penning his letter, Mr. Nandlall must have recognised that it would be seen as self-serving and opportunistic. With that burden, he could at least have taken the time to better inform himself of all the relevant rules and apply them to the factual circumstances, as he erroneously and misleadingly accused others of not doing.

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No such thing as a free chow mein

Introduction
No free chow mein. That was my first thought as I tried to interpret the words of Minister of Public Works and Communications Robeson Benn in relation to the airport expansion project that “we [meaning the government] had to enter into an agreement because we had a very narrow window in September where a Chinese Vice Premier came to the Caribbean with several billion dollars to fund projects and it was the only opportunity we had then to fund this undertaking.” Call it boldness, recklessness or madness, Mr Benn was honest in telling Guyanese how the country arrived at the decision to bind the people of the country with a debt of more than thirty billion dollars, in secrecy and without any feasibility study. While the government’s methodology might frighten some and shock others, many would not be even mildly surprised at the clear insight into the government’s thinking.

Hitch the wagon to the Yuan
It should be no irony that Guyana – with no foreign policy compass, philosophy or ideology – should have chosen to hitch its wagon to the Chinese star, or rather their bulging treasury. After more than fifteen years under the thumb of the IMF, Guyana had exhausted and benefited from all the opportunities associated with being a low income country. With an extended downturn in the West which was, as far as Guyana was concerned, too picky about transparency and accountability, China fitted well with the mendicancy economics admitted to by Robeson Benn. Even so, Mr Benn, better known for heavy action, sledgehammers and bulldozers than for thoughtfulness, could have cited hundreds of reasons for electing to go down the Chinese road.

The Economist, one of the most influential publications in the world, this year launched a weekly section devoted to China, the first time in seventy years that it singled out a country for detailed coverage. The accolade has nothing to do with the virtues of the country. It is still a Communist state regulated by internal police, does not take criticisms lightly, is largely anti-religion and its one child per family policy is sometimes executed in the most cruel and callous way. In one recent case, local state officials forced a young mother to abort her child seven months into the pregnancy due to China’s one-child limit law. The birth of the child would have violated the one child per family policy. While child stealing is not official policy, with a country as vast as China, state officials are reported to confiscate “illegal children” and ship them off to orphanages from where they are sold.

In the face of the rise of China to its status of might, Hillary Clinton and the USA suddenly decided that the wall of human rights could not withstand the might of the Chinese economic juggernaut. In so doing, the US left serious questions about China to be raised by other groups and individuals.

Miracle
Whatever anyone might think of China, its economic story is a miracle. The miracle, the story goes, began in 1985 with a steamship conference of ten foreign economists, including one Nobel prize-winner and about two dozen Chinese, swapping ideas on how to lead and manage a vast country with a population approaching a billion. In 2010 China displaced Japan as the second largest economy in the world. And some time in this current decade, it is expected to overtake America. That is a feat without a historical parallel.

What makes the rise and rise of China so fascinating is that it has happened in less than a generation. Only 20 years ago, China was a long way from being a global superpower. After the student protests in Tiananmen Square in 1989, China faced isolation abroad and doubts and threats at home from the old stalwarts. In what turned out to be a masterstroke, in 1992 Deng Xiaoping set out on a “southern tour” to sell his reforms and its benefits, arguing that that was the only way to save the Communist Party. Seemingly oblivious to what has happened around it and across the world, the Chinese dragon has moved relentlessly to establish itself as a superpower in its own right.

China then applied all the Western theories about export led growth, promoting itself as a low cost location with hundreds of millions of its hardworking people willing to provide their labour at rates well below those in the West, with modern infrastructure and a stable economic system. It certainly helped too that as China was heading in this new direction, the US and the rest were pushing globalisation and the removal of all barriers to trade. That could not have come at a better time for the Chinese. China became manufacturers to the world with shelves upon shelves of America’s stores stacked with Chinese goods. Indeed I just read that the US Olympic Team uniforms are made in China! What an honour! And what indignity!

The good
China has now overtaken the US in steel consumption, mobile phones, exports, fixed investment, energy consumption and car sales. Its education system and research and development capability have made huge strides. And using the overarching measure of them all, China’s economy is projected to overtake that of the USA by 2018, if not earlier. It is hard to imagine that in 2000, its economy was only one-eighth that of the USA.

To do that China needs all the raw materials it can puts its hands on – steel, bauxite, timber, zinc, copper, gold, silver, etc – and has targeted the third world and particularly Africa. As counterpoints to the colonial powers and the gunboat diplomacy of the US, and with an eye for corrupt politicians, the Chinese were received with a mix of hope and fear, fascination and suspicion, and gratitude and disappointment by most of Africa’s fifty or more countries.

The records show that China has boosted employment in Africa and made all kinds of basic goods, clothing, footwear, toys, shoes, watches and radios more affordable. Trade has expanded while China’s loans to poor countries have surpassed the World Bank’s. Much of those have gone to Africa.

The bad
But the fears and suspicions were not without sound basis. The story is all too familiar of conmen operating in mainland China and ripping off their own people. The opening up of China to both foreign and local media, access to the internet and a few high profile human rights advocates have exposed some of the worst excesses of shoddy construction, fake milk, counterfeit products bearing brand names and expired, useless and dangerous drugs. The practitioners however did not disappear and soon formed part of the exports from China to Africa. They break immigration, customs and tax laws routinely and have no qualms about bribing local officials.

An article appearing in The Economist last year would find resonance with Guyana. It spoke about slapdash Chinese construction work and of serious defects to buildings and roads constructed by them. Local employees of Chinese businesses are almost invariably stuck in low level positions while even the middle level positions and all the senior positions are held by Chinese. These are not anecdotal and are easily cross-checked by what happens wherever the Chinese go.

The Chinese have a long and proud history and seldom do anything without the most serious study. Their strategy is to exploit other countries’ resources while conserving their own, a policy they may have copied from the West and most particularly America. But they are also selective. While Africa has only 10% of the world’s oil reserves, China now receives an estimated one-third of its oil imports from Africa. A closer look at the countries with which it does most of its business indicates that China likes to deal with very poor countries and to invest in assets for their own benefit and financed by their loans. If the road leads to a copper mine or a seaport, the Chinese are excited to build it – with Chinese management, labour, equipment and capital.

The ugly
There is a fear that China has become too successful. With millionaires galore, there is huge expectation among the masses and the workers, many of whom are becoming restive. Social unrest has been common and while the internal police have been condign in clamping down on them, the lid could just pop. One thing China has is a pathological fear of religion. It has been particularly intolerant of the Moslems and Buddhists whose spiritual leader the Dalai Lama they see as a mortal enemy and for which they make the Tibetans collectively pay.

The power has spawned arrogance and their disdain of other world leaders including President Obama has been evident. They suffered for a long time over British domination of Hong Kong. They bristle over Taiwan. Their annual spending growth on defence and security is always in double digits. They can afford it with reserves in excess of three trillion dollars, that is, three and twelve noughts.

In addition to a party that believes it has to control everything, Guyana also shares with China the conspicuous princelings, the offspring of the party dynasty who receive the best education the state can afford and are then offered assets and opportunities to share in the largesse of the country. The PPP/C government believes in private capitalism while in China it is state capitalism. In China they shut down internet sites. In Guyana, the government starts up its own to attack others.

It believes in prestige projects on a gigantic scale and sells the idea to third world politicians who will grab at any passing dollar. Corruption is taken quite seriously in China and can lead to public ridicule and in extreme cases to execution. It ranks 75th. on the Transparency International Corruption list but could not care about Guyana’s 134th place. For the Chinese that matters not. What matters to them is that there is a government willing to enter into agreements which allow them to lend some of their nation’s huge reserves while gaining access to Guyana’s resources. Hopefully, the Chinese must think, they will charm the rest with all forms of blandishments.

Conclusion
That Robeson Benn could get away with what he said is an indictment to all Guyanese. But not surprising. After all, look no further than the Chinese supply and construction of the clearly defective Skeldon Plant without any meaningful guarantee and then being awarded further contracts. Next week I will look at some of their investments including the ferries, the Mocha-Mocha mini-hydro plant, BOSAI and the airport deal which dealmaker Mr Bharrat Jagdeo has indicated should be revisited.

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W(h)ither the accounting profession?

Introduction
At that age where reminiscing is one of life’s remaining pleasures it is with fondness that early memories of the accounting profession come to mind. It may be that it was unwarranted hero-worshipping, but many newcomers to the profession held those referred to in that bygone era who were respectfully described as “qualified” accountants in the highest esteem. Undoubtedly young and impressionable, we held onto those images that we had created for dear life and it drove new entrants to the profession to try to achieve great things so as to gain the approval of their heroes and be admitted into their realm. We aspired to be like them; we worked hard, studied hard and played hard, because that is what accountants did in those days behind the boring, stodgy facade. The seniors and partners at Pannell Fitzpatrick, (the largest accounting firm in Guyana at the time and grandfather of the current TSD Lal & Co) along with Willie Stoll, Victor Gangadin, Yesu Persaud, Alan Luck, John Barcellos, Ossie Baptiste and Sugrim Mohan, the pre-eminent accountants of the era, were men of mystery who every young accountant knew were the big men on campus and hoped someday to be like.Sadly today not too many in the profession possess that aura.

Those days have long gone, but still it was jarringly noticeable that in his speech calling for an assault on corruption the outgoing chairman of the Private Sector Commission (PSC) Mr Ramesh Dookhoo mentioned the accounting profession not once but twice. This reference could be interpreted in two ways: either the gentleman feels that the accounting profession has a role to play in attempting to curtail corruption or cynically, that it is already playing a role, but as an accessory. It was not an inopportune time, coming in the midst of a furore in which the highest ranking accountant in the country is embroiled in a controversy in which anyone, save those directly involved and those in the Guyana Government, can see an obvious and blatant conflict of interest. Such is the egregious nature of the situation that it moved no less a person than the Vice-President of the domestic accounting regulator, the Institute of Chartered Accountants, Mr Chandradat Chintamani – no stranger to conflicts of interest himself – to pronounce “…my position is that it is deemed as a conflict of interest.”

Mr Dookhoo of course speaks with some knowledge and experience of the shenanigans of the accounting profession and their sometimes inappropriate liaison with corporate management. He would know of instances in which management has been less than cooperative with the internal auditors – the frontline warriors against poor accounting and controls and the kinds of internal dealings engaged in by management. As a long-standing director of the Private Sector Commission he would have been privy to both anecdotal and empirical information and indicia on corruption and tax evasion. The PSC has often made noises about tax reform, even though when it comes to walking the talk it has failed spectacularly. So I have some empathy with the negative views of the profession expressed by Mr Dookhoo, even though I do not think it was a collective mea culpa.

Where I differ from Mr Dookhoo – and without holding any brief for the local profession which deserves even stronger criticisms than it currently receives – is that he fails to see or acknowledge the unholy alliance between corporate Guyana and their auditors, not unlike the complaint against the police or customs officer who is castigated and sometimes prosecuted for receiving a bribe while the perpetrator goes unpunished.

Mr Dookhoo will be familiar with the improper transactions in which many company directors engage with their companies; unrecorded sales and related parties transactions; under-the-table payments by them, the source of which is never pursued and their destination never accounted for; and the tax free payments made to staff as “non-taxable” allowances to facilitate a reasonable take-home pay. As an accountant I can say that the avenues of tax evasion are varied and many, but like the rest of the private sector, the Private Sector Commission has never ventured to categorise tax evasion as corruption; rather it is euphemistically called tax minimization. Nor did Mr Dookhoo unambiguously question the role in all of this played by significant segments of corporate Guyana which are then prepared to reward their accountants commensurately. He was lucky that the President was in a charitable mood and did not respond to his call for him to address corruption at high government levels by pointing out that the public sector does not have a monopoly on corruption and that the private sector plays a not insignificant role in the scheme of things.

If the Private Sector Commission wants to achieve more than mere positioning itself on the right side of the corruption debate, then its officers must do more than just make farewell speeches. Mr Dookhoo’s statement about the profession would have had even more credence and weight if he had called on the President to ensure that the Public Procurement Commission is established without delay, associated the PSC with Transparency Institute’s call for anti-corruption legislation; pledged its support for the national efforts to stamp out tax evasion; and had reminded the President that the Tax Review Committee needs to be reconceived to replace the one that was stillborn. Hopefully his successor would take a stronger stand in the national interest.

Noble profession?
Members of the profession should not be surprised if the latter of the two interpretations of the remarks by Mr Dookhoo is embraced by anyone. In fact the statement offers an opening and a challenge to those still committed to practise professional values while offering leadership to those aspiring young accountants who have hitherto seen accounting as a noble profession. Why should they and the rest of society not be cynical about the declarations concerning integrity, high ethical standards and professionalism, when they see them being trampled upon and violated by members of the profession? The question we must answer is how did the profession arrive at this place where worldwide it is on the verge of becoming synonymous with greed and financial scandal?

Sounding the alarm
As far back as 1985, long before the much publicized demise of Arthur Andersen resulting from the Enron scandal, the American Institute of Certified Public Accountants was beginning to press the panic button. A report by its Special Committee on Standards of Professional Conduct had this depressing but prescient observation:

“There has been an erosion of self-restraint, conservatism, and adherence to basic professional values at a pace and to an extent that is unprecedented in [the] profession’s history… we believe the profession is on the brink of a crisis of confidence in its ability to serve the public interest” (Special Committee 1985 3-4).

The most damning portion of this statement is the last, that warns of a crisis of confidence in the ability of the profession to serve the public interest. The warning was vindicated with the spate of accounting scandals bearing the name Enron. Users of financial statements over time have relied on accountants to use their professional, training, skill and judgment to give objective assessments of financial information. The profession – until the relatively recent past and the repeated black eyes it has received as a consequence of aggressive practices, greed, and disregard for ethical standards – has been by and large self-regulating in many countries, and this is still the case in Guyana.

The view of the professions, and accounting was no different, was that their members possessed the requisite skill and would exercise due care in the execution of their duties. They were perceived as being special and therefore they were allowed to set their standards, establish their own rules and were given the authority to discipline their members. This works well if their membership maintains those standards which over time establish and reinforce the credibility and integrity with which to serve the public interest.

Without this a profession is of no consequence and many countries recognizing the failings of the accounting profession have increasingly introduced regulations to compensate for its shortcomings. It is time that the fig leaf of self-regulation be revisited in Guyana – but then what do we do about the incompetent, incapacitated Audit Office? We are in a real dilemma.

Impeccable record?
The Institute of Chartered Accountants of Guyana (ICAG) has been noticeably absent from the public discourse on any issue, even if it has direct implications for its members or relates to matters on which it has a responsibility to educate the public. In Guyana, the impeccable record of the profession has never, as far as this writer can recall, been tarnished by any disciplinary action against any of its members; an amazing accomplishment perhaps worthy of recognition by the good folk at the Guinness Book of Records. Based on recent events, however, it appears that there is a blot on that record on the horizon because surely the Institute of Chartered Accountants of Guyana must now deal with the twin issue of the Minister of Finance and his wife who are both professionally qualified accountants and subject to the strictures of the local body. It is hoped that the usually indolent body will now move expeditiously in a manner that restores Mr Dookhoo and the public’s faith in the ability of the accounting profession to regulate its members.

Hard choices
There has been enough adverse publicity for the profession almost on a daily basis, so there is no point dwelling on the litany of scandals with which it has been confronted worldwide. The focus should be on whether the members of the profession are prepared to engage in the introspection necessary to redeem their reputation. The deafening silence in the face of both public and private sector abuses must no longer be the cloak behind which the protection of fees takes precedence over the discharge of statutory and professional obligations. While the profession throughout the world has issues, my concern is with what is happening in Guyana, and the worn out cliché that there are problems everywhere does not cut it. The ICAG has a duty to take principled positions when necessary even if they are unpopular and have a financial cost, because it is the only way to carry out its mandate of serving the public interest. It also must not shy away from exercising its authority to institute disciplinary measures against any of its members, high or low, whenever necessary if it wants to restore its credibility in the eyes of the public.

Conclusion
Accountants who want to be respected as professionals must walk the walk or they do grave disservice to the profession, the public and all those many young people who are just getting into or are thinking of embarking on careers as accountants.

The almighty dollar must not be the shrine at which pseudo professionals are prepared to sacrifice their principles and ethics.

Perhaps there is a message in Mr Dookhoo’s statement perhaps not; only he knows that. What everyone does know is that the reputation of the accounting profession, though not quite in tatters, is not a long way away from achieving that status. It may be that an unintended consequence of the fallout from this latest exhibition of arrogance on display from the Finance Minister and his colleagues is the long awaited awakening of the ICAG from its long, deep slumber. Its Vice-President has left the door ajar; maybe other members will have the courage to kick it open. One can only hope.

On a final note, Mr Dookhoo also appended the legal profession to his charge. It is not certain whether that profession is any better than the accountants. But since it is known for its prolixity, the legal profession might wish to say something to help restore its own image and the reputation of its practitioners.