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Annual General Meetings generate interest

Introduction
As the season for general meetings moves into high gear, members, or as some companies call them shareholders, have been showing some interest in these meetings, although not always for what might be considered the right reasons. One complainant in a letter appearing in the press this week went so far as to make the charge of meanness against the directors and management of one of those companies. For good measure the writer reported that there was a “deep groundswell of resentment against the directors and management.” One individual who takes a healthy interest in such meetings and is one of the younger breed of investors wrote me on a number of issues all of which he suggested indicate that the directors and management are generally insensitive to the convenience of their members, including the calling of meetings when most persons would be at work, the meetings of more than one company being held on the same day, and no facilities for the aged and infirm. The shareholder was so incensed that he suggested that despite the expense of putting out glossy annual reports, company management really do not want shareholders to attend, speculating that there must be “something to hide”.

That speculation seems both harsh and unjustified. Experience suggests that our shareholding public is not sufficiently informed to detect any “hidden truths” and questions at an AGM almost without exception come from a handful of persons and are less than pointed. Some people it seems go to meetings as a social event, for many the only time they are invited to a hotel. Others go for that peculiarly Guyanese phenomenon at which gifts are distributed to those in attendance. While the motive for this may be good, this is an unfortunate practice to which members have become so accustomed that I do not think any company would wish to discontinue.

Serious business
A shareholders’ meeting is a serious event at which searching questions should be asked of the directors particularly given the weakness of our financial press and the fact that none of the companies meets the press and gives them the opportunity to ask questions. Such meetings are not really the forum for long-service awards but for directors to allow questions about their stewardship.

The practice of gifts apparently developed as a goodwill gesture and is now used to encourage attendance at meetings. It is important to note shareholders’ entitlement is to dividends – not gifts – and that all holders of the same class of shares are to be treated equally. In other words if one shareholder gets a gift or a dividend, then all shareholders of the same class are equally entitled. It would be interesting to see how any of the companies would respond to a challenge to a charge of discrimination against shareholders who do not attend and are therefore told that they are not entitled to a gift.

On this note it is useful to note that the Institute of Chartered Secretaries of India – a country that has lots of experience with improper influences – says categorically that “No gifts, gift coupons, or cash in lieu of gifts should be distributed to Members at or in connection with the Meeting”.

Clash of meetings
In terms of timing of meetings, part of the problem is that several of our public companies have a calendar year-end and have four months within which to hold their annual general meetings. But to do so they need to have the company’s financial statements finalised and audited for inclusion in their annual reports which must be circulated three weeks before the annual general meeting. It is hardly any surprise then that most meetings are held in the fourth month following the year end. While the Securities Council cannot dictate the date and time when companies which they regulate can hold their AGMs, it may wish to consider discussing with them a schedule so that there is no clash and persons who hold shares in more than one company are thereby free to attend each of these meetings.

This coming weekend there are three meetings of public entities – the Demerara Distillers Limited and Sterling Products Limited (April 29) and the New Building Society Limited (April 28). All the reports offer useful opportunities for serious questions on policies, performance, shareholder relations, etc. which could be raised by some shareholder group with collective knowledge and some institutional memory. Before making some specific points about the companies here are some general questions which shareholders can raise.

Board of Directors
With each of the three companies having only one woman director, the questions should be asked about the steps the company is taking to attract qualified women and minority shareholders for board membership. They may also wish to enquire about any mandatory retirement age for directors; whether there is an ethics committee; the perquisites paid to executives, the basis on which these are valued, whether executives reimburse the company for the fair value of personal benefits received and whether executive perquisites are checked by internal auditors and reported to the audit committee.

Audit and controls
The number of internal auditors the company has; whether they report to a sufficiently high level of management and have ready access to the audit committee; the regularity with which they visit each operating location, including foreign operations; the standards and performance of the internal audit department and whether these have been evaluated by an external review; whether internal auditors have full, unrestricted access to all company functions, records, property and personnel; and the actions taken on any material weakness in internal control reported by the independent accountants.

In the case of a company with several subsidiaries, if the annual report does not provide the information, shareholders should enquire whether all of the subsidiary companies are independently audited and the names of the audit firms. Too many auditors are not necessarily a good sign, while no auditor for any of the subsidiaries casts doubts on the financial integrity of their financial statements.

Political and Economic Environment and Taxes
Shareholders should be asking whether the company has maintained its competitiveness in terms of sales and earnings in the markets in which it operates; the cost to the company of compliance with governmental directives and regulations and the risks of operating in some markets and industries; the conditions for investment and expansion; taxation and efforts to lobby government on various issues.

In an election year, shareholders may wish to enquire whether the company plans to make any contributions, loans or other support to any political candidate or organisation including lobbies and if so to ask for details.

Financial and Liquidity and Capital resources
Against the background of their own personal liquidity and to formulate their savings and investments, shareholders would need to hear from their company of its plans to pay cash dividends and issue cash or bonus stock. With financial statements and annual reports growing in size and complexity, the shareholder should be enquiring why financial statements and footnotes in the annual reports are not more intelligibly written so that the average shareholder can understand them.

This list is by no means exhaustive and would have to be tailored to the specific circumstances of the particular company. Serious shareholders should keep a file containing past annual reports and the questions asked since even directors sometimes need to be reminded of earlier commitments.

Let us now turn to some specific issues which could be raised at this weekend’s AGMs.

DDL
This company operates in several countries, the economies of all of which did not perform as well as Guyana’s. Yet of the group companies, those in Guyana performed less well than those abroad. Indeed the parent company (DDL) reported a 12% decline in after tax profit, while the other local subsidiaries including its trading company Distribution Services Limited, TOPCO, Demerara Shipping and Demerara Contractors all came in with disappointing results. The company’s financing strategy has been questioned in these columns before and one wonders at the logic of financing costs over the past five years nearly double the returns to shareholders. If it has not already done so the company needs to consider why with all the investment TOPCO is still making losses. The company’s investment in India continues to cost the company significant sums while St. Kitts and North America remain marginal after several years of efforts and expenditure. On the other hand the investment in National Rums of Jamaica Limited is producing good returns.

Overall the return on assets and shareholders’ funds, has dipped slightly.

Sterling Products Limited
While turnover has increased, profit after tax has declined and therefore so have measures such as return on assets and return on shareholders’ funds. Chairman Dr Leslie Chin attributed this to higher deferred tax which was not completely compensated for by a decline in the corporation tax charge. In order to maintain the same level of dividends paid in 2009 the company will be paying out 53% of its after-tax profits.

New Building Society
The notice convening the meeting excludes from the right to attend the meeting, mortgage account holders, who under rule 21 of the Society’s Rules are described as advance members. While a similar exclusionary note was included in the 2009 annual report, such persons have always been allowed into the meetings and the basis of the decision to exclude them is questionable.

The other three major issues of note are: 1. the Society has been finally brought under the Financial Institutions Act although it has a four-year transitional window; 2. it is still in breach of section 7 of the Act, an issue I have pointed out before; and 3. the Society actually lent one billion dollars less in 2010 than in 2009.

Indeed, despite the housing programme in which it should be playing a major role, the number of loans at the end of 2010 was a mere seventeen more than in 2009, a clear indication that the Society lost significant market share during the year.

While the report acknowledges the mutual nature of the Society’s ownership it not only repeats the word “profit” ad nauseam but the directors appear not to understand the meaning of the concept. No wonder then that they have ignored rule 23 relating to rebates, an issue which the directors agreed at the last meeting to review following a question from the floor.

For those attending the meetings, enjoy your gifts.

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The Ministry of Culture, Youth and Sport – or the sporting ministry?

Beneficiaries of hundreds of millions in Sports and Arts Development Fund uncertain.

Introduction
Today’s column continues a review of the 2011 budgetary allocations by the National Assembly to some of the principal ministries of government by looking at the Ministry of Culture, Youth and Sport, a ministry with which the Guyana Tennis Association of which I have been President for about eighteen months has had a long and unsatisfactory relationship.

As the table below shows, the total to be spent by this ministry in 2011 is $2.055 billion, 28% over 2010 and a 73% increase over 2009. If one wants to see how strange this government’s priorities are, one has only to compare this ministry’s budget with that of the combined campuses of the University of Guyana which in 2011 were allocated $582 million in 2009 and $657 million in 2010. Indeed, in 2011, the National Assembly voted more for sports in 2011 than the total allocation to the University of Guyana for any of the past three years! And as we shall see later, the financial management in this ministry is serious enough to invite charges being brought under the Fiscal Management and Accountability Act against those officials responsible for the reckless disregard of the requirement of that Act and ordinary standards of accounting and accountability.

[table to be inserted]

All figures are in millions of Guyana dollars. Source: Estimates 2011

Resource allocation
Despite the name of the ministry, sport seems always to get the highest allocation and for 2011 is allocated $964 million or 47% of the ministry’s allocation, with culture receiving 23% and youth 22%, and the administrative costs of running the ministry taking up the remaining 8%. Of the total, capital expenditure accounts for 40% while recurrent costs account for the remaining 60%.

The ministry employs a total of 359 staff of which 207 are contract employees, up from 159 three years ago and from 197 one year ago. The number of contract employees in each of the four functional areas is culture 62; administration 40; youth 92 and sport 13. As this series has shown this is one of the areas – procurement being another – that offers opportunities for the most unsatisfactory spending and for politicized decision-making by government departments. The average salary paid to each contract employee is approximately $1.2 million per year, significantly more than double the minimum wage.

The mysterious Sports and Arts Development Fund
The Estimates show that for the administration budget, wages and salaries paid to all employees, including those on contract, are $80 million or 52% with utilities accounting for $22 million or 14%. For Culture, wages and salaries cost in 2011 are $110 million or 25%; security $42 million or 10%; national and other events $72 million or 16% and Subsidies and Contributions to local organizations $133 million. And here is where there is a huge problem. Page 387 of the Estimates reveals that $100 million of this $133 million goes to a Sports and Art Development Fund of which no account is ever given. Since 2007, some half a billion dollars has been voted for this Fund but with no systems and procedures in place to ensure proper accountability. Despite questions raised in the 2010 budget debate by AFC MP Mr David Patterson about this Fund which was announced with much fanfare in 2007, the Fund appears to have escaped the attention of the Audit Office which never seems to have eyes for some really serious spending. When MP Sheila Holder of the AFC asked for details last year, Dr Frank Anthony dismissively said that “reports are not available.” Simple, isn’t it?

In the Youth budget, $155 million (37%) is spent on wages and salaries; $22 million on maintenance of buildings; $32 million on utilities; $42 million on “Other”; $12.5 million on training; and $9.7 million as subsidies and contributions of which $5 million is for the President’s award which inexplicably is listed as an International Organisation!

For sport, the current annual operating expenditure is $217 million with the major categories of expenditure being wages and salaries and materials and supplies each of $12 million; maintenance of buildings $10 million, utilities $17.9 million and subsidies and contributions to local organsiations of $120 million, the entire sum of which is paid to the National Sports Commission (NSC). The budget of the NSC shows that it is also to receive a capital grant of $530 million from the central government giving it a total of $650 million. This total is then allocated to capital expenditure of $530 million and current expenditure of $120 million, the full sum received as a subvention.

The pool
It is evident from the table that capital expenditure is relatively insignificant for all the functional areas with Administration’s capital budget being the equivalent of 3.7% of its current budget; Culture 10%; Youth 6.3% and Sport 344%! And this introduces the swimming pool saga, a project that first arose in 2007 and that is taking twice as long to complete as was planned. But the expenditure is also hazy and defies scrutiny. In the 2009 capital estimates, a total project cost of $405 million was stated for the construction of a swimming pool, rehabilitation of roof and electrical system at Cliff Anderson Sports Hall, lighting fixtures and rehabilitation of National Gymnasium, lockers for Colgrain Pool and purchase of sports gear and equipment. In the 2011 estimates, with the only significant additional work being the Athletic Track, the cost has gone up to $1.5 billion! This is clearly outrageous but again, more questions than answers.

National Sports Commission
There is an unhealthy and incestuous relationship between the ministry and the National Sports Commission where the financial lines are crossed with the ministry continuing to expend amounts voted as subvention and capital provision for the NSC. The NSC is a statutory entity created by Act 23 of 1993 and should have not less than six nor more than eleven members. The commission has been defunct for several years but PPP/C MP Mr Neil Kumar operates it like a one-man show in association with the Minister, Dr Frank Anthony. From time to time and at public events the former NSC Chairman Mr Conrad Plummer is called out to act in that role, but yet no effort is being made by the Minister to (re)constitute the commission as required by law.

Up to the time of the last audit report, the NSC had not had an audit since 2004, nor had the Minister presented to the National Assembly the annual report required under section 80 of the Fiscal Management and Accountability Act 2003. Despite these serious lapses that could constitute misfeasance in public office, the National Assembly continues to award this unlawfully-operating entity vast sums of money annually. It begins to sound as though the National Assembly either could not care or does not understand the implications of its vote when it allocates money to this and similarly placed entities.

When the question of the failure to have audited financial statements came up in the 2007 Audit Office Report, the ministry assured the Audit Office that the “National Sports Commission was pursuing the preparation of all outstanding financial statements.” Years later, very little appears to have changed. But once again the Audit Office has to share responsibility for the increasing disregard which this ministry and the National Sports Commission show for the law and for accountability. Another body under this ministry with a similar disregard for the law, accounting and accountability is the National Trust, a separate and legal entity created by Act 20:03 of the Laws of Guyana, and which would therefore be subject to separate financial reporting and audit. The National Trust is similarly deficient in respect of submission of financial statements for audit as required by law but there is no evidence that the ministry has taken steps to ensure compliance in this regard.

When the Audit Office reported on unexpended amounts totaling $55.5 million transferred into an Endowment Fund (?) instead of being refunded into the Consolidated Fund, the glib retort of the Head of the Budget Agency, ie, the Permanent Secretary was that “it was impractical to refund the amount of $152.398M to the Consolidated Fund at that stage, as the ministry was committed to pay the amount for the stadium lights. He also indicated that he [emphasis mine] gave permission for the sum to be deposited into the Projects Account.” This person had no problem or hesitation in admitting that he knowingly broke the law!

Procurement
As with all other procurement agencies, this ministry routinely breaches the Procurement Act in which capital works are awarded in a piecemeal manner to avoid adjudication at the level of the National Procurement and Tender Administration Board (NPTAB). As the audit report noted, these were undoubtedly obvious breaches of the Procurement Act 2003.

In 2008, the Ministerial Tender Board awarded one contract under the capital subhead National School of Dance in the sum of $0.382M on April 17, 2008 and yet the contract was signed on April 1, 2008, two full weeks before the decision by the Board. Then in 2009, eighteen transactions totalling $2.016M were undertaken for the acquisition of materials for the rehabilitation of the NOC Guest House. Of these, eleven totalling $1.278M were related to one supplier. According to the Audit Office report, the treatment of the transactions was clearly in breach of Section 14 of the Procurement Act (2003), as it relates to contract splitting.

Funny
But perhaps the most laughable response to come from the ministry to audit queries was in relation to non-compliance with the procedures for the payment of fuel. The ministry explained that the acquisition of fuel is based on a traditional and inherited policy from the Guyana National Service, involving Guyoil!

Despite these significant weaknesses and the fact that the ministry has so far failed to account for World Cup 2007 money, it remains one of the major beneficiaries of lottery money, which is another story. It is easy to conclude that this ministry is infected by a cavalier, sporting attitude more associated with West Indian cricket than with financial management.

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Does Dr Luncheon not know that Synergy and Harza were granted a licence in 2002 to develop a hydroelectric plant at Amaila and that Synergy became the sole licencee in 2004?

I thank Dr Roger Luncheon for his attempt by way of a press release issued through his office to educate me about the Amaila Falls Hydro-Electric Project (AFHEP). In the release, Dr Luncheon kindly suggested that if I and others like Dr Janette Bulkan want to move from the “periphery of public discourse” – to which he has banished us – onto ground where we will be respected by governments, civil society and international organisations, then we need to start getting our facts right. Respect from any government that deprives citizens of their fundamental rights, ignores the constitution and the rule of law, tolerates and itself engages in suspect, secret and unlawful transactions, practises nepotism and discrimination and is inept and incompetent is not something I would ever wish or welcome. And as for civil society and international organisations, I take it that even Dr Luncheon could not be so bold as to think he can speak for them.

Devoting part of his statement specifically to me, Dr Luncheon said that a letter I wrote in the press on Monday, April 11, 2011 (‘Serious questions remain about the LCDS…’), proves that I do not “understand the basics” of what is being proposed for Amaila Falls. These were his words: “He [Ram] repeatedly claims that the Amaila Falls Hydro Power project is being built by Mr Fip Motillal and Synergy Holdings. This is not true – the project is being built by the Sithe Global group of companies.”

Let me reciprocate in a mutual education exercise with Dr Luncheon by quoting from Synergy Holdings’ website: “Synergy Holdings Inc. is involved in this project (The Amaila Falls Hydro-electric Project (AFHEP)) as the developer to design, build, own and operate a hydroelectric plant in Guyana.”

Let us assume that that is what lawyers call ‘puff,’ or ‘big talk’ to use a more popular phrase. Does Dr Luncheon honestly not know that in 2002 Synergy and Harza International were granted a licence by the Government of Guyana under the Hydro-Electricity Act Cap. 56:03 for the development of a hydroelectric plant at Amaila Falls? And that the licence was amended and extended in 2004 when Harza pulled out leaving Synergy as the sole licensee? And that the licence was again extended in 2006 for one year?

For Dr Luncheon’s benefit, let me quote from the preamble of a Memorandum of Agreement dated May 23, 2006 between Synergy, GPL and the Government of Guyana on whose behalf no less a person than Prime Minister Sam Hinds signed.

“WHEREAS, SYNERGY proposes to construct a hydroelectric plant at Amaila Falls in Region 8 of West-Central Guyana, has conducted a detailed feasibility and an Environmental Impact Assessment (EIA), and has received a licence from the GoG and an environmental permit from the Guyana Environ-mental Protection Agency to construct the Amaila Falls Hydro Power project…”.

Perhaps Dr Luncheon thinks that by recruiting Sithe as contractors or project managers, Synergy is relieved of its obligations, liabilities and responsibilities under the licence. If so, he could not be more wrong.

It is worth noting that Dr Luncheon avoided my question about the basis and logic for the government putting LCDS money into a project which reverts to the state after a defined term. Instead, he diverts into a discussion about Sithe with which Synergy seems to have worked a deal which leaves Mr Fip Motilall to make money simply by playing the role of speculator and being the President, Chairman and CEO of what is turning out to be a government-financed/guaranteed company, using precious national and natural resources covering thousands of acres.

It is dangerous when the Head of the Presidential Secretariat, Cabinet Secretary and chief spokesperson of the government is not only badly informed but is unable to understand the implications of the increasingly reckless decisions by the government even in the light of what are simple, clear and direct questions. Even as he accuses me of lacking basic understanding, I respectfully offer a word of advice to Dr Luncheon, who I think is a good and well-meaning man: among his colleagues in Cabinet and government, are few persons on whom he should rely for accuracy of information, integrity, competence, moral rectitude and courage.

Dr Luncheon is a busy but clearly tired and overworked gentleman, of whom any expectation of a continuing public exchange concerning the facts about Amaila, Synergy, Mr Motilall and LCDS money would be unreasonable. So instead, I ask him to use his influence to have publicised the licence(s), extensions, agreements including that of May 2006, and the terms and conditions for cash and other inputs by the government towards the Amaila Hydro-electric project. That would be immensely helpful to persons including Dr Bulkan and me.

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Serious questions remain about the LCDS including the wisdom of putting Norway funds into the Amaila project

Despite its Stalinist ring, the request to Transparency International by acting Minister of Foreign Affairs Mr. Manzoor Nadir for a purge of the board of Transparency Institute (Guyana) Inc. (TIGI), a civil society group, is no surprise. Similarly, his falsehood that TIGI director Gino Persaud was “removed by the Government from the University Council” and his references to familial connections are entirely consistent with the evolution of the political behaviour of Mr. Nadir.

Not surprising either is President Jagdeo’s threat to host a press conference to deal exclusively with civil society activists Dr. Janette Bulkan and me over a letter on the LCDS signed by a group that includes the two of us. That too has become par for his course. Whether he will carry out that promise is uncertain given his surreal Saturday Night forgiveness fiesta and epiphany.

The venom in the statements by Messrs. Jagdeo and Nadir show how intolerant the Jagdeo administration has become of independent voices and critical views. I have no authority to speak for TIGI, the directors of which are quite capable. I do however feel compelled to respond to the attacks on my colleagues who signed the open letter for their “blasphemy” in expressing their well-grounded fears of abuse of LCDS money by a government that constantly shows only a cynical interest in openness, transparency and accountability and audit of public funds. A government that seems able to find from nowhere sometimes hundreds of millions of dollars to pay for spy equipment, for laptops and for various improper activities.

I assume those associated with a counter-letter under the Jagdeo-led Multi-Stakeholder Steering Committee (MSSC) did in fact read the letter in full and not rely on the government’s misrepresentation of it. To them I wish to pose the following issues relevant to the LCDS:

1. No matter how inevitable, any change in policy has winners and losers. How does the prioritization of the spending projects take account of and compensate, whether by way of cash compensation, retraining or otherwise, some of the biggest losers such as the forestry and mining sectors and their thousands of employees and small operators.

2. Our first peoples deserve reparations and appreciation of the rest of the country. But they also deserve our honesty, not hypocrisy. For four years until I called for action, the Government refus-ed to pay the Amerindians their share of royalty under the Amerindian Act.

3. Under the Guyana-Norway MOU, the Amerindians are not bound by the constraints of the LCDS and can choose to opt in or stay out of the LCDS. They are required to make no sacrifice but are the first in line for rewards. The LCDS is a country project not an ethnic initiative. If the Norwegians wish to assist the Amerindians then they should contribute to an Amerindian Fund.

4. By its patronizing attitude the government is creating a charity, entitlement culture among Amerindians who simply sit back and ask when is the money coming rather than consider among themselves steps to exploit their unique traditional knowledge, their culture and the resources they control.

5. The delay in disbursements is not due to any failings by Norway, the World Bank or members of civil society. It is because the Government has failed to submit proper project proposals which are ready for implementation. At this stage all they can advance is land titling and solar panels for the Amerindians and equity in Fip Motilall’s hydro-electricity project.

To the Government’s credit, land-titling under the Amerindian Act is a low cost administrative exercise which since 2006 has been funded out of the national budget. It does not need LCDS money.

6. The alternative energy initiative is being funded by the IDB and again does not require LCDS money.

7. That leaves the hydro-electricity project spearheaded by a man who has consistently failed to meet his contractual obligations to this country and its people. Under a licence granted to him in 2002, Mr. Fip Motilall’s company was supposed to provide thermal power as an interim measure and commence construction of the Amaila Hydro-Electricity Plant. He did not supply the thermal plant but the Government renewed/extended the licence in 2004, and again in 2006 for one year which means that it would have required further extensions to remain current. That information is not public.

8. Despite all of that bad experience, in 2009 the government awarded Synergy a road project contract under an unlawful process managed by an unlawfully operating government company NICIL. Which businessperson in their right mind would agree to put their money into his company which did not realize that it needed first to have a road to the plant site before it could build the plant?

9. The hydro-electricity plant would revert to the state after an already agreed period with no financial input by the Government. By putting LCDS funds into the company the country is paying for an asset the residual ownership of which is already agreed to be vested in the state. If we are to put money into the project why should Motilall remain in control? Now that we have a Procure-ment Act should we not put the project out to tender? Is the best use of the Norwegian-sourced money rushing headlong into what will amount to a joint-venture with and controlled by Mr. Motilall?

10. Like its comparator the PNC, this government has a poor record on accounting and transparency. But in terms of truth and integrity, this government is in a class of its own. Relevantly, can Mr. Peter Persaud and Mr. Clinton Urling – no doubt well-intentioned and well-informed persons – who have written critically of the letter by Dr. Janette Bulkan and others, tell us how they knew of the Siddhartha 1.8 million acres deal which had been hidden from the rest of the country and possibly the Multi-Stakeholder Steering Committee?

11. I would like too to hear from the informed members of the SSMC about the carbon footprint of the deal with Siddhartha and whether it is compatible with the ethos and concept of a low carbon development strategy.

With all respect to the Amerindians land titling is not a low carbon issue and what do we do with the annual average US$50 million we will receive while Mr. Motilall takes his time in building our hydro-electricity facility? Put it all into his company? I hope the businesspersons on the SSMC would ask their Chairman Mr. Jagdeo to publish the Licence, agreements and extensions with Mr. Motilall before any public funds are put into his company.

Finally, let me say this to Jagdeo, Nadir and those who feel compelled to attack Dr. Bulkan and other members of civil society. I consider Dr. Bulkan and all the other signatories to our letter, capable, patriotic and courageous. I have never distanced myself from such persons and am proud to be associated with them – cuss or no cuss.

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Audit Office turns a Nelson’s eye to Office of the President

Introduction
Today’s column resumes the review of the 2011 budgetary allocations to the principal ministries of government. Some of the ministries covered so far are the Ministry of Education, the Ministry of Health and the Ministry of Finance. It focuses on the Office of the President, the budget for which has jumped from $4.274 billion in 2010 to $7.175 billion in 2011, an increase of 68%.

This is even higher – percentage wise – than the increase of 64.3% in the Finance Ministry’s 2011 budget due to the expectation of proposed spending on LCDS projects, including equity spending on the Amaila Falls Hydro-electricity project.

[table to be inserted]

All figures in millions of Guyana dollars.

Source: National Estimates 2011 and 2010.

Public policy? Not really
At first sight, it is striking that only in his last year as President has Mr Jagdeo seen it fit to set up a Public Policy and Planning functional unit in his office, and one naturally wonders whether this function resided in the past with him. But on closer examination the function falls far short of public policy, having as its stated objective “supporting and sustaining the successful transformational process of the Public Service through the necessary reform…”

The absurdity of it all becomes even more apparent when one looks at the impacts and indicators which the operations of the programme are designed to produce. These include reports to Cabinet, stakeholder consultations and documented research on public service reform in the Caribbean and elsewhere.

There is clearly an irony here – no president, perhaps other than Forbes Burnham, has done more to destroy the independence, professionalism and efficiency of the public service than President Jagdeo, and even if he is now seeking to correct his mistakes, he is clearly taking the wrong approach. To add to the irony, every one of the persons in this unit is a contract employee.

In his post-2006 term President Jagdeo realised how easy it is to bloat the public service with politically connected or useful persons and as a consequence the numbers of contract employees have grown inexorably since then. In 2011 alone the number of contract employees in the Office of the President has jumped from 106 to 144, a 26% increase, while over the period 2007 to 2011 it is a staggering 95% increase, as more and more party persons, their relatives and friends are placed on the payroll.

I know one person who told me that there simply were not enough desks for everyone and they had the option of working from home!

Missing line item
A recent expose of an order for spy equipment valued at $118 million (US$583,000) has raised some eyebrows, if only very fleetingly. The question though is where is the line item which is being charged with this grand sum? A reading of the 2011 Estimates does not help as the only line items in excess of this amount are Training and Subsidies and Contributions to local organisations. The Office of the President is known to control extra-budgetary funds well outside of the law and there is a possibility that whatever the spy equipment is, it may have been sourced from one of those secret funds.

It is easy to wonder and link some activities to the yet-to-be explained destination of more than $3 billion that had been lying for years in dormant bank accounts which were suddenly closed in July 2010.

Taken for a ride
The subventions too are paid outside of the law to some agencies that have an unenviable record when it comes to accountability and audit, including GINA, NCN and the Integrity Commission. In respect of the Presidential Guard, Castellani House and the Joint Intelligence Coordinating Agency (‘Spy Agency’), the exchanges between the Audit Office and Dr Nanda Gopaul, the administrative head of the Office of the President have reached a level of absurdity that has to be seen to be believed. Ever since at least 2004, the Audit Office has been drawing attention to the fact that departments of OP cannot be financed by subventions but only by operational programmes. For several years now, Dr Gopaul has given the same response, that the administration, ie, Dr Gopaul, has “written the Finance Secretary to have the matter rectified and is awaiting a response.”

If there is no answer for several years, there ought to be no reason for not discontinuing the subvention and terminating the services of the persons responsible.

The capital budget
The lion’s share of the $4,888 million budgeted to be spent in 2011 is for what is described as the Information Communication Technology project which entails the communication fibre optic networking system from Lethem to Georgetown, the construction of wireless and terrestrial networking systems from Moleson Creek in Berbice to Anna Regina in Essequibo. The total project cost is $9,607 million of which $1,200 million was spent up to the end of 2010.

Not surprisingly, both the fibre optic project and the One Laptop Per Family (OLPF) project are surrounded in mystery, secrecy and controversy, and are not without concerns about impropriety and illegality. The fibre optic project it seems is not as innocuous as it is represented to be and there are persons with connections within the PPP hierarchy whom the project will benefit. Absent this, the government and GT&T could have worked out a much more cost-effective and mutually beneficial relationship but politics it seems is not that straightforward.

The OLPF project has caused the Office of the President some embarrassment as its statements have been found to be misleading as a consequence of subsequent revelations from persons within the project, including a former manager who was astounded at the money which was thrown at him! Volume 3 of the Estimates indicates that of the $4,347 million to be spent in 2011, $2,500 million will be financed by foreign grants/loans and $1,847 million will be financed by the government. All the persons employed in the project in 2011 are employed on contract. Moreover, given the nature and components of the OLPF, rules of accounting would deem some of the expenditure recurrent rather than capital.

Office of Climate Change
The Office of Climate Change cannot be identified at all in the Estimates under Office of the President. One therefore wonders about the accountability of the money that is being spent in running this office which we are told is responsible for managing the whole LCDS process. Indeed, the head of the unit, Mr Shyam Nokta claims that he is working for the unit and the country without remuneration, a claim which may be surprising but which surely does not apply to everyone else. The law requires that all public expenditure should be accounted for, even where it is grant-funded, but this it seems is not being done. This lack of transparency does not encourage and inspire confidence over the substantial sums that are likely to flow from the Norwegians and the more secretive Chinese and Indians.

Missing too are the payments from the lottery proceeds which the government adamantly refuses to place in the Consolidated Fund but which is spent without authority, accountability and any regard for accounting and audit principles.

Audit silence
One would have expected that with all the allegations of financial illegalities and improprieties enveloping the Office of the President, the Audit Office would wish to appear at least to be showing some interest. Indeed it should have had resident auditors there or ensured that there was a competent team of internal auditors. Not so. In 2009, the last year for which there was an Audit Office report, not a single transaction was referred to as being reportable. Does the Audit Office not know and consider the failure to have written contracts a reportable breach? Or the operation of unaccounted funds? Or breaches of the procurement rules? Or unaccounted advances?

If this was the case in 2009 alone, it might be excusable on the basis of rotation. But it has happened for all the recent years, a situation from which one should be able to draw the inescapable inference that as in so many different ways, the Office of the President is out of bounds. Maybe it is just too hard to audit.