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The Clico fallout – Duprey, Monteil and Geeta Singh-Knight

Introduction
The Duprey name is legendary in Trinidad and Tobago. Cecil Duprey, a member of an ordinary local family in a matter of decades rose from practically nothing to become a household name in his country. He founded a successful conglomerate, established a business that would probably have been considered too bid to fail and his grandson Lawrence Duprey had visions of taking the company global. He was street smart and while living his vision – first in the Caribbean and then further afield – played the political field as a major supporter of the corrupt Basdeo Panday government. Duprey seems to have won President Jagdeo’s confidence here in Guyana which seems to have made available to him and his company CLICO endless opportunities to invest in Guyana. For example, CLICO’s forestry subsidiary Caribbean Resources Limited was allowed to retain concessions over huge swathes of Guyana’s forests even though it had for years defaulted on its obligations to the Guyana Forestry Commission. Duprey was preferred to DDL for GuySuCo’s molasses and was negotiating for an investment in an ethanol plant.

Mr Lawrence Duprey surrounded himself with some bright accountants, including Andre Monteil, a classmate of mine at South West London College from 1970 to 1973. Monteil is credited with being a key architect of CLICO’s expansion and some of its more aggressive and possibly illegal activities. While Monteil’s role in some transactions made him quite unpopular in Trinidad and Tobago, for the better part of two years, it was felt the Mr Duprey was untouchable. That belief was shattered this past week in Trinidad and both gentlemen are now in some real problems.

Double whammy
Reports emanating from Trinidad and Tobago suggest that the government of that country is moving against Lawrence Duprey and Andre Monteil for civil and or criminal conduct in the collapse of the insurance giant CLICO and its parent CL Financial. A civil lawsuit was filed last Tuesday by Trinidad’s Central Bank and CLICO against Duprey and Monteil for alleged mismanagement and misappropriation of CLICO assets which led to the fall of CLICO in January 2009. Then one day later Attorney General Anand Ramlogan directed that all files coming out of the probe into the collapse of insurance giant CLICO should be forwarded to Director of Public Prosecutions (DPP) Roger Gaspard to determine if criminal charges should be laid against Duprey and Monteil. The two hundred page suit should make interesting reading indeed.

Under normal circumstances the authorities in Guyana and the former key officers in CLICO Guyana should be taking great interest in the developments taking place in Trinidad. While the architects of the financial misadventure that has placed our National Insurance Scheme at risk were those in Trinidad, they found compliant Guyanese to carry out the Guyanese leg of transactions, even willing to ignore the country’s laws and defy its regulator. This column had previously called on the Bank of Guyana which has taken over responsibility for regulatory control of the insurance sector to work closely with its counterparts in Trinidad in the investigations and prosecutions of the region’s most expensive financial failure.

Deafening silence
So far we have heard nothing but a deafening silence from the Bank of Guyana whose Governor has, probably dangerously, been appointed the company’s liquidator. I say dangerously because it is not unusual for legal actions to be brought against a liquidator and the person most likely to do so would be the regulator. That is not going to happen even as the liquidation has in essence been contracted out! Indeed my understanding is that CLICO’s former CEO Ms Geeta Singh-Knight is still playing a paid role in the liquidation. We are truly an incredible country.

The CLICO debacle in Guyana has been addressed to some considerable degree in these columns before. I do not intend to do so again. Suffice it to say that the company had breached the provisions of the Insurance Act which require companies carrying on long-term insurance business to invest a base of 85% of its statutory fund in Guyana. In clear contravention of that legal requirement CLICO took the billions of dollars in the Fund and placed it in a related party in The Bahamas, incorrectly claiming that it was invested in Fixed Deposits, a matter that appeared to have escaped the diligent notice of CLICO’s auditors. The directors and officers of CLICO did not comply with a demand/request by the regulator to repatriate the Statutory Fund.

Trouble
Enter the law. Section 19 of the Insurance Act provides that any person who contravenes any provision of the Act, or any of its regulations or any direction or requirement made by the Commissioner of Insurance, is guilty of an offence. Unlike the normal presumption in law where the prosecution has the burden of proving beyond reasonable doubt the guilt of the accused, the Insurance Act shifts the burden to the “person” to prove that s/he did not knowingly commit the offence of omission or commission.

Sub-section (2) of the section provides that where an offence is committed by a company – in this case CLICO – and the offence is proved to have been committed with the consent or connivance of, or to have been facilitated by any neglect on the part of, any director, principal officer, or other officer or an actuary or auditor of the company, he, as well as the company, shall be deemed to be guilty of the offence. Ms Singh-Knight was both a director and principal officer of the local company and most certainly it would have been to Ms Singh-Knight that the Commissioner of Insurance would have been addressing correspondence and directions.

There is no doubt in my mind that as the new regulator the Bank of Guyana should have long initiated action against the officers and directors of CLICO Guyana, and that the failure by the BoG amounts in my view to a serious dereliction of duty. Now when the regulator fails, for whatever reason, to protect the public interest, there is trouble indeed. That is the situation we face.

Duprey and Monteil
The question has been posed to me whether Guyana can take similar action here against Duprey and Monteil. That is a question for really seasoned attorneys to answer. The Insurance Act recognizes that insurance may be offered in Guyana by persons who are not in Guyana. In fact the Act defines a person as including “a natural person and any corporation or other entity which is given, or is recognized as having legal personality by the laws of any country or territory.”

The challenge is that the laws of Guyana are generally only enforceable in the country’s courts and the question is under what law can the courts of Guyana compel Mr Duprey to submit to its jurisdiction. Article 38 of the revised Treaty of Chagauramas imposes an obligation on member states of Caricom, within defined limitations, “to remove discriminatory restrictions on banking, insurance and other financial services.”

Oddly, the treaty created a single economic space but left territorial jurisdictions intact, impervious to each territory’s domestic laws. The Caribbean Court of Justice only has original jurisdiction in relation to the treaty and the CSME and appellate jurisdiction from national courts. It may seem commonsensical that crimes or contraventions of provisions of the treaty committed in any territory should be dealt with in that territory. It is certainly worth further consideration and one only has to look at how the US used the long arm of its laws to bring to justice ‘Sir’ Alan Stanford for financial crimes committed in Antigua which defrauded Americans back home.

Local directors
But back to the directors of the local company and in particular Ms Gita Singh, its CEO who was at the centre of the questionable and disastrous transactions. In addition to the infractions of the Insurance Act there were clear breaches of the Companies Act (CA) which governs all companies incorporated or registered in Guyana. S 96 of the Act imposes on every director and officer of a company a duty to (a) act honestly and in good faith with a view to the best interest of the company; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

In the discharge of their particular duties which they have assumed, directors are bound to take reasonable care. Failure to exercise such care constitutes negligence. While the normal legal principle is that directors owe their duty to the company and to no one else, directors may be liable to outsiders for their own wrongs. This means that directors who are parties to a fraud or the commission of any other wrong are personally liable on the general principle that a servant or agent who commits a wrong is liable for damages resulting therefrom as well as the company.
Time to act

We should long ago have started an enquiry into CLICO for possible criminal conduct and the Bank of Guyana should, like their counterparts in Trinidad and Tobago, have begun civil action against them and their Trinidadian masters. This would have been an excellent opportunity to expand on our jurisprudence while penalizing those who break our laws and cause our people and country huge losses.

It may be that the Bank of Guyana is afraid to take action because President Jagdeo has stood by Ms Singh-Knight while he throws red herrings about investigating Globe Trust and CLICO. There must be some good reason for him to want to do so but his failure sends the wrong signal that some people can do no wrong and if they do, there will be no consequences.

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Amaila Falls: Deals within a deal

Correction and apology
In an earlier piece, relying on section 25 of the Hydro Electricity Act Cap 56:03 which provided that the assignment or transfer of a licence without the consent of the President, I had questioned the authority of the Prime Minister Mr Samuel Hinds to transfer the Interim Licence from Synergy to Amaila Falls Hydro Inc (AFHEP). While that section was not explicitly amended, there were two later Acts – The Guyana Energy Authority Act and the Energy Sector (Harmonisation of Laws) Act 2002 – that transferred the functions from the President to the Minister who in this case would be the Prime Minister. I extend apologies to the Prime Minister and to readers for this. Without offering any qualification to this apology, I can state that the Prime Minister has failed to exercise his duties and responsibilities under the Act in relation to Mr Fip Motilall and his company Synergy Holdings Inc.

Introduction
Last week’s column concluded with a restatement of the obligations of a licensee under the Hydro Electricity Act. The tenth supplementary AFHEP licence is scheduled to expire this year and that means that the current licensee Sithe Global has about seven months to complete the development works set out in the Licence, a pre-condition for the application for a final licence. Sithe has a lot of work to do and from their own public utterances it seems that they are far from prepared for any serious and public criticism of their plans, clearly more comfortable with dealing with our Prime Minister. That is understandable after having been stung and embarrassed by their performance on what has been a near disastrous Bujagali Hydro Electric Plant in Uganda.

From all appearances and from the Prime Minister’s utterances, Sithe was chosen not by the government but by Mr Motilall whose competence, judgment, marketing skills and political connections have been on public display with regard to the Amaila Falls Road Project awarded to his company by the government against all informed advice. Incidentally my information is that work on the road project has been practically halted and that Mr Motilall is out of the country. There must now be doubts whether Mr Motilall will be in a position to complete the road, a fear that was expressed in a court challenge to the award of the contract to Motilall and by everyone else except the government. Already parallels are being drawn between Burnham and Jagdeo’s adventures with hydro.

‘Bigging up’
But back to Sithe which is expected to be around for some time, although for how long is another matter. Readers will recall that Business Page of May 29 sought to deal with issues raised by Mr Rafael Herz who has been identified as the Project Manager of the Amaila Falls Hydro project. Naturally he and the company want to ‘big up’ themselves but sometimes the results are not what they intend. Here are some claims made by Sithe Global on its website:

1. That it strives to be “among the best in the world at implementing large scale, socially responsible power generation projects, often in places where success has proven challenging.” If that is indeed the case then Guyana should consider whether Sithe is the most appropriate fit for us with our small-scale Amaila and whether the project’s price tag means that Guyanese have to pay Sithe for its name and reputation.

2. Its award of the 2007 EuroMoney Africa Power Deal of the Year for the Bujagali Project. Its website does not state that in 2009 the World Bank recommended a 5 per cent increase in tariffs that year and a similar percentage increase in 2010 in order to avoid “shocking” Ugandans with the inevitable price increase that was expected once the Bujagali dam was completed, despite earlier claims that power tariffs would decrease once the project became operational.

3. That its projects currently total nearly 7000 megawatts with a total capital investment potential of $15 billion. That works out at US$2.142 million per mega watt, or half the cost of Amaila.

Bujagali
On the Bujagali project, Sithe “partnered” with a division of the Aga Khan Fund for Economic Development and formed a company called Bujagali Energy Company Limited to develop the project of which the lead contractor was Salini, an Italian construction company. With Sithe’s most recent experience bordering on a disaster, it would be the most compelling thing in the world for any serious government to do serious due diligence of the Bujagali experience and Sithe’s role in it. They would want to know why the key players in the project including Sithe could have got a major element in the project so wrong; whether the problem was with the contractor or Sithe; whether there was adequate and appropriate consultations; the role and responsibility of the government; the supervision by the regulator, if any, and the scale of the project cost overrun and whose judgment and estimates were at fault.

For Sithe to simply change contractors for the Amaila project is not enough. It must be challenged and must show that it was not culpable in the debacle of Bujagali. Civil society and the press must get answers before the Amaila project gets the green light. Glib talking and throwing around numbers and self-praise are not acceptable. We are suffering from that type of behaviour in connection with the road project in which one name is common.

China Railways
Now that Business Page has revealed that China Railways’ own website shows no expertise in hydro projects, we are told that real expertise resides in China Railway’s partner, Northwest Hydro Consulting Engineers (NWH), described by Mr Herz as “one of the pre-eminent hydro firms in China.” Interestingly Mr Motilall had once described Synergy in similar terms and my research indicates that Northwest is a hydropower consulting company which carries out various levels of engineering studies of hydropower schemes and helps carry out techno-financial analyses of medium and large hydropower projects.

Mr Herz rejected a suggestion in these columns that the debt interest rate could be as high as 30% and volunteered that “in addition to the several million dollars in cash which Sithe Global has already contributed to developing this project, the company expected to invest approximately $200 million of equity towards the total project cost.” Such generalizations are not a substitute for solid information. At December 31, 2009 Sithe had advanced to AFHEP about US$800,000 which was spent on the project development expenses (US$325,000) and general and administrative expenses (US$480,000). What Mr Herz needs to do is not tell us what is not so, he should tell us the facts.

To be fair to Mr Herz he did not say that Sithe’s equity is in the form of cash and it now seems that the project is already being charged for Sithe’s time and expenses on Amaila. Does this include any payment to Mr Motilall who for several years breached practically every condition of the interim licence he was carrying around in his briefcase looking for a buyer?

Investment
Guyanese have a right to know how much cash Sithe will be investing in the project and Mr Herz might care to tell us why the company which will carry out and own the project has been capitalised with a mere US$2,500! We expect too to know the nature of the expenditure of “several million dollars in cash” spent by Sithe in developing the project and whether and how much was paid to Mr Motilall. Mr Hinds and the PUC would be discharging their duty to consumers and taxpayers by letting them in on all the costs they will eventually have to bear in electricity rates.

On the question of the cost of the AFHEP, Mr Herz had stated its “the cost per kilowatt for the construction of the hydro facility will be comparable to the cost of other hydro facilities of similar scope.” I have done a survey of the cost of projects and have come up with the information set out below, with the caveat that some of the costs are budgeted rather than actual. There are savings in terms of capacity but the relationship is not as direct or linear as might seem logical. Every project is different and where there is a displacement of persons that can be a major cost. For Amaila, population displacement is not likely to be significant.

What makes the Jirau and San Antonio plants so much more expensive than the proposed Belo Monte Dam is substantial expenditure on technically complex and expensive ship locks, as well as environmental remediation. If we exclude those expenditures the remaining cost of construction and transmission falls more within the range of the Belo Monte Dam. Sithe’s most recent Bujagali project has been described as one of the most expensive hydro electricity projects in the world. Amaila will now surpass that.

Back next week with a discussion of the request by the Minister of Finance for more money.

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Amaila Hydro: Deals within a deal

Introduction
Mr Rafael Herz, Project Manager of the Amaila Falls Hydropower Inc, in a letter in the Stabroek News of May 24 captioned ‘Inaccurate information being published on Sithe Global,’ seems to have intended a response to Business Page of May 22 ‘Deals within a deal.’ With the government’s cynical and obstinate refusal to pass freedom of information legislation, it is only through enterprising persistence and the self-serving material offered by PR conscious investors, including Fip Motilall and Sithe, that even limited information comes out in the open. Indeed had it not been for questions posed to Sithe’s representatives at their road show at the Tower Hotel, Prime Minister Sam Hinds would have been silent on what he did and did not sign and Sithe would have been able to avoid the kind of direct questions which its representatives now have to contend with but which seem to make them increasingly nervous.

Mr Herz states that the interim licence previously granted to Synergy Holdings was transferred to Sithe Global from Synergy and subsequently renewed. He then volunteered “that both actions were in accordance with Guyanese law.” It would be helpful if Mr Herz could, within Sithe’s commitment to transparency, tell us the amount of the bond posted as security for performance and whether each of the series of interim licences included “a statement whether the requirements thereof and of the Regulations [published under the Act] have been fully complied with by such interim licensee.”

And it is for Mr Hinds to tell us why with the serial failures of Mr Motilall, and after ten supplementaries to the 2002 licence, the government did not think it fit and necessary to impose any rent or royalty provided for under the Hydro Electricity Act Cap 56:03. In 2008 alone, Mr Motilall was granted three such supplementaries – on April 9, September 3 and December 16! It is a case of whom the politicians bless, let no one touch.

Cost and capacity
Mr Herz’s letter under reference does not state the cost of the project – which his colleagues had told reporters at the Tower event would be around US$667 million – nor did he state the size of the plant on completion, two absolutely necessary pieces of information to test Mr Herz’s assertion that “the cost per kilowatt for the construction of the hydro facility will be comparable to the cost of other hydro facilities of similar scope.” Mr Herz probably assumed that such information was already in the public domain and needed no repeating, but what may need repeating to him is Clause 2 of the Tenth Supplementary Interim Licence issued on January 10, 2011 which states in Clause 2 that the Memorandum of Under-standing (MOU) signed by the Government of Guyana, Guyana Power and Light Inc and Synergy is for the construction of a 100 MW hydro electric plant at Amaila.

It is true that other documents including the ESIA and Sithe’s website refer to a 165 MW capacity plant but surely the MOU which states categorically and unambiguously that that MOU remains in full force and effect (emphasis mine) must be of principal legal significance.

The January 10 2011 licence is described on the electricity.gov.gy website as the latest interim licence and expires at one minute to midnight on December 31 of this year. It seems reasonable enough therefore that it can be relied upon as authoritative in the matter, since if there were any doubts or amendments, such modifications would be written into the binding agreements. Indeed, a responsible government would want to ensure that there is no uncertainty about the details of the country’s largest investment ever, and avoid the possibility of the project sponsor Sithe delivering a plant of 100 MW and claim compliance with its obligations. Maybe it is only after completing its work under the interim licence, that Sithe will be better able to determine the precise details of the plant capacity.

Re-thinking Amaila and Sithe
What was not fair however was for him to expect that the Guyanese public would be gullible enough to accept his generalizations about “facilities of similar scope.” Could Mr Herz not name one or two, or was he afraid and embarrassed to name the Bujagali hydro project in Uganda for which Sithe has earned a rather dubious reputation as project sponsors?

I have done an internet search of projects and by any measure Amaila is coming in at a prohibitively high cost and needs to be rethought. Whether Guyana can now back away from Sithe depends on an interpretation of the interim licence, the wording of which suggests that once the interim licencees have completed the initial development and otherwise fulfilled the terms of the licence and file a notice of such completion and fulfilment together with proof of such completion and fulfilment, the Minister’s options are limited. He may conduct a survey of the works constructed or used and of the lands and waters used and occupied in connection with the project, and provided all the works have been completed, the licence makes it obligatory on him to issue a final licence to which other terms may be added.

Obligations
Next week’s column will examine some hydro electricity projects around the world and their cost, but for now it might be useful for readers to understand what Sithe as the successor licensee must do under the current interim licence in order to qualify for a final licence:

(a) Form and register a Guyana based Special Purpose Company with the “no objection” of the responsible Minister of the equity partners and shareholders to undertake the development of the project. The company which was formed has an authorised share capital of US$500 and at the end of the year of the transfer of the licence from Synergy to Sithe not a single share was issued.

(b) Obtain an environmental permit from the Environmental Protection Agency and all relevant statutory permits required for activities related to the development of AFHEP.

(c) Conclude all arrangements for the sale of hydro-electric energy with proposed consumers specified in paragraph 7 hereto (GPL, Linden/McKenzie area, Omai Gold Mines Limited and other consumers approved by the Minister) and where such hydroelectric energy is to be sold to public suppliers, the related Power Purchase Agreement (PPA) must be approved by the Public Utilities Commission (PUC). My information is that this has still not reached the PUC which in any case ought to have a public hearing before giving its approval.

(d) Complete all technical evaluation with consumers and in particular with the Guyana Power & Light Inc (GPL) including load flow evaluations, to ensure that the project can be implemented without any adverse effect on the quality and reliability of the electricity distributed by public suppliers to the public.

(e) Finalise and survey all lands to be occupied for construction, maintenance and operation of AFHEP, including the access road and transmission line routes.

(f) Prepare and negotiate EPC (engineering, procurement and construction) contracts and incorporate the final prices in the interim licensees’ financial model.

(g) Conclude all financing and pre-closing activities for the development of the AFHEP.

(h) Complete initial developmental works related to the construction of the proposed forty (40) kilometres access road from Pamela Landing to the project site and the airstrip at the project site.

(i) Collect additional hydrological data on an ongoing basis to verify the levels of firm power during dry seasons.

(j) Prepare and submit to the Minister responsible for energy a business plan and a framework for an operating and maintenance plan describing the intended approach to operation and maintenance, the proposed operating standards and likely costs.

(k) Previously applicable to Synergy and Harza.

Guyanese need to make sure that the Prime Minister and the government do not allow shortcuts which are in breach of these obligations.

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SN letter did not contain any figure for the cost of the Enmore packaging plant

Mr M Maxwell is normally very careful with the underlying facts and assumptions in his letters and for that reason they are always worth reading. I am therefore surprised that in his letter to the editor in the Stabroek News of May 28, (‘Enmore’s packaging plant produces less than that of Kenya and costs more’) he would carelessly claim that “I provided an overall figure of US$12.5 million for the cost of only the Enmore packaging plant itself.”

I would appreciate if Mr Maxwell could indicate where in my letter in the Stabroek News of May 17, I made any such statement. Perhaps he is confusing the letter with a report carried in the Kaieteur News in which the journalist used some of the information contained in my Stabroek News letter. But clearly it could not be with respect to the price tag since that was not in my letter to the Stabroek News.

Mr Maxwell might recall that it was the Minister of Agriculture Mr Robert Persaud who following a January 2010 visit to the Enmore plant then under construction told the press that that government was investing $2.4 billion – roughly US$12 million – in the packaging plant.

This is not intended to be a criticism of Mr Maxwell since it is human to err.

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Acceptance of invitation from Agriculture Ministry and GuySuCo

I note in an article (Kaieteur News, Wednesday May 25, 2011) captioned “GuySuCo details US$12.5 expenditure on packaging plant”, statements emanating from Mr. Robert Persaud MBA, Minister of Agriculture and the Guyana Sugar Corporation. Both parties were reacting to a Kaieteur News article of the previous day, in which the newspaper raised questions about the cost of the plant.

I am sure that both the Minister and the Corporation are aware that my contribution to the discussion on the GuySuCo packaging plant was by way of a letter in the SN, of May 17, 2011.

In that letter I corrected President Jagdeo’s exaggerated pronouncement of sugar’s contribution to the GDP as 16% instead of approximately 6%. The focus of my letter was to caution that the packaging plant, welcome though it is, could not be a silver bullet for the serious financial problems of the Corporation.

In that connection I drew attention to the wave of packaging plants taking place across the world and specifically referred to a 300,000 tonnes capacity Plant by Mumias Sugar Company (MSC) with a daily capacity of 700 tonnes and a price tag of US$3M.

I challenge both GuySuCo and the Minister of Agriculture to show either in my letter or anywhere else where I referred to or questioned the cost of the Enmore Packaging Plant.

I note that Mr. Robert Persaud has challenged Kaieteur News and me “to conduct a forensic audit of GuySuCo and the Packaging Plant.” I herby accept this challenge to undertake a professional audit, the cost of which will be borne by Kaieteur News.

I hope this is not just bluff on Mr. Persaud’s part and that he has both the authority and the courage to carry through with his challenge. I now await word from him.