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The President should act to prevent further carnage on our roads

Once again a truck/minibus accident takes Guyanese lives, generating widespread calls, once again, for action. All Guyanese would no doubt share the grief of those who have lost their loved ones and are grateful for the lives that were spared.

Today, Monday, a couple of us went to De Edward to see one of those who miraculously survived, an employee of Ram & McRae. He and his parents confirm the reports in the press of the heroic work of the staff of the Mahaicony Hospital, work that deserves recognition from us all, work that is caring and heartening indeed.

Yet the tragedy appears not to have had even the most temporary of effect on the drivers using the road from Georgetown to Rosignol. As we journeyed both ways, I observed and made a note of the registration numbers of the vehicles that passed ours. Of the minibuses, trucks and cars that we encountered only one was anywhere close to the speed limit. I witnessed vehicles overtaking on double yellow lines, driving at a dangerous speed, vehicles without trafficators, and of course the ubiquitous roaming animals.

What I did not see in the entire journey beyond Sparendaam Police Station was a single police officer – traffic or otherwise. That was most disappointing on the day that the press carried a comment from the Commissioner of Police on the accident.

On our way up, I saw not a single warning against speeding and only a handful of notifications of the speed limits, all inconspicuously written.

After the succession of lives lost in road accidents and with no discernible action by the government and the police on issues like better regulation of minibuses, speeding, the granting of licences and certificates of fitness, highway patrols, better signs about speeding and speed limits, drunken driving, etc, it is hard to be optimistic.

Perhaps, however, this most recent accident will shock the authorities into action and something real and effective will be done.

I am not being facetious and am seriously asking the President to postpone his one-colour taxi plan and instead act to prevent further carnage on our roads.

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Economy firewall malfunctions

Today Business Page begins a short series on the Mid-year Report 2009 which the Minister of Finance is required to submit to the National Assembly under the Fiscal Management and Accountability Act, 2003.

Introduction
Despite the President’s assurance that he had constructed a “firewall” – a term used to refer to the prevention of unauthorised intrusion into a computerised system – to protect the economy from the recession which had hit the world economic system, the Guyana economy contracted by 1.4% during the first half of 2009 (H/Y). This is according to the mid-year report presented to the National Assembly by Dr Ashni Singh, Minister of Finance on November 12, 2009, more than ten weeks after its legal due date and five days after this column had lamented the financial lawlessness that now characterises the Jagdeo/Singh economic management team. The firewall was only able to promote and permit growth in the half-year in two of the fifteen economic sectors when compared with their performance in the first half of 2008. The sectors which show improvement being forestry which grew in H/Y 2009 by 0.3% compared with a decline of 23% in the corresponding period in 2008, and manufacturing which moved from a decline of 3% in H/Y 2008 to 0% in the same period in 2009. Although the great majority of sectors performed poorly, the Minister of Finance who also controls the Bureau of Statistics which compiles the national statistics constituting his report, reported half-year growth in the non-sugar sector of 1.1% compared with a 4% growth for the same period in 2008. As Bill Clinton would say, It’s sugar, Stupid.

Obviously disregarding current developments in the sector, the report projects sugar to boost overall economic performance in the second half of 2009, reversing its own 20% decline in half-year 2009 to a 10% overall 2009 growth, and thereby spectacularly transforming the economy’s half-year decline of 1.4% to a full year 2.5% growth for the entire year. Once again, the Bureau of Statistics will have its work cut out, but more significantly, despite the government’s two-decade attempt at diversification of the economy, sugar remains the economy’s backbone, lifeblood, and increasingly its scapegoat. The projected growth in sugar and therefore the rest of the economy must be encouraging for the main sugar union GAWU as it enters into government-imposed wages arbitration with the state owned GuySuco.

2009.11.22_Chart1

Source: Minister of Finance Mid-Year Report 2009

And even the improved performance in the two sectors may not bode too well after all. Under the Guyana-Norway LCDS Memorandum of Understanding (MOU) addressed in this column last week, the country may not be able to optimally exploit our forested areas that cover 80% of the country. That understanding brings those areas under international supervision bordering on control, in return for a six-year grant from the Norwegians of potentially US $250 million – hardly a good return on what President Jagdeo has described as our greatest asset. Because the report was said to have been written before the signing of the MOU, it does not contain any reference to that agreement, including the immediate potential implications. Hopefully, that is not overlooked as the Guyana-Norway agreement is for specified funds for a limited period.

With respect to manufacturing, let us recall that the explanation given by the Minister last year for the manufacturing sector recording what economists like to refer to as negative growth, was partly the high cost of inputs – fuel and imported raw materials. The question whether the manufacturing sector is a mere price taker would be very interesting indeed for consideration by the Minister of Finance, the leaders of the sector and those who continue to call for any and every tax concession ever conceived. It must also be of some irony and concern that the Vice-Chairman of the Private Sector Commission and a lead private sector person on the Jagdeo-led National Competitiveness Strategy Programme, Mr Ramesh Dookhoo, is the current head of the Guyana Manufacturers Association.

It is surely not too early to ask President Jagdeo and Mr Dookhoo to show how the over five-and-a-half billion dollars borrowed from the IDB are benefiting the country, in the light of the reverse-stop-go performance of the economy. Just to put Norway’s potential contribution into context, the NCS loan is 90% of the first year LCDS payment. I do not know if the lender, the IDB pays any attention to the work done by the National Competitiveness Council but what is on the NCS website is what one would hardly expect from busy politicians and their overpaid consultants and experts.

2009.11.22_Table1

Source: Mid-year Report 2009

As usual the report does not bother to deal with several key issues relevant to the economy and the only mention the Clico fiasco warrants is a boast that “the government’s timely intervention in placing the company under judicial management has helped to contain the impact of the company’s difficulties.” It does not appear to have been recognised or accepted that had the government’s intervention been before and not after the virtual collapse of the company’s Trinidad parent, then the country would not have lost a gross sum of tens of millions of US dollars. The report offers no assurance of when Clico’s depositors and policy-holders will receive the money guaranteed by the ever-promising President. Those include the National Insurance Scheme and thousands of others who did not benefit from the serendipitous payout by Clico just prior to its downfall. Nor does it address the new arrangements for the insurance sector that has now been placed under the Bank of Guyana, the very institution that along with the Office of the Commissioner of Insurance contributed in no small measure to the demise of Clico. It is timely to note as well that the hurriedly drafted amendment is likely to create more juridical problems than the administrative weaknesses it is intended to cure. The entire functions of the Commissioner of Insurance have been transferred to the Bank of Guyana and unless the bank creates a similarly named position it is a fair inference that the position has been abolished.

It would have been good too if the Minister had spent some time telling the country about the state of tax reform which has become another annual promise, the progress to stem money-laundering, the state of the National Insurance Scheme given its exposure to Clico, legislation dealing with the New Building Society that according to the President has reached its lending limit, the (President’s) $2 billion promise to the housing sector for the vulnerable groups in our society and his billion dollar mangrove project and Dr Singh’s understanding of the reasons for the sharp decline in the performance of the distribution sector, from 11% in both halves of 2008 to a mere 3% in half-year 2009. Or is it that the Minister considers this and the reported Bureau of Statistics’ “estimate” of inflation in half year 2009 of 1.3% adequately dealt with by his assessment of consumers’ exercise of “caution and prudence”? I have to confess that is a novel if not unique explanation for depressed spending power in the national economy.

To be continued

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Transparency, accountability underpin Guyana and Norway MOU

Introduction
President Jagdeo was obviously pleased about the Memorandum of Understanding (MOU) signed by him and Norway’s Minister of the Environment and International Development Erik Solheim under which Norway agrees to provide defined financing for Guyana’s evolving Low Carbon Development Strategy (LCDS). For the President it is vindication of his huge investment in time and money pursuing LCDS funding, in exchange for a commitment to drastically restrict the exploitation of the country’s forests, described by him as the country’s most valuable resource. The signing comes within three weeks of a United Nations Conference scheduled for Copenhagen, Denmark to consider a replacement for the international treaty on the environment called the Kyoto Protocol. In fact President Jagdeo was so excited at a post-signing press conference that he called the MOU “our Copenhagen.”

Under the MOU, Norway will pay US$30 million (approximately $6.2 billion) next year and potentially up to US$250 million ($51.7 billion) by 2015 for Guyana to preserve its forests. According to the President the figure committed by Norway “is more than the combined loans and grants Guyana receives on an annual basis from the World Bank, the Inter-American Development Bank, the Caribbean Development Bank and the European Union.” If not inaccurate, that statement is terribly misleading since it compares an annual amount with a five-year sum. We have also had debt write-offs, loans and grants from countries and institutions in some years, in net present terms, in excess of the total amount committed by the Norwegians. Notwithstanding this, the agreement is indeed an achievement and needs no exaggeration or misrepresentation, even if it comes at a huge cost to the country. Some time soon we will need a thorough evaluation by the experts, academics and economists to assess the cost/benefit of the agreement to the country.

McKinsey and the US$580 million
In response to the President’s comparison between Norway and the rest of the donor community – excluding significantly individual countries and the International Monetary Fund (IMF) – his critics might add that the agreement comes with more strings than those that have ever been imposed by the International Monetary Fund, the World Bank, the Inter-American Development Bank, the Caribbean Development Bank and the European Union, all combined. More significantly, the critics might suggest that a far more meaningful comparison is between what the Norwegians have committed and what McKinsey, the government’s LCDS consulting guru, has told them, quite unrealistically, that our forests are worth to the world.

Essentially the LCDS is arguing that since the world benefits, according to McKinsey, by US$40 billion dollars per year from the conservation of our forests, and since to Guyana the annual worth of the forest in economic terms is US$580 million, then the world must pay us that sum. Accordingly McKinsey, in a document which has not been released despite calls for this to be done, has appears to have convinced the government of the country’s entitlement of annual payments by the international community in the following four phases.

Phase 1 (2009) – No sum indicated but the Draft LCDS refers to interim payments to launch the LCDS and funding for Monitoring, Reporting and Verification (MRV).

Phase 2 (2010 – 2012) – US$60 million to US$350 million annually for capacity building, human capital development and the investment required to build a low carbon economy.

Phase 3 (2013 – 2020) – US$350 million to US$580 million annually for essentially the same purposes in Phase 2 and for payments to avoid deforestation and climate change adaptation.

Phase 4 (2020 [sic] and onwards) – Greater than US$580 million annually, providing incentives at or above the McKinsey’s annual economic valuation of the country’s forests.

Who will join Norway?
Critics should not however jump to the conclusion or their calculator to prove that the amount committed by Norway is negligible and a mere fraction of what McKinsey had led the government to believe it should receive from the world in return for strict limits on forestry exploitation. The total amount committed by the Norwegians through to 2015 is indeed US$100 million less than the amount of the lower range McKinsey told the government it should expect during the seven-year Phase 3. In fairness, however, the LCDS is premised not only on inflows from Norway but from other countries that either historically caused much of the world’s pollution, such as the US, Europe, Japan and Russia or the newer, large-scale polluters such as China and India.

That is why I think President Jagdeo is wrong to have exulted that the deal with Norway is “our Copenhagen.” Perhaps the President is not optimistic that much will come out of Copenhagen and in any case for the first time he told the nation this week that even if agreement is secured in Denmark, it would take almost four years before funds would flow to countries like Guyana. What that means is that unless there are other ‘bi-laterals’ such as the Guyana-Norway deal, Guyana cannot look forward to similar funding for at least another four years.

Under the Draft LCDS, Guyana had identified more than US$1 billion in “essential capital projects” that can be fully or partially funded through private investment assisted by an in-country infrastructure investment fund built from forest compensation payments. The Norwegians are clearly not interested in any such in-country fund, and if we accept the President’s four year prediction, then there is a huge financing gap to be filled. Now that the Norwegians have put down their marker, the Government of Guyana has a lot of work to revise the LCDS and make it more realistic. Hydro-power which appears as a centre-piece of the LCDS will now have to be financed from other sources, the private sector will have to come up with quite a lot of money and the government too can do its part. The money pledged in the first year equates to less than 6% of the national budget for 2009 and with proper financial management and a commitment to collect the taxes legally due by the army of tax evaders out there, we can easily raise more than what the Norwegians have committed in the first year of their programme.

The options for achieving that are available, but are not new, neither has there been any commitment to a national response to global warming or to responsible financial management. Only this week we saw the Minister of Finance presenting his mid-year report that was due at the end of August but conveniently misdated. We have never been an environmentally conscious people and the economy is based on the most inefficient and unfriendly use of energy whether in vehicle fuel consumption or electricity; we have no policy on recycling and fail to manage our water resources efficiently or exercise proper flood control measures.

The cost
In return for the less than required funding for the LCDS the country is giving up a lot, including control over the money we receive and sovereignty over our forests, contrary to what the government had been assuring Guyanese. The Norwegians have obviously been tougher in their negotiations than many feared they might be, and may have taken on board several of the concerns raised by the groups and individuals from the political parties and civil society whom they canvassed or who canvassed them. While the documents they have signed stay clear of the domestic issues such as the improper and unlawful use of funds, it is quite likely that those issues have informed some of the conditions they have imposed, conditions that show that the Norwegians are not taking any chances with the money they are prepared to give to Guyana.

Financial safeguards
The deal is a carrot and stick arrangement but with more emphasis on stick than carrot. The maximum we can receive under the MOU is fixed but the stick is that the amounts which we will receive are results-based according to how well we measure up to the terms and conditions set out in the document which themselves require considerable resources to ensure compliance. In fact, in the early stages of the implementation of the deal, a disproportionate amount of the funds will be used to set up the administrative and oversight arrangements which could see huge sums going to consultants. The costs to be met in the first two years include those for the establishment of the Project Management Office; the Office of Climate Change (operational costs); the multi-stakeholder consultation process and annual verification by neutral experts that the enabling activities have been completed.

What is particularly noticeable are the financial conditions set out in the Joint Concept Note (JCN), conditions that might otherwise be considered draconian but which many Guyanese bloggers seem to welcome. The JCN covers not only the Norwegian funds but other similar funds as well, raising the possibility that the Norwegian conditions are baseline, to be supplemented by any conditions imposed by other donors. The funds will go into a Guyana REDD-plus Investment Fund (GRIF), managed by a reputable international organisation and responsible for ensuring full oversight of the GRIF’s operations, including fiduciary obligation as trustee, and providing technical support as agreed with Guyana. Significantly the Joint Concept Note specifies that the GRIF must be operational before any contributions can be disbursed from Norway (emphasis mine). Safeguards, including social, economic and environmental safeguards, as well as the fiduciary and operational policies of the organisation selected, will apply, as appropriate, to all activities to be financed by the GRIF.

Technical conditions
The conditions applying to the technical, forest-related issues are no less stringent. Before any money is disbursed Guyana will have to take formal steps to establish independent forest monitoring by a credible, independent entity. Almost immediately the government is required to prepare an outline of Guyana’s REDD-plus governance development and no later than October 2010, a more detailed plan setting out clear requirements and timelines for its implementation. Additionally the country is required to show evidence of entering a formal dialogue with the European Union with the intent of joining its Forest Law Enforcement, Governance and Trade (FLEGT) processes towards a Voluntary Partnership Agreement (VPA), with its resonance with the EU EPA which the President had railed about. Government also has to show evidence of its decision to enter a formal dialogue with the Extractive Industries Transparency Initiative (EITI) or an alternative mechanism agreed by Guyana and Norway to further the same aim as EITI.

Conclusion
Transparency and accountability underpin the entire arrangement and the JCN requires that information regarding the initiative be publicly available. As if to show its immediate commitment to these concepts, the government has posted both the MOU and the JCN on the Guyana LCDS website.

One of the questions that none of our journalists appears to have raised with the President is whether he consulted with anyone – including his Cabinet, the Leader of the Opposition and the LCDS Steering Committee – before agreeing to the terms set by the Norwegians. That of course is not the President’s style and he might have considered that given how much he had invested in the LCDS, he needed something – anything – to show for his efforts. He has expressed confidence that Guyana will be able to meet its obligations both under the technical as well as the financial provisions of the deal. Recent experiences with the UK on security sector reform and the EU on funding to agriculture suggest that more than words will be necessary.

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Financial lawlessness on the increase

The Fiscal Management and Accountability Act, 2003 (FMAA), along with the Integrity Commission Act and the Audit Act, are often advertised by the government as proof of its commitment to transparency and accountability. This trilogy of legislation is underpinned and intended to give effect to a constitutional provision for the proper accounting of public moneys. To prevent any doubt about what public moneys means the FMAA defines it as “all moneys belonging to the State received or collected by officials in their official capacity including tax and non-tax revenue collections authorised by law and… grants to the Government…”. That clearly includes money from Lotto and privatisation and any funds received from the Norwegians and other sources towards the Low Carbon Development Strategy (LCDS).

Not only that. The various acts referred to above are all part of the commitment of the Government of Guyana to the international donor community – the IMF, the World Bank, the IDB, the EU, Canada, the US and others – for good governance including transparency in accounting, in exchange for financial support. The Minister of Finance is the member of the Cabinet designated by law for ensuring that the constitutional and statutory requirements are complied with and is empowered by the act to take punitive action against those who breach its provisions. Having played a major role in the passage of the accountability legislation, the donors are assumed to be familiar with the main provisions of the legislation and must therefore be aware of the major infractions of the legislation by the very Minister bound to ensure compliance.

Spend, baby spend
The national budget continues to grow at a considerable rate helped by VAT producing immoral windfalls to the government. With a penchant for huge numbers and throwing money after problems, for President Jagdeo the policy has been ‘spend, baby spend.’ Like the World Cup money and the flood funds, accountability and audit will come later, if at all. No one would have identified Dr Ashni Singh, Minister of Finance with the ‘spend, baby spend’ attitude, or given his background as a professionally qualified accountant and former Deputy Auditor General, have expected that he would treat accountability and the audit of the books of the state with such disdain. It is neither excusable nor understandable.

Yet Dr Ashni Singh has breached several of the statutory duties and professional obligations imposed on him in defiance of public opinion and the rule of law, and confident of no warning letter from the President, his political boss. Dr Singh’s apparent contempt for good governance and accountability makes many hesitate to support the LCDS which places the centre of the LCDS in the Office of the President, the very office that now unconstitutionally (mis)appropriates the Lotto Funds, using it for all sorts of improper purposes at the fancy of the President.

Lotto
Article 217 of the Constitution of Guyana – the country’s supreme law – requires that “all revenues or other moneys raised or received by Guyana (not being revenues or other moneys that are payable, by or under an Act of Parliament, into some other fund established for any specific purpose or that may, by or under such an Act, be retained by the authority that received them for the purpose of defraying the expenses of that authority) shall be paid into and form one Consolidated Fund.” I do not believe that the term “for any specific purpose” can be interpreted so widely as to allow an Act of Parliament to defeat the main constitutional objective to ensure that moneys coming in to the state go only into the Consolidated Fund and any spending done out of that Fund is on the basis of appropriations by the National Assembly.

In defiance of the constitution the 24% of gross takings collected by the government from the Guyana Lottery Company are made available to the President who seems to exercise total control of how it is spent with only any unspent balance being put into the Consolidated Fund. I have heard this practice defended under the second parenthetical exception to Article 217 and that the money should go to the Government Lotteries Control Committee under the Government Lotteries Act Cap. 80:07. That argument in my view falls at the first hurdle since that act deals only with lotteries “organised and conducted by the Government Lotteries Control Committee.” The Lotto Funds as they are infamously referred to, represent the government’s share of the gross takings from a private lottery run under a contract between the Canadian operator and the government. It is a tax/levy and should rightly go straight into the Consolidated Fund. The President’s misuse of these funds is a clear breach of the constitution which he has taken an oath to uphold, while the failure by the Minister of Finance to bring these moneys into the Consolidated Fund constitutes a dereliction of his duty and obligation and contrary to section 48 of the FMAA which makes it unlawful for any minister or official to misuse, misapply, or improperly dispose of public moneys.

The mid-year report
The Fiscal Management and Accountability Act 2003 imposes on the Minister a mandatory duty to present to the National Assembly, no later than August 30 of the half year, a report on the year-to-date execution of the annual budget and the prospects for the remainder of the year. This column has been at pains to point out that not only is the Minister in breach of this statutory duty with regard to timing, but even when he belatedly submits the report, it is frequently misdated to minimise the delay and omits key information prescribed by the act. The act requires the report to include “an update on the current macroeconomic and fiscal situation, a revised economic outlook for the remainder of the fiscal year, and a statement of the projected impact that these trends are likely to have on the annual budget for the current fiscal year.”

This is a practical proposition and the report should comment on emerging issues such as the alleged $300 million fraud at the GRA, the President’s $2 billion housing fund for the vulnerable, the gains from the LCDS and any unbudgeted expenditure incurred in the first half of the year. This kind of information is not only for the business community and the citizenry but also the kind of information any Finance Minister as the country’s Chief Finance Officer needs for his short-term planning.

Unintended consequences
The delay by the Minister causes the Bank of Guyana (BoG) to delay the publication of its own half-year report until the Minister releases his. I understand the BoG’s report has been ready for some time and while the Bank is an independent statutory body, it comes within the ministerial control of the Finance Minister, a choice between losing its reputation for independence and offending the Minister.

A similar situation exists with the Bureau of Statistics. This entity has received several millions of dollars to enhance its professional competence and secure its independence. I think it was in 1991 that an act was passed to make the bureau a body corporate, independent and effective. The minister responsible for the act is the Minister of Finance who in the absence of a chairman appointed by him is automatically the chairman. There is nothing to indicate that a board was ever appointed and by default the bureau remains as a unit of the Ministry of Finance, mistakenly described on its website as a “Government of Guyana Agency.” It should not therefore come as a surprise that the bureau is far from effective in how it carries out its mandate, selectively choosing if and when to publish important statistical information, a decision apparently not unrelated to the wishes of the Minister.

Perhaps more out of frustration than from a practical consideration a source close to the Bank of Guyana has suggested that these two bodies should report direct to the National Assembly. This may very well be a suggestion that the Speaker of the National Assembly or the Public Accounts Committee may wish to take up, even if in the first instance it is done privately. What is clear is that the failure of these bodies to discharge their statutory duties does little to contradict those who argue that what Guyana has is paper accountability only.

The Office of the Auditor General
Not only is this office subject to its own act but it is also a constitutional body with serious responsibilities and functions. One of the first but fundamental points to note about the head of this office is that the constitution makes no provision for an acting Auditor General and the job description clearly requires a professionally qualified accountant. In fact the incumbent has no such qualification and it would be a travesty for him to be appointed substantively to the position. It may be convenient for the government to have him there, but surely it is dangerous for the taxpayers of the country and severely compromises the quality of its reports. By retaining him the government is aware that the real authority in the Audit Office is no less a person than the spouse of the Minister of Finance. It is hard to believe that neither of them nor anyone in the government, nor in the international donor community that keeps putting money into the Office, recognises this obvious conflict of interest or simply is not interested even in token accountability.

Even with that major weakness the Audit Office is operating at half its required manpower and this helps to explain why it keeps falling back and down on many of its public commitments. Like the Minister of Finance’s mid-year report, the Audit Office’s report on the Government accounts for 2008 is also late. By law this must be submitted to the National Assembly within nine months of the end of the accounting year. We are now in the eleventh month without any word about when this report will be available.

One of the mandates of the Office is to conduct Value-For-Money (VFM) audits and it must now be coming on to a year or more since the Office has been due to issue its report on a VFM audit conducted on the financially miniscule Palms.

Even with expensive Canadian assistance the Office has been unable to deliver. VFM audits are of less value where the expenditure is unavoidable, as it is with the Palms, the main expenditure on which comprises staffing (it is understaffed) and meals (which are as low-cost as one can get). VFMs are useful in the case of discretionary expenditure such as Cabinet Outreach and the choice of newspapers for government advertisements. With weak and compromised leadership, the Office is clearly not in a position to deliver on its mandate.

Conclusion
Transparency and accountability are not esoteric or theoretical concepts but are practical, part of the democratic landscape and help to ensure that money is properly accounted for and sensibly spent. Our national budget exceeds $100 billion and if we take the most conservative estimate of 10% as lost through poor financial management, the country loses $10 billion per year. Think what that can do to reduce taxation or enhance social spending. The Minister of Finance has a wonderful opportunity to redeem his reputation.

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Mounting losses by GPL

Introduction
If everything goes according to plan and the new Kingston Power Plant finally comes into operation within the next week or two, Guyanese can expect a reduction in the spate of blackouts that for the better part of 2009 have been plaguing the business sector, torturing households, arousing tempers and making any planning almost impossible. So bad and widespread has the situation become that it is non-discriminatory in its impact – affecting with equal effect rural and urban Guyana alike; children at school and housewives at home; commerce and industry, successful and loss-making. The financial statements inform us that the company has spent some $3.1 billion in capital expenditure for 2008, obviously with more to come in 2009, though the level of capital commitments has not been disclosed. Whatever the technical (de)/merits of these massive sums, all borne in the final analysis by the long-suffering, impoverished consumers, any kind of relief will surely be welcome, not least so that Guyanese can have a lit, if not bright Christmas. This will indeed be good news even as the Guyana Power and Light Inc. (GPL) continues to haemorrhage money for the state and the taxpayers of this country.

According to GPL’s financial statements for the year ended December 31, 2008 posted on its website, the company racked up losses before tax in 2008 of $2.9 billion, a 23% increase over 2007 and close to double the corresponding loss two years earlier. What makes this loss even more significant is that over the same period the company has shed hundreds of employees even as a handful of senior staff are paid several millions of dollars each. The financial statements show the Government advancing to the company, cumulatively, more than $7 billion, much of it interest-free, whether authorised by the National Assembly or not being another matter. It is obviously hard to understand what drives this financial irrationality and one must wonder whether the Government is satisfied with the results following changes at the top of the company.

Haemorrhage
The past few years have seen a number of changes in the company including the replacement of former Chairman Chartered Accountant Ronald Alli with privatisation czar Mr. Winston Brassington, the appointment to the Board of PPP member Desmond Mohammed and Mr. Rajendra Singh, recently appointed Deputy CEO of Guysuco. Sitting on the GPL Board as well is Mr. Carvil Duncan of FITUG, who does not seem uncomfortable at the loss of hundreds of jobs under his watch. The shedding of jobs has taken place over the token, tepid opposition from Mr. Kenneth Joseph, President of the government-friendly National Association of Agricultural, Commercial and Industrial Employees (NAACIE) to an earlier proposal to lay off 250 workers. Mr. Joseph may not have noticed but that number has been exceeded by more than 25%! It is hardly reassuring to the members of NAACIE that in the two entities in which the Union has historically been most effective – sugar and electricity – workers have seen their numbers shrink and influence reduced.

But it is not only money that the company has been losing. It is losing approximately one out of every three units of electricity it generates under the rubric of Technical and Commercial Losses, losses which have to be borne by consumers. In the past couple of years, it has also lost key management personnel including former Chief Executive Officer Rabindranath Singh, Deputy CEO Martica Thomas, Commercial Services Director Kesh Nandlall, Legal Officer Neil Bollers, and Human Resources Director Donna Tucker. Such a situation makes for depressing reading by consumers who in both absolute and relative terms pay some of the highest rates and receive some of the poorest service for electricity in the region.

Financial Highlights

2009.11.01_table1

Source: GPL’s Audited Financial Statements 2008.

But back to the finances
Total assets of the corporation increased in 2008 by $6 billion or 32%, even as inventory declined from $2.1 billion to $1.6 billion or approximately 25%. The largest drop in this asset group was in the value of fuel stock but disturbingly, the value of spares declined by 25%. Normally, as the value of plant and equipment increases, the spares to support them should increase as well, but this did not happen. Another major item in assets was what the accounts refer to as Deferred Tax Assets of $2 billion, of which a large proportion is in respect of the tax value of losses carried forward. It is open to speculation whether consumers are as optimistic as the company’s management and its auditors about the prospects of these losses being reversed any time soon and these tax losses realizing any value to the company.

Some 27% of the total assets of the company are financed by capital contributions from the Inter-American Development Bank, the Government of Guyana and private customers. GPL is one of the few service providers which can insist that its customers pay for the infrastructure to supply them which the supplier then owns, to share with other consumers as it chooses. Now it is telling those customers that they must prepay for their electricity consumption as well!

The gross amount of receivables from customers is $8.2 billion against which there is a whopping $5.2 billion Provision for Bad Debts or 64%. In other words, for every three dollars owed by customers, the company is confident of receiving only one dollar. Yet, only a couple of weeks ago, the company was boasting in one of its PR moments that the company has achieved a 100% rate of collection. That too makes little sense.

Who are the auditors?
The website financial statements bear an audit report signed by the Auditor General suggesting that he has audited the company’s financial statements. In fact the statements were audited by PKF, Barcellos, Narine & Co. to whom the audit was subcontracted. This is no simple legal technicality of principal and agent and it is entirely incorrect and highly misleading for the Audit Office to make such a misrepresentation. These statements are circulated to a wide group of users who may rely on them for a number of purposes. Unvarnished truth is therefore necessary.

Subject to that, the public would have better been able to understand the numbers if the directors act properly and post on the web the Annual Report as well. That report is ready but responding to my request for a copy, a senior member of the company told me that the report which was presented to the company’s annual general meeting some weeks ago could not be released until it has been authorised by Cabinet! Yet, only recently the company hosted media personnel over dinner and announced the appointment of Mr. Ron Robinson as its public relations consultant. The press persons should have asked about that Report and Mr. Robinson’s first piece of advice to the directors is that the best PR for any service provider is good service, transparency and accountability and that the annual report is a major PR tool. It has taken letters and several calls to the Chairman for me to have a rotting pole at my residence replaced. After about one year a new pole was planted but the old pole is still there, leaning precariously, while my calls to the GM find him always at meetings.

Prepaid meters
Another development announced by the company is the prepaid meter which would require the consumer to pay in advance for the electricity supply s/he receives. This I understand has received support from some quarters of the consumer movement and at least one prominent businessman.

I discussed the matter of prepaid meters with the relevant persons and I believe that they now realise that they may have too readily accepted the company’s arguments about the virtues of the proposed arrangement. One issue that arose during our conversation was whether the proposed arrangement falls within the Standard Terms and Conditions for Electric Service and that any amendments will have to be approved by the Public Utilities Commission.

GPL has touted its proposed move as benefiting customers since the “prepaid metering system … will allow them to manage their consumption of electricity” and that “through the new system consumers will become more knowledgeable about their electricity use and a significant reduction in demand is expected.” If the company truly believes that there will be a significant reduction in demand, one must wonder why the company is bothering to expand its capacity. I was told that the company has told a consumer representative that the system will remove the opportunity for theft! Worse, the person actually believed. The truth is that the company sees its proposed move as helping it to resolve one of its perennial problems – the collection of receivables. If every consumer is required to have prepaid meters, amounting in effect to paying for their supply in advance, the company will collect some $2 billion upfront, interest free, helping it with its cash flow problem.

The company has preferred not to engage the public in any meaningful discussion on the use of such meters but if it had it would no doubt have sought some guidance from South Africa, New Zealand, India, Philippines and Singapore where such a system has been introduced. In South Africa a number of unanticipated problems surfaced and there is universal agreement that the system often militates against the poor, just like VAT does. It is unthinking to assume that electricity can work on identical principles as cell phones and the PUC needs to consider very carefully the conditions under which it will approve any amendments to the regime under which electricity is supplied and paid for.

State of the Art v Common Sense
The company has also announced that it is implementing a US$2.8M automated Customer Information System (CIS) which it claims will boost the accuracy of the cash receipting process, improve customer service by giving prompt responses to billing requests and allow new payments to be immediately credited to a customer’s account. Not only is this an extra-ordinary amount of money for such ordinary benefits but it seems untimely that this is being done when the company is moving to prepaid meters which will reduce the need for as many accounts.

Throwing its own money, or that of its customers or shareholder, behind problems is certainly not the way a modern, large public enterprise should be run. The company is indeed a complex operation but any attempt to solve its myriad problems will first require an examination of its business model. Is it planning sufficiently long in advance and is it taking account of potential developments such as hydro in a couple of years as the President has promised?

I recall my thought in reaction to the announcement about the new software constituting a state of the art billing system. I could not help thinking that what the company needed was nothing state of the art, but simple courtesy and common sense management that does not leave a rotting pole for more than one year or allow losses to keep mounting, year after year.