Sanata privatisation: Investor can buy complex for $700 million

May 20, 2008 News

Government has defended the Sanata deal, saying that it is a far superior one than what was advertised last year prior to being privatized.

During the last week, several articles and quite a number of columnists took issue with the deal over the Ruimveldt complex, which is considered prime property, questioning among other things whether it was correctly advertised, and the concessions granted.

Yesterday, Head of the Privatisation Unit, Winston Brassington, and Chief Executive Office of the Guyana Office for Investment (Go-Invest), Geoffrey Da Silva, in a press conference, stressed that the privatisation advertisement ran 20 times but no one showed any interest.

According to Brassington, Government is maintaining its position that the deal was a substantive one.
Information was provided on the evaluation and approval of the Queens Atlantic Investment Inc. (QAII) proposal; the benefits of the privatisation and the progress to date; a review of the tender process and the results; and the state of Sanata at the time of privatisation. A brief history of Sanata prior to attempts to privatize in 2007 was also given.

According to the officials, QAII can buy the facilities for $700 million under the deal once it invests at least US$27 million in the stipulated three-year period.
Failure to meet the conditionalities could result in Government using the “claw-back” provisions under the agreement to penalize QAII, it was also disclosed.

Investor’s proposal

Brassington said that, in mid-2007, a proposal to lease the complex was received from QAII, and following detailed discussions/negotiations, a paper submitted by the Privatisation Unit to the Privatisation Board, on May 9, unanimously recommended approval of the proposal. The recommendations of the Board were then approved by Cabinet in May 2007.
The key terms of the proposal included the lease rate being set at US$0.24/square foot ($50/square foot/annum) and payable at the equivalent rate of exchange at the date of payment; the lease rate being indexed to the rate of inflation in the US after 2009; and all rates and taxes being to the account of the Lessee (rates in 2007 were approximately $6M).

Brassington said that the Privatisation Board and Cabinet considered a number of benefits in accepting the proposal. Land and buildings which had fallen into a state of dilapidation and vandalism would be utilised; the investment programme of over US$30M to be completed by 2010 would see the creation of employment on a permanent basis of over 600 persons; and economic activity would be encouraged in the Ruimveldt Industrial Area.

Tender process

The tender process for Sanata’s privatisation started with an advertisement in the last quarter of 2006 for the former G&C Sanata operations, but no bids were received by the original closing date of January 2007 or by the extended closing date of February 28, 2007.

Brassington said the bid box was opened on February 28 in the presence of a representative of the Auditor General and the non-receipt of bids was recorded.

“In accordance with the Privatisation Policy Framework Paper (PPFP) of July 1993, where an entity has been advertised and no bids received, direct negotiations can be held,” he said.

“The fact that we had no tenders indicates the lack of interest in the Sanata complex. If anyone was interested, then in accordance with our RFP and practice, we would have worked with that investor to obtain a position that sought investment, employment, and a net return on the assets. This was sought here and obtained,” Brassington explained.

He added that, with this privatization, a much larger investment than was expected was received.
“We have sought and maintained the textile operations, but we now have additional operations. This helps to ensure viability and sustainability,” he said.

State of Sanata

When Sanata was handed over it was in a deplorable state. Most of the complex was overrun and the equipment in the buildings had been vandalized and portions of the complex were entirely inaccessible, Brassington said.

In 1998 Sanata was closed and all workers’ services severed. In 2000, the company was dissolved and its assets and liabilities transferred to the National Industrial and Commercial Investments Limited (NICIL). At the time of dissolution, Sanata had an outstanding liability of $55M to the Mayor and City Council (M&CC), representing judgement on outstanding rates and taxes for many years.

In 1997, a large Chinese textile operations owned by the Chinese Government agreed with the Guyana Government, via the Privatisation Board, to lease the majority of the Sanata Complex. Despite G&C’s commitment to pay rent for the leased complex, the G&C complex failed shortly after commissioning and was formally handed over to the Government in lieu of rent in 2006.

Annual upkeep costs for the facility in 2006 were almost $20M –- $8M in security, $6M in rates and taxes, and over $5M in cleaning and miscellaneous repairs. The company spent some $400 million on the removal of asbestos from the buildings.

Upon completion, the complex will house a modern textile mill for gauze, bandages and denim production; a state-of-the-art printery, an antibiotics plant and a research and development facility; a pharmaceutical export processing facility and a hardware manufacturing division.

According to Brassington, since the Chinese handed back the facility in 2006, there were several reports of vandalism and persons trading shots and clashing with security.

Several photos were shown to the media of the damage done to the equipment by vandals and the bad state of disrepair of the compound.

The $50 million rent was decided upon based on, among other things, the old valuations of the complex, the level of investment, and current price of similar storage, Brassington said.