Peeping Tom – Rubbing Salt in the Wounds

May 23, 2008 Peeping Tom

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During slavery, runaway slaves were savagely flogged with a cow pestle whip. The blows were extremely painful and cut deep into the skin of the victims. Searing wounds were opened that bled profusely.

The slave masters were however not content with skin-lacerating lashes. In order to maximize the agony, they often rubbed a salty substance into these wounds thereby inflicting unbearable pain to the victim.

When I read about the Sanata Deal, it was as if I was at the receiving end of a cow pestle flogging. It cut deeply because all Guyanese were assured through the public pronouncements of the PPP Government and through the publication of the Privatization Policy Framework Paper (PPFP) that all Guyanese would have an opportunity to bid for public enterprises, and that the divestment of government assets would be through a competitive process.

Sanata was not sold through a competitive process. The Privatization Unit can keep repeating the line that there were invitations for proposals in the hope that it would lend credibility to their case. However, the Request for Proposals was very specific and was specifically for the resuscitation of the textile mill facility. No bids were received.

If receiving word that hand-picking an investor for the entire facility without going out to tender or without re-tendering was like a blow from the dreaded cow pestle, the concessions that have been offered to the investor was akin to rubbing salt into my open wounds. These are without question, the most generous concessions ever offered to anyone in this country.

Let us not be fooled by the fact that the investor will be paying an annual lease of G$50M. This is “chicken feed” considering the size and value that will accrue to the investor as a result of the use of this highly valuable and extensive piece of real estate and the package of concessions offered. The $50M becomes an almost negligible sum when measured against the concessions.

I wish to make it clear that I have nothing against the new investor. In fact I would have been glad to receive such a deal because that is a gift of lifetime: a ninety-nine year lease at $50M per year plus duty free concessions on everything, plus a five-year tax holiday which can be renewed for a further five years.

But here is the killer, the investor can if he so desires, exercise an option after three years of buying the entire facility for $700M. Now tell me, is this not a giveaway on the part of the government?
This column has previously argued that the 99-year lease amounted to a de facto transport. But it gets worse. The investor does not have to bother with having to pay an indexed US$250,000 per year in lease fees for the entire 99 years. All he needs to do is to exercise the option of buying the existing property in three years’ time, and the entire property will be his.

Of course we are told that there are conditions. The investor must ensure that US$27M is invested by that time. The Privatization Unit has not stated whether this has to be new investment into the country or whether the investor can relocate his plant and machinery from the New Guyana Pharmaceutical Corporation to the new site and whether this would be considered as part of the investment for the Sanata Deal. We are also not told whether this US$27M is measured solely by the fair market value of plant and equipment or whether it also includes operating expenses and material costs.

More importantly though who is going to ensure that this investment of US$27M is made? Do not tell me that it is the same persons who made this deal. Do not tell me it will be the Guyana Revenue Authority. They can hardly decipher the difference between beer and soft drinks much less to be burdened with the task of monitoring investment flows.

Who is going to ensure that if some piece of equipment is brought in that the price quoted reflects the true market value so that at the end of the capitalization process an accurate determination can be made as to whether a US$27M investment has been made?

What happens if the entire US$27M investment is not made? What happens to the extensive duty-free concessions which would have been waived in those three years of the take-off period for the investment? The contract clearly does not provide for these to be repayable.
On top of all this the investor will have a five-year tax holiday which can be renewed for a further five years. If this were not enough insult to injury, we are now being told that consideration is being given to the investor to get some help from high power costs, something that afflicts all businesses and from which relief is needed.
This announcement of giving consideration to helping with energy costs, coincides with a strange announcement by the Guyana Revenue Authority that it is examining policy in terms of concessions for energy generation. I did not know that the GRA’s job was about making policy, but this is just the type of confusion that bad deals generate.

I am therefore calling on the Privatization Unit and GOINVEST to explain the monitoring mechanisms in place to measure the capital investment and the employment created. I doubt whether there are any.
I doubt whether there has ever been any significant monitoring by any government agency of the total investment and job created by new investments that enjoy duty-free concessions.

If such monitoring had been taking place, if such capacity had been established within the government, it would have been by now crystal clear to those in authority that exhaustive concessions such those offered to Queens Atlantic Investments Inc., never brought any meaningful benefits to this country.
(To be continued)

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