Marriott project is a grand Ponzi scheme in the making

Mar 29, 2012 Letters

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DEAR EDITOR,
Consequent upon what was released in Parliament, pursuant to questions asked concerning the proposed Marriott Hotel, the AFC feels vindicated in its original call for a thorough examination of NICIL and serious cross-examination of its Executive Director, Mr. Winston Brassington and even the Minister of Finance, Dr. Ashni Singh, who since ten years ago were two of the prime movers behind all the transactions and deals at NICIL.
This examination must be done in the Economic Services Sector Committee as soon as possible. The AFC now understands, too, the reluctance of the PPP Government in accepting the new arrangement the Opposition parties seek to have in this Committee. It is afraid of the muck and grime which any such scrutiny will bring out. As is well known, the Opposition parties want a 4/3 Committee rather than a 3/4 one.
From even a perfunctory gleaning of the documentation supplied and the answers to the questions, there is every indication that this proposed Marriott Hotel is a sort of Ponzi scheme in the making, where Guyanese taxpayers are going to be ripped off and some crony of the PPP will be fattened with a good deal.
Taxpayers’ monies, which are in NICIL’s accounts, are going to be used to substantially underwrite the financing of this proposed Hotel project.  From all indications the sum will be US$21M comprised of subordinate loan stocks of US$15M, US$4M in equity and US$2M which allegedly is already spent on design fees paid to, from reliable AFC’s sources, a close friend of former President Jagdeo, New York-based Pakistani Mike Ahmad and his team.
An additional sum of $27M, rated as a senior debt, is to be syndicated by Republic Bank. There is no disclosure as to who will be guaranteeing this. The AFC believes that ultimately this debt will be a Government obligation, in view of its complete love with this project.
Documents released by the Minister of Finance on the proposed Marriott Hotel Project demonstrate clearly the PPP Government’s disposition of compromising the interest of Guyanese tax dollars.
In the case of a default, which is inevitable, the people of Guyana will lose, at the very least, US$21M. Why in configuring this arrangement our Government, who we trust to act in our interest and who are obligated to do so, would have NICIL’s interest (US$15M) subordinated to that of Republic Bank? Perhaps Mr. Jagdeo, Mr. Brassington or Mr. Ashni Singh would explain.
The next issue is that the Minister seems to think that NICIL and Atlantic Hotels Inc (AHI) are private companies, in his claim that agreements between Atlantic Hotels Inc and Shanghai Construction Group International (Trinidad and Tobago) Ltd (SCG) prohibit disclosure of specified contract documents.
The Minister needs to be reminded that both NICIL and AHI are State companies created with taxpayers’ resources and therefore all transactions and commitments are subject to public scrutiny and must be made available for such. The terms and conditions of Republic Bank’s syndicated debt, terms and conditions of AHI’s subordinated debt, feasibility study by Marriott and the unnamed American firm, etc. must be submitted for public review. The Economic Services Committee of Parliament will review this deal and conduct a risk analysis to evaluate the huge burden the Government is bringing to future generations.
The next issue is why did AHI, without being properly capitalized, and therefore without the capacity to deliver, enter into a contract with SCG for the construction of a US$52M Hotel and a management agreement with the Marriott Chain? On the other hand, why did SCG, the Marriott Chain and Republic Bank, reputable entities, enter into “binding” agreements with AHI, a company with no business history, inadequate capital, and therefore no capacity to deliver? The AFC feels that this only happened because AHI is an instrument of the PPP Government! Lift AHI’s veil and aha it is PPP and its cronies!
There is no commercial justification for this massive spending on a hotel when occupancy rates are so low in Guyana. The AFC is therefore inclined to believe that the only motive is to defraud the poor Guyanese taxpayers, like what happened to shareholders of CLICO when Government allowed US$34M to go overseas and just dissipate.
The foregoing issues are compounded by the lack of viability of this project. Many investments in the local hotel industry have gone bust because of low occupancy as well as the perennial issues of crime, unreliable and uncompetitive electricity, a dirty city, poor drainage, etc. which retard any development of local tourism, even among overseas Guyanese longing to visit their homeland.
I recall the case of one investor group failing in its quest to buy Guyana’s iconic Pegasus Hotel for US$14M. They could not raise the required financing because the Banks viewed it as too risky at that price. The proposed US$52M for the Marriott, a far cry from US$14M, have for 5 years failed to attract credible investors for the same reason. Two hotels are up for sale on Main Street, Georgetown and another on the East Bank (in which the Government put money) with no takers, even at discounted prices!
At US$52M (amount tendered by SCG) and taking three years) with US$42M in fixed debt at minimum of 10% interest per annum (more like 15% for that level of risk), AHI would have accumulated US$12.6M in three years without any income to pay debt-holders, and all of this  before commencement of operations. This gives a cost of US$64.6M (without escalation in prices).
With electricity cost of more than 20% of sales, labour cost of more than 15% of sales, management fees of 10% of sales to Marriott, and interest cost of US$5.4M per year, this project would not last 3 months of operation. In fact it would not even cover 20% of its interest cost if it were to attract all the tourists who visit Guyana. A taxpayers’ bailout will then be needed, just like the Skeldon Sugar Project and CLICO. And what will follow will be a sale to some friend of the Government at a knock down price!
In any case, no bank, local or overseas, would even consider a hotel in Guyana where the equity contribution is less than 50% (AHI only has proposed 22% equity). It is therefore interesting to see the terms and conditions of Republic Bank’s syndicated loan.
If the Minister of Finance and the powers within Freedom House believe in the Marriott’s and unnamed American firm’s feasibility studies, let them put their own money on this project, not that of poor taxpayers. If indeed the feasibility is so glowing, why is the Marriott International not putting its money on this project? How paradoxical that a working class Government is going to fund a huge multinational!
Guyana has a strong and progressive private sector which, given a good investment climate, would invest in any viable venture which makes a good return. The local banks are flush with liquidity and hunting for such projects. The hotel sector must be invested in by these private sector companies if the feasibility is so good. And unlike investments by the State, private sector investments have beneficial fiscal effects to the economy because import duties, VAT, corporate taxes etc., will be paid.
Rather than focusing on building a hotel for Marriott International, and then paying them 10 % to operate it, Government should focus and commit the very resources in addressing the everyday problems of poor infrastructure of roads, drainage, unreliable electricity, crime, public health, unemployment, poverty and hopelessness among our youths and migration. Some of this money should go into the University of Guyana to enhance a programme on Tourism.
The arrangements involving NICIL, AHI, Marriott, SCG, and the Government of Guyana raises serious questions of governance in the use of taxpayers’ money. NICIL has been used as a slush fund for shady deals involving the powers that be in Government and their friends. This company, headed by Winston Brassington and controlled by a board of Government Ministers under the direction of the President, has diverted billions of taxpayers’ resources away from the Consolidated Fund and therefore away from Parliamentary oversight. No audit report on this entity was presented in the last 10 (ten) years.
The AFC is demanding that all funds of NICIL be transferred to the Consolidated Fund and a forensic audit be conducted. Instead President Donald Ramotar seemed averse to such enquiry in his declaration that NICIL has done nothing illegal. Mr. Ramotar needs to be reminded that his first duty is to the Guyanese people and there is no bigger urgency facing his administration than dismantling the thick web of corruption that has robbed the people of this country of a decent standard of living. He could choose to do his job and come out looking good or continue the dark alley of his predecessor.
Khemraj Ramjattan

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