Fallout from Marriott “giveaway”…MPs aim to close loopholes for future ventures

May 28, 2014 News

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Opposition lawmakers are scrambling to correct what they see as glaring loopholes, as questions continue to swirl over

the multi-million-dollar Marriott-branded hotel deal.
Over the weekend, Atlantic Hotel Inc. (AHI), the company that owns and is constructing the controversial Kingston hotel, broke its silence on the secret investor, disclosing that two Hong Kong-based businessmen – Victor How Chung Chan and Xu Han – will be investing.
Startling enough, the British Virgin Islands-registered company, ACE Square Investments Ltd, owned by the businessmen, will acquire a staggering 67 per cent of the equity of AHI for US$8M. The total cost of the project is tagged at US$58M.
How Government allowed that to happen, despite widespread criticisms and warnings, is what has earned the ire of the Alliance for Change (AFC).
According to Member of Parliament and party Vice-Chairman Moses Nagamootoo, the financial arrangements of the hotel are being incorrectly described as a Public-Private Partnership (PPP) model – mixing taxpayers’ dollars and those of private investors.
“What we see happening here is definitely something other than a PPP. We are considering tabling a policy paper to be considered, as soon as possible, in the National Assembly on how we proceed on these types of investments in the future.”
Nagamootoo, a lawyer by profession, made it clear that it is not a case of AFC being anti-Chinese.
“China is a major player in the world; it cannot be ignored as an investor and as a strategic partner. We are saying that our investments using taxpayers’ monies must benefit Guyana, and all involved must sign on to accepted rules of engagement.”
The Public-Private Partnership model has been seen as a critical one in Asian countries, especially in India, Vietnam, the Philippines and Malaysia.
“It is important to draw the line and for us to understand clearly who is an investor; who is the owner and the relationship between an investor and management. What played out with Marriott is definitely strange. This should never ever happen in Guyana again.”
Nagamootoo also insisted that Government, through its investment arm, the National Industrial and Commercial

Investments Limited (NICIL), has been operating in a manner that could be deemed highly questionable.

STATE MONEY
“You can’t take state money, put it into NICIL and then transfer it out to another company just like that. It is like a grandfather transferring monies to his son, who in turn put it into the account of the grandson. It is the grandfather’s money at the end of the day.”
The MP pointed out that it is a fact that Guyana is not attracting enough foreign direct investments, hence the need for partnerships.
“We are standing by our position that investments cannot be done in an eclectic manner…in a fly-by-night manner. Any investment of this magnitude must be done taking into consideration the National Development Strategy and in national accord. These relationships should be strategic in nature, not opportunistic.”
Nagamootoo made reference to the Berbice River Bridge in which high tolls have brought to the fore the issue of Public-Private Partnerships.
“This model of investment, which is quite distinct from being outright direct foreign- or wholly state-owned, was first mooted in the mid-‘90s, when Guyana badly wanted to divest the electricity sector.
“But we have never been able to get it right. We were unable to attract a buyer for GPL, mainly due to our political troubles when a strategic buyer was warned to “fade” away. So we settled for co-management and co-generation, fuelled by heavy doses of state subsidies.”
Though a Berbice River Bridge law was approved in 2006, the Administration did not put in place a comprehensive policy paper on and legislative framework for BOT (Build- Operate-Transfer) or private-public infrastructure joint ventures.

NEEDED CONSULTATIONS
“There was, and still remains, a need for tri-partite compromise on an across-the-board concession package and cost recovery, and returns mechanisms on this type of investment, instead of the hide-and-seek and secret dealings as is the case with the Berbice Bridge.”
The Parliamentarian noted that in the Philippines, a Build-Operate-Transfer (BOT) law was passed since 1990.
“Under the PPP law, the private contractor is expected to finance, build, operate and

maintain specified infrastructural projects such as river bridges, deep-water ports, airports, etc. The law provides for vital concessions such as duty-free, tax holidays and return on capital, usually not exceeding 12%.”
The law would also set the parameters for recovery of investment through tolls, fees and other charges.
“There are various models of this type of partnership, such as the investor building, owning and operating the project (BOO), or Rehabilitate, Own and Operate (ROO) and Rehabilitate, Own and Transfer (ROT), the last two for old or decrepit existing projects.”
For future projects, Guyana needs to pursue BOT legislation for a new Demerara River Bridge, a new Essequibo river crossing, a strategic deep-water port and, perhaps a major railway linking us to Brazil.
“It is also an option for a technically feasible hydro project. Only when done under provisions of law, would any of these mega projects be truly transformational. Otherwise, they would be mere deals, done at the whims, fancies, caprice and, of course, the benefit of the ruling class and their managerial bureaucrats.”
Nagamootoo explained that under law, PPP projects ought to have a special board established, not an outfit such as NICIL which in turn creates its own “baby companies”, to invest public monies without any deliberation on or approval by the National Assembly.
Much of what went wrong with the Berbice River Bridge project was due to the arbitrariness with which NICIL went about investing public monies, placed at some 950 million in preferential shares in the name of ‘John Doe’, into what was supposed to be a private investment project.

SECRET
“It seems that the keepers of our money had forgotten that the PPP model was intended to get the private investors to put in all the money, instead of the state doing so by subterfuge. This has turned private-public partnership on its head.”
Nagamootoo argued that there is no justification also, in NICIL and NIS investing together 76% of the capital in a project such as Berbice Bridge and calling the project a private sector entity.
“It is madness to “own” 76% and give the 24% owners 100% over decision-making, and worse, give them 100% of the profits.”
In essence, the NICIL bureaucrats have stripped the Government of voting rights in the Berbice Bridge Company, and have waived dividends to which the Government is entitled on preference shares. Those dividends since 2008 were worth $104.5 million annually. During the life of the Bridge concession, the waiver would be worth more than $2B.
Berbicians, who are the nearest commuters, would expect that for this massive use of people’s money, the bridge company would charge an affordable toll, and one that would compare with that charged by the Demerara Harbour Bridge. But that was never to be, as the state-controlled Demerara Harbour Bridge charges a nominal toll of $100 per crossing. By contrast, a car crossing the Berbice River Bridge pays $2,200, or 22 times more.
“During the 2013 budget debate I had called for at least $150M in subsidy for Berbice Bridge tolls, which was ignored by this government. Government also voted against a motion in the House to lower the toll and, worse, government would not use its considerable voting strength to persuade the Berbice Bridge Company to reduce the tolls.”
The Marriott project was announced by former President Bharrat Jagdeo. It is being handled through AHI by Winston Brassington, who has come under scathing criticisms for his handling of state investments and privatisation of assets.

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