Soul for sale

Business Page

Part 2

Introduction
business pageIn the first part of this article I wrote that I did not see a copy of the final contract between Atlantic Hotel Inc (AHI) and SCG International (Trinidad and Tobago) Limited (SCG/the contractor) for the construction of the Kingston hotel property financed by the Government of Guyana, owned by AHI and proposed to be managed by and operated under the name of Marriott, the international hotel chain. In fact there is no single contract but rather ten separate documents, including one described as the Contract Agreement, that together constitute the contract. At all times Mr Winston Brassingston operated as the shareholder representative, chairman, sole director and Chief Executive Officer of AHI. In addition, these and other documents which I have seen indicate that Mr Brassington was the point man for negotiations with the contractor as well as government agencies. It is almost unthinkable that a single individual who in law has no obligation but to the company would be allowed such vast and unrestricted powers over expenditure exceeding ten billion dollars.

What is not unthinkable and indeed was foreseeable is the ‘shamateurishness’ of the negotiated documents and the potential implications for the Guyanese taxpayers who bear the full cost of the investment and any potential losses. To understand why it is not unthinkable and was indeed foreseeable, we have only to look at the example of the Skeldon Sugar Factory. With its large and powerful board and with inputs from Booker Tate, GuySuCo could not prevent a lopsided contract with a Chinese contractor in a matter in which the balance of expertise resided in Guyana. Sadly, the taxpayers continue to suffer the consequences of that mistake. And yet, even before that mistake is rectified − if it ever can be − we are, as Santayana warned, repeating it.

Marriott’s role
Let me also clarify why I am hesitant to call the property the Georgetown Marriott Hotel and Entertainment Complex despite this nomenclature in the Contract Agreement initialled by Brassington for AHI and Michael Zhang of SCG. Marriott is not putting a cent into the project. While the several documents provide for the property to be built to specifications established by Marriott International, the group’s principal role is to manage the property from which it will gain indirectly from the expanded global coverage and directly, from the hotel’s operations. No details have been released of the terms and conditions and the payment arrangements to Marriott for the services it currently provides in the construction phase, and what it will receive under its management contract. In the documents’ package there is a bare reference to Technical Services Agreement of April 23, 2010 between AHI and Marriott International. Interestingly, the financial statements which are audited by the benign and bemused Audit Office show no payment to Marriott in either 2010 or 2011, suggesting that Marriott worked gratis in those two years − a highly unlikely possibility.

What is certain is that Marriott bears no risk and is guaranteed its income, even if the hotel makes a loss. I hesitate to think that the contract with Marriott does not include a termination clause under which Marriott can withdraw their name from the operation. The fact that Brassington may very well sell Guyana’s majority holding in AHI suggests that termination can never be ruled out, in which case the label will inevitably change.

Tax exemptions − déjà vu  all over again
Last week I noted that in order to meet a request for a price reduction, the contractor SCG quoted a price which excluded, among other things, PAYE, ie the system by which income taxes are deducted and remitted to the Guyana Revenue Authority. For PAYE to constitute exclusion of cost and therefore a saving, it means that Mr Brassington would have had to agree to an exemption of employment income of the labour force from income taxes. Surely even Mr Brassington, whose little knowledge of taxation impressed then President Jagdeo, must know that the law does not allow for any such exemption. In fact, PAYE is collected by and held in trust until paid over to the Guyana Revenue Authority. I would not have thought Mr Brassington would agree to such a preposterous provision but for the fact that the Memorandum of Understanding which Mr Brassington signed with SCG includes PAYE as a cost reduction device.

And on the question of exemption from corporate taxes, one would have thought that Mr Brassington might have learnt from the QAII embarrassment that any exemption has to fall within the tax laws. If he knew that and went ahead and agreed to exemption from all forms of taxes for a construction company, he is guilty of a grievous violation of the laws of Guyana by agreeing to concessions which neither he nor the government has the power to give. If he did not know one has to ask if Finance Minister Dr Ashni Singh, who played a triple role in the QAII fiasco, is also similarly deficient.

Incidentally one of the criteria for tax holidays is the creation of employment. No more needs to be said on this.

The contractor is showing more cleverness than our one-man heavyweight team. SCG has chosen to incorporate in Trinidad and Tobago and thereby benefits from the Caricom Double Taxation Treaty under which the profit it earns in Guyana but which is not taxed here is exempt from taxes in Trinidad. But those same profits are taxable in China, so in effect we are, absurdly, forgoing revenue in favour of the cash-laden treasury of China. To think that the PPP’s father of the nation used to rail against such tax concessions to American, British and Canadian companies! It would be a great day when the GRA decides to step in and let any company know that it will not recognise any tax exemption that is granted outside of the law.

Duped
But on the issue of foreign labour, the contractor was more than clever. Understandably SCG became the target of protests and expressions of concern from several interest groups in Guyana, including the government-leaning FITUG. The Chinese contractor asked in its exchange with Mr Brassington that a clause be inserted in the initial draft contract available to bidders to provide that “the Contractor may [emphasis added] import any personnel who are necessary for the execution of the works.” Taking advantage of what may appear to be a standard and apparently innocuous provision in the contract, the contractor then imports all its labour needs from China. To add stupidity to insult, when the public in Guyana protests, Ms Teixeira with typical irrationality, shouts racism. Well Ms Teixeira, ask yourself who is being racist? The company had a choice of workers from Trinidad and Tobago, its country of incorporation and Guyana, two obvious sources. Instead it chose to import all its labour from China. But unfortunately, those who exposed us to the contractor’s deviousness and ethnic employment preference are too ashamed to admit that they have been duped and their masters now blame the country’s workers as unfit for employment on a construction site.

But Ms Teixeira was not alone in absurdity. Dr Gopaul, the labour man in the PPP/C said the construction of the hotel is a high-tech business, suggesting that it is beyond the competence of Guyanese. I find it hard to believe that having read the contract documents, any Minister would think that Guyanese are unable to contribute to the contractor’s obligation to ensure indigenous species of plants and grass and all aspects of landscaping. Twenty years on, there is no higher tech building in Georgetown than the US Embassy in Kingston, a building that was constructed with at least a 95% local work force. But for their own risible admission of reporters to their facilities, I would mention too the newly constructed spy centre in the compound of Castellani House which as far as the public is aware was built by Guyanese. Dr Gopaul’s defence of all-Chinese labour simply does not stand up.

Insulted once, twice and then thrice
As if to show that the 100% Chinese workforce had its PNC parallel, yesterday’s Stabroek News quotes GINA as stating that “the OMAI Gold Mines project had over 300 Canadians on site in the initial construction phase and no fuss was made.” The reason for the no fuss is that at no time did Cambior have any number close to 300 at the Omai site. My information on both the US Embassy as well as on OMAI was derived not from third party sources or speculation but from actual working knowledge. That those in control of GINA would resort to such fabrication is a measure of how weak they know their argument is. And even if GINA believed that to be the case, it seems to suggest that GINA believes that more than 20 years later we have fewer skills in Guyana!

I have learnt that since Ms Teixeira’s comments, a decision has been taken to cease any further protests at the construction site since they “come across as anti-Chinese.” I understand that further protests will take place at the Office of the President, but not at the office of Winston Brassington who signed the contract with the contractor. It is a strange decision given the facts set out in the several documents I referred to last week, documents to which I am sure certain members of the political opposition have had access. The labour movement must feel thrice insulted – first by the Chinese contractor who shunned them; second by the government and its vacuous spokespersons who said in as many words that local labour is unfit to work on a construction site; and finally by opposition politicians who put Chinese feelings before the interests of the Guyanese workers. The Chinese have every reason to be contemptuous of Guyanese.

Ten billion dollars money, ten cents professionalism    
Let us return to the contract documents. The first thing that comes across is the amateurishness of the documents signed by AHI whose officers are its director Winston Brassington and Attorney-at-Law Marcia Nadir-Sharma. Bear in mind that the contract is for over ten billion dollars, excluding a whole range of costs as set out in Part One last week. With such sums involved, you would think that some professionalism would go into the documents. In fact, professionalism is as excluded as Guyanese labour. Surely the contract documents should have been referred to one of the law firms with expertise in high-value construction contracts for finalisation. In fact the documents have all the hallmarks of people with no experience, expertise or concern for ensuring that taxpayers’ money is protected.

In fact there appears some amount of cut-and-paste going on in the preparation of the documents. Here is a classic example: Paragraph 4 of the MOU states that “US$21 million will be provided by AHI shareholders in the form of equity and subordinated debt, such that Zublin will invest the majority of the equity. Pending the execution of the Design-Build Contract, AHI is controlled by the Government of Guyana. Once the Design-Build Contract is executed and financial close is achieved, it is expected that Zublin will be the majority shareholder with the Government of Guyana having a minority stake and proportional representation on the Board of Directors.”

In May 2010 Zublin Grenada Ltd had announced that it was invited by the government to undertake this development and had given the Zublin team three weeks to consider the offer. There has been no indication from Zublin that it had accepted the offer but the June 14, 2011 MOU suggests that while Zublin is still involved it is not prepared to take any risk at the construction stage, all the financing for which has so far been provided by the Government of Guyana through AHI. As the public is aware, the US$25 million received from the disposal of the government’s share in GT&T was earmarked for the hotel and this is in addition to the US$10 million advanced by NICIL to SCG towards their $51 million contract price.

Viability not determined   
Someone should surely be asking Mr Brassington and/or the Finance Minister for details of the Marriot and Zublin contractual arrangements, including the basis for valuing any shares to be issued to Zublin. I shudder to think that it will be at the price which Ms Nadir-Sharma has  placed in the Articles as the price per share. She needs to be told that the share price in a company’s Articles of Incorporation should be the minimum issue price, to allow market flexibility to the directors. Is Ms Nadir-Sharma aware that nominal price per share was abolished in 1995 when the 1991 Companies Act came into force?

A review of the documents reveals other concerns: the June 2011 MOU admits that the revised contract price of US$51 million for a reduction in the scope of work is “not fully acceptable to AHI”; that AHI is confronted with a shortfall based on the Marriott projections; that there needs to be further capital costs reduction, increased revenue from the operation of the casino and more optimal financing terms. In other words, the construction began even before the viability of the project had been determined! This may explain why NICIL is providing interest-free loans to AHI.

What it does not explain is how and why Mr Brassington could give to Dr Ashni Singh, Minister of Finance, six months later, an undertaking that AHI “will procure or provide all the investment [and other] financing required [by AHI] estimated at US$58 million.” Mr Brassington and Dr Singh both appeared to be pretending that they were entering into an arm’s length agreement and that they did not know that it was Dr Singh’s NICIL that was improperly providing AHI with whatever money it accesses.

Vying for the most elementary but not costly error made by the Brassington-Nadir-Sharma combination is their failure to ensure that SCG has a legal presence in Guyana. It is one of the first assertions in the preamble in any properly drawn-up agreement. Two separate checks at the Deeds Registry this past week suggest that SCG is not incorporated or registered as an external company in Guyana as it is required to be under the Companies Act. There is no evidence that Mr Brassington agreed to waive the mandatory statutory duty.
To be continued



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