The 2014 Auditor General’s report (Part IV)

So the Amaila Falls Hydro Project is back on the front burner. The Government of Norway is expected to fund another study to determine once and for all the project’s feasibility, while the Government of Guyana has indicated that this is one of the several options being considered as possible sources of renewable energy. In 2009, the two governments entered into an agreement – The Guyana/Norway REDD+ Partnership – whereby Guyana would benefit from payments up to US$250 million through 2015 to limit deforestation degradation rates as well as greenhouse gas emissions. Payments were to be made based on independent verifications of performance in a number of areas against benchmarks set in relation to: (a) gross deforestation; (b) loss of intact forest landscape; (c) forest management; carbon loss as an indirect effect of new infrastructure; (d) emissions resulting from illegal logging activities; and emissions resulting from anthropogenically caused forest fires.

To date, Guyana has received US$190 million. The shortfall was mainly due to the aborted Amaila Falls Project which Norway had supported as well as Guyana’s delay in its application for membership of the Extractive Industries Transparency Initiative (EITI). The Government has committed itself to seek membership of EITI by June 2016 as part of the Budget Transparency Action Plan agreed upon with the European Union.

20131111watchIn a previous article, I had examined the financing arrangements for the Amaila Falls Hydro Project, and I had found that, as in the case of the Berbice River Bridge and the Marriott Hotel, the weighting was too much in favour of debt, with 70% debt and 30% equity. This has the effect of driving up the cost of the project because of interest charges during the construction phase. In addition, during the operational phase, interest charges, loan repayment and return on equity will have to be taken into account in the sale of electricity to the national grid. In the final analysis, it is the consumer who has to bear these costs by way of electricity tariffs. Our tariffs are currently extremely high compared with those of other countries, and line losses account for one-third of the electricity generated. At the moment, there is controversy as to whether or not Amaila Falls Project as configured is likely to result in the reduction of the tariffs.

The other item making the news last week relates to the possible renewal of the State Forest Exploratory Permit (SFEP) that was granted to Baishanlin in 2011 covering approximately 105,000 hectares of State forest. One of the conditionalities of the permit was for the company to set up a wood processing facility for downstream value-added activities, which to date is yet to materialize despite enormous fiscal concessions granted to Baishanlin. That apart, a SFEP cannot be renewed after its expiration, and the maximum period is three years. So far, the company has been granted a one year extension in November 2014, and if another extension of two years is granted, Baishanlin would have enjoyed the benefits of an SFEP for six consecutive years. There had been some confusion as to whether or not the Government has granted the extension, but later in the week, the Ministry of the Presidency has clarified that the company’s request was still pending and that Baishanlin was asked to submit a business plan and evidence of financing.

Today’s article continues our discussion on the 2014 Auditor General’s report which was presented to the National Assembly and which was yet to be examined by the Public Accounts Committee (PAC). The three previous articles covered some general issues, such as the apparent haste to meet the deadline at the expense of quality and comprehensiveness of the audit; the undue length of the report which in the past posed significant difficulties for the PAC; assessment of the overall opinions of the Auditor General on the consolidated financial statements which we felt were not consistent with the findings; and some specific issues relating to the public accounts statements, especially those relating to the Consolidated Fund, the Contingencies Fund and the Public Debt.

Office of the President

The original budget presented to the National Assembly under Programme 011 (Administrative Services) amounted to $1.336 billion. However, the Assembly did not approve of this amount because of: (a) its concern about certain line items, especially as regards contracted employees; and (b) the constraints imposed by the “2012 budget cuts” case in which the court ruled that the Assembly could only approve or disapprove of the proposed budget but not amend it. The then combined Opposition had appealed to the Government to separate out the contentious items so that the rest of the line items could enjoy smooth passage in the Assembly. The Government declined to do so, and as a result the Assembly had no alternative than to vote down the entire programme. This column is on record as having faulted the court ruling which contributed significantly to the events that led to the prorogation of Parliament.

On 10 November 2014, Cabinet approved of the restoration of the original budget under Programme 011. In his commentary on the matter, the Auditor General appeared to have accepted that Cabinet had the authority to do so, whereas by Article 217 of the Constitution, it is only Parliament which is authorised to approve of all public expenditure. Indeed, Cabinet’s action constitutes a usurpation of an essential function of Parliament of monitoring and controlling public expenditure. In addition, the approval took place on the same date that the former President prorogued Parliament to stave off a vote of no confidence in the Government following the Minister of Finance’s action to authorise withdrawals from the Consoli-dated Fund to meet expenditure specifically disallowed by Parliament.

The Cabinet’s decision appeared to have been an attempt to give covering approval of and to legitimize the Minister’s action. Even if Cabinet had the authority to reverse the decision of the Assembly, why wait until the date of prorogation of Parliament when in fact the 2014 Budget was approved at the end of April 2014? A similar observation was made in relation to the Department’s capital expenditure programme where the original budget reflected an amount of $3.847 billion of which $1.257 billion was restored by the same Cabinet decision. In all of this, the Auditor General appeared to overlook the fact that the Court subsequently ruled that the Minister’s action to authorise withdrawals from the Consolidated Fund under Article 218 (3) of the Constitution was a violation of the Constitution. The ruling was handed down on 14 February 2015 while the Auditor General issued his report on 30 September 2015.

As regards the E-Governance Pro-gramme, the Auditor General quite rightly bemoaned the practice of transferring the unspent balance at the end of the year to an escrow account held at a commercial bank. This is a breach of the Fiscal Management and Accountability Act which requires all unspent balance to be paid over to the Consolidated Fund. A similar observation was made in respect of the National Television Network where the unspent balance of $11.3 million on its capital expenditure programme was not returned to the Consolidated Fund.

It is public knowledge that the E-Governance Project has been halted because of the faulty installation of the fibre optic cable from Lethem to Linden. The Government subsequently entered into an agreement with a private firm to take over the project under extremely generous terms which many knowledgeable persons consider to be a give-away. The present Administration has since rescinded the decision but the status of the project remains unclear. For the period 2009 to 2014, some $11.132 billion, equivalent to US$54.3 million, was expended on the project. A significant portion of this expenditure was financed from a loan from the China Exim Bank, which has to be repaid from the hard-earned funds of taxpayers for what was clearly a botched, indeed bungled project.

Amounts totalling $652 million were expended on tuition fees, stipend and accommodation, among others, for students studying in Cuba and other countries. The Auditor General has indicated that his office, in collaboration with the Police, is conducting a special investigation on the matter. We look forward to an early conclusion of this exercise and the results made public.

Guyana Revenue Authority

The Guyana Revenue Authority (GRA) was established by Act No.13 of 1996, as amended. It is subject to separate financial reporting and audit. By section 27 of the Act, the GRA is required to have audited annual financial statements within six months of the close of the financial year and to have them laid in the National Assembly and published as soon as possible thereafter. However, there was no evidence that this is being done.

Since the GRA is not a budget agency, it does not receive an appropriation but rather a subvention from the Ministry of Finance. As a result, there is no expenditure statement of the Authority forming part of the public accounts. Although the Auditor General has audited the GRA and has presented the results of his audit in his report to Parliament, this arrangement is not a substitute for compliance with Section 27 of the Act. One hopes that with effect from 2015, the situation will be corrected and that the GRA will have separate financial reporting and auditing.

A somewhat reverse arrangement pertains to the Georgetown Public Hospital Corporation which is a separate legal entity, separate and distinct from central government activities. Despite this, the Corporation is treated as a budget agency as it receives an appropriation instead of a subvention. On the other hand, there are a number of other agencies that receive subventions but are not separate legal entities. Two examples stand out: the National Procurement and Tender Administration Board; and the Government Information Agency.