Revisiting the Nicil controversy

Part I

I briefly watched the NCN debate on corruption as it relates to NICIL, and I cannot help but form the impression, as in the case of the earlier debates, that the government is trying its best to present to the nation its version to counter the various allegations of corruption. It selected the topics, the venue and the panelists in such a manner so as to place itself in a position of advantage. During the breaks, NCN showed online comments from viewers and most of these comments, if not all, were pro-government in nature. This raises the issue of whether NCN is not selective in airing these comments. When one views the composition of the panel – in the case of the NICIL debate, two government ,inisters and a senior official of NICIL teaming up against one individual – one can only conclude how one-sided an affair the debates have so far been.

Since the government is an interested party in relation to allegations of corruption, it would have been more appropriate for civil society, such as the Transparency Institute of Guyana Inc or the Institute of Chartered Accountants of Guyana, to arrange for such a debate.

Today, we revisit the NICIL controversy in the light of some of the issues that came out of the debate.

Historical background
NICIL was incorporated as a private company limited by shares on July 18, 1990 under the Companies Act, Chapter 89:01, with the primary objective of “subscribing for, taking or otherwise acquiring and holding shares, stocks, debentures or other securities of any company, co-operative society or body corporate.” The authorized share capital is $100,000 while the Board of Directors comprises a Chairman and a minimum of one and a maximum of nine other persons.

A Management Co-operation Agreement dated December 31, 2001 was entered into between the Privatisation Unit, NICIL and the Government. This agreement provides for the Privatisation Unit to be the exclusive manager of NICIL, and the collecting and accounting of privatization proceeds, rents, dividends and other income of the combined entity are to be done in the name of NICIL. Expenses of the combined entity are also to be regarded as costs of NICIL. Mr Winston Brassington, who was Head of the Privatisation Unit at the time, became the Executive Director of NICIL. In his 2002 report, Mr Brassington stated that the agreement paved the way for, among others, “the fulfilment of financial statutory obligations which NICIL had previously failed to do.”

According to its 2002 consolidated annual report, NICIL acquired the following state-owned entities for zero consideration: NEOCOL (100%), GNPL (99.6%), GNSL (100%), GNNL (90%), GUYOIL (100%), Property Holdings (73.19%), BIDCO (100%), and GPC (100%). This is in addition to the acquisition of 20% shareholding in GT&T and investments in GNCB Trust (10%), OMAI (5%) and Guyana Stores (3%). It was the first time that NICIL considered itself a holding company and proceeded to prepare consolidated financial statements involving itself and the above state-owned/controlled entities.

Governance arrangements
The Minister of Finance, on behalf of the government, is responsible for the appointment of the chairman and members of NICIL’s Board. However, according to NICIL’s 2005 consolidated annual report, the Minister himself was the Chairman while the other members were Dr R Luncheon (Head of the Presidential Secretariat), Dr A Singh (Director of Budget), Mr G Da Silva (Head of Go-INVEST) and Mr W Brassington (Executive Director of NICIL). From a governance standpoint, it is indeed inappropriate for the Minister to appoint himself as the chair of NICIL’s Board since in effect, he is reporting to himself on matters relating to NICIL.

A similar observation can be made in respect of the Management Co-operation Agreement referred to above. Here again we find the dominating influence of the Minister in that: (a) the Privatisation Unit was part of the Ministry of Finance with reporting relationship to the Minister; (b) the Chairman of the NICIL’s Board is the Minister; and (c) the government designated representative on all matters relating to NICIL is the Minister. In effect, the Minister has signed the Management Co-operation agreement with himself!

Management Co-operation Agreement
A closer examination of the Management Co-operation Agreement raises, among others, the following issues. First, the Privatisation Unit was not a “company, co-operative society or body corporate” but rather a unit within the Ministry of Finance, notwithstanding the claim contained in NICIL’s consolidated annual reports that it was a semi-autonomous organ of the Ministry of Finance. It is therefore illegal for NICIL to enter into an agreement with the Privatisation Unit to take over the latter’s operations as this would be a breach of the primary objectives of NICIL as contained in its incorporation documents.

Second, the Agreement breached Article 216 of the Consti-tution when the operations of the Privatisation Unit were merged with those of NICIL since the former was responsible for collecting  privatization proceeds, rents, dividends and other income belonging to the state and paying them over to the Consolidated Fund. The Constitution only permits retention of revenues in some other fund established by an Act of Parliament and only to extent of defraying expenses of the concerned body. NICIL was not established by any specific Act of Parliament. Rather, it was incorporated under the Companies Act, which is an Act to regulate generally the formation of companies as well as their operations.

The Management Co-operation Agreement therefore cannot override the requirements of the Constitution. It could be viewed as a classic case of not only siphoning off state revenues and passing them over to NICIL but also using such revenues at the discretion of the directors of the company in complete disregard for the authority of Parliament to approve of public expenditure. This has serious implications for the Marriott Hotel Project of which NICIL is an active financier.

Third, it is not clear on whose authority the government’s shares in the above entities were transferred to NICIL and when the transfers were made. Nor is it clear whose decision it was to have these shares transferred free of cost, bearing in mind that  (a) some of these entities were highly profitable, especially GUYOIL and GPC; and (b) NICIL has since been retaining the government’s share of dividends in these entities. It should be emphasised that NICIL was formed essentially to monitor the performance of state-owned/controlled entities and other government investments and to ensure that all revenues derived therefrom are collected and paid over to the Consolidated Fund. This was in addition to NICIL taking over and managing the surplus assets arising out of the previous administration’s divestment programme in the early 1990s.

Analysis of the annual reports of NICIL
A closer examination of NICIL’s consolidated annual report for the years 2002-2005 indicates that the primary objectives of the company are “subscribing, taking or otherwise acquiring other securities and holding the Government shares, stocks, debentures or of any company, co-operative societies or body corporate.” This is not the same as those stated in NICIL’s Memorandum of Association, which makes no mention of government shares. There has therefore been a misreading, whether intentionally or otherwise, of the primary objectives of NICIL to cause the directors to consider NICIL a holding company for government’s interest in other entities.

During the debate on NICIL, the government side insisted that (a) there is a distinction between NICIL as an individual company, and NICIL as a holding company; (b) audited accounts for the individual company were laid in the National Assembly and could also be found in NICIL’s website; and (c) financial statements for the individual company as well as for the group were submitted to the Auditor General up to 2010.

A check with NICIL’s website, however, revealed that only the consolidated annual reports for the years 2002-2005, which include the audited financial statements, are to be found there. A similar check was made twice with the Parliament Office library, and it was confirmed that these were the only reports that were laid in the National Assembly. In addition, a review of the Auditor General’s reports posted in the Audit Office’s website indicated that there were no audited accounts for NICIL as a company (as opposed to NICIL as a holding company) beyond 2001.

Section 160(1) of the Companies Act states that “…where at the end of the financial year, a company has subsidiaries, accounts or statements dealing with the state of affairs, and profit and loss of the company and its subsidiaries shall be laid before the company in general meetings when the company’s own balance sheet and profit and loss account are so laid.” Section 160(4) also states that if a company makes a default in complying with the requirements of this section, the company and every director of the company in default shall be guilty of an offence. In addition, Section 185(1) provides for the auditors of a company to make a report to the members on the accounts examined by them and on every balance sheet, every profit and loss account and all group accounts laid before the company in general meeting. Further, Section 346 provides for the audited accounts of a government company to be laid before the National Assembly not later than nine months after the close of the financial year. NICIL has therefore breached some significant requirements of the Companies Act.

The next article will examine the issue of whether or not NICIL is a public corporation because there is evidence that since 2002 numerous state assets were transferred to NICIL under the authority provided for by the Public Corporations Act of 1988. I will then make some concluding remarks.

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