GGMC loan unlawful – Lucas, Goolsarran

The recent $3 billion loan to the Central Housing and Planning Authority (CH&PA) by the Guyana Geology and Mines Commission (GGMC) violates several laws according to financial experts who warn that the permanent secretaries could be held liable.

“GGMC cannot go off tangentially and makes loans unrelated to its activities or functions and claim compliance with the Act. Therefore, the $3 billion loan to the CH&PA to continue the Administration’s housing development programme sector is clearly inconsistent with GGMC’s mandate, notwithstanding the Cabinet’s approval of the arrangement. The Cabinet cannot make a decision that violates any law,” former Auditor-General Anand Goolsarran wrote in his column which appears in today’s Stabroek News.

Last month, the GGMC and CH&PA inked an agreement for a $3 billion loan to be used for the development of the housing sector. The legality of the agreement has been questioned although the GGMC has sought to defend the arrangement as permissible under the GGMC Act. The loan has come under fire from the opposition parties who argue that it is unlawful.

All and sundry

Rawle Lucas
Rawle Lucas

Yesterday, economist Rawle Lucas in his Sunday Stabroek column said that the GGMC did not have the right to make that loan to the housing sector. “A reading of paragraph 10 of the GGMC Act should make it clear to all and sundry that the GGMC did not have the right to make the loan of the kind that it made to the CH&PA. Due diligence by the Commissioners under an act of fidelity would have alerted them to the fact that the loans that GGMC can make are circumscribed by the words “in the performance of its functions” that appear at the very end of the said paragraph,” he wrote.

He also noted that there has been an attempt to justify the loan as an investment by GGMC. “Any attempt to do so would bring paragraph 8 of the GGMC Act into play and would also activate the relevant provisions of paragraph 57 of the Securities Industry Act. The requirements of these Acts expose the irregularity of the loan deal and the apparent contempt for the laws of Guyana should the GGMC insist that the loan was an investment,” Lucas contended.

The economist pointed out too that Paragraph 8 of the GGMC Act says that GGMC can invest in securities and securities are generally understood to mean equity and debt instruments that can be bought and sold on a market like the Guyana Stock Exchange. “In other words, the expectation is that GGMC would buy and sell shares of stock or buy and sell bonds. The bond which is a loan would be the type of security in which the GGMC could invest,” he explained.

“However, for the loan to CH&PA to have qualified as a bond, the CH&PA would have had to issue it in accordance with paragraph 57 of the Securities Industry Act. To do so, the CH&PA would have had to use an underwriter who was registered with the Securities Council. Unless that happened, GGMC cannot claim that it made an investment in a marketable security. To date, there is no evidence that CH&PA took such action,” Lucas declared.

Conscious mismanagement

He said that the loan raises once again the concern about the “conscious mismanagement” of the resources of the Guyanese people by the PPP/C government. “The laws that are applicable to this case expose the depths to which the government would go to take advantage of the resources of this nation in an attempt to preserve its self-interest and to hold on to power in this country,” Lucas charged. He declared that government may have ignored the most important restraints on the ability of the GGMC to make a valid loan to the CH&PA and further, has chosen an expensive option.

Meantime, Goolsarran said that in order to assess whether the loan to the CH&PA is within the mandate of the GGMC, Sections 4 and 10 of the GGMC Act needs to be examined. Section 4 deals with the function of the agency and he pointed out that all the functions relate exclusively to mining. In relation to GGMC’s authority to grant loans, the former Auditor-General pointed out that Section 10 states that, subject to such conditions as it deems fit to impose in particular cases, the Commission, out of its funds and resources, may make loans in accordance with the provisions of the Act in the performance of its functions.

Noting that all of the GGMC’s functions relate exclusively to mining, Goolsarran said that any loan granted to an individual or an organization that is not involved in mining activities would violate Section 10, the key words being “in the performance of its functions.” The GGMC cannot go off tangentially and makes loans unrelated to its activities or functions and claim compliance with the Act, he declared.

According to Goolsarran, Section 4 (f) which states as one of the GGMC’s functions “to carry on all activities, the carrying on of which appears to the Commission to be requisite, advantageous or convenient for or in connection with, the exercise of its functions,” was clearly inserted to cater for any other situation in the context of mining not contemplated under the other subsections. “It is difficult to see how a loan to the CH&PA falls within the category of an activity that is ‘requisite, advantageous and convenient for or in connection with, the exercise of its functions’,” he asserted.

Goolsarran also pointed out that as regards GGMC’s claim that the loan is a good investment, Section 8 states that the Commission may invest in securities, moneys standing to its credit, from time to time with the general or specific approval of the Minister. “Needless to mention, the loan to the CH&PA is not in the nature of securities. CH&PA is a statutory body under the Ministry of Housing and Water which is a budget agency. Its financial resources are derived from internally generated revenue, and to the extent that there is a shortfall in revenue vis-à-vis operating expenditure, the difference is met from a subvention through the national budget,” he said.

The accountant pointed out that last year, the CH&PA received a subvention of $150 million. “In terms of infrastructure works, which is what the loan is about, these are specifically met from the capital expenditure budget approved by the National Assembly,” he added while noting that the 2014 approved budget for infrastructure works relating to housing development was $4.638 billion.

 Accounting chaos

“It must be emphasized that budget agencies, and by extension bodies falling under such agencies, receive their funding from the Central Government via the national budget. No such agency of the State ought to provide any form of financing, whether by way of a loan, a direct transfer or direct expenditure, to any other State agency, as this will not only undermine the budget process but also the authority of Parliament to approve of expenditure of that agency, not to mention the accounting chaos that such a practice will create,” the former Auditor-General declared.

“The related expenditure will not be captured in the public accounts and is therefore not subject to the scrutiny of the State Audit and reporting to the Legislature. Depending on the amounts involved, there will be an under-reporting of expenditure in the public accounts, and hence a significant gap in public accountability,” he said. Goolsarran added that if agencies, such as the GGMC and the Guyana Forestry Commission, have surplus funds, it would be entirely appropriate for transfers to be made to the Consolidated Fund.

“With this pool of funds, the Legislature will be in a better position to approve of expenditure on government programmes and activities. In any event, if there is a deficiency of funding for such agencies, such deficiency is met by a charge to the Consolidated Fund. It follows that if these agencies have funds that are surplus to their requirements, after taking into account the need to maintain a reserve, such surplus should be transferred to the Consolidated Fund,” he said.

Goolsarran also pointed out that the Accounting Officers of both the Ministry of Natural Resources and the Ministry of Housing were involved in the development of the loan agreement between the GGMC and the CH&PA. “They ought to be aware of the implications of the agreement on public accountability. They could therefore be held personally liable, and so are directors of the boards of both agencies as well as their respective Ministers,” he declared.

Lucas, meantime, said that a reading of the relevant sections of the Act, leave no doubt that the functions of GGMC are about mining and its related activities and has nothing to do with a general housing programme. He declared that unless there is hidden meaning in the language of those sections, the GGMC has acted outside the authority given to it by the Act.

“There is nothing written in those paragraphs that suggests that GGMC could lend money for housing development or for any purpose outside of the role it is required to perform. To make matters worse, the housing development for which the money was ostensibly lent will not be taking place in any mining area or district,” he said.

The economist also pointed out that the government borrows money on a regular basis and at rates that are usually below that of the private market. The Government of Guyana usually borrows money in the domestic market by issuing debt securities known as Treasury Bills. Treasury Bills issued by Guyana usually carry maturities of 91, 182, and 364 days and noting the duration of the GGMC loan, Lucas said that the CH&PA could have asked the government to issue Treasury Bills of 364 days duration on its behalf.

He pointed out that according to the Bank of Guyana, the most recent issue of 364-day Treasury Bills had an effective interest rate of 2.35 per cent. “That is the price that the government was likely to pay if it had decided to borrow the G$3 billion using this mechanism. However, the government did not do that. Instead, it chose to take money from the GGMC in contravention of the law and with scant regard for affordability,” he said.

“It means that at 5 per cent the government agreed to pay more than twice the amount it would have cost had it used the most common method of borrowing. Yet the government chose to use the most expensive means by which to acquire the money for a so called affordable housing programme. The house lots will be sold to taxpayers and in choosing the most expensive option, the government has decided that taxpayers, who are given no choice in this matter, can afford to pay the higher price. It is clear from the foregoing that the loan decision and housing programme are not about affordability,” Lucas declared.

He also noted that while the housing situation might be dire, it is not an emergency.

Further, the economist noted that there is a concern that GGMC and other government entities hold too much money. “The view is that all monies collected by such entities should be transferred to the Consolidated Fund. This demand has been resisted by the government without reasonable justification,” he observed.

The economist said that it is quite understandable why a private business would want to hold on to the excess money that it earns and not withdraw or distribute all as dividends but noted that the GGMC has two broad mandates: one is regulatory and the other is productive.


The productive activities of GGMC as could be seen from the functions that are listed in paragraph 4 of the Act requires it to hold money so that it could operate and expand its business activities, he noted. In this sense, it was created as a business and could be seen as a going concern that needs to retain some income. GGMC is also required to maintain a Reserve Fund by law, Lucas said.

GGMC also executes regulatory duties. As a regulator, it could be seen as carrying out duties on behalf of a third party, the central government. It would appear reasonable then that any money collected for the third party should be passed to that party, Lucas said while noting that the GGMC collects tolls, levies, rents, fees, royalties, and such income as part of its regulatory duties. One should expect that these monies should be turned over to the Consolidated Fund since they are not generated from the business activities of GGMC, but rather as part of its regulatory function, he asserted.

“Therefore, GGMC cannot pick and choose what it sends to the Consolidated Fund. It must send the money that it collects under its regulatory mandate to the Consolidated Fund. To the extent that these monies are being comingled with those from mining operations that GGMC undertakes or manages then GGMC could be in breach of the Fiscal Management and Accountability Act. One needs to know which of the two mandates generate the greater share of revenue to determine if the amounts transferred to the Consolidated Fund are consistent with the financial collections by that entity. This matter deserves greater scrutiny and ought to be pursued to the fullest,” he declared.

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