Statements by director of the National Industrial and Commercial Investments Limited (NICIL), Winston Brassington that no taxpayers’ funds were used to finance the Marriott Hotel are “bizarre” former Auditor-General Anand Goolsarran has said.
“All State resources, including revenues, assets and liabilities, belong to the citizens of this country in the same way that the resources of a company are those of its shareholders,” Goolsarran wrote in his ‘Accountability Watch’ column which appears today.
He noted that the Consolidated Fund is the taxpayers’ fund, regulated by certain constitutional and legislative procedures with the full involvement of the duly elected representatives of the people. “It is therefore bizarre to think that only revenues derived from taxation are taxpayers’ funds. Every citizen is a taxpayer, especially when one considers the widespread applicability of value added tax,” he said.
Earlier this month, during a tour of the Kingston hotel, Brassington revealed that government holding company, NICIL has injected an additional US$16 million into the Marriott Hotel project after court action halted expected funding from investors. He had repeatedly emphasised that the funds are “not derived from taxes.” The NICIL director said that the money is from proceeds from the sale of properties owned by NICIL or dividends from NICIL investments.
Critics have said that NICIL is operating like a parallel treasury in the use of funds that it has accrued. NICIL had already invested US$20M to jumpstart the project. As it stands, the state entity currently owns 100 percent of the hotel’s equity
Goolsarran noted that NICIL was incorporated in July 1990 to monitor the Government’s privatization programme and to ensure that the proceeds as well as dividends received from public corporations are promptly paid over to the Consolidated Fund. “The anticipated revenue from these activities up to 2001 were reflected in the national annual budget under “Sale of assets” and “Dividends and transfers” respectively. NICIL did not retain any moneys collected on behalf of the State and met its operating expenses from a subvention provided by Parliament, a clear evidence of Parliamentary sanction of NICIL’s mode of operation,” he wrote.
The former Auditor-General recalled that in December 2001, through what many, including him, regard as a flawed Management Co-operation Agreement, the operations of NICIL were converted from a small administrative and monitoring outfit to one which saw the wholesale transfer of a significant portion of State resources to NICIL.
“All government shares in public corporations and other entities as well as dividends received from them became NICIL’s assets. In addition, a large number of State properties, especially those identified for sale, were first transferred to NICIL through a misapplication of the Public Corporations Act. There was no exchange of value, and therefore NICIL received these assets free of cost,” he explained.
“When the properties were sold, NICIL retained the proceeds and treated them as its revenue in breach of the International Financial Reporting Standards and other generally accepted accounting practice. As a result, NICIL made windfall gains so much so that its net assets increased from a negligible amount in 2001 to $12.295 billion in 2012! There was also no publicly available evidence as to the reason for the wholesale disposal of state assets. Nor was there evidence of adherence to established norms relating to competitive bidding before the assets were disposed of, to ensure transparency as well assurance that the State received good value for money from these transactions. In any event, the Public Corporations Act does not permit the disposal of State assets in the normal course of business. Only capital assets that are surplus to a corporation’s needs may be disposed of, or transferred to another corporation in need of them,” he wrote.
Goolsarran said that from 2002 to date, NICIL’s financial resources have reached enormous proportions so much so that that NICIL was able to finance the cost of construction of the Marriott Hotel, estimated at US$52 million. “NICIL has become a parallel treasury and a government within a government, controlled by a few high-ranking government officials. When the Administration is unable, or does not wish, to access funds from the Consolidated Fund through the constitutionally-established Parliamentary process, it uses the resources of NICIL. However, the extent to which this has happened is not publicly known,” he said.
“All of this is a serious violation of Articles 216 and 217 of the Constitution, the foundation pillar for the control over public revenues and expenditure. It has never been clear on whose authority this diversion of a significant portion of the State operations and resources took place; whether advice was first sought on the legality of this changed arrangement; and whether the advice is consistent with the new mode of operations of NICIL,” Goolsarran declared.
In relation to the internal rate of return (IRR) for the Marriott project, he said that it was stated that the project will earn an IRR of 11 per cent. “However, no mention was made of the cost of capital which is necessary to determine the appropriateness of the IRR. If the cost of capital is higher than the IRR, the project is not economically feasible,” Goolsarran pointed out.
He said that Brassington had consistently denied access to information about the project, citing confidentiality, and the misplaced belief that NICIL is a privately-owned company. “NICIL is a private limited liability company, meaning that its shares are not transferrable as in the case of publicly-owned companies such as Banks DIH Ltd. NICIL is also a government company in the context of Section 346 of the Companies Act,” he emphasised.