Marriott tax exemptions $1.2b in 30 months

The Marriott Hotel

Tax exemptions for the Marriott Hotel project from January 2013 to July 2015 stand at $1.2 billion, according to the forensic audit into the project which also highlighted the other concessions it received.

The report, a copy of which was obtained by Stabroek News, revealed that tax exemptions granted to Atlantic Hotels Inc (AHI) for the period January 2013 to July 2015 in respect of building materials, furnishings and vehicles, amounted to $1.169 billion. AHI is the hotel’s special purpose company.

“Unlike other hotels which enjoy a 50% waiver, AHI was granted 100% as per agreement with the Government. Therefore, the additional benefit enjoyed by AHI amounted to $584.5 million, equivalent to US$2.821 million,” the report says.

The report also highlighted that the land on which the hotel was constructed was sold below its market value. Executive Director of government’s holding company, the National Industrial and Commercial Investments Limited (NICIL), Winston Brassington indicated that there were two estimates. One was in 2009 by Rodrigues Architects Ltd which put a value of $985 million, equivalent to US$4.8 million to the land; and the other in 2013 by the State Valuation Office which put the value at $150 million.

“The land was vested in NICIL by Order No 61 of 2010 dated 20 November 2010 and was sold to AHI for US$1 million. This is obviously not an arm’s length transaction, and therefore the full market value should be used in arriving at the cost of the project,” the report said.

It noted that in relation to NICIL’s loan of US$15.5 million for the project, NICIL will be repaid the principal only at the end of 15 years. “NICIL will therefore be subsidising the project to the extent of interest charges foregone. As at June 2015, the estimated interest charges foregone based on the pattern of disbursements would amount to US$3.191 million at an interest rate of 9.15%,” the report says. The percentage is the same charged by Republic Bank which is providing a loan to the project.

The report also pointed out that NICIL has provided additional financing to the project of US$21.816 million as at 30 June 2015 and for which the estimated interest charges foregone are computed at US$3.828 million.

Further, it pointed out that NICIL’s loan is subordinate to the syndicated loan provided by Republic Bank and should the project run into financial difficulties, the latter will get preference over the former in terms of loan repayment.

It pointed out too that NICIL is also likely to provide more funding as the entertainment complex is yet to be constructed. Initially, the outfitting cost of the entertainment complex which includes a casino, nightclub and restaurant was estimated to be at least US$4 million which the operators were expected to fund. Since no operators have yet been identified, NICIL is likely to bear this cost.

The report quoted Brassington as saying that “This aspect of the project is being deemed Phase 2 and is currently being put together in proper project management format. Consultants have been hired to provide design as well as casino specialty services in consultation with MI (Marriott International). A final cost on this has not been determined but is likely to be above the US$4 million budgeted.”

According to the report, Brassington indicated that NICIL would provide loan financing, and the related cost was expected to increase from US$8 million to US$12 million. He also stated that a final cost for the outfitting of the Complex had not been determined but was likely to be above the US$4 million budgeted.

Not to proceed

The report said that it is advisable not to proceed with the construction and outfitting of the Entertainment Complex and stated that the results of the studies of both the Marriott International and HVS Consulting hinge on a fully operational Entertainment Complex and appeared too optimistic. The Entertainment Complex is too risky a venture for the Government to undertake, it said.

The report also pointed out that NICIL received amounts of $300 million and $353 million from the Guyana Forestry Commis-sion and the Guyana Water Inc. which it expended on the re-routing of the sewerage system, the drilling of a well for the Marriott Hotel and other works.

Other fiscal concessions granted include a 10-year Corporation Tax holiday commencing the first year of commercial operations; a 10-year waiver of property tax and withholding tax (including payment of interest and dividends to debt providers and equity holders); and Customs Duty and Excise Tax waivers on capital repairs or replacements including machinery, equipment and buildings where the total cost of such capital repairs or replacement is not less than US$10,000, and a “one-off” retrofitting of the project within the ten-year period from the commencement of commercial operations.

Meantime, the report revealed that in terms of the selection of the engineering supervision consultant, M. A. Angeliades Inc. and CEMCO Consul-tants Inc. had submitted proposals in the amounts of US$1.068 million and US$1.614 million respectively, compared with an estimate of US$1 million.

No professional engineer

It said that a review of the professional background of M. A. Angeliades Inc.’s team proposed for the project indicated that there was no professional engineer on the team. The Executive Project Manager was a Chartered Quantity Surveyor while the Assistant Project Manager, although having some experience in construction projects, did not have the requisite academic and professional background. The team was also to comprise Raman Kumar, as the Site Engineer, Edwin Semexant, Project Superintendent/Quality Control Engineer, and two other staff members.

“However, there was no evidence that Mr Kumar had on-site presence at the project. In addition, the services of the Assistant Project Manager were terminated after about six months while Mr Semexant returned to New York after a brief period of engagement,” the report said.

AHI, in response, said that it was satisfied with the qualifications and experience of the Project Manager and he had met the requirements set out in the bidding documents.

However, Goolsarran quoted correspondence dated 7 May 2015 to the Project Manager from Brassington which indicated that he was unhappy with the services provide.

M.A. Angeliades Inc. had claimed for extended supervisory services and Brassington wrote that: “We note that the resource allocation matrix forwarded to us does not reflect continuous engagement of a majority of the above persons or agencies. We submit that had the Consultant employed said personnel it would have substantially mitigated its costs for the extra time spent in the performance of its services and the cost of other expenses incurred. The Consultant dismissed its quality surveyor and did not employ a replacement. In fact, contrary to its contractual obligations, the Consultant has employed several persons without notice to AHI or provision of their CVs etc. It is our observation that the Consultant is severely under-staffed and has operated for a long period with only three people on its management team.”

Goolsarran declared that the comments from Brassington would suggest significant shortcomings on the part of M. A. Angeliades Inc. to effectively carry out their duties to oversee the work of the contractor on behalf of the Government.

The report noted that the duration of the engineering supervision contract was three months after the defects liability period of one year is over. However, at the time of the audit, the M. A. Angeliades Inc’s team was no longer is place, and CEMCO – the firm that was overlooked in the first place – was engaged to complete the supervision of the project.

Meantime, it was noted that in August 2015, the hotel saw a 52% occupancy. “It should be noted, however, that August is the peak month in terms of occupancy rate, and the overall projection for 2015 is 39.3%,” the report said.

In noting the projected earnings for the rest of the year and the loan repayments, the report said that “when interest charges, loan repayment, and provision for depreciation and amortization are taken into account, the year 2016 and subsequent years are likely to be extremely challenging financially, unless there is a significant improvement in the occupancy rate from the projected level of 39.3% for 2015.”

The report also traced the sequence of events that led to the signing of the contract and said that it is evident that the decision by the Government to proceed with the construction of the Marriott Hotel preceded any feasibility study and was made without the benefit of an informed review of the results of such a study. “There was therefore no economically sound basis for Cabinet’s decision at the time to proceed with the project, and any subsequent study must be viewed with some degree of caution,” it said.

AHI, in response, said it did not agree with the conclusion.

The report also pointed out that the contract for construction with Chinese firm SCG International was signed just 12 days before the 28 November 2011 elections, which is not normal practice for such a large contract to be executed so close to national elections.

“In addition, there was neither board approval nor the approval of Cabinet at the time the contract was entered into. It was not until 27 September 2012, some eleven months later, that such approval was granted, with a retroactive effective date of 30 September 2011,” it said.

 

 

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