Gov’t launched Marriott project without feasibility study – audit report

The audit report into the Marriott Hotel says that the PPP/C government embarked on the project without a feasibility study.

Whether the major project was embarked upon after a feasibility study had been a source of contention for many years with government holding company NICIL and the special purpose company overseeing the project, Atlantic Hotel Inc (AHI) insisting that there had been one.

However, the forensic audit and review of the construction and operations of the Guyana Marriott Hotel done by auditor Anand Goolsarran strongly disagrees.

In his October 27 report, Goolsarran set out the sequence of events to establish his argument and the various comments by AHI.

He said that a review of the Marriott Hotel’s files at the Environmental Protection Agency (EPA) revealed that controversial New York firm ADUA had applied for an Environmental Authorisation on 19 February 2008 for a project entitled “Georgetown, Marriott Hotel & Casino Complex.” The technical person named in the application was Shyam Nokta (Environmental Management Consultants) who assisted in the filling of the application and who was also involved in the preparation of the Environmental and Social Impact Assessment (ESIA) Study.

Goolsarran said that by advertisement in the Kaieteur News on 24 May 2009, the Government of Guyana sought expressions of interest from investors to be part of a joint venture with the government for a hotel project development at the existing site of the Marriott Hotel. The advertisement stated that the minimum capital investment was US$20 million for the proposed hotel with a minimum number of rooms of 150, and that construction was expected to begin in September 2009. AHI stated that in the first half of 2009, responses were received from ADUA and BK International. ADUA had however earlier withdrawn as the developer of the project because of difficulties being experienced.

AHI commented in the audit report that the Government had already “initiated and completed the investment for and relocation of the sewerage pipes to provide an unencumbered site. Amendments to the Gambling Prevention Act were also effected in anticipation of this project via January 2007 amendments. Following the inability of ADUA to proceed, GOG took a decision to publicly advertise for a JV [Joint Venture] for the development of the project on the basis of the considerable preparatory work done by all parties to advance the project.”

Goolsarran noted that AHI was incorporated on 3 September 2009 with the purpose of “building and operating a minimum of a 150-room hotel (revised in 2010 to 197 rooms) and an entertainment complex (including a casino, nightclub and restaurant).”

On 6 October 2009, Cabinet by CP (2009)10:1:R approved of the Government of Guyana entering into a design and branding contract with ADUA in the sum of US$2.1 million, “with the permissible exemption of all taxes as provided for in law.” There was, however, no public advertisement for the works to be undertaken but AHI Chairman Winston Brassington explained that the firm was selected based on its previous interest in the project.

AHI commented in the report that that Cabinet’s approval was “based on the response from all the parties showing an interest in developing the project and seeking to identify a party that could assist in advancing the project. The ADUA contract was not a tax exempted contract and contained a condition of ensuring that the Marriott brand was secured, which was a necessary prior condition for effecting a design that would meet Marriott requirements.”

In correspondence dated 19 February 2010 addressed to the EPA, under the heading “Status of the Marriott Hotel, Casino & Entertainment Complex,” Goolsarran said, Brassington informed the EPA that the project was now under the purview of AHI. In a separate correspondence, he also asked the EPA to substitute AHI for ADUA in the application for Environmental Authorisation and in the conduct of the ESAI study. Nokta was retained to finalise the ESAI study.

On 23 April 2010, Goolsarran said, Marriott International executed four agreements with AHI, represented by Brassington. These were: (i) Technical Services; (ii) Management; (iii) Licence and Royalty; and (iv) International Services. Goolsarran said that three months earlier, Marriott International Inc had prepared a “Market Study and Estimates of Future Operating Performance for a 160-room Marriott Hotel Georgetown, Guyana.” In addition, the land on which the hotel was to be erected was vested in NICIL by Vesting Order 61 of 2010 dated 23 November 2010 and signed by former minister of finance, Dr Ashni Singh.

AHI commented in the report that: (a) the agreements followed from a Letter of Intent executed in November 2009 and were also the result of the ability of both ADUA and the Government of Guyana to persuade the Marriott organization to commit to operating a full Marriott hotel in Guyana; and (b) earlier discussions with ADUA were based on a Courtyard similar to Suriname or Trinidad.

Goolsarran said that during the period June-July 2010, requests for Expressions of Interest from qualified contractors were publicly advertised for the construction of the Marriott Hotel, including the entertainment complex. A total of 23 firms showed interest of which seven firms were shortlisted. The contract was awarded in the sum of US$50.918 million to SCG International (Trinidad and Tobago) Ltd, a subsidiary of Shanghai Construction Group, on 16 November 2011. Construction then began following the turning of the sod ceremony on 20 November 2011.

AHI commented in the report that “While the contract was executed on 16 November 2011; SCG and NICIL (on behalf of AHI and GoG) were engaged in discussions to finalise the agreement since June 2011 following the close of tenders. The contract effectiveness was not until March of 2012; the start of the project was delayed due to SCG taking a decision to implement using personnel from SCG headquarters and not Trinidad. It was recognized that the project was high profiled.”

Goolsarran said that from the above sequence of events, “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.”

He said AHI commented that it disagreed with the above conclusion and insisted that prior to the execution of the construction contract a number of feasibility studies had been executed, namely: (a) ADUA study in 2006; (b) the Marriott study in 2010; (c) Marriott updated study in 2011; (d) HVS study in 2010; (e) HVS updated study of 2012; and (f) a Republic Bank study in connection with a US$27 million loan to the project.

However, Goolsarran argues that his conclusion refers to the government’s decision to take over the project from ADUA and to proceed with the construction of the hotel without the benefit of a feasibility study. Except for the AUDA study of 2006, he said that the other studies to which AHI referred were undertaken post the government’s decision.

“Besides, ADUA study was carried out some three years [prior] and would have been overtaken by not only time but also events that took place in the intervening period, for example, the global financial crisis of 2008. In addition, except for the HVS updated study, the other studies were not undertaken at the behest of the government,” Goolsarran said. The ADUA study had also pertained to a Courtyard-type hotel which is of a lower ranking than Marriott.

Goolsarran said Brassington had earlier insisted that ADUA had carried out a feasibility study sometime in 2004 (and not 2006, as stated in AHI’s response) and that the study was supported by those of Marriott International in January 2010 and HVS in October 2010 and May 2012.

“When asked for a copy of ADUA’s feasibility report, Mr Brassington stated that he did not have one and that the information was proprietary to that organization for which neither the government nor NICIL were partners,” Goolsarran reported.

He said Brassington further insisted that “at January 2010, no contract or decision to construct was even contemplated and that the feasibilities and pro-formas were done prior to tenders.” Goolsarran said that one could therefore legitimately ask the following questions:

 

* Why was AHI then formed in September 2009 as “the firm that will be the public/private partnership that will own the project?”

 

* Why, upon taking over the project from ADUA, did AHI not cancel the application for an Environment Permit and the ESIA Study for the “Georgetown, Marriott Hotel & Casino Complex” rather than requesting the EPA to transfer them to AHI? and

 

* Why did the preparation of the site (removal of the sewage system, dismantling of the Luckhoo Swimming Pool, and the relocation of the Food & Drugs Department and the office of the Guyana Water Authority) begin before January 2010?

Goolsarran said that in relation to the third question, Brassington acknowledged that the preparation of the site commenced before 2010 “as part of the overall efforts to make the site ready for ADUA’s construction phase/work plan.” However, an examination of NICIL’s audited accounts shows that no expenditure was incurred in the preparation of the site during the period 2004 (the year in which ADUA signed the MOU with the Government) through 2008. It was only in 2009 that the first set of expenditure amounting to $38.161 million was registered under the code name “Scarlett Pool”. For the period 2009 to 31 May 2015, amounts totalling $519.199 billion, equivalent to US$2.533 million (at an average exchange rate of US$1= $205) were spent on the Marriott Hotel project under the code name “Scarlett Pool”. Goolsarran asserted that this amount was improperly charged to the expenditure of NICIL, instead of AHI.

Goolsarran said that in January 2010, Marriott International Inc prepared a “Market Study and Estimates of Future Operating Performance for a 160-room Marriott Hotel Georgetown, Guyana”. Asked on what basis the study was undertaken, Goolsarran said, Brassington stated that: (a) this was an internal document that Marriott International relies on to determine whether it would want to be affiliated with a project; and (b) no other international hotel brand was considered because in 2004 ADUA had introduced Marriott International to the Government of Guyana. However, Goolsarran said that the introductory paragraph of the report on the study stated that the report was prepared “solely for the use of Atlantic Hotel, Inc, in examining the feasibility of the proposed Hotel.”

Goolsarran, a former Auditor General, said that the report referred to major initiatives that were being planned or were at feasibility stages. These included: (a) oil and gas exploration; (b) a deep-water port in Berbice; (c) at least one hydroelectric power plant; (d) the fibre optic cable from Brazil; (e) new land-based route between Brazil to the Atlantic coast via Guyana; (f) road from Brazil to Georgetown; and (g) the new Airport Expansion Project. The report said that “it is clear that Guyana is benefiting from increased interest internationally that should help accelerate economic growth.” Goolsarran commented that Marriott International’s assessment of the project, particularly as regards occupancy rates, might have been influenced by these considerations and did not take into account other scenarios, such as: What if these initiatives do not materialize, or are materialized partially? Several of these initiatives have since not materialized and may be years away from such.

 

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