Friday, April 16, 2010

Corruption and high officials

Stabroek News Business column, Friday 16 April 2010. Corruption and high officials.

By Stabroek staff | April 16, 2010 in Business

We in Guyana ought not to be comforted by the fact that fraud and corruption in public institutions is by no means unique to us. We need only cursorily examine the Report of the Auditor General for 2008 to discover, first, that acts of fraud and corruption continue to spread like a cancer throughout state institutions and, based on the frequency of these irregularities and the astronomical amounts of money involved, that fraudulent and corrupt practices have become a virtual way of life in some institutions and, moreover, that these practices mean that we are denied resources for valuable infrastructural works, poverty support measures and social services that can bring a measure of improvement to our country and our people.

Away from Guyana, the past few months have seen the publication of a succession of international reports in which the issues of global fraud and corruption have either been the central theme of the reporting, or else, have surfaced prominently in the reports. The reports that come readily to mind include Transparency International’s 2009 Global Corruption Report, the IDB Anti Corruption Framework Review and the IDB’s Institutional Integrity Report.

Setting aside the sheer volume of the amounts which the reports say have been fraudulently diverted, they tell several other significant and deeply depressing stories. The Transparency International Report, for example, asserts that politicians and other prominent officials in developing countries illegally enrich themselves to the tune of between US$20 billion and US$40 billion annually. If the figure itself is sufficient to provoke gasps of utter incredulity, what is equally distressing is – assuming, of course, the accuracy or even near accuracy of the TI figures – that our politicians and other functionaries who are trusted to govern and to ensure the security of the respective state treasuries, are among the leading plunderers of their countries’ resources.

In the case of the IDB Institutional Integrity Report we learn that multilateral development funds assigned primarily for projects that target poor people in developing countries are also systematically ‘creamed off’ and that, sometimes, some of Bank’s own consultants are in league with the thieves. We learn too that the Bank has been forced to implement and constantly update costly measures aimed at reining in fraud and corruption, and that its additional scrutiny has resulted in suspensions or total bans being placed on individuals and entire firms from being involved in Bank-funded projects.

Here in Guyana, the Office of the Auditor General – the only truly reliable agency through which we can gain some insight into the scale of fraud and corruption inside state agencies – has recently released its 2008 Report. Frankly, and with the best will in the world, the complete chronicling of every detail of the fraud, corrupt practices and questionable procedures for financial management and chronicles detailed in the report would be a formidable challenge. One only need peruse the report, however, to discover, for example, that a majority of state agencies transgress financial regulations and other procedures leaving gaping holes in the accountability process which, if probed forensically, may well, in many instances, unearth a trail of misappropriation of public funds. This is so particularly in those cases of the disfigurement of the tender procedures by some senior public officials to the extent that the Auditor General’s Report unambiguously states that some of the decisions to award tenders really ought to be invalidated and the overpayment of monies to private contractors in most cases will probably never be recovered.

Some instances, like those involving the Customs and Trade Administration are glaring and leave no room for speculation. This is what the Auditor General, in his 2008 Report, says about the CTU. “At the time of the audit in November 2008, two hundred and twelve allegedly fraudulent transactions totalling $301.275 million of which fifty one totaling $108 million were in relation to 2008 were uncovered at the Customs and Trade Administration.” That amounts to roughly one fraudulent act per week in 2008 involving just under $3M daily!

Then there are cases of billions of dollars which ought, correctly, to be deposited in the Consolidated Fund which, for reasons that are unclear, remain in various other bank accounts; millions of dollars in overpayments to contractors which remain un-recouped; further millions of dollars in unrecovered salary overpayments; and a $US2M balance owing on the sale of Guyana Stores since 2002 and which, up to the time of the audit, had still not been paid over to the state.

No less interesting are the discrepancies between the records of the GRA’s Internal Revenue Department regarding amounts paid into the Consolidated Fund and the Statements of Receipts and Disbursements prepared by the Ministry of Finance. In both 2007 and 2008 the amounts paid into the Consolidated Fund were significantly less than those recorded in the Finance Ministry’s records of receipts and disbursements, the difference for the two years totalling more than $100M. While the Auditor General described the GRA Commissioner General’s response to these anomalies as explanations, what the Commissioner General is reported in the Auditor’s General’s report to have said is that the Internal Revenue Department and the Ministry of Finance “are working to have the differences for 2008 identified and make the necessary adjustments.” Where is the explanation for the difference of more than $100M in the records of the Internal Revenue Department and the Ministry of Finance and exactly what “necessary adjustments” will the Internal Revenue Department and the Ministry of Finance make?

Setting aside those clear cases of fraud and corrupt transactions set out in the Auditor General’s Report it is difficult to ignore the litany of other instances in which improper transactions appear, or perhaps instances where fraud may have actually been perpetrated but has not yet been detected. Curiously, there were several cases in which neither the enquiries by the auditors in instances of questionable and/or glaringly anomalous situations or the answers provided by the particular departments appear to have been attended with a sense of great concern and urgency.

Last week, President of the Guyana Manufacturers and Services Association (GMSA) Ramesh Dookhoo told a forum on Fraud Detection and Prevention at the Tower Hotel that he believed that 95 per cent of all detected frauds in Guyana went unpunished. One wonders whether a similar implication is also present in the Auditor General’s Report given – apart from those clear instances of fraud – the litany of ill-explained and quizzical circumventions of financial regulations that have had implications for both the disbursement and accounting for state funds. This brings us to the point made in the TI Report on Global Corruption about the extent to which politicians and high officials benefit from corrupt transactions and leaves us to wonder whether, globally, those who manage the state might not regard the illegal accumulation of personal wealth to be, perhaps, an entitlement of their privileged positions.


Tuesday, April 13, 2010

I believe there is money in Switzerland

I believe there is money in Switzerland
April 12, 2010 | By KNews | Filed Under Features / Columnists, Freddie Kissoon

The country’s population is small. In such an environment, things can hardly be kept as permanent secrets. We will come to that subject below, but first; the inscrutable nature of corruption. The elusive role of corruption is contained in its invisible dimensions.

A company gets a whopping contract for pharmaceuticals. The payment is absurdly high. You know that big, big officials in the ruling cabal will secure a few millions from that dirty transaction and bank it outside. The cash is deposited in the name of a sister who carries her married name. How does the press prove that? It cannot.

You will end up being found guilty for libel if you say that the pharmaceutical company secured a higher payment and gave Mr. Powerful a cutback, who then put the money in a bank account in his sister’s name in Europe. When the judge asks for proof, you better have it.

This is the invisibility of corruption in Guyana. The only way the exposure can come is when the press, using complex, subtle but leading sentences writes about these things. For example, read my fictional example above then think about it deeply.

Let’s return to corruption in a small society. Guyana’s population is just above 700,000 with a large percentage being babies, small children, unemployed labourers and ordinary folks who have no contacts with the world of power in Guyana.

That leaves us with a small percentage of people who actually comprise what we call the “real society” (for want of a better sociological description) and who because of their roles and placements in that society would have knowledge of what goes on in Guyana. It means secrets will come out.

They have to come out because the auditors at the Guyana Revenue Authority have sisters, brothers, cousins that know people in the media and elsewhere. The guys who catch people staling electricity have cousins, friends, brothers and sisters who have contacts in the society.

A simple example should suffice. Mary does business management at UG, graduates, takes a work at the GRA as an auditor and is off on her audit missions. She is sent to one of Guyana’s largest companies where she discovers evasions and manipulations that are glossed over by her superiors. She meets her lecturer at the City Mall, tells him what goes on. And there comes out there and then, facts on corruption.

The kings of corruption in this country cannot hide their venalities. People know about foreign bank accounts, particularly in Switzerland. The exasperating thing for us in the media is that we cannot procure the facts, so the libel laws confine us to sophisticated grammar.

I hope my Switzerland reference tells you something you need to know. With every passing day, Guyana moves at the top into the category of one of the world’s most egregiously corrupt countries in the context of powerful members of the political cabal stealing and taking kick-backs. What needs to be mentioned is the barefacedness of these elites in how they pursue their transactions.

Did you know a man got approval to buy state lands for G$1.5M? He then sold it for G$34M. Then a pattern emerges with this guy. People aren’t stupid. This man (who was in the news recently along with a so-called critic) cannot just go around buying state lands, getting state land grants, and selling the stuff making thousands and thousands of percentage profits just like that.

And to crown it all, one powerful name crops up all the time when this guy buys his lands and gets his concessions. This buyer (a junior politician) is actually the front for this powerful figure. Money ends up in foreign bank accounts.

Guyanese in the “real society” know about this monster of corruption that has devoured the ruling circles (don’t tell me Mama Janet and Papa Cheddi didn’t see it coming; they did). The corruption is ubiquitous. Guyanese encounter it all the time.

Do you know two young men in their early thirties are close to becoming billionaires with the companies they own? Do you know who their fathers are? I will give you a clue. Both fathers wouldn’t mind seeing a change in the Constitution that will do away with term limits.

As I told Christopher Ram in a conversation on Saturday, this Government is so bestially corrupt that we should no longer speak about the era and times of the Burnham Government. When we talk about dictatorship in Guyana, Burnham’s name has faded, gone from the records. The PPP Government is the only dictatorship this country knows.

Sunday, March 28, 2010

Guysuco needs drastic surgery for survival

Guysuco needs drastic surgery for survival

Posted By Christopher Ram On March 14, 2010 @ 5:08 am In Features, Sunday | 4 Comments

For more than a year, the state-owned Guyana Sugar Corporation Inc has been in the press, mostly for all the wrong reasons. Its 2008 annual report tabled in the National Assembly shows a staggering loss before tax of $6.2 billion, following a gain of $2.2 billion in 2007. Its Skeldon Sugar Modernisation Plant, touted as the saviour of the industry, has been stumbling from problem to problem; reports of excessive salaries paid to some senior managers were sensationalised, even as the corporation stoutly rejected demands from its main workers’ union for increased compensation and benefits. There were reports too, of one very senior officer – a director no less – resigning from the company after being locked out of a meeting, while another with huge experience in the industry, was given marching orders.

[1]More recently the corporation was the subject of a very heated exchange in the National Assembly surrounding the actual date of payment of $4 billion made to enable the corporation to meet debt obligations. With the government side facing a dilemma of its own making – risking later embarrassment, or admitting that its Finance and Housing Ministers have by their silence misled the National Assembly while engaging in a breach of the law and a clear bail-out – this matter will not go away.
All change
Changes at the top of the corporation saw the termination of the much maligned management contract with Booker Tate after two decades; the resignation and replacement of the Chairman Ronald Alli by Dr Nanda Gopaul, former sugar unionist and political leader now at the Office of the President; a clean-out of the boardroom with the principal survivor being the ruling party’s General Secretary and now presidential aspirant, Mr Donald Ramotar; a new Chief Executive Officer, chartered accountant Mr Errol Hanoman with a mixed history with the corporation, brought back from the UK to take charge of the industry; the appointment of a new Deputy Chief Executive Officer with no prior work experience in the industry; and an Interim Management Committee that includes Ms Geeta Singh-Knight, local head of the failed insurance giant Clico.

For better or worse, they now carry the responsibility for the future of one of the country’s major industries, and by extension, determining the number of billions which taxpayers will have to pump yearly into the corporation, before the country can see any returns.

The result of these changes is an industry that is headed mainly by accountants, with field operations, marketing, and industrial relations coming after.

It has led too, to another study and recommendations for the industry, referred to optimistically as a ‘Blueprint for Success.’ Unlike the earlier Business Plan for the industry, the Blueprint is as secretive – and elusive – as the Holy Grail, precluding any widespread discussion or consultation among key stakeholders. One can only speculate about the reasons for the secrecy, and wonder whether the information in the document is considered too explosive for public knowledge.

Accounts quality
Starting today, Business Page will carry out its own assessment of the industry, beginning with the 2008 annual report and accounts which bear the audit imprimatur of Mr Deodat Sharma, the country’s Auditor General (ag), and his sub-contractor Deloitte and Touche, now TSD Lall and Co. I will consider the available options to preserve salvageable parts of the industry, the implications and costs of delays.

Given the inanimate nature of the patient, it is unable to consent to life-saving surgery, and its political and professional guardians need to act quickly, decisively and rationally, or face losing the industry once considered too big to fail. Perhaps the real question is whether Guysuco is too big – and too costly – to save as taxpayers are called upon to pump dollars like water into the fields, merely to keep the industry afloat.

Before going into the details of the financial statements, a few general points of accounting are worthy of mention:
1. But for some clever presentation of information, the company’s financial position is worse than it is shown to be. For example, nowhere do the financial statements disclose that at the end of 2008, the corporation had overdraft balances of $3.2 billion. In fact, the balance sheet misleadingly shows cash and cash equivalents of $960 million.
2. Amounts due to the Government of Guyana in respect of lease rentals are shown as having decreased by $104M, while amounts due to the Sugar Industry Labour Welfare Fund as increasing by $525M. The notes to the financial statements indicate that these should have increased by $218.5M and $870M respectively. If that is so, the liabilities in the balance sheet are understated by $667.5M.
3. Note 9 to the financial statements presents cash and bank balances net of overdraft balances, understating assets and liabilities and distorting ratios and measures. Guyana dollar balances were presented as a $1,895M payable, masking the true cash and overdraft balances. This also calls into question the positive foreign currency balances with a Guyana dollar equivalent of $2,855M.
4. The balance sheet carries deferred tax assets of $1,169M which seems overly optimistic having regard to the corporation’s prospects in the foreseeable future. The effect is to understate the after-tax loss in 2008, and overstate the net equity of the entity.
5. No deferred tax liability has been recorded in respect of the revaluation of property, plant and equipment, as required by International Financial Reporting Standards.
6. The consolidated accounts of a holding company must eliminate inter-company assets, liabilities and transactions. The amount due from the corporation’s subsidiary, Lochaber Limited, was not eliminated on consolidation.
7. Note 12 shows a convertible Government of Guyana debenture, but conversion terms or diluted earnings per share are not stated or presented.
8. In note 22, which states the foreign currency risk arising from a change in exchange rates, liabilities were added to assets to arrive at the net exposure. As a result, the level of net foreign currency assets in United States Dollars and GB Pounds is overstated by $12,276M.
9. Commodity Market Update published by the Ministry of Agriculture for the month of September 2009 noted that “The Euro rate at the end of the August 2009 averaged 1.439Euro/US$. In the same period in 2008, the rates were 1.4795. GuySuCo, however, has hedged a number of its shipments for 2009.” The financial statements for the year 2008 make no disclosure on hedging.
The Income statement


All figures in millions of Guyana Dollars

Source: Audited Financial Statements
Revenue in 2008 fell by 8.5% to $32,148M, which is less than revenue earned two years earlier. Guyana Dollar sales to Europe declined by 2.6%, to Caribbean countries by 44%, and were almost wiped out in North America. In terms of volume, export sales under the EU Protocol was about the same as in 2007 (152,229 tonnes) and US bulk was zero. Exports of bagged sugar to Caricom and the region declined from 31,160 tonnes in 2007 to 14,421 tonnes in 2008, while exports of packaged sugar to the region increased from 2,979 tonnes to 4,126 tonnes.

The decision to scale back on sales to the Caricom region was taken to enable the corporation to meet its commitment to the EU, resulting in waivers under the Common External Tariff being granted to several Caricom countries to import from outside of the region. Indeed, in November 2008, Guyana advised Caricom that it would be unable to supply the region with sugar in 2009, a development which would seriously affect our reputation as a reliable supplier, introduce a non-regional product at world prices, and make competition for us all the more difficult.
Ah na me, dis time

Cost of sales has jumped from 70.6% of sales in 2007 to a whopping 93% in 2008, but the report fails to explain or analyse why the cost of sales increased by $5,067M or 21%. The immediate suspect and whipping boy of the industry is wages and salaries, but the accounts show that in 2008, wages and salaries increased by a mere $50M, or 0.33% over 2007. What the report does show is that despite the corporation’s poor performance, the workers were given 8 days pay as Annual Production Inventive while their unions, GAWU and NAACIE, were paid 0.79 day per employee. The stated purpose of this latter amount is “to assist” two of the country’s most financially secure unions in their educational programmes; others will see this as a novel way to neutralise workers’ representatives.

Next week we will explore further the causes for the dramatic decline on operating profit and proceed to look at the balance sheet.
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4 Comments To "Guysuco needs drastic surgery for survival"

#1 Comment By Len Neilsen On March 14, 2010 @ 1:00 pm

Mr Ram, I do not want to hear anything more about Guysuco. Note how much you know about sugar and not a single word about bauxite!Sugar will survive ,whether you like it or not.There is enough political interest there. Bauxite seems to be a back water.
Ride on Russians1

#2 Comment By Christopher Ram On March 14, 2010 @ 4:53 pm

Dear Mr. Neilsen,

I can understand your frustration, particularly with the contrasting approaches taken between sugar and bauxite. However, I suggest you follow the series as it develops. If you do have any information you wish to share or comments you wish to make, you can send it/them to me at [3].

#3 Comment By Len Neilsen On March 15, 2010 @ 5:22 am

These are public views. There is no need for private correspondence. I will follow the series and comment as needs be .

#4 Comment By Pantha On March 15, 2010 @ 9:09 am

If you don’t want to read or hear anything about sugar, don’t read the article. Better yet, write something yourself. But don’t diss somebody for making the effort to address an issue of national importance, simply because you want him to address another one.

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Guysuco needs drastic surgery to ensure survival – Part 2

Guysuco needs drastic surgery to ensure survival – Part 2
Posted By Christopher Ram On March 21, 2010 @ 5:15 am In Features, Sunday | 2 Comments


[1]Today we continue our review of the 2008 financial statements of the state-owned corporation which are contained in its 2008 annual report tabled in the National Assembly late last year. We noted last week that while 2008 revenue fell by 8.5%, to approximately the same level in 2006, the corporation suffered a staggering loss before tax of $6.2 billion. Anticipating that there would be enough income against which to set-off the losses in the foreseeable future, the accounts show a tax credit – the opposite of a tax charge – of $2.1 billion for 2008. Instead, therefore, of carrying forward the full loss of $6.2 billion, the loss carried forward is $4.1 billion.
Usually, in making such a decision, the directors would have to consider all the available evidence, both positive and negative, to determine whether, based on the weight of that evidence, there should be a valuation allowance for all or some portion of a deferred tax asset. One has to assume that the directors considered this and concluded that no allowance is necessary.

Interestingly, the Chairman’s Statement contained in the annual report is presented by former Chairman Mr. Ronald Alli, Chartered Accountant while the financial statements are signed by his successor Dr. Nanda Gopaul. In seeking to explain the poor 2008 performance, both the former Chairman and the Chief Executive emphasise the wetter than normal weather conditions experienced by the corporation during the year. Even accepting that flood conditions affected East Demerara and East Berbice in the latter part of the year, this still invites the question why production at 226,268 tonnes would have been lower than it was in 1992 when the PPP took control of the country and industry, and 2006, the year most affected of the Great Flood of 2005. To add to this dismal performance, hectares harvested in 2008 were greater than in 1992, 2005 and 2006.

It therefore seems hard to believe that weather alone can explain the one-year turnaround in fortunes that saw production declining from 266,267 tonnes to its lowest production in seventeen years. I should say this however: unlike the corporation, I think we should be emphasising productivity rather than production and I will explain this when I review the Blueprint for Success, or what the current board describes as a turnaround plan. I pause to thank the unnamed persons who sent me copies of that document following publication of last week’s Business Page. I am impressed by the real willingness among us to have information of public interest and importance, publicly available.

The report
Unfortunately the annual report is not very helpful in explaining in any but a rather generalised way the performance of the corporation, whether in a good or bad year. It is left to the reader to ferret out, if at all possible, the information necessary to understand the corporation’s performance, or state of health. For example, the Chief Executive’s report gives the tonnage of exports and domestic sales while note 15 provides information on the revenue earned by geographical source. But the former also deals with product and market types while the latter deals only with dollar value, so that any average figures are merely indicative. But even these make for interesting reading.

Take for example the European market from which the corporation has earned substantial market benefits for decades. The export quantities to that region under the EU Protocol and CU (sic) amounted to 185,549 tonnes, 11,440 tonnes less than in 2007. Earnings to that region however fell from $27,198 million to $26,488 million, so that on average the price earned per tonne in that market actually increased from $137,998 per tonne to $142,677 per tonne. Whether this was exchange rate related or for any other reason can only be speculated. Exports to Caricom and the region fell from 34,139 tonnes to 18,547 tonnes at an average price per tonne of $108,211, up from $104,748 per tonne in 2007. And the domestic market where the volume sale of 23,345 tonnes was just below the sales in 2007, the average price per tonne went up from $138,074 in 2007 $147,997 in 2008.

Cost, hidden costs and terminated costs
Despite the loss of the EU preference, with the Corporation entering the final era of the Sugar Protocol from July 1, 2008, average revenue earned per tonne of sugar produced increased from $130,426 to $140,583 or 7.8%. So yes, production volumes were a major problem, but it is the cost that is the fatal problem. The financial statements show that the average cost of producing a tonne of cane rose from $92,075 to $130,582, a 42% increase! And that is not all. Administrative and other expenses such as marketing and distribution added another $7,554 million, slightly more than the $7,505 million in 2007.
Translating these to cost per tonne produced, the average in 2008 is $33,033 per tonne, up by 19% over 2007. Readers may be aware that the corporation enjoys considerable tax subsidies on some of the compensation payments to employees, including the weekend overtime and production incentives. These costs to the taxpayers are not usually considered or quantified when the viability of the industry is considered.

Similarly, there is no explanation for the decline in administrative expenses of more than half a billion dollars, or indeed what constitutes such expenses, a comment that also applies to marketing and distribution expenses. What is apparent is that the management fees paid to Booker Tate limited under their now terminated contract declined by $61 million, largely due to the favourable change in the sterling exchange rate. The savings in Administrative expenses have been offset by increases in Marketing and Distribution, which includes shipping costs and a cess paid to the Sugar Association of the Caribbean. Indeed over the three years 2006, 2007 and 2008, as freight costs sky-rocketed with no spare capacity in shipping, marketing and distribution costs have jumped from $3.1 billion to $4.8 billion, despite the decline in volumes.

The cess paid to SAC is based on the country’s contribution to the organisation’s budget and the money is used mainly to finance research. On the other hand, research done locally is negligible with the average annual cost over the past three years amounting to $238 million. This policy of farming out its research certainly needs a review since research needs to take account of differences in soil and weather conditions which cannot be replicated in any laboratory.
I will return to some of the income statement issues – which accountants now refer to as the statement of comprehensive income – when I look at the Blueprint for Success, but for now suffice it to say that a repeat of the 2008 performance would be the death knell of the industry.

Balance Sheet
As I turn to the balance sheet – now called the statement of financial position – I should emphasise that the two are related and affect each other. For example, the depreciation of the property, plant and equipment which appear in the balance sheet, is a charge in the income statement. All this down time on the new Skeldon Factory adds real economic costs to the project, and one shudders to think what the depreciation charge on the Skeldon Project will be. Similarly if and when that and other old plants are retired, their book values would be written off to the income statement.

The table below shows a condensed balance sheet extracted from the audited financial statements. Like with the Income Statement, there is barely any discussion on the balance sheet items which include the assets, liabilities and equity of the business. It is worth noting the bulk of the land used for cane cultivation – 72% – is held on lease at a pepper corn rental of the equivalent of $1,000 per acre per year, representing another valuable subsidy to the corporation by the government and the taxpayers. The Corporation could not survive if it had to pay real economic rent for those lands leased from the Government.

Of the total equity of $57 billion, $51 billion represents revaluation reserves while the assets include $9 billion of deferred tax assets. Both standing cane and product stock at the end of 2008 were considerably less in 2008 than in 2007 so that the corporation would in 2009 have to re-invest in these two asset categories. But this would be taking place even as the corporation confronted a weak liquidity situation, diminishing cash balances and increasing payables. During the year, the corporation was unable to pay its tax obligations of close to $2.5 billion, short-term borrowings had increased in 2008 by $1.5 billion, and cash and cash equivalents had declined during the year by a dramatic $3.5 billion!

Damp future
And as it looked forward even to two to three years, all it could see were loan obligations crytallising, plant needing replacement and a less than enthusiastic workforce. Here are some of those contracted obligations from which the corporation would almost certainly have to be rescued:
1. From 2012 – Government of Guyana Skeldon Project presumably financed by China (US$56 million) – US$1.8 million six monthly;
3. From 2010 – Government of Guyana Skeldon Project CDB (US$18.7 million) – interest rate not specifically stated so instalment cannot be calculated. Likely to require minimum repayment of at least US$1.5 million annually;
4. From 2010 – Government of Guyana Skeldon Co-generation Project China (US$25.8 million) – Interest rate not stated so instalment cannot be calculated. Likely to require minimum repayment of US$2.0 million annually.
The source of the amount of $636Mn (approximately US$3.1 million) shown in the notes to the financial statements as repayable in years 2010 to 2013 is not justified by the information contained elsewhere in the report.

The indications are that the government will be assuming most of these obligations from the Consolidated Fund. Meanwhile, the corporation was unable to make any payment to the Sugar Industry Welfare Fund in 2008 and less than half of the amount payable to the Government for lease rental, the accuracy of which I questioned in last week’s column.
The success and or survival of Guysuco over the years has had a lot to do with subsidies – with preferential access to a lucrative market, effectively free use of thousands of hectares of some prime land that the corporation claims is valued at billions of dollars, and in the cost of production. Some estates would obviously have higher production costs than others. But for some reason, the estate-by-estate performance is not stated in the report. That significantly limits the quality of this or any other independent analysis.
To be continued.
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2 Comments To "Guysuco needs drastic surgery to ensure survival – Part 2"

#1 Comment By Len Neilsen On March 21, 2010 @ 10:35 am

As advised, I am following this series carefully. No one can gainsay your analysis of the issues. Indeed, the sugar industry should be closed pronto!
But the realities are quite different.Like many experts such as Mr. Malcolm Ali on D&I projects, Mr. Ram is leading us to find the right answer to the wrong problem. Sugar will survive. The line up of political stars on the sugar board sends a very strong message: if we have to drain every last cent from the national treasury we will do it to ensure that sugar survives. That is the message I am getting.
Who is running Guysuco?
What I do know however, is that the firestorm brewing over the firing of Mr. Shaw is more informative than anything that Mr.Ram can reveal in his analysis of the operations of Guysuco.
Indeed,I can picture Cde. Ramotar preening his well trimmed beard and looking lovingly at the super glue coated political wire ropes that connect the sugar industry to the political superstructure.
As I advised Mr. Lewis, where econs and politics collide,
politics will inevitably carry the day.
That, I have learnt the hard way.

#2 Comment By Investor On March 21, 2010 @ 6:06 pm

Are Guyanese really paying more for sugar from our own Corporation than they are willing to sell to others?

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Guysuco needs drastic surgery to ensure survival. Posted By Christopher Ram On March 28, 2010 @ 5:10 am In Features, Sunday | 1 Comment
Part 3


In the two preceding parts of this series on the state-owned sugar entity, my focus was on the 2008 financial statements which are contained in the annual report tabled in the National Assembly in late 2009. Those accounts told a story of a company in serious trouble and in danger of terminal decline, whether measured by profitability (it had a pre-tax loss of $6.2 billion); liquidity (by its own admission it experienced cash flow difficulties requiring working capital for the fourth consecutive year from the UK based ING Bank and a lifeline of $3.2 billion from a consortium of local commercial banks); or solvency (it was practically insolvent and requires Government support to keep it afloat). In the course of the earlier parts, I touched on some of the disclosures and omissions in the annual report, the principal use of which is to tell the story behind the numbers, offer some explanations, sometimes excuses, and indicate how the directors intend to take the road to recovery.

[1]As a state-owned entity, the corporation has filing and reporting obligations under both the Companies Act, as well as the Public Corporations Act (PCA) which requires that the accounts and report be tabled in the National Assembly within nine months of the end of the accounting year. Allowing for a few weeks delay, the reporting obligations of the corporation are met, which is more than can be said for the majority of publicly owned enterprises and budget agencies.

But the combined effect of these two acts creates for the corporation a recipe for confusion, if not disaster. Following the wave of privatisation and the new post-1992 dispensation, many of the provisions of the PCA, including the establishment of a Public Interest Committee consisting of workers, women, youth, students and consumers, have fallen into disuse. The directors’ powers and duties under the Companies Act are effectively overridden by the PCA which gives to the Minister immense powers over the corporation, and for good measure, also to the President. With such conflicting reporting obligations and so many bosses, it should surprise no one that the corporation seems incapable of dealing with the myriad of problems that cause it such massive losses and public embarrassment, as we witnessed this week over procurement in the corporation.
The annual report

For now, let us turn to the annual report. The then Chairman Mr. Ronald Alli in his report restates the mantra that sugar makes a significant contribution to the country’s GDP and is our largest foreign exchanger earner. The data do not support these bold assertions.

Measured in terms of constant prices, in 2008 sugar contributed 5.9% of GDP, placing it seventh in ranking, while in terms of export earnings it earned the country considerably less than the earnings from gold. In 2009, contribution to GDP was unchanged, but in terms of export earnings, sugar earned less than half of that of gold. With respect to taxes, sugar makes a negative contribution, receiving from the treasury a host of subsidies, exemptions and concessions. Of course, production and prices of sugar and other commodities can change the equation from year to year but the underlying trend is not encouraging and indeed, if you can believe it, in the GDP league, sugar is not too far ahead of Other Crops, which does not include rice.

The table below, taken from the 2010 Budget Speech, shows the value of exports in millions of Guyana Dollars for the five years 2005 – 2009.

[2]It may be excusable if the statements in the annual report were made by persons with less access to information. It is perhaps merely regrettable that these statements about the greatness of sugar are made without any attempt at fact checking. But what is not excusable and is more than regrettable is that such uninformed thinking is often advanced as justification for billion dollar investments and subsidies which the working poor and the unemployed can ill afford.

The annual report devotes scarce space to describing the efficacy of the movement of inventory among estates, the procurement of goods, and the concerted efforts made by the “hard pressed staff” of the procurement department. Yet months after the publication of that report the corporation is now reporting systemic misconduct and losses in the department. Since no one in the corporation will reconcile these clear conflicts, the public will remain confused.
Corporate governance

Here again reality confounds theory, the walk differing from the talk. The directors assert that the corporation is committed to high standards of corporate governance. Yet, neither its annual report nor its website states the names of persons heading and constituting the various governance committees. My efforts at finding out left me with the distinct impression that the corporation does not understand what corporate governance means. The office of the Corporate Secretary advised me that for the information, I should call the Chief Executive. The response from his office was that I should call the Chairman Dr. Gopaul. That was that.

I later understood that the Audit Committee is headed by Ms. Geeta Singh-Knight, the CEO of the insurance giant Clico which collapsed spectacularly in 2009. The government has resisted calls for an investigation into this collapse amidst evidence that the law – the first ingredient of corporate governance – has been breached, and suggestions that there may have been collusion between the company and some key political and other persons in the society. The resistance to such calls appears to have as its objective, the protection of those persons, and to conceal as much and as long as possible, regardless of the cost and consequences. The public’s confidence in Ms. Singh-Knight has been totally lost as a result of her direct involvement in all the major decisions of Clico up to and even after its collapse. In any other situation such a person would not be considered a fit and proper person for appointment as a director. With this government, the rules are more tolerant.

There is too a Remuneration Committee that would have approved the huge salaries and millions of dollars of expenses paid for some directors and senior staff. Yet there is no coherent wages and salaries policy in the corporation, even as industrial relations stumble from one crisis to another. The other committees established by the board are the Central Tenders Committee and a Lands Committee with responsibility for land disposals. My understanding is that this committee was side-lined in the controversial Diamond land deal in which two ministers stand accused of improper conduct in the National Assembly.

Interestingly the directors stated as their primary function the generation of “sustainable wealth for the shareholder as the key stakeholder in the business.” This rather controversial assessment is hardly likely to find agreement among the workers who have to perform the back-breaking tasks under some of the worst modern day conditions, and among taxpayers who increasingly are keeping the corporation from going under. But the directors, including one leading presidential hopeful, challenges this primary function by categorically re-stating a policy not to declare or pay dividends. It is not often that in a single annual report that one finds such contradictions. In the case of Guysuco these are on the same page. No wages policy, no return on capital threshold, and a make-no-sense dividend policy. Perhaps the directors charged with the turnaround of the company will tell the stakeholders what is the real policy of the corporation.
Political loyalty over professional competence

The disaster which has befallen the corporation is the fatal triumph of politics over business, of expediency over planning, of political loyalty over professional competence. For any turnaround there needs to be a transformation in how the corporation is run. The stages of good practice are at the basic level, statutory compliance with laws and regulations, followed by good corporate governance and later, by corporate social responsibility (CSR). As a state-subsidised entity that touches on the environment, food and finance, and that directly employs thousands across the coast, the stakeholders extend beyond the shareholders. This would normally demand the formulation and application of CSR. How the corporation moves from its pre-level 1 stage to stage three is anyone’s guess. The Public Corporations Act permits performance contracts involving the corporation. Those who are now asking for billions more in subsidies should be asked to sign such a contract before any money or further concessions are granted.

To be continued
1 Comment (Open | Close)

1 Comment To "Guysuco needs drastic surgery to ensure survival"

#1 Comment By Cummins On March 28, 2010 @ 8:57 am

I am glad this article on Guysuco is coming out because it gives a clearer picture of what it happening at the corporation. From 3000 miles away and by reading bits and pieces of newspapers articles I was able to see the true state of that business. My past blogs bear this out.

What bothered me up until now is why nobody down there sees that Guysuco in dire shape and it is quickly approaching decision time for that business. I say decision time because Guysuco has be granted almost 7% of the national budget when it should be a revenue contributor. In short, the corporation is almost a 20% drain of the national coffers (7 % budget outlay + 15% loss contribution).I am sure that 20% could have done so much to ease the tax burden on the citizens or even fund a new or existing social program.

I have seen much talk about starting an ethanol plant and other things to get that company moving again. Those talks are all thrash because the financial condition and skill level there make it impossible to even dream about a bigger company at this time. I also believe that the group heading that business is in over their head or worst, they don’t know what they are doing. If they had, Guysuco would have been a much smaller business a long time ago using is its secured markets to cover most, if not all, of its fixed costs.That is turnaround management 101.

Mr. Ram, there is one thing which you will not see in the financial statement and I hope you consider it in your analysis. That is, when a company in this bad shape it skimps on maintenance expenses hence its equipment deteriorates and usually requires a substantial capital expenditure in the very near future to replace/repair those equipment. I hope you can add that to your analysis so as to let the Guyanese people know what they are in for if that number doesn’t scare them.

Good work.

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Saturday, March 27, 2010

Let us not put our children out to work at 13 years old. Please.

Kaieteur News letter. Let us not put our children out to work at 13 years old. Please.

March 27, 2010 | By KNews | Filed Under Letters

Dear Editor,
It is with great trepidation that I write this letter because once I reply to Randy Persaud’s question in last Sunday’s KN, the letter writers will all come out in full force and criticize not only me, but my entire family, for whatever ills or sins they feel we have committed. So be it.
I do not know who Randy Persaud is. I have seen letters from him in the daily newspapers for a while now and have surmised that he works for the current government. This is not a criticism of you Mr. Persaud, but information for you to consider. All I ask is that if you or anyone feels the need to reply to me, let us stick to the topic at hand.
There is nothing wrong with a child delivering newspapers or doing odd chores for pay if the pay is for pocket money for the child who is saving for his/her future education, or to buy electronic equipment or fancy clothes or to go to a restaurant with their friends. What is objectionable in Guyana is that most of the children working are the bread winners for their families. They do not attend school and the jobs are not part time, they are full time. Pass by Bourda Market any day and you will see them selling during school hours. This is just one example.
I am sure you have read of the children in Berbice (and elsewhere) who do not go to school because their parents cannot afford school clothes or passage money, or money to buy food and books. This is the reality of Guyana. My neighbour here in Georgetown used to board a lad but for whatever reason she can no longer do so. He lives just over the river. When I met him one day this school year and asked why he no longer goes to school he says that he had to move back home and his mother does not work and he has no money to travel to the GTI every day. He is 15 years old. That is the tragedy of Guyana.
We have read recently of the super salaries of Presidential Advisers. Don’t we all wish we could be Presidential Advisers? If some of that money could be re-distributed to poor children to pay for school books and uniforms, to give them just one meal a day in school, to resuscitate the dairy industry so that every child under 16 years of age can get 1 litre of milk a week, to start making cheese and yogurt, to bring back the big buses or even school buses for children whose parents cannot afford to pay for them, Guyana would be a better place. We would not have so many child criminals.
We need to educate our children. Education is the only way out of poverty Mr. Randy Persaud. Let us not put our children out to work at 13 years old. Please.
I recommend that you and other members of our government study and implement the Bolsa Familia programme in Brasil which transfers a reliable sum of money every month to families below the poverty line in exchange for verified school attendance and clinic visits for children and I promise you Guyana will be a better place to call home.
Jennifer Bulkan

Jagdeo insists his travel expenditure is minimal…says he worries for Guyana if AFC gains power

Kaieteur News news item, Saturday 27 March 2010. Jagdeo insists his travel expenditure is minimal…says he worries for Guyana if AFC gains power.

March 27, 2010 | By KNews | Filed Under News

Head of State Bharrat Jagdeo is insisting that the annual cost of the travelling for the entire Government is on average $200M. He said that it is not accounted for at the Office of the President but rather with the Accountant General at the Ministry of Finance.
According to Jagdeo, there is one travel vote for the entire government.
The President also responded to Leader of the Alliance for Change, Raphael Trotman, who had told media operatives that the cost of the President’s overseas travel over the past 2 ½ years was nearing $1B.
“If the entire Government is $200M, I worry for this country if they (AFC) get into power…Mathematics is important.”
The President insists that his allowances are the same as a Minister or a regular staff or a Permanent Secretary.
He added that official visits such as his recent trip to Iran are paid for by the host country.
He said that as the issue of his trips was the source of queries, he would reluctantly let it be known that the one trip for the Leader of the Opposition, Robert Corbin, when he was medevaced to the US, “is equivalent to three years of my travel.”
The President added also that when he travels overseas he travels with the smallest delegation, namely his Aide de Camp, Ambassador Elizabeth Harper and the Foreign Affairs Minister, Carolyn Rodrigues-Birkett.
This is nothing like the previous administration where routine trips would see a delegation of some 15 persons.
Jagdeo said that when he travels overseas he does not use expensive hotels. “I could because am eligible.” And he has made this clear to his staff that they should not either.
Responding to comments on his travels by the political opposition, President Jagdeo, said that while he was reluctant to mention this fact, Opposition Leader Robert Corbin’s medical bill to an overseas medical facility cost enough money to cover his travel expenses for three years.