Monday, June 2, 2008

Deals (2)

Deals (2)
Published June 2, 2008 In Stabroek News Editorial

In the aftermath of the questions raised about the deal for the Sanata Complex the Privatisation Unit (PU) and the Guyana Office for Investment (Go-Invest) have made admirable efforts to explain the reasoning behind the decision.
Those efforts are laudable and they signal a willingness to address criticisms raised about a very important area – the disposing of the assets of the state. Nevertheless, the explanations fall short in one vital area i.e. the pathway towards the opening of discussions with Queens Atlantic Investment Inc. (QAII).
The PU and Go-Invest have stressed the point that discussions with QAII were initiated after a well-publicised advertisement seeking investors to run the Sanata complex failed to attract a single bidder.
In the latest of a series of interviews in Saturday’s edition of this newspaper, the Head of the PU, Mr Brassington said that in the last quarter of 2006 advertisements ran for the operation of the facilities at G&C Sanata but no bids were received on the extended closing date of February 28, 2007. The bid box was opened on February 28, 2007 in the presence of a representative of the Office of the Auditor General.
Mr Brassington then argues that in accordance with the Privatisation Policy Framework Paper (PPFP) of July 1993 where an entity has been advertised and no bids received direct negotiations can be held and it was in that context that discussions began with QAII.
The date of the PPFP is important. It came only nine months or so after the PPP/C registered its historic 1992 win and amid the crescendo of concerns in the then opposition and civil society that many of the important privatization deals struck by the PNC in its waning years had been tainted by corrupt decisions. In keeping with its lean and clean outlook, the PPP/C then set about laying down its law and the framework paper was drawn up. Whether it has been religiously adhered to over the last 15 years is something that no one can vouch for. However in relation to major deals like QAII, the public’s interest would be high in ensuring that the privatisation adhered to the letter and spirit of the framework.
Investment spotters and those who harvest high finder’s fees know that a key part of any deal is matching an investor with an appropriately, lucrative investment prospect; one that creates synergies and optimizes the strengths of the investor. And if only that investor is aware of what is on offer and can hammer out an arrangement in private without having to factor in competitive bids the deal would likely be sweeter for all. That was however not the intent of the 1992 PPP/C administration of Dr Jagan. That administration was concerned that all should be given a fair and equal opportunity to bid for state assets and to invest in them.
So, was the PU in the right to approach QAII? The only guidance for this in the PPFP is contained in Appendix 1 which covers the Rules of Competitive Bidding. If bids had been received for the Sanata complex but were below the floor price fixed by the government or were ruled unresponsive for legal, technical and financial requirements then “the government may choose to conduct the disposition of its interest through negotiation. Accordingly, the government will appoint a special ad-hoc committee to conduct the negotiations with interested parties on a one-on-one basis, or as a group.
This negotiation will be undertaken with a view to ensuring that the Government obtains the best price, which should not be lower than the highest bid submitted at the failed bidding”.
The aforementioned clearly conceives that negotiations would begin with the failed bidders. In this instance there were no bidders so the PPFP’s road map did not provide the pathway to QAII. Moreover, what the PU eventually discussed with QAII was not what was originally advertised in the last quarter of 2006. It was an entirely new offer. Given the disgraceful condition that Sanata had been kept in by the state it was small wonder that not a single bid was received following the original advertisement.
That should have signalled to the PU that its original advertisement was hopefully misconceived and considering the protracted failures at Sanata over the decades it would be foolhardy to expect that sane and savvy investors would be interested in it.
A new advertisement should then have been placed inviting investors to present proposals for the dismantling of the degraded parts, the removal of asbestos, investment in light manufacturing, job creation etc. This was not done by the PU. Even if one were to concede that it entered good-intentioned discussions with QAII there was nothing stopping it from advertising that QAII was interested in investing in the complex in a manner different from that originally advertised and gauging if there might have been better qualified investors who were also interested. That, too, was not done by the PU.
Instead, negotiations proceeded in secret with QAII. It is unclear who spearheaded the discussions and what deliberations proceeded at the level of the Privatisation Board which is supposed to include members of the business and consumer sectors.
What complicates the matter is the admission by President Jagdeo that a principal of QAII is a personal friend of his and as a result he withdrew from discussions that were held at the level of Cabinet on the deal. Given President Jagdeo’s well known zeal for command control of a number of portfolios and his great interest in all governance matters big and small, it is difficult to see how the discussions with QAII would have been adequately insulated from his style and shadow.
The direct approach then to QAII therefore raises troubling questions and given that the principal is a friend of the President and this would have been known, those making the approach to QAII should have been far more careful. There was a fundamental obligation to ensure that everything was done transparently and in a fair manner. That standard set by the `92 PPP/C government was unfortunately not met and the questions about this deal will continue about the way it was devised and the finally approved terms.
Investment of this scale has been hard to come by in this country and considering the several manufacturing plans of QAII it must be welcomed and supported. It is however starting off under a cloud over how decisions to sell the state’s assets were made, questions that the `92 PPP/C government was hoping that it would not be dogged by.
As to the Buddy’s deal, it is clear that the state made a lousy decision. It was led to believe that Mr Shivraj was making a life-long investment in the hotel business in this country; not for him to turn around a year later and sell it for a tidy profit after an interest-free loan of $165M from the government when he was clearly cash-strapped.
It would have been far more sensible for the government to hire a contractor, an interior decorator, a management firm and sell the hotel after the world cup for a tidy profit to Mr Okzan if it was so inclined. The deal between the government and Mr Shivraj should be the subject of scrutiny at both the Public Accounts Committee and the Economic Services Committee of Parliament.

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