The government’s holding company National Industrial and Commercial Investment Ltd (NICIL) has spent less than US$2 million on development costs for the Marriott Hotel but will invest US$19 million in the project, Minister of Finance, Dr Ashni Singh disclosed to the National Assembly last week.
In a written response to questions raised, the minister said NICIL has spent or will spend less than US$2 million on development costs including design costs to the New-York registered Adam Development and Urbahn Associates (ADUA) and preliminary costs to financial close. The design by ADUA has since been changed, according to documents released to the National Assembly. NICIL will also provide US$4 million in equity and invest US$15 million in subordinate loan stocks for the controversial project.
Singh said the government of Guyana has not entered into an agreement with China’s Shanghai Construc-tion Group (SCG) but rather Atlantic Hotel Inc (AHI) has entered into a contract with SCG International – a subsidiary of Shanghai Construction Group for the construction of the hotel. AHI (NICIL is currently the lone shareholder) is government’s special purpose company for the project. The minister said that several things cannot be disclosed because of confidentiality agreements but the government is willing to have a closed-door presentation that will allow certain details of the documents to be made available under the condition of utmost confidentiality and discussed with key opposition members without the documents being made public.
Singh said no money from the Consolidated Fund had been allocated to this project nor was any expected to be allocated from the budget. Apart from the US$19 million to be invested by NICIL, US$8 million will come from private investors while Republic Bank will provide US$27 million of senior debt to the project. Outfitting costs for the entertainment complex estimated at US$4 million are expected to be funded by the operators once selected. Singh said that there is no government guarantee to any financial institution or Chinese company for the project. However, NICIL and the majority shareholder(s) will have to stand behind certain risks-cost overruns and any debt service shortfall until certain debt service ratios are achieved. These risks are considered to be minimal, Singh asserted.
He said the Marriott Hotel group through one of its subsidiaries will be managing the hotel in accordance with standard Marriott rates per annum set out in the management agreement inclusive of percentages of gross revenue, operating profit as well as other fees based on international norms. The actual percentages cannot be disclosed owing to confidentiality clauses contained in the agreements, he said.
The rate of return to the taxpayer will be based on the hotel performance and dividends declared over time or the sale value of NICIL shareholding and common shares as a block, the minister said. He said the subordinate loan stock is expected to be repaid as principal only.
Meanwhile, according to the documents released, the government has committed to providing the developer of the hotel, which is expected to be five-star, with a 10-year corporate tax holiday which will commence from the first year of commercial operations. The government shall also provide the developer with a 10-year wavier of property tax and withholding tax (including the payment of interest and dividends to debt providers and equity holders in the Developer) which will commence from the first year of commercial operation. It shall also facilitate the developer’s request to operate a casino.
The government will grant relief from any applicable import duties and taxes as well as VAT which will be equally applicable to a contractor(s) hired by the developer. Thus far, according to the documents, the developer has applied for exemption of taxes and duties amounting to $16.7 million.
In addition to paying US$50.9 million, AHI will also cover several other costs such as third-party inspections and the cost of final certification to ensure that the project is built to meet minimum Leadership in Energy and Environmental Design (LEED) certifications, cost of work permits and visas and operating supplies.
The entertainment complex will not be managed by Marriott and SCG, according to the agreement, has the option to introduce a casino operator to AHI who may be the casino operator.
This project comprises a 197-room Marriott hotel, a large ballroom, a conference centre, along with other amenities. It also includes an entertainment complex of a casino, nightclub and a restaurant.
It was under consideration since 2004 and in 2009, the Zublin group out of Grenada, a private developer withdrew after citing the global financial crisis. The government continued to pursue this project following a public/private partnership model. Resulting from invitations in the media, a proposal was made which included designing the hotel. This proposal was accepted in May 2009.
To execute this public-private partnership, Atlantic Hotel Inc, a special purpose company was formed and in December 2009, the letter was executed between Atlantic Hotel Inc and Marriott.
On November 16, 2010, following approval by Marriott of the revised conceptual design, the design bill contract was executed to Shanghai Construction Group and Atlantic Hotel Inc for the value of US$50.9 million.
