Two weeks ago, we began a discussion of the 2012 annual report of the National Industrial and Commercial Investments Limited (NICIL) that the Minister of Finance had presented to the National Assembly. We noted that the key directors are connected to, or are part of, the political directorate. This does not reflect well from a governance standpoint. In particular, Ministers should restrict themselves to the formulation of policies and allow professionally and technically competent persons to be involved in the management of state institutions. Such an arrangement will leave room for recourse to the higher authority, that is, the Minister, in event of a problem.
Although the Audit Office did not complete the audit of NICIL within the prescribed deadline, on the face of it, the availability of audited accounts for 2012 represents a significant improvement compared with previous years. However, the completion of eleven years of audit in just over one year must be viewed against the background that NICIL’s operations are complex in nature with revenue for 2012 amounting to $7 billion while total assets and liabilities at the end of that year were $17.2 billion and $4.9 billion respectively. Given the severe constraints that affect the ability of the Audit Office to render an efficient and effective service, it appeared more of a rush job to meet one of the three resolutions passed in the National Assembly in June 2012 calling on the Minister to bring NICIL’s accounts up-to-date. If this is the case, it speaks volume about the independence of the Audit Office.
Since 2002, NICIL has assumed the role of a parallel Treasury through the diversion of dividends from other state enterprises; proceeds from the sale of state properties and other assets (including Government’s interest in GT&T); and the transfer of hundreds of millions from the Guyana Forestry Commission and the Geology and Mines Commission. In addition, NICIL uses these intercepted funds to meet expenditure (such as on the Marriott branded hotel, the aborted Amaila Falls Hydro Project and the Berbice River Bridge) without parliamentary approval. Both of these actions are not only a violation of Articles 216 and 217 of the Constitution respectively but also a reflection of the quality of governance we have been experiencing for several years. There is also no evidence that the Assembly referred the audited accounts of public enterprises and statutory bodies to the Public Accounts Committee (PAC) for examination. Given all the concerns relating to the operations of NICIL, this entity has so far escaped scrutiny from the PAC!
Results of operation
NICIL recorded revenue for 2012 totalling $6.957 billion, compared with $4.551 billion in 2011, an increase of 53 per cent. This was mainly due to a 351 per cent increase in capital proceeds from the disposal of state assets that have been vested in NICIL. The following are the details:
Description 2012 2011
G$000 G$000
Properties 399,026 334,105
Capital proceeds 5,558,070 1,583,899
Dividends received 1,000,000 2,633,481
TOTAL 6,957,096 4,551,485
Operating expenses for 2012 amounted to $154.7 million, compared with $179.4 million incurred in 2011. This gives a staggering operating profit of $6.802 billion ($4.372 billion in 2011), resulting from the nominal values assigned to the assets vested in NICIL. It is doubtful whether the International Financial Reporting Standards (IFRS) that NICIL uses as its accounting and financial reporting framework, would permit such a practice. It would have been more appropriate for the assets to have been assessed at market values and recorded in the books of NICIL as such. In this way, when the assets are sold, the sale prices are matched with the market values to arrive at a more realistic operating profit. This matching concept is fundamental to accounting and financial reporting.
The fact that state assets are vested in NICIL at no consideration would suggest that the proceeds from their disposal cannot be regarded as NICIL’s revenue. Therefore, such proceeds net of expenses should be transferred to the Treasury. NICIL is merely acting as a collecting agency for the Government in the same way the Guyana Revenue Authority does in respect of taxes. Between 1990 and 2001, this was how NICIL was operating, and for this it received an annual subvention from the Government to meet operating expenses.
A closer look at the capital proceeds
Section 6(2) of the Public Corporation Act of 1988 provides for any State-owned/controlled corporate entity to be reconstituted under the Act, and thereupon the reconstituted entity shall be deemed to have been established as a public corporation. NICIL has not been deemed a public corporation as no order has been issued under Section 6(2). In addition, by Section 66(1), the Minister may, by notification in the Gazette, apply any of the provisions of the Act, without modifications or with such modifications as may be specified therein, to any State-owned/controlled entity, other than a corporation. Unlike Section 6(2), any such notification does not confer upon the entity the status of a deemed corporation, and therefore the entity cannot apply any of the provisions of the Act, save and except those specifically stated in the notification.
On 18 July 2000, the then President issued a notification under Section 66(1) that section 5 is deemed to apply to NICIL with the modification that reference in sections 5(1) and 5(2) shall be deemed to apply to NICIL. However, Section 5 applies to a new corporation and the vesting of movable and immovable property of the State in that corporation. Since NICIL was incorporated on 18 July 1990, it is not a new State-owned entity in need of movable and immovable property for start-up operations as is the intention of Section 5. The vesting of the numerous state assets in NICIL from the year 2000 to present date is clearly not in conformity with the Public Corporations Act. The Act also does not envisage a situation where state assets are vested in a corporation for the sole purpose of resale since it is a simple matter for the relevant Ministry or Department to do so and to pay over the proceeds to the Treasury under the revenue line item “Sale of assets”.
The Minister has been using Section 8 as his authority to dispose of assets vested in NICIL. However, Section 8 is applicable only to transfers to corporations, and not disposals. In addition, there was no evidence of competitive bidding to ensure transparency and best value for the assets disposed of. Once the assets are disposed of, NICIL retains the proceeds and treats them as its revenue. It is clearly evident that the vesting of state assets in NICIL and their disposal are deliberate acts: to avoid the rigorous procedures that have to be followed in the disposal process; to divert funds away from the Treasury and use such funds at the discretion of the political directorate to meet expenditure; and to circumvent the authority of Parliament to approve of the related projects.
For the period 2002 to 2012, capital proceeds totalled $9.393 billion, of which $7.142 billion or 76 per cent was received during the period 2011-2012. Operating expenses during this 11-year period amounted to $1.685 billion. Therefore, the sum of $7.708 billion should have been paid over to the Treasury. Had competitive procedures been followed in the disposal, the latter figure might have been significantly higher, perhaps in the tune of $10 billion.
Dividends received
NICIL has stated that its principal objective is that of “subscribing for, taking or otherwise acquiring and holding Government’s shares, stocks, debentures or other securities of any company, co-operative societies or body corporate”. However, a comparison of this statement with that contained in NICIL’s Articles of Association revealed that the word “Government” is not reflected in the latter. In fact, 22 objectives have been stated, none of which has been identified as the principal objective. These are also the standard objectives contained in the incorporation documents for most commercial type companies, and therefore the principal objective is not unique to NICIL as all such companies are allowed to make investments in other companies, co-operative societies or other body corporate.
NICIL has been using this objective as the basis for deeming 14 public enterprises as its subsidiaries, including GUYOIL, Guyana National Printers Ltd., Guyana National Shipping Corporation, GUYOIL, National Communication Network, Guyana National Newspapers Ltd. and Atlantic Hotel Inc. In addition, NICIL has investments in 12 other entities, including New GPC, Berbice River Bridge and Hand in Hand Trust Corporation. When dividends are declared, the entities concerned are required to pay over such dividends to NICIL. Dividends received for 2012 amounted to $1 billion, compared with $2.663 billion in 2011. NICIL in turn declares its own dividends based on the results of its operations and these are paid over to the Treasury. For 2012, such dividends amounted to $1 billion on an after tax profit of $6.206 billion!
For the period 2001 to 2012, NICIL received dividends amounting to $12.267 billion. For the same period, it declared dividends totalling $10.791 billion, and this amount was paid over to the Treasury. Had all dividends received been paid over to the Treasury, the latter would have benefited from an additional $1.476 billion.
Next week we will conclude our discussion of NICIL’s 2012 annual report.
