Investments by the NIS in the troubled Berbice Bridge company and others which have left the Scheme in a dire condition were decided not by the board but by the Cabinet of the former PPP/C government.
This disclosure was made by the forensic audit into the National Insurance Scheme (NIS) based on the examination of minutes of board meetings.
The finding will add to long-held concerns that former PPP/C President Bharrat Jagdeo set out to use the funds in the NIS for various investments connected to persons close to him without the directors of the board exercising their fiduciary responsibilities. The Chairman of the NIS board during the 23 years that the PPP/C was in office was Dr Roger Luncheon who also served as Head of the Presidential Secretariat and Secretary to the Cabinet for the entire period.
According to the forensic audit into the operations of the NIS, 93% of the scheme’s assets have been sunk into investments which are for the most part not generating revenue.
The audit conducted by Ramesh Seebaran and made public on the Ministry of Finance’s website on Wednesday even though it was transmitted to Finance Minister Winston Jordan on November 9 last year, noted that during the period 2011 to 2014, 89% of the investments were generating average annual returns of 2% which was below the average annual inflation rate of 2.22% a negative real return of .22%.
Additionally the report notes that during that same period the scheme’s overall investments generated an average of 3% return for the period 2011-2014.
“This average of 3% is down from the average of 4.7% as reported in the 8th Actuarial Review to December 31, 2011. The 1.7% is due mainly to the loss in returns from CLICO which had generated 6.25% per annum before bankruptcy,” the report said.
The scheme’s $5.1B investment into CLICO represents one of two “major high risk investments” classified as “potential losses to the scheme.” The other is a $2.59B investment in the Berbice Bridge Company Inc. (BBCI).
According to the report this investment into “a company (BBCI) which is making losses and which has many issues surrounding its going concern” was executed by the last board of the Scheme “without proper due diligence.” Instead the board “accepted decisions made by Cabinet.”
The report notes that in the minutes of the 445th Board of Directors (BOD) meeting it is stated that “the chairman (Dr Luncheon) informed directors that approval was given by Cabinet for National Industrial and Commercial Investments Limited (NICIL) to sell 950,000 preference shares held in BBCI to NIS at par value.”
It goes on to state that Cabinet’s decision was “countenanced by directors” who in effect made no attempt to determine whether the investment was in the best interest of the scheme.
This decision came exactly one meeting after “directors expressed a disinterest in the BBCI investment offer” and “the chairman expressed concern about the inordinate risk concentrated in the portfolio.”
Significant input
From this and other evidence the auditor concluded that “cabinet had significant input over the board and made certain decisions which the directors accepted without any discussions, analysis and due diligence to determine the merits of the decisions” which are now “having a severe impact on the scheme’s cash flows and the recoverability of these investments.”
After the scheme’s investment in BBCI the company through a concession agreement with the government also reclassified the bridge from a fixed asset to a “concessionary asset.” The effect of the reclassification resulted in a restatement of the 2010 and 2011 audited financial statement so that those years which had declared taxable profits now show significant losses.
The report stressed that “in the event that BBCI becomes insolvent then the scheme will be at a severe risk of not recovering its investment.”
“The ability of BBCI to pay interest/dividends/capital repayment will depend on its ability to generate profits; to-date it has made accumulated losses of $1,507,062,759 based on its 2014 audited financial statements. As a result, the investment in BBCI’s Common Shares may now be impaired as the current net worth of an ordinary share is ($2.77) based on its 2014 audited financial statements,” the report explains.
It further notes that this ability may be impaired due to the fact that BBCI does not own a bridge but instead a licence to operate a bridge. A fact which was not previously known to the Scheme even though two of its directors sat on the BBCI board. It is this “revelation” that led to the reclassification of the bridge.
Also noted is that since 2009 the scheme has seen no returns on its $5.1B investment into CLICO Guyana. The CLICO investment by the NIS had created a firestorm in 2009 when the Trinidad government had to bail out its parent company. CLICO Guyana was later liquidated and it was learnt that it had channelled the NIS investment into a Bahamian sister company which in turn had invested in Miami real estate which was then worth very little because of a real estate bust.
A March 5, 2009 letter from Doreen Nelson, General Manager (ag), to Maria van Beek, Judicial Manager of CLICO Guyana and then Com-missioner of Insurance, requesting that priority be given for the NIS to recover the value of its investments in CLICO went unanswered even though Nelson pointed out that “the repayment of these investments (in full) is essential for the continuing operations of NIS as a viable entity”.
A subsequent resolution by the 9th Parliament to have the then PPP/C Government undertake to take all possible actions to secure the investments made in CLICO (Guyana) by the NIS on behalf of its contributors and beneficiaries to prevent any consequential loss in benefits to them has also failed to see the scheme receive any revenue.
Noting that the funds were invested to earn returns at a rate of 6.25% per annum the report stresses that at this rate, “the Scheme is losing $321,794,000 annually and to date the accumulated loss is $1,930,766, or over $2 billion if the unpaid interest is included with the principals when computing interest.”
These losses according to the report are an indication that the Scheme’s investments were not managed with a view to maximize annual returns as recommended in the Framework for Prudential Investments (which is the guide the scheme is tasked with using to select and manage investments).
Other investments questioned include a $45M investment in the Guyana Pegasus and $120M investment in Property Holdings Inc.
The Pegasus investment which originated in 1997 had $44M written off and has not generated any revenue in the period under review (2011-2014).
According to the report “on December 17, 1997, the Company Secretary of The Guyana Pegasus wrote the GM of the Scheme advising him that based on a letter received from him dated November 12, 1997, shares owned by the Government of Guyana in The Guyana Pegasus was transferred to the NIS. The share certificate was forwarded to the GM as an attachment to a cover letter and copied to the then Minister of Finance Mr. Bharrat Jagdeo, and the then Government Director of Pegasus Hotels of Guyana, Mr. Manniram Prashad.”
Presently the investment does not generate revenue and the company’s shares are not listed on the Guyana Stock Exchange. Further, the NIS Finance Controller revealed that the Investee no longer submits audited financial statements to the Scheme or confirms any balances.
“We were also informed that the previous BODs were in communication with the Registrar, Deeds Register to access information filed by the investee without any success,” the report notes.
In relation to PHI the investment which also does not generate revenue represents shares in a company that was incorporated on October 5, 1999 for the specific purpose of managing or disposing of properties owned by Guyana Stores Limited (GSL). The principal owner of PHI at the time of its creation was GSL, which itself was owned by the Government of Guyana under the control of the National Industrial and Commercial Investments Limited (NICIL).
This investment which initially had a face value of $120M was later written down prior to 2011 to $88M.
Even as the report notes the challenges the Scheme faces with these long term investments it also notes that the scheme has been over-investing “in short term investment which have been generating minimum returns”.
As of May 2015 62.22% of the schemes investment were short term compared to a recommended maximum of 50% according to the Framework. This represented a sum in excess of $20B while less than $10B represented medium and long term investment.
“The total income from investments over the last four years was $3,736,943,000 of which $3,349,652,779 was received leaving a balance of $387,290,688. At the end of August 2015, this balance was still outstanding,” the report says.
