In our last two articles, we discussed the operations of the National Industrial and Commercial Investments Ltd. (NICIL) in the light of the recent controversy over the State-owned company’s involvement in major land deals in Ogle on the East Coast Demerara, Peters Hall on the East Bank Demerara and Wales on the West Bank Demerara. This was at a time when Government’s status was that of a caretaker Administration pending the outcome of the 2 March 2020 elections.
Some of the most troubling aspects of the land deals include allegations of: (i) the lack of transparency in the transactions, absence of valuation of the lands involved, and in some cases lack of the requisite approval by the NICIL board and/or the Cabinet; (ii) conspiracy to have some of the lands in the Peters Hall area leased to persons and to almost immediately have them ‘flipped’ to the intended beneficiaries in exchange for considerable sums of money; and (iii) serious conflict of interest in these land deals involving person(s) attached to NICIL.
Last week, it was reported that NICIL, through its Special Purpose Unit, had disposed of thousands of acres of Wales Estates lands by way of leases without evidence of any proper procedures being followed. A number of persons have since received notices of rescission of their leases although some of them have expended significant sums of money to develop the lands in their possession. NICIL has commenced conducting an occupational survey to identify who are the occupants and the extent of occupancy. There were also allegations that the prime lands and properties were leased to persons with no background in agriculture, and it is not clear on what basis they were able to acquire such lands.
The Government has indicated that it intends to create a statutory body corporate, appoint a board and vest the lands in that body. The board will be responsible for, among others, establishing a transparent process by inviting expressions of interest in agriculture; assessing the applications against certain agreed criteria; and leasing of the lands to individuals and organisations that meet the criteria. The objective is to ensure that the lands are leased to persons who will beneficially occupy them, create jobs, and contribute generally to the economy. Some priority will be given to former workers of the Wales Estate who they will be advised to organize themselves in co-operative societies.
Today’s article concludes our discussion on the changing mandate of NICIL over the years.
Recap of the two previous articles
NICIL was initially established to monitor Government’s investments in public corporations and other entities in which controlling interest vests in the State, and collecting and paying over to the Treasury all dividends received. These investments were vested in NICIL without consideration, and although they were legally held by NICIL by virtue of the related vesting orders, the State-owned company was in effect an agency of the State, receiving a subvention from the national budget to meet its cost of operations. Indeed, NICIL was in a custodial relationship for these investments.
With effect from 2002, NICIL became integrally involved in the Government’s privatization programme through the Cabinet’s approved merger with the Privatisation Unit of the Ministry of Finance. As a result, NICIL became responsible for the divestment of State assets identified in the Privatisation Policy Framework Paper laid in the National Assembly in 1993. However, instead of paying over the dividends it received as well as the privatization proceeds, NICIL retained such funds, claiming that they were its revenues, and used them to undertake various government projects without parliamentary approval.
The agreement was to remain in force unless the Cabinet decided otherwise. However, one would have thought that once the Government’s privatization programme came to an end, NICIL would have reverted its original role. This was, however, not to be, as more State assets were vested in NICIL, including lands formerly owned by GUYSUCO. Some of these assets were disposed of, and the proceeds were also retained by NICIL.
During the period 2007 to 2012, NICIL assumed the role of a Project Execution Unit, receiving funds from various State agencies and disbursing them to execute various government projects. These projects were not reflected in the national budget and therefore would have lacked parliamentary approval. NICIL in effect assumed the role of a ‘parallel’ Treasury. It also acted as an agent of GUYSUCO for the disposal of some of its assets but in this case the proceeds were handed over to GUYSUCO.
With the previous Administration’s decision to close four of the seven GUYSUCO’s sugar estates (Skeldon, Rose Hall, Enmore and Wales), a Special Purpose Unit was established within NICIL to oversee the disposal of the assets of these estates. By Order 45 of 2017 dated 29 December 2017, these assets were formally vested in NICIL. In mid-2018, NICIL secured a $30 billion bond to recapitalize GUYSUCO and the bring it back to profitability, based on GUYSUCO’s strategic plan. The bond, which will expire in 2022, has been guaranteed by the Government. With the present Administration’s decision to reopen the four estates and to halt the disposal of their assets, it is very unlikely that enough funds will be garnered to meet the liabilities in respect of the bond. As in the case of the Marriott Hotel, the Government will have to find the necessary funds to repay this debt.
Financial reporting and audit
Government officials have reported that there have not been audited accounts of NICIL during the previous Administration’s tenure of office. While the reports of the Auditor General for the years 2015 to 2018 indicate that this may be true, the evidence suggests that the last set of audited accounts to be produced by NICIL was in respect of 2013.
Section 346(1) of the Companies Act provides for a Government company to present to the Minister audited accounts within six months of the close of the financial year and for those accounts to be laid in the National Assembly not later than three months thereafter. A Government company is defined as any company in which not less than 51% of the paid up share capital is held by the Government and includes a company which is a subsidiary of a Government company. Since the Government owns all of the $100,000 paid-up share capital of NICIL, it is therefore a Government company.
In accordance with Section 107, the directors of a company must call an annual general meeting of shareholders not later than 18 months after the company comes into existence and subsequently, at least once every calendar year and not later than 15 months after the holding of the last preceding annual general meeting. The main purposes of the meeting are: (i) to consider the financial statements of the company; (ii) the auditor’s report; (iii) election of directors; and (iv) the re-appointment of the incumbent auditor. If default is made in holding such a meeting, the company and every officer of the company shall be guilty of an offence and shall be liable on summary conviction to a fine of five thousand dollars.
As of June 2012, NICIL was eleven years in arrears in financial reporting and audit and was therefore in breach of the above company law requirements. The last set of audited accounts was in respect of 2001. Despite this, NICIL was not struck of the Register of Companies for its failure to submit the necessary annual returns, including its audited accounts, to the Registrar of Companies, as required by Sections 153-154 of the Companies Act.
Concerned about the state of accountability of NICIL in general, and the lack of transparency and accountability associated with the disposal State assets in particular, the National Assembly passed Resolution No. 14 dated 27 June 2012 calling on the relevant Ministers to, among others:
(a) Provide the Assembly with a report on the disposal by sale or otherwise of all state lands during the period 2000-2011, including the terms on which they were disposed of, and the criteria used;
(b) Make financial provision for the urgent commissioning of an independent financial audit of NICIL and the Privatisation Unit;
(c) Provide a detailed report on the disposal by sale or otherwise of all State assets entrusted to NICIL and the Privatisation Unit, the terms on which they were disposed of, and the criteria used; and
(d) Provide the outstanding bi-annual reports and annual audited accounts required of NICIL and the Privatisation Unit under the relevant legislation.
Three months later, on 27 September 2012, the Auditor General issued his reports on the financial statements of NICIL for the years 2002, 2003, 2004 and 2005. These statements as well as those of subsequent years were given unqualified opinions i.e. a “clean bill of health”, despite the concerns expressed in the forensic audit report that would have had a significant impact on the financial statements of NICIL. For instance, as a result of retaining dividends received from public corporations as well as proceeds from divestment and treating such funds as its revenue, NICIL’s accounts showed windfall gains so much so that the 2002 audited accounts showed an earnings per $1 share of $16,445!
Table I shows the trend in financial reporting and audit of NICIL for the period 2002-2013.
As indicated above, there is no evidence that there were audited accounts subsequent to 2013.
The forensic audit report had argued that there is no holding company/subsidiary company relationship between NICIL and the investments in public corporations that were vested in it. NICIL nevertheless considered itself a “holding” company and began to produce consolidated or group accounts of itself and its “subsidiaries”. However, NICIL’s activities and those of its “subsidiaries” are so dissimilar that any attempt to produce group accounts would be a meaningless exercise. Indeed, Section 160(2) of the Companies Act provides for situations where group accounts are not required, as follows:
► If the directors are of the opinion that it is impracticable, or would lead to no real value to the members of the company, in view of the insignificant amounts involved or would involve expenses or delay out of proportion to the value to the members of the company, to do so;
► The result of doing so would be misleading or harmful to the business of the company or any of its subsidiaries; or
► The business of the company and that of the subsidiary are so different that they cannot be treated as a single undertaking.
It was therefore not surprising that after producing consolidated financial statements for the years 2002 to 2006, the exercise appeared to have been aborted. That apart, there is evidence that consolidated accounts were prepared and audited before NICIL as individual company was audited, which was clearly an anomalous situation, as shown below:
Conclusion
Given all the problems highlighted in the forensic audit report on NICIL, several recommendations were made, including:
(a) Terminating the Management Cooperation Agreement of 28 December 2001, as provided for under the Agreement;
(b) Liquidating NICIL as a company under the Companies Act 1991 and appoint a Receiver to oversee the liquidation process; and
(c) Re-activating the Privatisation Unit as a department of the Ministry of Finance to manage the Government’s residual investments after liquidation proceedings have completed. In this regard, the existing staff of NICIL could be transferred to the Ministry of Finance.
Finally, it must be acknowledged that for too long NICIL was allowed to spiral out of control. It is time for a hard look be taken of its entire operations. With the appointment of a new Chief Executive and a new board, there is a promise of hope that all the undesirable aspects of NICIL’s operations will be brought to an end at the earliest opportunity. The proposed establishment of public statutory body corporate for the Wales Estate assets appears to be a step in the right direction. However, the mandate of this body should extend to the three other estates – Skeldon, Rose Hall and Enmore – thereby bringing to an end the functioning of the Special Purpose Unit under NICIL. The proposal is broadly in line with a paper I had prepared and submitted to the Government at its request some time in 2017.
