Sep 08, 2015 News
As more details emerge over the questionable financial structure of the Berbice River Bridge, there are disclosures that as part of the sweetheart deal, the Bharrat Jagdeo administration granted New GPC and other private investors sweeping tax exemptions on their returns.
The bridge is now claiming imminent insolvency unless its tolls are increased or it is allowed to run the structure for 50 years, instead of the 21 years.
Investors were guaranteed lucrative rates of returns on their investments between 15 per cent and 23 percent. Those rates would stand out starkly against average rates of about 11 per cent 12 percent that normal investors earn from projects.
The Berbice River Bridge Act, assented to by Jagdeo in January 2006, was tailored specifically to ensure that profits were realized.
Section 20 of the act states: “All income earned by the concessionaire shall be exempt from Corporation Tax, Income Tax and Withholding Tax for the duration of the Concession Agreement or for the extended periods that the Minister responsible for finance may deem necessary, on being satisfied that the terms and conditions of the Concession Agreement may be amended or varied.”
The Act also allowed for all dividends payable to shareholders be exempted from Corporation Taxes, Income Taxes and Withholding Tax.
While tax holidays have become a norm for investors, the guaranteed rate of return of 15 -23 percent would shed light on why a number of companies including New GPC and Queens Atlantic Investments Inc. (QAII) and Hand-in-Hand Insurance were so eager to jump on board.
New GPC and QAII are owned by Dr. Ranjisinghi ‘Bobby’ Ramroop, a close friend of Jagdeo.
The high returns are now being blamed on the current financial problems that the Berbice Bridge Company Inc. (BBCI).
According to the BBCI annual report of 2014, the entity saw revenues increasing by $78M to $1.34B. The losses were $239M, compared to 2013 when it was $289M.
Accumulated losses at December 31, 2014, was $1.5B with $571M paid to investors as interest on their returns.
The bridge company has been warned time and again that its high repayments to shareholders and debtors were highly unsustainable and could lead to problems.
The auditors, TSD Lal and Co., in 2014 annual report, noting that the shareholders’ deficit was $1.1B, warned that company continued to make losses. “Continuation of the company as a going concern is dependent of the ability of the company to make substantial profits in the future and to generate a steady cash flow to meet liabilities as they fall due.”
The auditors went further. “We have considered management’s representation and have concluded that there is a material uncertainty that cast significant doubt on the entity’s ability to continue as a going concern and, therefore, that it may be unable to realize its assets and discharge its liabilities in the normal course of business.”
BBCI has written to the state-owned National Insurance Scheme, asking for the 2014 dividends to be waived.
The Government of Guyana has been waiving its returns too after BBCI claimed it cannot pay.
BBCI is under the microscope now in a stalemate row with Government over reduction in tolls.
The David Granger administration had promised on the campaign trail to introduce measures to reduce costs for the travelling public of Berbice.
In his August 10 speech to the National Assembly on 2015 national budget, Finance Minister, Winston Jordan, announced a reduction of $300 from $2,200 for cars. All other categories were reduced by 10 percent.
However, BBCI is insisting that it wants to take the matter of the tolls reduction to its shareholders.
The new administration has been complaining that the financial structure of BBCI was deliberately done to place control and profits in the hands of a few companies that are predominantly owned by friends of the previous administration.
The US$40M bridge was commissioned in December 2008, built largely under a private/public partnership from an overseas loan.
The financial structure of the company was deliberately done in a manner to allow the equity shareholders whose investment is less than five percent ($400 million) of the total funds of the company to exercise controlling interest over the company.
Of the $400 million, New GPC and Ramroop Group own 40 percent and the Hand-in-Hand Group 10 percent.
NIS has invested $950M in shares but had little say in the affairs despite the 76 percent interest.
The other equity shareholders are Secure International Finance Company ($80 million); Demerara Contractors Limited ($40M); Hand in Hand Motor & Life Insurance Company ($40M), and NIS ($80 M).
The bridge has been providing a critical link between the city and East Berbice, where thousands and rice farmers and sugar workers live.
Government, in face of the stalemate, has announced that it will be introducing river taxis to reduce costs for students and senior citizens.
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