Dec 23, 2015 News
Goolsarran recommends charges in Audit Report on Marriott Hotel
Charges have been recommended for the former Cabinet, which approved the funding of the Marriott Hotel with taxpayers’ money in spite of Parliament’s disapproval.
This recommendation was noted in the forensic audit report on the hotel which was conducted by Chartered Accountant, Anand Goolsarran.
During his audit, Goolsarran found several alarming discrepancies and used this as his basis for suggesting that the Granger administration may wish to invoke charges for the violations of Guyana’s laws.
In his report , he said that following the withdrawal of the private developer around 2008/early 2009, the then PPP Government decided to proceed with the construction of the Marriott Hotel without the involvement of the National Assembly.
The Chartered Accountant said that this was unfortunate, considering that a significant amount of State resources would have been utilized in the construction of the facility, which would have required Parliamentary approval, in accordance with Article 217 of the Constitution.
He said that the evidence found during his audit clearly suggests that the former Cabinet took the decision to proceed with the project without the benefit of a feasibility study to determine the project’s economic and long-term viability.
Goolsarran said that there was also unnecessary haste to proceed with the construction as evidenced by the award of the contract within days of the November 28, 2011 general elections.
Goolsarran said, “Such haste might have contributed in no small measure to the significant cost escalations.”
He said, “Since 2009, the estimated direct cost of construction kept escalating at a significant rate. The original estimate for the construction of a 190,467 square foot hotel (the actual construction size) had worked out to US$33.220 million, excluding outfitting costs of US$10.404 million. It has since risen to almost double, having regard to the expenditure incurred to date and the projected cost to complete the hotel.”
He continued, “When other cost considerations e.g. design and branding, re-routing of the sewerage system and interest foregone during construction phase are taken into account, the project (as opposed to the direct construction cost of the hotel) is estimated to cost at least US$98 million. This is quite an expensive venture, considering that: only US$15.5 million has so far been financed from external sources; and (b) the risks involved should the hotel not turn out to be a profitable venture. In the first two and one-half months of commercial operations, the hotel has made a “house” loss of approximately $60 million with an occupancy rate of 29.8 percent”.
He recalled that ACE Square-Investments Ltd. was yet to contribute to the equity of the project since, according to the Shareholders’ Agreement, such contribution would only be made when the hotel is completed.
Goolsarran said that NICIL therefore had to use its own resources, along with the Republic Bank loan, to construct the hotel. He said that when the hotel begins operation, ACE Square had the option of acquiring NICIL’s equity interest.
“It therefore means that for an estimated US$98 million in the total cost of the project, ACE Square would contribute only US$12 million or 12 percent and will secure 100 percent ownership rights. The whole arrangement involving the financing of construction of the hotel appeared to be deliberately cast to enable ACE Square to become the ultimate beneficiary of the project, with no financial contribution during the construction phase of the hotel. AHI indicated that ACE Square was no longer under active consideration as an investor,” expressed Goolsarran in his report.
“The Republic Bank loan of US$15.25 million is ranked priority to that of NICIL and is secured by “debenture and mortgages”. (A debenture is debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.) These conditions have serious implications should AHI default in payment…”
Goolsarran also found that that the Contractor for the construction of the hotel, SCG International, was selected at a time when the company was facing allegation charges for corruption in Trinidad and Tobago. He said that NICIL was yet to provide details of the second bidder’s original and revised bid price to enable him to confirm the basis of the selection of the contractor. He said that the award of the construction contract for over US$50 million days before the November 28, 2011 elections and without prior Cabinet approval, should also be a source of serious concern.
The Chartered Accountant noted that state revenues from the proceeds of dividends from public corporations and the sale of public assets were diverted away from the Treasury and were used mainly to fund the construction of the Marriott Hotel without Parliamentary approval, and in clear violation of Articles 216 and 217 respectively of the Constitution as well as the corresponding sections of the Fiscal Management and Accountability Act (FMAA). He said that for the aforementioned reasons and more, Government may therefore wish to invoke the requirements of Sections 49, 76 and 85 of the FMA Act.
Goolsarran argued that “Cabinet, collectively and individually, does not enjoy immunity as it relates to the application of the above sections, and for defying the wishes of the National Assembly as contained in resolution of December 17, 2012 for the government to cease funding the project without Parliamentary approval.”
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