By Ariana Gordon

THE forensic audit report into the National Insurance Scheme (NIS) has recommended that the Board of Directors seek Government’s commitment to take all action necessary to secure the investments made in CLICO (Guyana) by NIS on behalf of contributors and beneficiaries, to prevent consequential loss in benefits to them.The resolution was passed in the Ninth Parliament of Guyana through Resolution No 82 on March 12, 2009. However, the resolution according to the audit report done by R Seebaran, failed to address key issues such as the repayment period, method of payment and returns on investments from the time CLICO was liquidated.
“The scheme has not received any return on the investment since 2009,” the audit report said. It has been recommended that Government can pay the scheme the interest consistent with the original investment until the amount is repaid.
The auditor also recommended that a realty valuator be engaged to determine whether the former Guyana Sugar Corporation (GuySuCo) property is indeed worth the $600 million when it was transferred to the scheme, given the “ongoing disquiet amongst employees about the fungus- infested building”.
NIS bought the huge CLICO building now rented to the Guyana Revenue Authority (GRA) located on Camp Street, Georgetown, in 2011 after it was initially placed under judicial management by former Chief Justice (ag) Ian Chang. During that period, Justice Chang had appointed the then Bank of Guyana (BoG) Governor Lawrence Williams as liquidator of the company.
GRA is currently renting that property for $5 million monthly.
It was said that the building had a value of $1.5 billion and a liquidation value of an estimated $1.112 billion at its best and in a worst-case scenario, it was valued at $750 million.
Additionally, it has been suggested that there be a review of the rent paid to determine whether “it is fair considering the size and location of the building.” Seebarran also suggested that the building be sold, if “the scheme can recover more than the transfer price and the rent cannot be increased.”
The question of whether the Commissioner of Insurance acted in the best interest of investors and more so the scheme, should also be determined.
According to NIS records, CLICO Guyana owed the NIS some $5,148,710,367 at December 31, 2014. On February 26, 2009, in response to a petition by the Commissioner of Insurance, the High Court of Guyana issued an Order placing CLICO (Guyana) under judicial management pursuant to the provision of the Insurance Act 1998, until further Order of the Court.
In March 2009, acting NIS General Manager Doreen Nelson wrote the Judicial Manager CLICO Guyana, Maria Van Beek, and Commissioner of Insurance requesting that priority be given to NIS for the recovery of the value of its investments in CLICO that had totalled $5,647,782,551 at the time.
“To date, neither the former Commissioner nor the subsequent Commissioner has responded. Ms Nelson pointed out in the letter that ‘the repayment of these investments (in full) is essential for the continuing operations of NIS as a viable entity’.”
The money invested in CLICO Guyana was to earn returns at a rate of 6.25 per cent per annum. Given the current situation, 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.
PEGASUS HOTEL
Meanwhile, the auditor has recommended that the Board of Directors of NIS find out whether the owners of the Guyana Pegasus sold the hotel or the company.
In December 1997, the Company Secretary of the Guyana Pegasus wrote the NIS General Manager advising that shares owned in the hotel by the Government of Guyana had been transferred to 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 Maniram Prashad,” the audit report revealed.
The original value of this investment was $45,480,000 of which $44,343,000 was written off. “
This investment does not generate revenue and the company’s shares are not listed on the Guyana Stock Exchange,” the audit report stated.
It was discovered through the Finance Controller that the investee no longer submits audited financial statements to the scheme or confirm any balances. The auditor was also informed that the previous Board of Directors were in communication with the Registrar, Deeds Registrar to access information filed by the investee without any success.
As such, it has been recommended that the current board determines whether the owners of the Guyana Pegasus sold the hotel or the company and if the company was sold to the majority shareholder, then the scheme should “vigorously pursue its investment.”
Additionally, it was recommended that the scheme’s management pursue the current status of the investment to determine the value of the shares and why dividend has not been declared.
“In addition, management should pursue why they have not been invited to the company’s annual general meetings. The BoDs [Board of Directors] should request from the directors of The Guyana Pegasus copies of its audited financial statements to determine whether the investment is beneficial to the scheme or has been impaired in accordance with IAS 39 Section 58 and 63 and IAS 32.”
The auditor noted too that it should be ascertained whether the investment is impaired. If not, it was suggested that the management of NIS should consider whether it is in the interest of the scheme to hold the investment, which “currently does not earn any revenue.”
Also, if it is discovered that dividends were paid over the years, the Board of Directors must demand that the scheme receives its share.
BERBICE BRIDGE
The auditor during his focus on the scheme’s investment in the Berbice Bridge Company Incorporated (BBCI), said the company has several investments in the BBCI namely; Corporate bonds – $1,060,000,000, Subordinated Loan – $500,000,000 (which is a debt that ranks after other debts if a company falls into liquidation or bankruptcy), Preference Shares – $950,000,000 and Common Shares – $80,000,000.
The ability of BBCI to pay interest, dividends and 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.”
It was noted that the 2014 audited financial statements showed that the company signed a concession agreement with the Government of Guyana for the design, construction, development, operations and maintenance of the Berbice Bridge pursuant to the terms and conditions established within this agreement.
The agreement is for a period of 21 years, unless terminated or extended by mutual agreement or in accordance with any other provisions within the agreement.
When the 2012 audit was finalised in May 2015, it became known to management that the company does not own a bridge, but instead a licence to operate a bridge, even though the scheme had two of its directors on the company’s board.
“This resulted in the auditors reclassifying the cost of the bridge and a building from Fixed Assets to ‘Concession Assets’ and restated the 2010 and 2011 audited financial statements. The effect of the reclassification resulted in those years which had declared taxable profits now showing significant losses.”
These losses arose because the Concession Agreement is for a period of 21 years, therefore the bridge is now amortised over that period whereas it was previously depreciated over a 70-year period.
A copy of the Concession Agreement was not available for review by the auditor. Based on the information available to the auditor, it was discovered that there is a “material uncertainty that cast significant doubt about the entity’s ability to continue as a going concern.”
“It means therefore, that the scheme’s investment in the BBCI is almost certain to be negatively affected. Already, the ordinary shares have been impaired to a negative value, the subordinate loans preference shares may also have been impaired. The company’s CEO has already written the scheme indicating its inability to pay the dividend on preference shares,” the audit report disclosed.
Should BBCI become insolvent because of its current loss-making position, its issues with the Government regarding the lowering of the bridge toll, its inability to generate adequate money to meet its obligations and the fact that the company does not own a bridge, then the investors’ investments will be at severe risk of not being recovered.
BBCI’s Chief Executive Officer (CEO), Omadat Samaroo in a letter dated May 22, 2015 to the scheme’s General Manager, requested a reduction in interest rate for Bonds Tranche 1 from nine per cent per annum to 7.5 per cent per annum (free of all taxes), Bonds Tranche 2 from 10 per cent per annum to 7.5 per cent per annum (free of all taxes), Subordinated Loan Stock from 11 per cent to 7.5 per cent per annum (tax free), and Preference Shares from 11 per cent to 7.5 per cent (tax free).
RESTRUCTURE
Samaroo explained that “to achieve our cash flows objectives, we propose to restructure our loans under a new interest-rate regime so that we may be able to achieve our objectives without [an] increase in bridge tolls.”
NIS had reminded the CEO of BBCI of the terms and conditions of the preference agreement that resulted in the company withdrawing its December 2014 letter which indicated that no preference dividend will be paid for 2014.
In June 2015, the CEO informed the General Manager that every effort will be made to make payment of preference dividend of 11 per cent and a 1 per cent penalty for late payment by the fourth quarter of 2015.
“Based on BBCI’s current situation, it is highly unlikely that the dividend will be paid, if at all.”
As a result of the aforementioned, Auditor Seebarran called on the board to assess the risks and returns of investments held in BBCI and noted the need for “proper representation on the BBCI board since it is the largest investor in the company”. The auditor recommended that two persons sit on the board.
“BoDs must carry out their own investigation to determine the value of the bridge which was reported at G$6,284,045,483 net or US$29,924,026 at December 31, 2014 in the audited financial statements; the Scheme’s Investment Committee must meet with BBCI’s management to determine the Competitive Advantage the bridge has if the fare drops to $1,900. This can be done by past and current flow of traffic by category; potential for increase in traffic flow at a reduced fare of $1,900 and closure of the bride to vehicular traffic only in the night. This will ensure that traffic flows continuously during the day. [And]Restructure the existing ‘Concession Agreement’ which will allow the NIS to have a more dominant role in view of its shareholdings.”