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FM
Former Member

Here is a monopoly which defies microeconomic logic. This monopoly charges heavy toll yet it can't make a profit?

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Berbice Bridge Co. unable to pay dividends to NIS

Posted By Staff Writer On January 30, 2015 @ 5:27 am In Local News |

The Berbice Bridge Company Inc (BBCI) has written to the National Insurance Scheme (NIS) – the holder of $950m in preferred shares and other stakeholding, saying that it was unable to pay dividends for 2014 as it did not make a profit.

The NIS has been in a difficult financial situation over the last few years where expenditure has topped income and it would have found the dividends handy. Analysts say the BBCI disclosure raises the question of why the NIS was encouraged to invest in 2013 in the preferred shares when the fortunes of the Berbice Bridge Company were not that bright and a substantial return not guaranteed. Analysts note that the NIS could have parked the funds elsewhere with a guarantee of a return.

With the preferred shares, the NIS accounts for 76% of the shareholding in the bridge, billions of dollars that have not brought any return for last year. Poor investment decisions have long been a problem at the NIS.

 

In the December 29, 2014 letter to the NIS, BBCI CEO Omadat Samaroo said that he was writing on the direction of the company’s board to state that the company was in “no legal or financial position to declare and or pay dividends for the year 2014”.

He further said that BBCI’s statement of income was affected by the application of the IFRIC 12 Service Concession Agree-ment, part of the International Financial Reporting Standards. His letter did not elaborate on this.

 

The letter added that the directors and management are currently looking at new strategies to improve the company’s financial performance. The sale of $950M worth of preferred shares by government holding company NICIL to the NIS was only revealed towards the end of 2013 when chartered accountant Christopher Ram had begun to raise questions about dividends to the government. NICIL which was holding the preferred shares had forgone hefty dividend payments from BBCI in favour of other private investors in the bridge.

 

With BBCI unable to pay dividends to the NIS for 2014 it would be the practice that no other investor would receive dividends. From its inception, the bridge has been criticised for too-high tolls which were seen as an unvarnished bid to cover the rate of return that private investors expected from the bridge, to the detriment of users.

 

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The measurement of a true monopoly depends on the ability of the company to set its price, not merely being a sole provider of services. Hence 'monopolies' can incur losses.

 

 

 

FM
Originally Posted by TI:

The measurement of a true monopoly depends on the ability of the company to set its price, not merely being a sole provider of services. Hence 'monopolies' can incur losses.

 

 

 

 

April 3, 2006 (Stabroek News)

Dear Editor,

New Science of Jumbienomics

Over the past few years Freedom House, led by President Jagdeo and Robert Persaud, has pioneered a new branch of economics – jumbienomics (formed by combining jumbie and economics) or phantonomics (the composite of phantom and economics). The latest proposition of this new discipline holds that development is measured by a cement shortage. This thesis was submitted recently by A. Persaud (SN 04/01/06). According to A. Persaud and others in that school the growth of the official economy, unemployment rate, poverty rate, and Guyana’s ranking on the HDI do not matter. A cement shortage is the key indicator of development. 

I do not believe Guyanese fully appreciate the innovations coming out of Freedom House in recent years. Please allow me, therefore, to outline a few of the other propositions that have been forthcoming over these past few years. 

First, a feasibility study is only necessary after the project has started as was the case with the cricket stadium. On the other hand, when a feasibility study is actually conducted it is kept a secret as is the case with the proposed Berbice Bridge. Fortunately lesser mortals like I can still look at the proposed price structure and infer something about the sustainability of the bridge project. For example, the proposed high price implies the adherents of phantonomics are trying to equalize the present value of future stream of incomes to the present value of the future stream of costs. Hence, if the future stream of costs are high as one would expect of a floating bridge (remember how costly it was to overhaul the Demerara Harbour Bridge) the expected toll rate must increase in order to make the project feasible. If for instance the price structure is similar to that of the Demerara Harbour Bridge, the project is likely to be unsustainable. Jumbienomics, it would seem, is not too concerned about the long-term welfare implications of a project. 

Second, poverty and unemployment decline in an economic depression. Despite eight years of negative or near-zero GDP growth rates, unemployment is nine percent as Robert Persaud has consistently argued (see my letter in SN 01/04/06). This insight which is now prominent in the jumbienomics school has overturned decades of orthodox literature in macroeconomics and development economics. Okun’s law and the Phillips curve, for instance, are no longer relevant conceptual tools. 

Third, development finance comes from the underground economy (or phantom economy as Prof. Thomas recently labelled it), remittances and foreign aid. It should be obvious now why followers of this school of thought do not pay much attention to official GDP numbers, unemployment or HDI rankings. Remember, the cement hypothesis is now relevant along with output in the phantom economy.

Fourth, the traditional method of choosing a portfolio of assets that balances risk and return is now passé in jumbienomics. There is no need for the insight that comes from such tools as the Markowitz efficiency frontier or the CAPM. This was most recently highlighted by the proposed NIS investment in the Berbice Bridge project. The new paradigm it would seem puts all eggs in one basket; NIS is exposed directly through the amount of funds it invests into the bridge project and indirectly through Clico and Hand in Hand, both of which have borrowed a total of G$ 10.2 billion from the NIS and both of which are planned shareholders of the bridge project (see SN 04/02/06). The intellectual justification comes from an apparent new convert to this school, Winston Brassington, who theorizes in a letter to the NIS General Manager (also see the same Stabroek News article) that “the security of the project is tied to the assignment of bridge tolls.” Apparently perfect foresight underpins the new approach. Brassington is certain the project is viable even though the feasibility study was done in the early 1990s when optimistic assumptions were made. 

While the above constitutes the core theoretical insights of this new approach, that school also have two broad operational frameworks. First, projects take long to complete. For instance, it took close to five years to resurface and expand five miles (from Nandy Park to Banks DIH) of Burnham’s road. The Essequibo road is another example of a very long-term project. Second, when adherents to jumbienomics are critiqued, they usually have a consistent rejoinder – that is, members of the opposition (whose members still hold on to orthodox economics) should take the lead and come up with solutions and policies. It is not the responsibility of the government to take the lead in policies. 

Given such seminal insights, I believe Guyana is likely to see its first Nobel very soon. President Jagdeo and Robert Persaud are the most likely candidates, only this time it will not be for economics but for jumbienomics or phantonomics. 

Yours Faithfully,

Tarron Khemraj

FM

I haven't really followed up on the history of the financial reasoning of building the bridge, but I have never ever seen a profitable bridge...toll roads yes, but rarely bridges in a developing country.

FM
Originally Posted by seignet:

TK,

 

Question. R u involved in politic. The last time I followed u, it was the AFC. Just inquiring wah u up to these days. 

 

We can never be divorced from political economy - politics combined with economics. I am always involved in political economy ever since I was a teenager in high school and a teenage PPP polling agent in Agricola in 1992. I am not involved in party politics these days, but it does not mean I am divorced from politics. My training helps me to envision solutions and not engage in obfuscations. I'm doing just that as a public service. I hope that helps.

FM
Originally Posted by TK:
Originally Posted by seignet:

TK,

 

Question. R u involved in politic. The last time I followed u, it was the AFC. Just inquiring wah u up to these days. 

 

We can never be divorced from political economy - politics combined with economics. I am always involved in political economy ever since I was a teenager in high school and a teenage PPP polling agent in Agricola in 1992. I am not involved in party politics these days, but it does not mean I am divorced from politics. My training helps me to envision solutions and not engage in obfuscations. I'm doing just that as a public service. I hope that helps.

 

Ehehehhehe...like you leff off de politics...dem bais sey yuh doan have de stamina. Hey hey hey...

FM

The political, economic and social purposes of the Berbice bridge is ostensibly to improve the lives of Berbicians chiefly, as well as other commuters.

As TI has remarked, public utility bridges generally are not profit makers.

The NIS Board of Directors are either dunces if they don't know that, or they are plain scamps for investing so much NIS money on the Berbice bridge knowing that dividends come from profits and not losses.

Regarding the high toll, it goes without saying that Berbicians are generally not happy with it.

Besides the NIS, we know that the other big shareholders in the Berbice Bridge Company are greedy people with intimate connections to the PPP power elite.

 

 

FM
Originally Posted by Gilbakka:

The political, economic and social purposes of the Berbice bridge is ostensibly to improve the lives of Berbicians chiefly, as well as other commuters.

As TI has remarked, public utility bridges generally are not profit makers.

The NIS Board of Directors are either dunces if they don't know that, or they are plain scamps for investing so much NIS money on the Berbice bridge knowing that dividends come from profits and not losses.

Regarding the high toll, it goes without saying that Berbicians are generally not happy with it.

Besides the NIS, we know that the other big shareholders in the Berbice Bridge Company are greedy people with intimate connections to the PPP power elite.

 

 

 

Gilly,

 

The issue is whether they promised NIS dividends? I never responded to TI because I know he was apologizing for the PPP as usual. The point I made relative to the Berbice bridge is someone got the feasibility and the traffic flow wrong if indeed it is true they are not making a profit. A lesson for Amaila? Is it true they are not making profit or are they lying as usual? The excessive toll and yet they can't make money to fulfill their promise. On another note, can they lower price and make more money if elasticity is greater than 1? At the time they went into floating bridge, World Bank suggested a system of roll-on-roll-off fast ferries for about US$15 mill which was significantly less than the cost of the floating bridge. WB would have done their studies to figure that out.

FM
Originally Posted by TI:

I haven't really followed up on the history of the financial reasoning of building the bridge, but I have never ever seen a profitable bridge...toll roads yes, but rarely bridges in a developing country.

Building the bridge was more to do with emotions than economics. People just gat fed up with how long it took dem bais to park de ferry and they say "you know what, we gun build a bridge suh we don't have to wait anymore"

FM
Originally Posted by TI:

As TK knows, bridges in themselves are mainly unprofitable, but their importance in facilitating commerce is invaluable. 

Exactly. That is why things cannot be properly examined in a capsule.

FM

Hey hey hey...dem coolie and blackman fightin in abie Guyana bout de bridge. Like kanta ecanamis Mr TK dey talk bout de bridge pon GNI. Mr Dr Dr Dr Dr Dr Jagdoe ge dem blackman wan gift pon wan gold plantanum platta foh punish dem Berbice coolie lil more. Dem people gat to suffa foh dem mattie get powah. Juss like dem blackman ban dem belly and get wite mout foh Burnham and Hoyte. Hey hey hey...ayoo wait till de aile money come. 

FM
yuji22 posted:

I would not be surprised if Guyana breaks out in a major uprising some day. Tensions are building up.

What uprising you talking about, who will start such ?

Django
Last edited by Django

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