Finance Ministry review skewers parking meters deal

A Ministry of Finance (MoF) report has scathingly criticised the controversial parking meters deal for the city and says since government procurement rules may have been transgressed this would justify a revoking of the contract and a fresh process.

The report, seen by Stabroek News, could spell the end of the present deal between the Mayor and City Council (M&CC) and Smart City Solutions (SCS) but it has not been released and on Thursday the government focused on another report by the Attorney General’s Chambers which appeared more favourable to the parking meters arrangement.

It is unclear why neither of the two reports has been released by the government, given the importance of the issue to city residents. The July 2nd Ministry of Finance report described the deal in some areas as exploitive and labelled the city’s outlook on aspects of the deal as “ignorant.” The report also revealed for the first time that the secret contract struck between the M&CC and SCS last year grants fiscal concessions to the company which are not within the powers of the city and would now have to be addressed by Go-Invest, the Ministry of Finance and the Guyana Revenue Authority after the fact.

Other conclusions drawn by the Ministry of Finance team include that the concessions granted under contract are “a detriment to the public” and can be used as a means to bar any form of local competition for 49 years – the duration of the contract – while presenting a foreign company an opportunity to enter into the economic activities of this country via a backdoor.

The eight-page report, titled “Comment after a review of the Georgetown Metered Parking System and Concession Agreement,” was produced subject to a cabinet decision which asked officials of the Ministry of Finance to undertake a review of the agreement between the M&CC and SCS.  The Attorney General’s Chambers was also invited to review the contract.

The MoF review, which sought to point out the financial implications of the agreement, states in its general observations that “Government procurement practices may have been violated, in that a tender was not advertised and bids reviewed for acceptance based on certain criteria and as such justifies a revoking of the contract by Government and the re-tendering.”

There had been no open tender for the deal and former Auditor General Anand Goolsarran had pointed out that this was also in violation of the city’s procurement rules.

The MoF report further notes that the team has concluded that subject to “legal implications, there are grounds for the contract to be withdrawn and the related [financial] damages assessed and paid subject to M&CC producing a feasibility study that provides the national government a clear picture of the demand analysis, financial analysis, socio-economic cost benefit analysis, risk analysis, technological alternatives and production plan, human resources, location plan and implementation.”

Consequently the MoF has advised that the council either undertake a study of putting metered parking, parking facilities and towing and recovery system within the city on its own accord or re-tender for bidding for the six zones within Georgetown separately, so as to allow for greater competition.

Barring these two possibilities, the city has been advised to “re-assess the financing arrangement of the contract.”

Wholly in favour

Among the disadvantages for the country, the team highlighted that the agreement is “wholly in favour of the contractor Smart City Solutions Inc (SCSI).”

The review argues that since the provision of parking meters represent a new industry for Guyana there are no comparatives and domestic guidelines to follow. Thus SCS is the dominant party in the contract. Additionally, as the only player in this new industry, a state of affairs it intends to maintain for 49 years if allowed, SCS seeks “absolute  right” to determine the space, number of meters, location boundaries etcetera, while building value-added services.

These value-added services (services unrelated to parking), according to the MoF report, will increase the contractor’s capability to bar new entrants to the metered parking industry. A state of affairs which has been a “detriment to the public,” because citizens will be asked to pay prices not set on a competitive basis.

The MoF team also raised concerns about the right granted to SCS through the contract to establish, without consent or constraint, value-added activities not related to the meters or parking business.

“This suggests intent of a foreign company (an assumption) to enter into the economic activities of the country via a back door,” the report stated.

The city administration came in for sharp criticism in the report for first failing to undertake a financial analysis and feasibility study to determine, in part, whether the projection for revenue and cost from the industry are fair to itself.

The absence of these reports prevented the MoF from commenting “on the financial considerations and hence cost or revenue projections” of the project.

Additionally it was found that the unwarranted concessions granted to the contractor suggest that the M&CC “does not have a clear understanding of the role of taxes in nation building.”

On this point, the MoF notes that while the city “had difficulty approaching authorities for some insights on the intended investment,” it sees “no difficulty in having the relevant authorities –Go-Invest, GRA, and MoF be requested to grandfather the concessions after the fact.”

While examining the impact of the contract on the revenue earning capabilities of the city, MoF noted that it is “SCSI’s intent that there should be no direct taxes paid. If this is acceptable, GRA will be denying the flow of money into the Consolidated Fund since according to the contract SCSI expects to receive exemption from income, corporation, VAT, capital gains and all other levies, taxes, duties, cesses or other impositions of a similar nature.”

Material expectation

M&CC having signed the contract has granted these concessions without consultation despite the fact that “for the occasion of a private venture, the intent [to receive concessions] should be cleared [by either party] first from the perspective of Go-Invest and GRA before any contractual agreement is prejudiced by ‘receipt of concessions” as a material expectation, the Ministry said.

The report added that nothing is known about SCS’s source of funding and this is vital in financial analysis considerations.

The Finance Ministry report also roasted SCS over its offer to the city of 10% of net revenues from its value-added activities. It said that since SCS is intending to offer differentiated products produced at lower average cost and higher profits, it should pay on the basis of gross value added revenue not net to the city.

“Unlike the 20 per cent [not considered as adequate] it gives to metered events, the 10 per cent for value added suggests clearly a ‘rogue’ approach to exploit the `apparent ignorance’ of (M&CC) business and financial analyses competencies,” the report said.

It said this exploitation of ignorance is demonstrated by the fact that SCS intends to pay the M&CC the published Bank of Guyana rate for lateness in honouring its debt, while SCS would assign a 25% penalty late payment after 39 days and selling of vehicles for untimely payment of tickets and fines.

“Since the contract is for 49 years the recoupment of capital of the project should be guided by the median lifetime of the assets which would mean smaller parking fees – we do not know what this is!” the report lamented.

A number of general observations were made in the report, including that that SCS faced no risks except that its applications for concessions may not be granted and that prices appeared “outlandish” since no feasibility study was done.  Initially, it had been suggested that parking per hour would cost $500 but this figure has now come down to $200.

Other observations were that the contract has given complete monopoly power to SCS over parking within Georgetown raising the risk of exploitation of customers and that the inscribed fines are well above those charged internationally for parking violations.

The MoF review was one of two of the contract requested by government. The other review, which was conducted by the Attorney General’s Chambers, found that the contract was not illegal.

The sum total of the finding was that ”(a) there was nothing illegal about the contract [and] (b) that it appears from a review of the documents that the terms and conditions, they were onerous and they were heavily in favour of the concessionaire,” Minister of State Joseph Harmon said in response to questions asked at a post-Cabinet press briefing on Thursday.

The report from the AG’s Chambers, according to Harmon, recommended that City Hall engage an accountant to review the contract in so far as the rates and the fees are concerned and to advise it on the way forward. The recommendations were given to the Minister of Communities, Ronald Bulkan who has overall jurisdiction for the councils.

Asked why the need for an accountant when the Ministry of Finance would have already taken a look at the contract, Harmon said that the ministry was reviewing the contract and the need for the opinion of an accountant was what was recommended. “And so this is what they are saying needs to be done and this is what is the recommendation being made to the Minister of Communities for him to follow up with the Council,” he explained

Further pressed, he said that the council is an independent body and the government doesn’t want to “overreach or intervene in these matters in that way.” He added that President David Granger had previously said that the importance of Georgetown is one of the reasons why “we have been so concerned about this issue…but as a general principle we do not interfere in the actions, the activities of these councils unless they are patently illegal and unlawful.”

Observers have questioned government’s approach, while stating that it is not about legal issues with the contract but rather the lack of a competitive procurement process, the absence of details on the bona fides of NPS/SCS and the secrecy surrounding the deal, including a visit to Mexico by a delegation comprising the Mayor, Patricia Chase-Green; the Town Clerk, Royston King and councillors Oscar Clarke and Junior Garrett.

Meanwhile, Stabroek News has been informed that the Attorney-General’s Chambers met with company officials a few weeks ago and told them that there was nothing illegal with the contract and they could go ahead with their plans.

Government procurement requirements may have been violated, in that a tender was not advertised and bids reviewed for acceptance based on certain criteria and as such justifies a revoking of the contract by Government and a retendering. “Government procurement requirements may have been violated, in that a tender was not advertised and bids reviewed for acceptance based on certain criteria and as such justifies a revoking of the contract by Government and a re-tendering.”