After studying documents released by the government on the proposed hotel for Kingston, AFC MP Khemraj Ramjattan today likened it to a grand Ponzi scheme which he said will leave taxpayers in the lurch.
Ramjattan in a statement said that from even a perfunctory reading of the documentation supplied and the answers to the questions he posed in Parliament, there is every indication that this proposed Marriott-managed Hotel is a sort of “Ponzi scheme in the making where Guyanese taxpayers are going to be ripped off and some crony of the PPP will be fattened with a good deal”.
He noted that taxpayers’ monies, which are in NICIL’s accounts, are going to be used to substantially underwrite the financing of this proposed project and that from all indications the sum will be US$21M comprised of subordinate loan stocks of US$15M, US$4M in equity and US$2M which allegedly is already spent on design fees paid to, from reliable AFC’s sources, a New York-based Pakistani Mike Ahmad and his team.
Ramjattan said that an additional sum of $27M, rated as a senior debt, is to be syndicated by a Trinidad bank but there is no disclosure as to who will be guaranteeing this. The AFC, he said, believes that ultimately this debt will be a Government obligation.
He argued that in the case of a default, “which is inevitable, the people of Guyana will lose, at the very least, US$21m. Why in configuring this arrangement our Government, who we trust to act in our interest and who are obligated to do so, would have NICIL’s interest (US$15m) subordinated” to that of the Trinidad bank, he queried.
He added that the government seems to think that NICIL and Atlantic Hotels Inc (AHI) are private companies as evidence by the claim that “agreements between Atlantic Hotels Inc and Shanghai Construction Group International (Trinidad and Tobago) Ltd (SCG) prohibit disclosure of specified contract documents”. Ramjattan pointed out that both NICIL and AHI are State companies created with taxpayers’ resources and therefore all transactions and commitments are subject to public scrutiny.
He said the terms and conditions of the Trinidad bank’s syndicated debt, terms and conditions of AHI’s subordinated debt, the feasibility study by Marriott and the unnamed American firm must be submitted for public review. He declared that the Economic Services Committee of Parliament will review this deal and conduct a risk analysis to evaluate the “huge burden” the Government is bringing to future generations.
Another major question to be answered he said is why did AHI, “without being properly capitalized, and therefore without the capacity to deliver, enter into a contract with SCG for the construction of a US$52m Hotel and a management agreement with the Marriott Chain?” and on the other hand why Marriott, SCG and others would enter binding agreements with AHI when it had no track record.
“The AFC feels that this only happened because AHI is an instrument of the PPP Government! Lift AHI’s veil and aha it is PPP and its cronies!”, Ramjattan declared.
He charged that there was no commercial justification for the planned massive spending on a hotel when occupancy rates are so low in Guyana.
He noted that many investments in the local hotel industry have gone bust because of low occupancy as well as the issues of crime, unreliable and uncompetitive electricity, a dirty city, poor drainage, etc. which retard any development of local tourism, even among overseas Guyanese longing to visit their homeland.
“I recall the case of one investor group failing in its quest to buy Guyana’s iconic Pegasus Hotel for US$14m. They could not raise the required financing because the Banks viewed it as too risky at that price. The proposed US$52m for the Marriott, a far cry from US$14m, have for 5 years failed to attract credible investors for the same reason. Two hotels are up for sale on Main Street, Georgetown and another on the East Bank (in which the Government put money) with no takers even at discounted prices!”, he stated.
Ramjattan asserted that at US$52m (amount tendered by SCG) and taking three years) with US$42m in fixed debt at minimum of 10% interest per annum (more like 15% for that level of risk), AHI would have accumulated US$12.6m in three years without any income to pay Debt-holders, and all of this even before the start of operations.
“This gives a cost of US$64.6m (without escalation in prices). With electricity cost of more than 20% of sales, labour cost of more than 15% of sales, management fees of 10% of sales to Marriott, and interest cost of US$5.4m per year, this project would not last 3 months of operation. In fact it would not even cover 20% of its interest cost if it were to attract all the tourists who visit Guyana. A taxpayers’ bailout will then be needed, just like the Skeldon Sugar Project and CLICO. And what will follow will be a sale to some friend of the Government at a knock down price!”, the MP and AFC Chairman argued.
Further, he contended that no bank, local or overseas, would even consider a hotel in Guyana where the equity contribution is less than 50% (AHI only has proposed 22% equity). He argued that if the government believes in the Marriott’s and the unnamed American firm’s feasibility studies, “let them put their own money on this project, not poor taxpayers. If indeed the feasibility is so glowing, why is the Marriott International not putting its money on this project? How paradoxical that a working class Government is going to fund a huge multinational!”
The MP said that Guyana has a strong private sector which given a good investment climate would invest in any viable venture with a healthy good return. He added that the local banks are flush with cash and hunting for such opportunities. “The hotel sector must be invested in by these private sector companies if the feasibility is so good”, he said.
Ramjattan advised that rather than focusing on building a hotel for Marriott International, and then paying them 10% to operate it, Government should focus on addressing the everyday problems of poor roads, drainage, unreliable electricity, crime, public health, unemployment, poverty and hopelessness among youths and migration. Money should also go into the University of Guyana to enhance a tourism programme.
