Posts Tagged land use
The simple, inescapable fact is that the State could have lawfully acquired the ‘Eden Gardens’ property for less than $40M. The HDC paid $175M in November 2012 to Point Lisas Park Ltd (PLP) for that property, which is the reason I am calling this an improper use of Public Money.
Despite having available the advice of the Commissioner of State Lands, the Commissioner of Valuations and various attorneys at HDC and so on, the Cabinet approved this transaction. This Cabinet, with two Senior Counsel at its head and several other seasoned legal advisers, appears to have been unaware of, or intentionally ignoring, the legal safeguards.
Some readers may be surprised at those assertions, so here are my reasons for making such.
The last two articles examined the steps leading to the HDC’s purchase of land at ‘Eden Gardens’ in Calcutta Settlement. In my opinion that transaction, as well as the one which preceded it, are both highly improper and very probably unlawful. The HDC purchase must be reversed and the responsible parties investigated/prosecuted as required by our laws.
This ‘Eden Gardens’ episode is an object lesson in what can go wrong when elementary policy is set aside for stated reasons of expediency. Apart from the lack of any Needs Assessment, the unclear role of the Commissioner of State Lands is a source of serious concern. That Commissioner’s role is to advise the State on the strategic implications of its land policies and transactions, so this is a straight example of a case which required a solid input from that critical State Officer.
So, what should have happened? How would a proposal like the ‘Eden Gardens’ one have been handled if the various parts of the system were functioning properly?
When parties are in commercial negotiations, there is always a Plan ‘B’, to be adopted in case the main plan goes awry. Each side has a different Plan ‘B’, since they have different interests.
What was Point Lisas Park’s Plan ‘B’ in case their negotiations with the State were unsuccessful? While we can never know for sure, PLP being a private company, the fact that those lots were widely offered at $400,000 can allow us to form a view as to the benchmark they were likely using.
The State’s Plan ‘B’ is far simpler to establish, since there exists the legal power to compulsorily acquire private property for a public purpose. That was the third unique facility enjoyed by the State as set out in the previous article.
In the case of a landowner making unreasonable demands, the State has the lawful option of compulsorily acquiring the property.
The Land Acquisition Act 1994 (LAA) establishes the right of the State to compulsorily acquire private property for a public purpose. At S.12, the LAA specifies the rules of assessment used to arrive at the sum offered to the owners of private property interests being acquired.
S.12 (4) states –
“…(4) In making an assessment under this section, the Judge is entitled to be furnished with and to consider all returns and assessments of capital value for taxation made or acquiesced in by the claimant and such other returns and assessments as he may require…”
The point in this case being that, having registered a purchase at $5M in February 2010, PLP would have been unable to legally resist a compulsory purchase which adopted that price as its basis. Even if the State, in recognition of the roughly $29M spent by PLP on building the infrastructure for ‘Eden Gardens’, were to add that sum, the final offer would only be about $34M.
Those provisions at S.12 (4) of the LAA are a critical safeguard against persons who might seek to under-declare their properties to evade taxes, then seek to make exorbitant claims if the State seeks to acquire compulsorily. S.12 (4) prevents the State from falling victim to any such games, it is a critical safety-valve to protect our Treasury from those who seek to pay as little as possible when taxes are due, but boldly make huge claims from the Treasury when seeking to sell.
That is why I am calling for this matter to be swiftly investigated and the responsible parties prosecuted to the full extent of the law.
This was in reality a potent dilemma for PLP, in that if they were served with a proper compulsory purchase notice, they would have either had to stick with the $5M figure as a 2010 baseline, or reject that deed and incur the strong penalties at S.84 of the Conveyancing and Law of Property Act.
One of the three deeds executed on Wednesday 3 February 2010 recorded the purchase of ‘Eden Gardens’ for $5M, which is a massive understatement of consideration. The true market value of that undeveloped property at that date would have been of the order of $50M, so the loss of Stamp Duty to the Board of Inland Revenue would have been in excess of $3.0M. The underpayment of Stamp Duty is tantamount to a defect in title of a property. Are we witness to the State making a massive over-payment for marginal lands with defective title?
Did the Cabinet and the HDC receive the proper advice from the Commissioner of State Lands and the Commissioner of Valuations, as well as the other legal advisers? If yes, that advice was plainly not followed, so in that case the question would have to be ‘What caused the Cabinet and the HDC to abandon that sound advice?‘
If the true situation is that the proper advice was not provided, we need to know why. If the advice was not sought, then we need to know why. If the advice was sought, but not provided, those advisers need to be rusticated so that our processes are protected from more of this nonsense.
The State has an overriding duty to comply with the law and be exemplary in its conduct. That is not negotiable, if we are to build a society which is orderly, progressive and just.
Episodes such as the ‘Eden Gardens’ sale and the THA/BOLT deal continue the erosion of Public Trust and the loss of that intangible, almost-forgotten, source of ‘soft power’, the Benefit of the Doubt.
This Prime Minister has made repeated statements that any evidence of wrongdoing will be investigated, so that the offenders can be prosecuted according to law. These three articles have detailed the evidence and breaches of sound public policy, so it is now over to the authorities.
The ‘Eden Gardens’ transaction is a prime example of a large-scale economic crime against the State and the interests of its citizens.
Again, I ask – ‘Who were the beneficiaries?‘
The final point here is that the parties to the PLP purchase and improvement of ‘Eden Gardens’ are now in litigation, with the contractors – SIS Ltd. – suing Point Lisas Park Limited for various monies and demanding an account of the $175M. Case CV 2012 – 5068, so we have interesting times ahead.
Last week I set out my main concerns in relation to poor procurement processes with the THA/BOLT project. A large amount of Public Money was being committed to a project with little apparent regard to Value for Money concerns in an arrangement which seems to expose the THA to the principal risks at a time of limited financial resources.
This article is a critical examination of the controversial proposed purchase of 50.6 acres of land at Calcutta Settlement by the Housing Development Corporation (HDC).
The HDC’s role is to build and maintain homes to satisfy the requirements of its main client, the Ministry of Housing and the Environment. According to that Ministry -
The Corporation is mandated by the Act to:
- Provide affordable shelter and associated community facilities for low and middle income persons and;
- Carry out the broad policy of the Government in relation to housing.
With over 125,000 applicants on the HDC’s waiting-list, there is no doubt that, for many poor people, the HDC is their only hope of getting a reasonably affordable home of decent quality. That means that the HDC is an important implementing agency in our nation’s welfare provisions, which is a role I fully support.
This post is about ‘Eden Gardens’, which is on the western side of Calcutta Settlement Road No. 2 in Freeport, just north of Central Park, opposite to Madoo Trace. The property comprises 264 residential lots at an average size of 5,600 square feet, 2 residential/commercial lots, 2 nursery school sites, 2 recreation grounds and 4 playgrounds.
In November 2011, the HDC obtained a valuation from Linden Scott & Associates at $52M. In January 2012, the owners of Eden Gardens, Point Lisas Park Limited, offered the property to the HDC at $200M.
That is an intriguing sequence of events, since the HDC would hardly pay for a valuation on a property they were not interested in. If we accept that the property was likely offered to the HDC before they ordered the Scott valuation, then one has to ask on what terms was it offered. That letter of offer, the original one, must be disclosed now.
In April 2012 the Commissioner of Valuations advised the HDC that the current open market value of the property was $180M. In June 2012 Cabinet approved the HDC purchase of that property for $175M, which is $663,000 per lot – at an average lot size of 5,600sf that equates to $118 per sf.
The normal professional and commercial practice when buying in this quantity, is to obtain a discount on the unit price. It would be reasonable to expect that these lots could be sold for significantly more than the HDC agreed to pay. We will see.
There was a lot of argument in the public about this transaction, so I was prompted to look closely at the deal.
I have these serious concerns –
- Point Lisas Park Limited (PLP)
- On 1 June 2004, Anthony Sampath, Patrick Soo Ting and Azad Niamat agreed with the owner, Sookdeo Deousaran, to buy the property for $17M. That Sale Agreement is registered as deed # DE2006 023638 20D001.
- On 26 April 2007, PLP was incorporated as Co. # P2956 (95), with the same three individuals who agreed to buy the property for $17M as its Directors. On 6 May 2011, the Companies Register recorded that Kayam Mohammed became a Director.
- On 3 February 2010, according to deed # DE2010 007816 95D001, PLP purchased the property from Sookdeo Deousaran for $5M, paying Stamp Duty of $350,000.
These purchasers were prepared to pay $17M for this undeveloped property in mid-2004, but ended up paying only $5M for it in early 2010. This is the same property which was offered to the HDC at $200M in early 2012, two years later. Literally unbelievable.
The stated payment of $5M shown in that 2010 deed is a massive understatement of value, probably being only 10% of the true market value. The Stamp Duty properly payable on a $50M sale of land would have been $3.5M. The Stamp Duty Section of the Board of Inland Revenue has the discretion to refer transactions to the Commissioner of Valuations in cases where they suspect that the consideration shown on the deeds is understated. I am reliably informed that in this case the BIR did not seek an opinion from the Commissioner of Valuations.
I am calling for that 2010 transaction to be revisited immediately, with a view to the State recouping the proper Stamp Duty. The Public Interest demands no less.
- The missing link
Between 2004 and 2012, the infrastructure for Eden Gardens was built, which included the roads, street lights, drains, water and electricity supply. Eden Gardens lots were available in 2011 via at least two real estate agents – Golden Key Real Estate Ltd. and Samko Realty – at $400,000 per lot. This was widely advertised.
- The valuations
- Linden Scott & Associates in November 2011 – $52M
- Commissioner of Valuations in April 2012 – $180M
Those lots were known to have been on sale at $400,000 in 2011, so the entire development of 264 lots could have earned its owners a total of say $106M. Even if we allow a figure of $5M for the “2 residential/commercial lots and the 2 nursery school sites”, we are still in the range of $110M as the ‘Gross Development Value’.
Given that these lots were clearly not selling at the $400,000 price-point, those estimates are at the upper end of possibility. Which means that we have to adopt a lower ‘Gross Development Value’, say $95M-100M.
If the entire development is to be acquired by a single purchaser in early 2012, that purchaser must deduct from the Gross Development Value to cater for –
- Stamp Duty – at 7% of the Purchase Price;
- Legal Fees;
- Developer’s Profit – at a minimum of 25%;
- Agents’ fees for the sale of the lots;
- Cost of Finance to account for the cost of borrowing that sum until the lots are sold;
- Time Value of Money, to account for the element of delay in recouping one’s investment.
I estimate that those discounts would amount to 35-40% of the Gross Development Value. If we adopt that approach, the maximum net present value of Eden Gardens in early 2012 as a fully-infrastructured property would be in the $60M range.
The meaning of it all
The usual accepted practice of residential development can be expressed by this ‘rule-of-thumb’, to spend less than twice the cost of the lot does not make best use of that land.
Even if we ignore the ‘rule-of-thumb’, one has to wonder
‘In what way does this transaction satisfy the HDC’s mandate?’
It is most disturbing that there has been this amount of debate without the issue of the end-user ever being mentioned. How do the real needs of the homeless feature in this massive HDC transaction, if at all?
To my mind this Calcutta Settlement scheme resembles the HDC’s flagship project at Fidelis Heights in St. Augustine which created an elaborate, expensive multiple-family project with no allocation of new homes to the needy people on the waiting-list.
I have established via a separate enquiry that only about 2% of the HDC output of new homes is allocated to those who can only afford to rent and this project is likely to be a continuation of that detrimental trend. The HDC continues to allocate vast sums of money to housing those who can afford to buy, while leaving the left-overs for those who can only afford to rent. That policy is inimical to the interest of the poorest members of the public, to whom the HDC is literally the last refuge for decent housing.
In all the circumstances, it seems that we need to have the air cleared on these issues –
- What is being done about the under-stated consideration in the 2010 deed for the sale of Eden Gardens?
- How many of the 264 lots were sold at the 2011 asking-price of $400,000? That is important since it establishes a benchmark for the proper value of these lots in the open market.
- When did Eden Gardens receive all the required approvals?
- When was the infrastructure completed at Eden Gardens?
- On what terms was Eden Gardens originally offered to the HDC?
- There is an abundance of develop-able State-owned lands in the vicinity, particularly since the 2004 closure of Caroni Ltd. So why did Cabinet agree to buy private lands in Calcutta Settlement at these prices?
- Who owns Point Lisas Park Limited?
I close by reminding readers of the corruption ratio set out in the first article. As I wrote in June 2008, referring to the Manning government and its UDECOTT antics –
…Either the Cabinet or its advisers are responsible. We are either dealing with a lack of rectitude at the highest level of our republic or a sobering naivete…
- Raymond & Pierre Limited, under my leadership, provided certain professional advice on this property in 2007. No aspect of that advice has formed part of this article.
- Linden Scott is a former colleague of mine, having trained at Raymond & Pierre Limited. He is now a rival professional.
- Raymond & Pierre Limited have provided professional advice to the HDC in the past.
JCC President Afra Raymond speaks on Procurement revelations in the Parliamentary debate on No-Confidence in the Prime Minister on First Up with Paul Richards and Jessie-May Ventour.
- Programme Air Date: 6 March 2012
- Programme Length: 0:26:32
The way the Ministry of Planning & the Economy (MPE) is persisting in their course of action on the Invader’s Bay development is perturbing in terms of the long term consequences of short-term decision-making.
At Section 2.0 of the Request for Proposals (RFP) for Invader’s Bay we read
…For Trinidad and Tobago this is a “major waterfront transformation” along the line of other signature waterfront developments such as Darling Habour (sic) in Sydney, Baltimore Inner Habour (sic), the Habour-front (sic) in Toronto, London Docklands and Teleport City in Tokyo. Although the genesis of the projects may vary, the result has generally been bold and dramatic. With the change in the manner in which ports operate and cargo is transported, waterfront property is now more valuable for its residential, retail and recreational function than simply for port activity with heavy industry, docks and fenced off warehouses, as is the case currently in Port of Spain…
We are being asked to consider the Invader’s Bay initiative ‘along the line’ of other leading international examples, which in itself is a good place to proceed from. The reality is that those developments cited by the MPE all took decades to conceive and what is more, the authors of the RFP know that. Yet we are also being asked to believe that a workable concept/s could be devised for Invader’s Bay in an RFP which is silent on the current strategic plans for the capital and only gives proposers 6 weeks to prepare.
Of course the lack of consultation will severely limit the participation of many important developers, not to mention the public.
The point is that in all those cities cited by the RFP, there is a serious commitment to consultation, which means that those large-scale transformations took considerable time to conceptualise.
In the city of New York, for example, there has been a long-standing commitment to community-based development. Check this 6 October webcast from The New School – the introduction is instructive -
For decades, deliberations over land use in New York City have included developers, community boards, elected officials, the Department of City Planning and other city agencies. Do the people who live and work in city neighborhoods have a sufficient voice? Do residents improve the process, or impede progress? Who is best positioned to determine a neighborhood’s needs, and what are the best structures for public participation? New York has long been a leader in community-based development but as the city recovers from the Great Recession, what does the future hold?
And that is just one reference, readers can ‘Google’ to find the many other supportive examples. In the very RFP, as well as in the recent budget, there is a clear commitment to consultation in national development. Except in this case.
But there is more.
As I wrote in the opening of ‘Reflections on Republic Day’, on the Raymond & Pierre website on 27 September 2007 -
The best example I can think of for the kind of broad commitment to consultation is, of course, the site of the World Trade Centre in Lower Manhattan: Ground Zero. This is a very interesting example since the site is privately owned and the City of New York is controlled by the Democrats while the Republicans control the national government of the USA. Against this background of different players we have the fact that the destruction of the WTC was a most severe blow to US prestige and power. The entire defense apparatus was rendered useless by that attack. Arguably, there could be no site in the world with a more urgent claim to large-scale redevelopment.
Yet, the fact is that a sort of compact has been arrived at between the parties to the effect that no redevelopment will take place unless and until everyone has had their say. For example, there was a recently concluded international competition for the design of the 911 Memorial. There were over 5,000 entries from more than 60 countries and a winner was just selected.
As expected, the consultations have been controversial and emotional but the fact is that an environment existed in which such an understanding could work. Whatever one’s view of the American imperium, there is a potency to the existence of that huge crater at the heart of their main city while the necessary conversations go on. Time for us to think again.
At that time I was protesting the haste and waste of the then PNM regime, a consequence of their pattern of proceeding with huge developments without any consultation.
At Section 3.1 of the RFP -
The proposed Developer will be chosen via this RFP process and shall then enter into a Memorandum of Understanding (MOU) with the Government of Trinidad and Tobago (Ministry of Planning and the Economy) for an agreed lease rate. It is expected that this activity would be finalized within one (1) month of the submission of the said RFP.
Which means that we can expect the choice of the proposed Developer will be made and the lease agreements completed in one month from the closing date. Yes, Friday 4 November.
Sad to say, there is even more. The RFP also specifies –
“…If financing has to be sourced from an external source, the Developer MUST submit a letter of guarantee from the financier as well as a profile of the financier. Failure to comply with this requirement will result in disqualification…”
When we raised the point that this is an impossible condition for new bidders to satisfy, given the sheer scale of the proposed development, both Ministers – Tewarie and Cadiz – attempted to indicate that this mandatory condition was flexible. Unbelievable, but true.
As leaders, whether in government or non-governmental organisations, we have an obligation to learn from the past. This is an effort to document the events in this episode, so that there will be a record, when the Invader’s Bay matter comes to be critically examined in the future.
The clear inconsistency of the position taken in the budget on urban planning was highlighted in last week’s column. With respect to this project, we noted the attempt to cast this development in the same light as other examples which all involved long-term consultation, the silence on the existing plans, the impossibly-short timetable to elicit fresh proposals, the even-shorter timetable for selection and agreement of lease terms, the wobbling on the financial requirements and incredibly, that the scoring criteria were to be finalized after the proposals were submitted.
It is literally impossible to determine which of these is worse than the others and it is beyond the imagination of any fiction writer I know to take a plot this far. But this is what is happening in our country today.
In my mind, all of these, taken together, show that the publication of the RFP is a form of sham dialogue and openness. If this is the genuine attempt by the MPE, to properly seek the public interest, then I am giving them an ‘F’ for effort.
What we are seeing here is a recipe for disaster, we already have all the ingredients of corruption, so what is next?
It really does make me wonder who runs this country and when, if ever, can we achieve consistent and equitable government. Who is the real power?
The Ministry of Planning & the Economy (MPE) announced last week that 10 proposals had been received in response to its RFP for Invader’s Bay.
Given that MPE has not carried out a Needs Assessment for this prime property, for whatever reason, I will continue to outline the relevant elements for the Invader’s Bay property. This is not intended to be complete, just a list of what I consider to be the critical items a proper Needs Assessment would include -
- Investment – This is a parcel of land estimated to be worth at least $1.0Bn, so any attempt to describe this process as ‘not being an investment’ would be completely wrong. In the literal sense, it might not involve any expenditure of State money, but, in every other sense, the disposal of this $1.0Bn asset would constitute a major State investment in Invader’s Bay.
- The National Interest – At this moment the imperative is to diversify our economy so as to find sustainable replacements for our declining energy revenues, so this is an apt point. Following on last week’s column, it seems reckless that such an attractive State-owned property would be developed without consideration of the strategic issue. Even on the conventional basis of announcements of construction jobs and permanent jobs etc., it is difficult on purely financial grounds to justify most types of development on that site, especially given the generally depressed market. The decisive factor, given the level of interest such a unique offering is likely to attract, would be to have as an identified ‘Need’ that only projects which were net earners of foreign exchange would be considered. Such a condition would eliminate any offices, apartments, foreign franchise restaurants or shopping malls and set the stage for a different development discussion. A necessary discussion at this point in our country. Please note that the RFP does state that the project should generate foreign exchange, but that is only expressed as an ‘expectation’, which is far too flexible, given the influence of the traditional property developers. If the intention is genuinely to break with the past and set off in a new direction, the conditions need to be strong enough to break the grip of the past.
- Balanced Development and Lagging areas – The RFP speaks to these concerns as follows – “…The Government recognizes the value of long term planning as well as problems created when long term planning is ignored. In order to ensure balanced development and restore lagging areas, care must be taken in the development of new areas…” Those are real concerns, but they seem at odds with the intention of the RFP, since the execution of that plan gives us yet another major development in our capital. We should consider if this is an area we want to develop at this time – bearing in mind that scarce private-sector resources may be required in other part of the country – for instance, the San Fernando Waterfront and other areas – so that development can be balanced instead of continuing the last administration’s emphasis on POS. The sidebar contains a comparison of three large-scale ‘urban development’ districts which formed part of the budget.
There is always the question of who controls the terms of these public debates. The intention from this side is to have that flawed RFP withdrawn. To proceed as things stand is to continue on a path which lacks the necessary transparency and public participation. The quantities of money involved and the absence of those critical elements means that we would be proceeding with all the ingredients for corruption.
This RFP amounts to an invitation to tender, so the bogus idea that this is just a discussion or consideration of proposals must be discredited. It is nothing of the sort. This RFP is a tender process to put these valuable public lands into private hands, which is quite different from a consultation. We have to stop any attempt to mix-up the two processes.
The State and its agencies have an over-riding obligation to be exemplary in their conduct.
SIDEBAR – A budget comparison
The 2012 budget sets out three urban development projects, at pages 31 and 32 –
- Invader’s Bay – “…significant interest has been expressed in the transformation of the waterfront along Invader’s Bay. This development has great potential for promoting commercial activities in the services sector and will benefit the country significantly. Such projects are meant to be private sector initiatives utilizing green building technologies and will assist in making Trinidad and Tobago an attractive destination for new investments…”
- Sustainable City Project – East Port of Spain – “…This initiative, is part of a wider “Emerging and Sustainable Cities Initiative” supported by the Inter-American Development Bank of which Port of Spain has been chosen as one of the five pilot cities from170 eligible cities in the hemisphere…This project is being developed in partnership with the East Port of Spain Council of Community Organizations, the Caribbean Network for Urban and Land Management at UWI, the East Port of Spain Development Company, and other key stakeholders. This exercise has also engaged the Making Life Important Initiative of the Ministry of National Security…”
- Chaguaramas – “…the Chaguaramus Development Authority is spearheading development in the North-Western region and a master plan detailing land use proposals for that region will soon be subject to public discussion…”
Of course those three proposals are favouring Trinidad’s north-west peninsula, which returns to the theme of balanced development, but a further description of their relative merits is beyond the scope of this article. I am inviting readers to consider the varying approaches to an important long-term large-scale issue such as urban development.
In the cases of east POS and Chaguaramas, the commitment to widespread consultation is manifest, yet there is no such commitment evident in the case of Invader’s Bay, which seems to me to be ‘the jewel in the crown’. The three current strategic plans for POS, all paid for by Public Money, are being ignored by the very Ministry responsible for Planning.
Good Public Administration requires actions which foster the confidence and trust of the public, that is indisputable. Those policies and actions must be transparent, reasonable and, above all, consistent, if the public is to place real trust in the hands of the administration.
For all those reasons, it is unwise for any administration to operate in an inconsistent fashion.
In the case of Invader’s Bay, with the stakes so very high, it would be reckless to continue in this manner.
My last column addressed the imperative of controlling State expenditure as an element in the national budgeting process. I made the point that a new Public Procurement system needs to come into effect to give us the tools to control these huge expenditures.
The Ministry of Planning & the Economy (MPE) published a Request for Proposals (RFP) at the end of August for the development of Invader’s Bay, a 70-acre parcel of State-owned reclaimed land – shown in this plan below:
The Invader’s Bay lands are absolutely prime property – flat, waterfront land with easy access to highways and all the urban infrastructure of water, electricity and sewers. These are valuable public lands, with an estimated value of at least $1.0Bn.
That RFP invited proposals with a closing-date of 4 October, which is an entirely inadequate 6 weeks. The Joint Consultative Council for the Construction Industry (JCC) has taken a strong position against that RFP process, including writing the MPE and meeting with the Minister, Sen. Dr. Bhoendradatt Tewarie and Minister of Trade and Industry Stephen Cadiz, MP.
The JCC wants work for its members, but that must be after a proper process, it is not our intention to stop any particular project
The JCC wants a proper participatory process.
The first “official” response to our publicity was an article in the Newsday of Monday 3 October – ‘Cadiz: JCC jumped the gun‘, the leading point being that the government was trying to open-up the procurement process so as to invite suitable proposals.
Cadiz is reported to have said
…What the Government has done is asked interested parties for proposals for concepts,” he said. “I don’t see that there is any issue at all. There were proposals made and the Government felt that this is public land and we should open it up and we gave people six weeks, we feel that is enough time…
Public Procurement can be described as the process which results in the spending or earning of ‘Public Money’. Public Money is money which is due to or payable by the State, or any debts for which the State is ultimately liable. Therefore Public Money must include the contracts entered into by the State as well as the disposal, by sale or otherwise, of State assets. The Invader’s Bay RFP is the start of a large-scale Public Procurement process, since its stated intention is to lease land to developers who make ‘suitable proposals’.
The publication of the RFP and those statements all give the impression that a proper procurement process is underway at Invader’s Bay.
Nothing could be further from the truth. Let me explain.
The first step in the Procurement cycle is the ‘Needs Identification’. The two main questions in the case of Invader’s Bay would be –
- What do we want to do with this property? That must also include ones assumptions as to what uses are not desirable there.
- Why do we want to do these things?
For example, the answer to the ‘What’ question could be that the property would be used for recreation or parkland. The answer to the ‘Why’ question could be either for private profit or to create new recreational facilities as a ‘public good’, those being free facilities which increase the amenity of a district or city. The Brian Lara Promenade and the San Fernando Hill facility are two examples of that.
Without a Needs Assessment it is impossible to objectively assess what is a ‘suitable project’. To carry out a Needs Assessment, it would have been necessary for the MPE to have consulted widely with the public and stakeholders. The Invader’s Bay lands are in our capital and are about one-third the size of the Queen’s Park Savannah. My point being that any proper Needs Assessment must involve substantial public and stakeholder consultation.
There has been no consultation whatsoever. None.
What is even more unacceptable is that the RFP, which was published by the Ministry of Planning & the Economy, is silent as to the 3 existing strategic plans for the Port-of-Spain area. The 3 plans are:
- Final Draft Development Plan: A Strategic Planning Framework for Metropolitan Port of Spain (Volume 2 Implementation Plan – The Port of Spain City Corporation) [Main Link] [Alternate Link]
- A Strategy for the Economic, Social and Physical Transformation of East Port of Spain: East Port of Spain Strategic Development Plan – September 2007
- Port of Spain Waterfront Project Strategic Development Plan for lands from Sea Lots to the Mucurapo Foreshore, still unpublished.
All of those plans paid for with Public Money. A straight case of – ‘nearer to Church, further from God’.
So, how are the proposals to be assessed? How will the decisions be made?
At para 3.5 of the RFP, at ‘Project Assessment’, we read –
“Proposals will be scored using the “Invader’s Bay Development Matrix and Criteria Description”.
We asked for that document when we met with the Ministers, but were told that it would be completed after the closing-date.
In the absence of these rules, how can developers know the ingredients of a winning proposal? Given that the evaluation rules are due to be completed after the closing-date, how can we be sure that this is a transparent process?
This could be an opportunity to demonstrate best-practice for public procurement, as promised by the People’s Partnership.
What is happening here is a recipe for accusations, blunders and confusion, just like in the previous decades of ‘old politics’. All the ingredients for corruption are present and that is why the JCC has made this call for the immediate withdrawal of this deeply-flawed RFP and its revision, after wide consultation.
We need to move away from the pattern of the biggest projects being set-up in secret , so that by the time the public gets to hear about it, all the vital details are fixed.
Expediency taking precedence over proper process has long been a costly constant in the governance of our society.
We must do better and it is not too late to do the right thing.
Expenditure of Public money – Accountability – Transparency = CORRUPTION
SIDEBAR: Criticisms by Cadiz
It is instructive to consider the criticisms of the JCC which were reportedly made by Cadiz.The headline accused the JCC of ‘jumping the gun’, implying undue haste and thoughtless speed. Cadiz is quoted as saying, “…I think the JCC jumped the gun,” he said. “If you cannot do it by six week then how long? Six months?”.
At another point in the same article, Cadiz is quoted as saying, “We need to get these things going,” he said. “The JCC only made representation of their disappointment four weeks into the RFP…” The implication being that the JCC were tardy and should have acted more swiftly.
If this Invader’s Bay situation were not so serious, it would be comical. The question in my mind is ‘Which of those explanations does Minister Cadiz believe?’
What seems clear is the hostility with which the Minister views the intervention of the JCC.
As part of this pre-budget series, I am going to ‘take stock’ of some recent, significant happenings in relevant areas.
Given the unstable situation in relation to the State and its operations, many examples of which have been set out in previous ‘Property Matters’ columns, it is very important that a critical stance be maintained. That said, it is also important that any progress be properly recorded and acknowledged.
The notable items were –
Housing Development Corporation (HDC)
I was very pleased to read of the success HDC was having in collecting the serious rent arrears owed by its tenants, reportedly in excess of $240M. Of course this is not the first time there has been an effort to rectify this situation, so hopefully this will be a sustained program as it is vital that housing be treated with proper responsibility. That responsibility would extend from the quality of the designs and construction, the treatment of contractors and suppliers all the way to housing policies which respond to the needs of the needy.
Last week, there was a report in this newspaper that the Housing and Environment Minister, Dr. Roodal Moonilal, disclosed a new housing policy. According to that report, the new policy will favour distribution of serviced lots, with foundation slabs, over the provision of new homes. I have been calling for a review of our housing policy for some time now, so it was very disappointing to read that Cabinet had recently approved this important new policy without some formal process of dialogue or seeking wider views, much less a thorough examination of the shortcomings of the 2002 policy. Yes, a new housing policy was sorely needed, but there are solid benefits to wider dialogue.
Housing is too important an element of our Welfare State to ever become solely a creature of Cabinet, whatever the credentials of the current crop of Ministers.
This leads directly into my point about the poor flow of basic information, which can be detrimental to the best intentions. The 2002 housing policy disappeared from the internet about 6 months ago, but despite several written requests I have had no success in having those links restored, for whatever reason. The new housing policy is also not available online. In contrast, last month the Ministry of Finance issued a revised State Enterprises Performance Monitoring Manual and that is available online, together with the 2008 Manual it replaced.
The impending new Building Code is to be welcomed, having been developed in collaboration with key stakeholders. There needs to be a solid commitment by all parties to establishing proper enforcement of those critical standards. The Building Code will cover important areas such as earthquake and fire hazards as well as other quality issues.
The initiative is being piloted by Dr. Roodal Moonilal, Minister of Housing and the Environment. UDECOTT and the HDC both form part of his responsibilities, so that is a good fit. We will have to be vigilant to ensure that all State construction conforms to the new standards.
I can scarcely believe that the very Minister who understands the importance of collaborating with stakeholders on the new National Building Code, would state a week earlier that the new Housing Policy had been agreed by Cabinet, with no visible attempt at consultation. Incredible, but true.
A Culture of Consequence
I have consistently stated that the absence of consequence is inimical to any development and that consequence has to be restored to a proper place if we are to progress. Up to last Thursday, 11 August, I stated at a public meeting that I was unaware of any government in this country taking decisive action against its own appointees in the State Enterprises. The pattern has been one of charging people from the last political administration in what almost always looks like revenge.
The Sunday Guardian headline of 14 August ‘Cabinet fires Chairman of School-feeding Programme’ was as welcome as it was surprising. It was reported that the Cabinet had taken decisive action to fire a Chairman who had been appointed about 6 months before and that is a positive step, the first time any government in this country has done that, as far as I am aware.
According to that exclusive story, the fired Chairwoman of the National Schools Dietary Services Ltd (NSDSL)—Dawn Annamunthodo – had obtained extensive and expensive security guards for herself, due to some alleged death threats. There were also details of what seemed to be deceptive attempts by that individual to become a signatory to the bank accounts of that State-owned company. If those reports are true, there are two serious implications –
Firstly, it is extremely unlikely that this is the first time that this individual was involved in acts of that kind. Grown people do not just change their behaviour in a few months’ time, we all know that. My point being that this episode calls into question the screening which is carried out in relation to these appointments. Whatever screening processes now exist, will definitely have to be made stronger, together with ongoing reviews of Board performance.
Given that the Prime Minister is widely reported to have approved the Chairpersons of State Boards, that screening process needs to be reviewed urgently so as to preserve the integrity of that office.
Secondly, this individual is reported to have attempted to convince Republic Bank’s Ellerslie Plaza branch to make her a signatory and that matter must be promptly investigated by the Fraud Squad, with charges to follow if those allegations are true. It is an echo of the point I made here last week about a dutiful police officer allowing a motorist with a defective vehicle to just drive-off after a ticket is issued. Not good enough, if we are serious about road-safety. We have to restore a Culture of Consequence if White-Collar Crime is to be challenged.
But, even though no money appears to have been stolen in that School-Feeding episode, the saddest part was the bold-faced question that individual asked the Guardian reporter, when invited to give a comment
How did you get hold of those documents? Those are state documents. These questions are state business.
It reminded me very much of the response of Jewan Ramcharitar, former PriceWaterhouseCoopers partner, who suddenly resigned as eTeck Chairman almost a month ago. That entire affair remains mysterious, with Stephen Cadiz, the line Minister, stating that it was due to a ‘difference of opinion’ and the departed Chairman reportedly stating –
I am actually working on a project in the public service arena on a full-time basis and my time at eTeck is eroding the time and attention I pay to that.
“Just what that project is, he won’t say.”
I wonder if Ramcharitar would have found that dismissive answer to be acceptable when he was a partner at PWC? Probably not, yet we are continually beset by these evasive attitudes in public affairs. We need to hold our leaders to a high standard.
The latest twist is the sudden resignation of George Nicholas as Chairman of Caribbean Airlines and the opaque statement by the Minister of Transport, Devant Maharaj – “…Yes. I can confirm this. I am in receipt of his letter but I cannot say anything more…”
In the three cases, bare-faced conflation of State Business with Business which is private, personal or confidential.
Good steps are to be recognized and applauded, but we must always strive for better. We need to continue onward and upward. It would be good to have a statement from the Minister of Foreign Affairs and Communications as to the governments’ commitment to a progressive policy in these important matters. The Housing policy needs to be published for comment and we also need to have a clear statement as to whether there can be any such thing as a confidential state policy.
Confidential State Policy may seem like an oxymoron, but readers will be aware of the reluctance of the Education Facilities Company Limited to publish its new Confidentiality Policy. I don’t want to say refusal, but when this budget season is over we will be continuing to examine those EFCL operations.
State Enterprises were created to enhance the pace and quality of Public Procurement, yet they are now the scene of the most bedeviling paradoxes in the entire system of public administration.
Some of the key procurement issues which arise in this arena flow directly from the split character of the governance model.
The basic rationale for the existence of State Enterprises is they can be more effective because they are not bound by the strict rules which control the conventional civil service. The absence of those rules is supposed to allow more latitude in terms of hiring, borrowing and contracting. State Enterprises can hire professional staff at market rates, enter complex commercial arrangements and borrow on commercial terms, all of which should amount to significant improvements in public services.
The typical State Enterprise is owned by the State, with the shareholding held by the Corporation Sole, an exceptional legal creature which exists within the Ministry of Finance. Apart from its owner, the State Enterprise will sometimes have a ‘line Ministry’, which would be its sole or main client. For example, the Ministry of Housing & the Environment is the sole client of the Housing Development Corporation (HDC) and the Ministry of Education is the sole client of the Education Facilities Company Limited (EFCL).
State Enterprises can operate within the existing Companies Act or be established by a separate Act of Parliament, as is the case with the HDC. That legal framework ought to ensure that a satisfactory standard of corporate governance and accountability is maintained.
The fact is that many of the Directors and Officers of State Enterprises are political appointees, which puts the entire rationale onto a doubtful footing. Because the salaries and perks are so attractive, not to mention the commercial opportunities, the State Enterprises are prize targets for political appointments and favours.
Some of the main issues which arise when one is considering this sector are -
- the number of State Enterprises – there needs to be a reduction in the number of State Enterprises.
- If the politicians can instruct the State Enterprise, via the Permanent Secretary, on specifics, what is the purpose of the Board?
- Given the preceding point, do the Board members of State Enterprises have the same duties under the Companies Act as in the case of other registered companies?
- In terms of our proposed Public Procurement legislation, what is the boundary between the fiduciary responsibility of the Directors and the contracting powers of an ‘authorised officer’ – i.e. someone identified as having the power to enter certain contracts?
Proceeding along the Procurement Cycle and using the International Waterfront Centre (IWC) as an example –
- Needs Identification – This is the first stage of the Procurement Cycle and it ought to be an objective assessment of needs. In this case, the IWC was part of a huge, disastrous boom in building new offices in POS – this is all detailed at ‘Capital Concerns – New Office Buildings’ – here. Before the boom started in 2005, there was 6.5M sq. ft. of offices in Greater POS, at the start of the boom some 3.2M sq. ft., or an additional 50% of the capital’s office supply was approved for construction. Please remember that Nicholas Tower, which took 5 years to fill, is only 100,000 sq. ft. Just under 2.8M sq. ft of new offices was actually built in POS in the last 5 years, with 2.3M sq. ft. of that space (82% of it) actually built by the State. Every State project identified at the outset was executed, but in stark contrast, virtually half the private sector projects stopped before construction began. The obvious consequence of that over-building by the State has been a collapse in the office rental levels in the capital, which is detailed in the next point.
- Reconcile Needs with Funds – This is the stage at which a developer ought to consider critical questions such as the cost of funds, the cost of the project and the returns from it. That is sometimes called a feasibility test and this is where the IWC dissolves into utter confusion. When then PM Manning addressed the Senate on 13May 2008, he emphasized that every UDeCOTT project was approved by Cabinet and had been vetted by a Finance Committee on Financial Implications. That is the most important address if we are to see the depth of the problem with these State Enterprises – see here. The break-even point on such projects is the rent at which the project can repay its costs of construction – at minimum, those costs would have to include for land, design, construction and finance. On that ‘bare-bones’ basis, which makes no allowance for maintenance or periods when spaces are vacant, the break-even rent for the IWC is in the $30 per sq. ft. range. This is the largest single office building ever built in our capital and the best rents ever achieved for space of comparable quality is about half the break-even figure. There is no way that the IWC project could ever have satisfied any proper feasibility test. Every new office project started in our capital only increased the supply of offices, which reduced the market rent, which, in turn, increased the gap with the break-even rent. Under oath at the Uff Enquiry, Calder Hart tried to rationalize the confusion when he confirmed that only one of UDeCOTT’s projects had been subject to a feasibility test and that one was the IWC. He was even so bold-faced as to estimate a break-even rent in the $20 range, but, when pressed, had to admit that he had left the cost of the land out of the calculations! That is the extent of the deformed thinking which typified the best schemes of the leading State Enterprise. Only one of the State’s many office development projects tested for feasibility and in that case, the cost of the land is omitted, yet that same land is included as a part of UDeCOTT’s Assets at $224M in that very financial year. Political imperatives were allowed to pervert a process which exists to protect the public interest from this kind of empire-building. But it is in the next part that the full confusion comes to bear.
- The rest of the procurement cycle – This is the stage at which tenders were invited for design-build and the winning bidder selected, the project built and the complex opened. According to UDeCOTT’s statements, the IWC project is its flagship and an outstanding success, having been built on time and within budget. Even if one accepts those assertions as being true, the IWC project is an example of the tragic consequences of a limited application of proper procurement processes.
As a result we have a completed project which is said to have been built on time and under budget, yet makes no economic sense and has a break-even point at some uncertain point in the future, if ever.
Some collateral damage needs to be noted, to quote one of the former PM’s notable phrases. Contrary to his statement to the Senate which is cited here, UDeCOTT did not publish its accounts since 2006, which is a breach of both the Companies Act and the Ministry of Finance guidelines. A total breach of the elementary norms of good corporate governance, which is the protection the private sector structure was supposed to give us taxpayers as a safeguard. Because of the political element in the operation, we can see clearly that UDeCOTT was carrying-out the instructions of the Cabinet and those Directors have not been punished or censured in any way, apart from their public dismissal. The consequence of those breaches being condoned at the largest State Enterprises – UDeCOTT and HDC – how does one get the smaller and less-visible State Enterprises to conform to good governance?
If the priest could play, who is we?
This is why we need a complete review of our procurement controls.
This special publication is dedicated to the important issue of Public Procurement. It is written by the a private sector group, headed by the Joint Consultative Council for the Construction Industry (JCC). The JCC consists of:
- Association of Professional Engineers of Trinidad & Tobago (APETT)
- Trinidad & Tobago Institute of Architects (TTIA)
- Board of Architecture of Trinidad & Tobago (BOATT) – observer status
- Trinidad & Tobago Society of Planners (TTSP)
- Trinidad & Tobago Contractors’ Association (TTCA)
- Institute of Surveyors of Trinidad & Tobago (ISTT) comprising Land Surveyors, Quantity Surveyors and Valuation Surveyors.
The private sector group consisted of –
- Joint Consultative Council for the Construction Industry
- Trinidad & Tobago Chamber of Industry & Commerce
- Trinidad & Tobago Manufacturers’ Association
- Trinidad & Tobago Transparency Institute.
The members of that Private Sector group were part of the Working Party on the Public Procurement White Paper, which was published in August 2005 and laid in Parliament the following month.
The Peoples’ Partnership’s manifesto, at page 18, commits to –
- Prioritise the passing of procurement legislation and appropriate rules and regulations
- Establish equitable arrangements for an efficient procurement system ensuring transparency and accountability by all government departments and state enterprises…
In keeping with those campaign promises, the Minister of Finance tabled two legislative proposals in Parliament on 25 June 2010. Those were a Bill to amend the Central Tenders’ Board Act (originally prepared in 1997, when Ramesh Lawrence Maharaj was Attorney General) and the Public Procurement Bill (originally prepared in 2006, after publication of the White paper). A Joint Select Committee (JSC) was established on 1 October 2010 to examine those proposals, invite submissions and make recommendations.
The stated target of the PP government is to have the new Public Procurement legislation in place by the first anniversary of their electoral victory – i.e. by 25 May 2011.
Our Private Sector/Civil Society group reconvened last year and made a joint submission to the JSC in December 2010 – it is available here from the JCC‘s website. Our Private Sector group has had several meetings with the JSC – which was chaired by Education Minister, Dr. Tim Gopeesingh – but the results of those are not featured in this publication.
This special publication is intended to inform readers of the necessity for new Public Procurement legislation in our country and to set out the objectives of our proposals.
The guiding Principles
These are –
- Value for Money
The broad picture
One of the most serious findings of both the Bernard Enquiry (Piarco Airport Project) and the Uff Report (UDeCOTT and HDC) was the extent to which the largest State projects were being executed outside of any normal system of accountability. The very purpose of setting up these companies and procurement methods was to bypass the Central Tenders Board. The natural consequence of that way of proceeding being that if the CTB could be sidelined as a deliberate act of public policy, then other important elements of the regulatory framework are violated as a matter of course. In the case of both UDeCOTT and NHA/HDC, accounts were not filed for years – since 2006 for the former and 2002 for the latter – in flagrant violation of the rules and laws.
These were the largest State projects – often described as being the flagship or centre-piece of this or that government’s policy – yet they were breaking the main rules and getting away with it. The ‘getting away with it’ is the cloudy part of the picture, because we never hear of any penalty being sought against those State Enterprise Directors who broke the governance rules.
But that is the very centre of the puzzle and we need to understand it before we can try to unlock it. So, we are told, time and again, that the only way to really get important and urgent projects done in the correct fashion is to go outside the rules. The stated reasons are that the old rules are too cumbersome, slow etc… and yet, we end up, time and again, in the same mess.
Some of the features of these fiascos are –
- Huge cost over-runs on virtually every project.
- Unfinished projects which virtually no one can make sense of – to date there is no proper rationale for the huge and loss-leading International Waterfront Project, apart from Calder Hart’s bogus explanation to the Uff Enquiry.
- A gross burden on our Treasury going forward – The continuing delay in completing the accounts for these State Enterprises shows how difficult it is to work out exactly what the State owes and to whom.
What all that tells us is that the existing rule-book seems to be blocking progress and the attempts to bypass it have done little better, if not far worse.
The dismal picture on public procurement is not limited to construction projects and can be found in all the other areas.
A new approach is needed and that is what is at the foundation of these legislative proposals.
What is Public Money?
Central to the new proposals is that any new Public Procurement system must be in full effect whenever Public Money is spent.
‘Public Money’ is defined at page 5 of our proposals as money which is either due to, or ultimately payable by, the State.
Our proposals are intended to form part of a financial management reform package to include for a National Audit Office and a Financial Management and Accountability Bill.
The intended move is towards a greater transparency and duty of care in terms of how taxpayers’ money is spent. Our citizens, particularly the unborn ones who will have to pay for some of the wasteful schemes which are littering the landscape, deserve no less.
The new equation confronting us is –
Expenditure of Public Money
We must fix that.
So, what is at stake here?
Our society is beset by large-scale corruption, which sustains wrong-headed decision-making. The wider social consequences of that toxic culture are now hatching, with a vengeance, in the naked violence and wily crimes which pre-occupy our head-space.
The killing-fields of East POS, the decimation of African urban youths, the URP and CEPEP gangs and the battle for turf are all part of this picture.
As long as our society continues to applaud and reward dishonest, corrupt behaviour, we will continue sliding downhill.
The structure of our economy is that most of the country’s foreign exchange is earned by the State in the form of oil & gas earnings. The rest of the society relies on the State and its organs to recycle those earnings for the benefit of those of us not directly engaged in the energy sector.
For that reason, the State casts a very long shadow in our country, far more so than in other places. Virtually every substantial business relies on the State and its organs for a significant part of its earnings. A healthy connection with the State is essential for good profits.
But that is where the particular problem is, since the conduct of the State and its organs is often found to be lacking in the basic ingredients of fairplay, accountability and transparency.
If the State is the biggest source of funds in the place and the State is not playing straight at all, a serious question arises – How can we hope to uplift our society?
The State has an over-riding duty to behave in an exemplary fashion in its policy and operations.
Due to its tremendous footprint, the State has to behave in that exemplary fashion if we are to move out of this mess. A positive shift in State conduct will have a salutary effect on the commercial culture and wider society, one that is long overdue.
So, who spends Public Money?
We have a vast, expensive and confusing array of organs, all of which are authorized to spend our money. For a country of about 1.4M people, we have 26 Ministries. Just consider that the UK, with a population of about 65 million, has 19 Ministries and the USA, with a population of about 300 million, has 16 Ministries. For a Caribbean example, Jamaica has twice our population and 16 Ministries.
Given the vast range of operations undertaken by these agencies, any new system would have to be flexible in order to cover all those types of transactions.
The main features of the new system
Three new independent organs will be created –
- The Procurement Regulator (PR), with the duty to create overall Guidelines and a common handbook to guide the public procurement process. The Regulator is appointed by the President in his own discretion and reports only to the Parliament. Agencies can create their own procurement handbooks, once these conform to the overall Guidelines, as approved by the Procurement Regulator.
- The Public Procurement Commission (PPC) will be the investigative arm of the new apparatus to which complaints will be directed.
- The National Procurement Advisory Council (NPAC) will be purely advisory and comprises 14 members from a broad range of named private sector/civil society organisations – the JCC, Manufacturers’ Association, Chamber of Commerce, Transparency Institute – as well as the Ministry of Finance and the Tobago House of Assembly.
All expenses are to be drawn on the Consolidated Fund, with the Procurement Regulator and Advisory Council required to report annually to Parliament.
A vital part of our proposals is that Cabinet, Government Ministers or politicians are prohibited from instructing or directing these new agencies in any way.
They are intended to be entirely independent of political influence, which conforms to the proposals in the White Paper.
That freedom from political influence was also specified in both the 1997 and 2006 draft legislation.
A Complaints Procedure
The proposed system will create clear rights to make complaints or report wrongdoing. Those rights are an important aspect of any modern procurement system and we propose three types of complaints/investigations –
- Potential tenderers/suppliers can complain, in the first instance directly to the Agency with which the tendering opportunity resides, then, if that is not dealt with satisfactorily, they can complain to the Public Procurement Commission. Ultimately, the right to seek the protection of the High Court is preserved, once the established complaints procedure has been followed.
- The Whistleblower – We are proposing that whistleblowers be given legislative protection and practical means to bring their complaints direct to the Public Procurement Commission.
- The Public Procurement Commission can also, on its own initiative, start an investigation into an area of concern.
There are strict time-limits for acknowledgement and resolution of complaints.
Our proposal is for the Public Procurement Commission to have powers to punish both frivolous complainants as well as parties found to be in breach of the new system. Those can range from fines to embargoes, during which offending parties can be banned from tendering opportunities. Offending public officers can be subject to both fines and/or imprisonment.
The concern over the cost of the new apparatus
One of the most frequently expressed criticisms is that as critics of the rationale and operations of significant State Enterprises, we seem to be proposing a new series of state-funded agencies. Some people have pointed out that these offices are unlikely to be cheap, particularly the PPC, which is to be constituted as a standing Commission of Enquiry under those existing legal provisions.
Yes, there will be new agencies and yes, they will cost money.
Given the recent revelations as to the cost of the Uff Enquiry – already estimated to exceed $50M – there are genuine concerns that we could soon have three new state-funded agencies which could absorb maybe $100M a year.
The challenge here is to move beyond the obvious and factual observations so that we can consider the decisive factors. Our proposals have the promotion of Value for Money as one of its founding principles and that is good for the public. So, how can we measure the value for money of these proposals, at this stage?
The scale of public procurement spending
In the case of expenditures direct out of the Ministries, the 2011 Budget has an anticipated capital expenditure for the Ministries of $7.050Bn, as per para 8 at page 4 of the Public Sector Investment Program (PSIP).
Also in that Budget there is an anticipated capital expenditure for the State Enterprises of $6.725Bn, as per the Foreword at page 4 of the Supplementary Public Sector Investment Program (Supplementary PSIP). The combined figure of $13.775Bn is only for projects, so it excludes the salaries, rents and normal running expenses. Please note that other elements in public expenditure, beyond just capital projects, will be covered by these proposals. The guiding principle being that those activities involve the expenditure of Public Money.
There are very limited exemptions from the proposed provisions and those can be viewed at the JCC website.
I am also sure that there are other ways in which Public Money is being expended which are not shown in the national Budget, so the amounts are surely larger than that estimate.
The potential for savings
The scale of the public transactions, involving Public Money, which will come under the control of this new system is huge, at least $14Bn in size. Even if the new system only saves 5% of that sum every year, we can easily justify an annual running expense in the $100M range, as mentioned earlier. 5% of $14Bn is $700M.
In the next 30 days, we expect our Legislators to make the crucial decisions on this series of proposals and we all need to be vigilant to preserve the key points.
Those key points would include –
- Heads of Independent organs to be appointed by the President
- Separation of the Regulator from the Investigator
- Regulations laid in Parliament for negative resolution, with no Ministerial or Cabinet approval required.
- Independent Organs funded from the Consolidated Fund, with no requirement to seek a Ministerial approval or Budget vote.
- Accountability is ensured by the requirement to report annually to Parliament.
- Private Sector/Civil Society oversight via the National Procurement Advisory Council.
- Proper provisions for complaints and Whistle-Blowers.
The ultimate question, given what we know now, is – Can we afford not to take this step?
At this unique and challenging moment in what has been a long, twisted journey, the prospects of more corruption and waste are grim.
For these proposals to succeed, the legislators will have to vote in favour of a new law which reduces their power and discretion. To some, that might be an impossible contradiction and an unreasonable thing to expect, but there will be considerable political credit to the account of those who make this change happen. Our citizens deserve no less.
This week the examination shifts to the scale of the failure of our national housing policy – see <http://www.vision2020.info.tt/pdf/Policies and Procedures/Strategic_Corporate Plans/Housing Plan.pdf>. Three main points for consideration are –
- Meeting the targets
The original target was for the HDC to construct 100,000 new homes in a decade, which figure was generated from the 1994 ‘PADCO reports’—The Review of Shelter and Land Development Policy Study (PADCO reports): The PADCO reports is a series generated by The Planning and Development Collaborative International, Inc. and Laughlin and Associates Limited (who were contracted by the Government of Trinidad and Tobago in 1993)—that study is available at the Ministry of Housing & Environment’s library. The annual target was reduced to 8,000. As noted in the previous article, the reduced targets should have yielded 60,000 new homes by now, but the HDC has built only 15,394 new homes.The HDC made a recent statement that the number of empty new homes was approximately 10,000. So just about 5,000 new homes have been built and distributed since the inception of this ‘accelerated housing programme’ in September 2002. Even if we omit 2002, that is an annual average of 667 new homes being built and distributed. Even with the most optimistic assumptions, one is looking at considerable challenges in achieving these demanding targets. At the current rate of performance it would take over 140 years to satisfy the original target. That is how far off-track this accelerated housing programme has gone. Deep into the long grass.
- The Cost-based Pricing model
In previous articles in this series, I have been critical of the HDC’s cost-based approach to pricing its units. In terms of the central mission of the Ministry of Housing – i.e. creation and distribution of housing to the needy – that pricing model is inappropriate. That is because it does not identify either the housing subsidy allocated to successful applicants or the opportunity cost of the HDC’s policies. The value-based approach is the more appropriate model to satisfy those basic requirements. That is because it offers greater clarity to policymakers, since it is based on the market value of the completed homes, with the housing subsidy and the opportunity cost being the difference between the value and the actual HDC selling price. On 21st March 2008, this newspaper carried a report headlined “PM’s son in line for apartment” – see http://legacy.guardian.co.tt/archives/2008-03-21/news8.html – on allegations that Brian Manning, son of the then-PM was in line to receive one of the HDC apartments at Fidelis Heights in St. Augustine. Noel Garcia, the then-MD of the HDC, was reported to have said -
…the Government had taken a decision not to subsidise this particular development. It is being sold at market rates in HDC’s thrust to expand and attract an open market clientele.
Given that the units were reportedly being sold for a maximum of $875,000 and that they were worth a minimum of $1.7M, it is clear that each new home there is sold with at least $800,000 in housing subsidy. The only way Garcia’s incredible statements could be correct is if one were using the misleading cost-based approach.
I entirely agree with his statement that the Fidelis Heights development “…is therefore not part of HDC’s provision of subsidised housing for low-income earners.” It is really subsidised housing for the middle-income groups, but that could never be right when the waiting list is bulging with needy people who cannot even get an HDC unit to rent.
Fidelis Heights was, even by its name, a monument to misleading and wrong-headed thinking. The HDC project with probably the highest level of housing subsidy per unit was built for the least needy on their waiting list. Only if the underlying philosophies and resulting models are appropriate, can we avoid a repetition of this blatant waste of public funds in the face of real, human need.
Given that the HDC is unable to satisfy the needs of the people it was intended to serve – the poorest citizens who cannot afford a proper home – it is scandalous that its scarce resources should have been diverted to Fidelis Heights, or the one at Federation Park in Port-of-Spain.
The selection of this pricing model is proof of misguided policy at the most elementary level. The basic concept of opportunity cost appears to have eluded the responsible officials and, what is more, that misguided policy appears to have been approved at the very highest level.
Wrong-headed thinking can only encourage corrupt behaviour.
What has the national housing programme cost this country? That is no rhetorical question, since this fact sits at the heart of the analysis. The Housing Development Corporation (HDC) is the State’s implementing agency for production of new housing, it was formed in 2005 by an Act of Parliament and replaced the National Housing Authority (NHA). The HDC’s funding comes from four sources –
- Treasury allocations – Those are announced in the budget and can be established from the Estimates of Expenditure as Capital Allocations to the Ministry of Housing.
- Sale of new homes – When the HDC sells a new home, that money is also available to them.
- Bond Issues – The HDC has also raised money by occasional bond issues; those funds can be used to either build more homes or ‘pay down’ on more expensive loans. The bonds issued are government-guaranteed, so they are considered as virtually risk-free ‘sovereign debt’. Given that the government itself issues bonds at lower rates of interest, it begs the question as to why these SPE’s are allowed to borrow on these terms. That issue was raised by in the BG View of 20th August 2009 – see http://guardian.co.tt/business/business-guardian/2009/08/20/debt-depreciation-or-discipline.
- Bank Financing – The HDC also borrows money from commercial banks or the IADB to fund their construction programme.
Try as I might, it has proven impossible to determine just how much the HDC has spent on building new homes in any given year. That is because there are no accounts at all which are available to the public.
The HDC Act, at section 18 and 19, mandates that the Board shall keep and properly audit accounts. Section 20 requires the Board to submit its annual report to the line Minister within 3 months of the end of the financial year. The line Minister is in turn obliged, by section 20 (2), to lay that report in Parliament within 3 months of receipt. See – http://mphe.gov.tt/home/images/stories/pdfs/tthdc%20act%2024%20of%202005.pdf.
The HDC has never laid either its annual report or audited accounts into Parliament for the public. The failure to publish accounts is one of the most serious warning-signs of companies in financial trouble.
That failure to publish HDC or NHA accounts over such a long period (since 2002 at least) spanning several administrations, is a serious indictment of the main participants – the politicians, the Board Directors and of course, the professionals involved in the entire huge operation.
I have been reliably informed that the HDC’s new management is attempting to rectify this situation and that must be a priority if we are to properly assess the performance of this vital social programme.
The overall picture is stark -
- Gross under-performance in terms of the output of new homes, only about one-quarter of the reduced target has been achieved:
- Poor financial and project controls – as revealed in the Uff Report (at para 25:30 – see http://www.raymondandpierre.com/articles/article84.htm), not one HDC project has a signed contract:
- No accounts or annual reports, given the preceding point, that is not surprising:
- An inequitable allocations policy, with lower priority given to those who cannot afford to buy.
- Approximately 10,000 new homes remain empty and that is the one which tops them all. The ongoing adverse consequences include – vandalism, the greater rate of general deterioration afflicting empty homes, the high cost of security and of course, the continued pressure on those people on the waiting list ‘holding strain’.
Given the combined effect of all this, which is probably hidden to most of today’s readers, one can only wonder at the patience of our needy citizens.
The entire situation also raises potent questions about the purpose and performance of the SPEs.
SIDEBAR: The concept and importance of opportunity cost and housing subsidy
Let’s use a typical home at Fidelis Heights as an example.
In the prevailing cost-based pricing model, this is considered a satisfactory, ‘zero-subsidy’ result, since the State has recovered all of its costs. Another phrase in the lexicon is the ‘cost-recovery’ model of pricing.
The danger, as shown in the example in this article, is that the ‘cost-based’/'cost-recovery’ model ignores opportunity cost.
The opportunity cost is the difference between the actual selling price of the unit and the market value. The HDC could sell each Fidelis Heights home for $1.7M, but has made the decision to sell at a reduced price of $825,000, which means that each sale is at the loss of those possible earnings. That amount of the loss incurred by the decision to sell at a lower price is called the opportunity cost. It is important that opportunity cost be identified and quantified as an element in all decision-making, both private and public sector. A decision-making process which ignores or obscures opportunity cost is negligent at the very least and can encourage corrupt practices and the dilution of capital.
$875,000 is enough money to build at least three modest homes, yet this system has allocated that much money to each Fidelis Heights purchaser, each of whom qualified for a mortgage at that level.
As a result of this questionable choice and the resultant shaky pricing model, there is an enormous ‘leakage’ of housing subsidy and opportunity cost.
The opportunity cost can also be described as the housing subsidy since that is the difference between what a Fidelis Heights unit actually sold for and what a purchaser in the open market would have to pay for a similar unit.
The two terms are therefore synonymous – Opportunity Cost is exactly equal to Housing Subsidy.