Cause for disquiet on new stone supply arrangement for CJIA extension

Dear Editor, Recently news emerged of the Guyana government intervention in the stone supply contract on the CJIA expansion project involving stateowned Grassalco of Suriname, China Harbour Engineering, (CHEC) Toolsie Persaud Limited, and BK International. When news first broke about September 2016 of the contract between the first two named, sidelining the second two as unsuccessful tenderers, the Minister of Business was quoted as saying that he was powerless to intervene, and the Minister of Public Infrastructure indicated that it was a private matter. There was a bitter outcry by the unsuccessful bidders, well supported by many Guyanese, judging from letters to the media. CHEC held the line, saying that price and capacity were the determinants in its decision. The news was that Grassalco’s bid price was US$28 per tonne, whilst local bids ranged from US$36 to US$40 per tonne.

Now, following government intervention we learn that Grassalco’s tendered price still cannot be met by the local suppliers, whose average price can now be calculated as US$37 per tonne. Precisely how the former bid price accepted by CHEC (of US$28 per tonne) and the present, higher price, now announced as negotiated, of US$37 per tonne are reconciled to benefit CHEC is not clear, but I will return to this later.

No less than four government Ministers were involved in the intervention. Additionally the Ministry of Natural Resources was moved enough to write the media publicly congratulating the local stone suppliers involved. Even before this, the BK Group of Companies paid for a newspaper notice thanking the government and expressed its “personal” indebtedness to the Ministers concerned. It must be to the credit of the BK Group that it declared its indebtedness publicly. Examples of words used by either side were “… support for local manufacturing” and “...Guyana’s natural resources must be utilised…” It is a manifestation of upbeat and good relations between the public and, at least part of, the private sector.

Nonetheless there is cause for disquiet and questions on the new stone supply arrangement, as it affects Suriname and as it may affect Guyana.

But first, on the benefit package to CHEC, the Minister of Public Infrastructure at the signing of the new supply agreement is quoted as saying that the higher stone price is one thing, “... but the contractor looked at, if he doesn’t finish by x amount of time consequences are greater than anything you could save by shipping”. However this explanation is opaque. The Minister has taken upon himself the task of speaking for CHEC, and this needs to be interpreted to mean that CHEC has balanced the higher local stone price against the increased risk of project delay, and resultant cost to CHEC, if Grassalco’s stone supply shipped from Suriname, were delayed. However delay in stone supply from Suriname has not yet occurred, (as far as we are told) and even if it does, CHEC has capacity in its private arrangement with Grassalco to put in place provisions to recover any resulting delay costs, as it can, and should, put in place with all its suppliers and sub-contractors. Delay has indeed already occurred on the CJIA expansion project, apart from any stone supply delay, as the news is that the initial completion date September 2015 has been adjusted to December 2017 due to several delays. No Minster took the opportunity to cite lessons learnt from current delays, or say what system has been put in place to avoid future ones. Instead one Minster is reported

as relying on exhortations to CHEC and the new suppliers to complete the project on time, with reference to “severe consequences” if this does not happen. Are these severe consequences new?

It is hard to see how the higher price benefits CHEC, and how the above-cited explanation combines with that higher price to make a benefit package. However much as Guyanese we are made to accept the faulty logic from our government, the operatives at Grassalco are equally unlikely to do the same, and would understandably advise their government accordingly. The Guyana government has put itself in a position where it is at serious risk of compromising itself in settling contractual claims with CHEC and/or China Exim Bank, (the news is that CHEC claims include claims for cost overruns that initially stood at US$46.8 million, though recently the claim has been about halved) and at real risk that its action, which is anti-competitive, would provoke retaliatory action from Suriname at some unexpected time in the future. This cannot be good for our trade relationship with our Caricom neighbour.

Further, this action of the government and local stone suppliers concerned has the ingredients of the offence of price-fixing, though it is unclear if CHEC would routinely, or otherwise, recover this ‘cost overrun’ from the government, and hence from the Guyanese taxpayer. Even if not illegal, the action is unethical in interfering with an obviously rational procurement decision of CHEC to accept the best commercial price. This does not augur well at a time when Guyana is striving for equal and fair treatment in procurement of public contracts; rather it makes a mockery of that objective, and increases public scepticism.

A better response would have been for the government (and the many supporting local manufacturers) to accept the initial failure of the local stone suppliers to gain the contract with CHEC as a wake-up call – to proactively work with the private sector to put in place well considered, and robust ‘local content requirements’ regulations, which would thus be transparent to both local and foreign businesses. Foreign contractors tied to bi-lateral loan agreements presently seem inescapable, and there are other such projects anticipated, as in roads and hospital upgrading. Proper action is needed now. The risks identified from this ad-hoc action on the stone supply contracts have shown why ‘local content requirement’ is viewed as protectionist and undesirable by some. The ad-hoc action has at least shown that joint public/private sector action is attainable, but this too must be done transparently. Government must not select individual local contractors or suppliers, but rather work with representative bodies; foreign businesses must have a genuine choice of local contractors; and the regulations themselves must set out conditions when foreign businesses can freely engage subcontracting businesses from overseas.

Yours faithfully Donald Rodney