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The real Roystonia story

Published Thursday 20th May, 2004


The sales office of the Roystonia Development in Couva North. Inset: A welcome sign to the development identifying the parties involved in construction and finance.
Photo: Adrian Boodan

This week we take a necessary pause from the Caroni series to look at some of the issues arising from the furore over the Roystonia Development in Couva North.

The main events are summarised in the sidebar as background to this article. We do not intend to pronounce on the legal and political issues. Leave those to our political pundits and learned friends.

It is our view that the scope of the discussion thus far underlines our limitations when having public policy disputes. Once again, we seem to be drawn to the question of the legality of the contract and so on. It all seems a little distracting.

The issues of investment policy, risk and returns are receiving scant attention. We will only make progress if these are constructively and openly addressed. We will be making a start here.

It is our view that the legal issues are subsidiary to the fundamentals of any deal. Businessmen make deals and these are sometimes passed to lawyers for recording in contracts or deeds. As interesting as the legal issues are, they merely outline the underlying ethos of any arrangement.

We need to outline a series of measures with which we can assess agreements of this type and the key questions would be:

Risk

The investment policy of a properly run company would include guidelines as to the risk levels and the respective proportions of various investments. The approaches can be illustrated as being either low-risk with relatively modest returns or greater-risk with the possibility of greater returns. The correct management of risk and return is critical to successful investment.

Of course the State has a role in providing support in those areas which would not receive the desired levels from the free market. Some examples would include the school feeding programme, public health programmes, PTSC’s rural bus system and so on. Point being that it is acceptable for taxpayers’ money to be invested if some critical need is being fulfilled. The public supports these expenditures since they add to the common good.

The NHA seems to have made a significant initial outlay and there now seems to be an issue of the profits from the development being quite limited. The NHA seems to have made a risky investment here. What private landowner would enter such a scheme? What was the return to the public?

How much of our government’s housing budget was consumed by the initial investment in this project? Earlier research for this column show a government expenditure on housing in 1996 of $65million and we have heard the figure of $41million as the NHA investment in infrastructure for this project. Was it policy to allocate funds in this manner? Was there adequate oversight into construction costs?

Resource Allocation

The essence of public policy formation and administration revolves around the allocation of scarce resources to achieve objectives. These scarce resources would include land, money (via cash or tax breaks) or time; the desired outputs could be better health, transportation or education services.

In this situation, a significant parcel of publicly-owned land was developed; of course, there are differences over the land area and its ownership. In addition, there seems to have been a substantial investment of taxpayers’ money into infrastructure for the development. Despite the emerging dispute, it seems that there is some agreement on those broad facts.

The curious taxpayer is entitled to ask certain questions: how did this deal satisfy the NHA’s objectives? How many of the purchasers came off the NHA’s waiting list?

Developer’s profit

We have seen full-page advertisements from the developers setting out their side of the story and amongst the interesting details is the low return of “…less than seven per cent” on their considerable investment.

Given that they too were investing money — we are also told that they invested 50 per cent more than the NHA — and therefore putting funds at risk, we are bound to also consider their investment policy.

Secure investments, such as fixed deposits, during the relevant period offered returns in the seven per cent range. One can only wonder — what would have recommended this scheme to such experienced construction professionals?

If their initial performance targets were not satisfied by the sub-seven per cent returns, why keep on? As the Minister has pointed out, they may have been able to close the company to better invest their funds. Could we be dealing with businessmen who are “giving something back?”

Whatever the impression given as to the affordability of the Roystonia houses, it is fairly clear that they are priced at market value.

Of course, the NHA’s role as investors in housing requires consideration of their investment guidelines. If scarce resources are to be allocated into housing projects, surely it is reasonable to expect these projects to satisfy some policy objective. If the funds are invested in a relatively risky scheme, it is entirely reasonable to expect some urgent need to be satisfied. That is good public policy.

We need to move beyond the identity of the parties. The NHA Board, the Ministers in question and the directors of this construction company are all side issues. Did the NHA have any such guidelines? If so, were these followed? If not, why not? Do we intend to put any into place? How do we know that investments of this type are not now being made by the various public bodies in the present large-scale housing programme?

When we can shift focus to policy formation and delivery we start to make some progress.

Next week, as promised previously, we move onto the proposals for the Caroni lands.

Afra Raymond - Property Matters

Background

It seems that the NHA entered a joint venture agreement with a private construction company to erect houses on land in Couva North. The Minister of Housing recently revealed his displeasure at the contract, which his legal advisers are said to have found binding.

It also seems that the joint venture provided for the NHA to pay for the infrastructural development on the land and receive payments from purchasers which were then remitted to the construction company.

Profits were apparently to be shared between the parties.

There have been the expected political allegations in terms of the corruption of the last government with the retort that the contract is legal and the NHA Board which approved it was PNM-appointed.