|The FINANCIAL IMPACT of UDeCOTT’s
Published Thursday April 1st, 2010
UDeCoTT is a state
enterprise which lists value for money, professionalism and
accountability among its core values. At the Uff Commission we heard
their attorneys saying that it is over $20Bn in size.
We need to record the
deep public concern at the financial aspects of the UDeCOTT affair.
The State has undertaken
the construction of 2.3M square feet of office space in Port-of-Spain
and UDeCOTT is the main agent for the execution of those projects.
To put that into easier
terms, the Nicholas Tower at Independence Square contains 100,000 square
feet of offices – which means that the State is building the equivalent
of another TWENTY-THREE Nicholas Towers.
Key points are –
Feasibility Tests – The feasibility test is vital for proper
investment and one of the key elements of that is the financial test.
That test is carried out by adding up all the costs of carrying out the
development – the four main items are –
Construction costs, and of course –
Cost of Finance.
on those combined costs, the feasibility test will provide the
‘break-even’ rent. That figure is the lowest rent per square foot at
which the property could be leased to allow the investor to repay the
lenders and obtain a reasonable return on capital.
When the Prime Minister addressed the
Senate on 13th May 2008, he made it clear that UDeCOTT
operated with the approval of the Cabinet and he also went on to say
that there was a special sub-committee of Cabinet which advised on the
financial implications of those proposed developments. See
link. To quote the Prime Minister –
“…In this respect, the Cabinet has
ensured that:…a Finance Committee of Cabinet was established to review
the financial implications of projects...”
first rationale advanced by the Prime Minister and his colleagues for
this rush of office buildings was that they would result in government
having to spend less on rent. The idea being that all these new offices
would save money. It was then pointed out by critics that the new
offices would result in less rent being paid, and that it was also
certain that the cost of these would be huge. The estimates were that
the new offices would cost at least three times MORE than the rents now
being paid by government.
case of the new office buildings erected by UDeCOTT in our capital, the
‘break-even’ rents are estimated to range from $25-$35 per square foot.
Given that the highest rent ever for office space in the capital was $16
per square foot, it is clear that this huge, public investment in new
offices was never the subject of any feasibility tests. The question
remains, what was the advice of the Cabinet Finance Committee on the
financial implications of those new offices.
Specifically, Calder Hart was questioned on this aspect of UDeCOTT’s
operations at the Uff Commission on 28th January 2009. Hart
confirmed that only one of the UDeCOTT office projects in the capital
had been the subject of a feasibility test. That project was the
International Waterfront Project and Hart stated the rate of return to
be ‘about 8%’ and the ‘break-even rent’ to be ‘under $20 per
square foot’. When asked ‘what was the amount allocated for the
land?’, Hart said ‘nil’. Please note that to have included
the proper land value in the feasibility test would have produced a
significantly higher ‘break-even rent’, as outlined above. Please also
note that this is the same parcel of land, which was disclosed in
UDeCOTT’s audited accounts as having a fair value of $180M in 2005 and
$224M in 2006.
the land element would have produced a high answer - at a time when a
low ‘break-even rent’ would have made the proposed project look
attractive - it was excluded. When the land element would produce a
high strong figure for UDeCOTT’s balance sheet, it was included. That
is a plain example of the absolute lack of a sound financial rationale
for most of UDeCOTT’s operations.
feasibility testing is not to be applied to non-commercial projects such
as the Brian Lara Cricket Academy (Tarouba project) or the National
Academy for the Performing Arts (North and South campuses).
Borrowed Funds – Most of the UDeCOTT development projects are
financed by borrowings, with a total of $2.9Bn being disclosed in their
2006 Annual Report. The point here is that we are yet to start repaying
those loans at a time of economic challenge.
Maintenance element – Given current trends, it is unlikely that
the monthly cost of maintaining these new office buildings would be less
than $3.00 per square foot. That implies a monthly maintenance bill of
just under $7.0M, which is about $85M annually.
UDeCOTT’s missing accounts – Our concern is grounded in the fact
that the Companies’ Act 1995 specifies that Company Directors’ lawful
duties include the proper management of the respective company’s
affairs. Proper management requires audited accounts as a fundamental
Plainly, in the case of a complex company the size of UDeCOTT, it would
be impossible to properly direct its affairs without audited accounts.
Investments Division of the Ministry of Finance published its State
Enterprises Performance Monitoring Manual in January 2008. That manual
can be accessed at
at page 16, we are told
Publishing of Financial Statements by State Enterprises
Government has agreed that State Enterprises be required to publish in
at least one (1) major daily newspaper a summary of the audited
financial statements within four (4) months to the end of their
financial year and a summary of the unaudited half-yearly statements
within two (2) months of the mid-year date.
summary statements must be in accordance with the requirements of the
Securities Industry Act, 1995."
been repeatedly told that UDeCOTT is a top-performing State Enterprise,
with whose operations, this administration is well-pleased.
recent public declarations by the remaining UDeCOTT Directors only add
to the seriousness of this situation. We are left to speculate as to
the true depth of the issues existing at UDeCOTT and, more pertinently,
given the rising public concerns, whether there is any true appreciation
of that company’s financial situation.
We were told on 28th January
2009 by Mr. Hart, under oath, that those accounts would be published “…in
the next couple weeks…”. No accounts yet for 2007, none for 2008 or
repeatedly been told that UDeCOTT is an exemplary and highly-efficient
State Enterprise. In light of those assertions, coming from the Prime
Minister and his colleagues, we are entitled to be concerned as to their
lack of financial transparency.
The International Waterfront Project –
The largely-vacant International
Waterfront Complex was financed via a 15-year bond which, by our
calculations, would now be requiring a monthly payment of the order of
$14 million. That project is UDeCOTT’s flagship and, as such, it formed
a key part of the executive chairman’s report in their 2006 Annual
The phrase was: “…project financing
on competitive terms without the requirement of a government guarantee
or government letter of comfort...” In other words, we were being
assured that UDeCOTT was able to repay the lenders without assistance
from the State. In the absence of the usual State guarantees, how is
UDeCoTT paying the financiers for this project. More to the point, how
is the carrying cost of the largely vacant complex being shown in the
accounts? The terms of finance secured by UDeCoTT were very
competitive. The rental value of the complex, if it were occupied,
would barely cover the debt service. The plain meaning of that is that
it is now a liability in terms of market value, since its rent, even if
it were occupied, would be grossly insufficient to cover the real costs
as outlined above. All these issues are present across the entire
portfolio of projects, many of which are now completing, post-2006.
The accounting effect of all this will
be a significant decline in asset values and a simultaneous leap in
Jearlean John – The newest element in the UDeCOTT story is the
appointment of Ms. Jearlean John as Chairwoman of UDeCOTT. Ms. John is
also the recently-appointed head of the Housing Development Corporation.
John has made several statements as to her intentions to act with
transparency and accountability and we welcome those. A first step must
be to publish the missing UDeCOTT accounts. It cannot be credible or
professional to keep proclaiming this State Enterprise as the
top-performing one and yet continue to function without the benefit of
calling, as a matter of urgency, for the publication of UDeCOTT’s
audited accounts without any further delay. That is the only way that
we, the taxpaying public, can form a view as to the true financial
position at that most important State Enterprise –
How much does UDeCOTT owe?
When are those sums repayable, and on what terms?
Is the company insolvent?
How sustainable is the company’s operations, given the decline in
national tax revenues – noted in budget documents to be of the order of
$19.0Bn less in 2010, than in 2009 – and the general decline in the real
are all legitimate questions, which can only be answered by reference to
the audited accounts.
President, I must repeat that this Government is resolved to ensure the
highest standards of conduct, propriety and accountability in all areas
of the Governmental process. At the same time we must resolutely stand
firm against the growing propensity of some who keep screaming about
corruption without a scintilla of evidence in support thereof. The
people have entrusted us with a heavy and serious remit which we shall
discharge in a responsible manner in their interest.”
lack of an explanantion for non-publication of UDeCOTT’s accounts only
add to the concerns.
can be no delay, the UDeCOTT accounts must be published NOW.
Afra Raymond is a
Chartered Surveyor, Managing Director of Raymond & Pierre Limited and
President of the Institute of Surveyors of Trinidad & Tobago.
This is an edited version of a presentation made at
the Joint Consultative Council for the Construction Industry (JCC) press
conference on Tuesday 16th March 2010.