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PETRO CARIBE (SVG) LIMITED: FACTS NOT FICTION

PETRO CARIBE (SVG) LIMITED: FACTS NOT FICTION

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by Dr The Hon Ralph E Gonsalves Prime Minister

THE ISSUES

Despite the immense demonstrable benefit of the Petro Caribe arrangement to St Vincent and the Grenadines, there are persons among us who, for partisan political and/or ideological reasons,continue to denounce the involvement of our country in this generous initiative of the Bolivarian Republic of Venezuela.

The Opposition New Democratic Party (NDP) has been at the forefront, locally, of the campaign against Petro Caribe. The NDP has attacked it on multiple fronts by way of misinformation, a mountain of falsehoods, and political/ideological prejudices. The NDP has wrongly overstated St Vincent and the Grenadines’ indebtedness to Petro Caribe by over $850 million; they have grossly misrepresented the nature of the Petro Caribe arrangement itself; the NDP leadership has repeatedly taken the side of right-wing and imperialist forces in certain powerful countries in our hemisphere against Petro Caribe and Venezuela’s generosity; the NDP leaders have, without one iota of evidence, accused unnamed persons of corruption in the functioning of Petro Caribe; and they have questioned the expenditure of Petro Caribe funds on any array of worthy developmental projects of benefit to the people of St Vincent and the Grenadines. Now, the NDP leadership has demagogically continued its attack on Petro Caribe under the guise of the government’s alleged lack of accountability ___ a spurious allegation.

This allegation shows that the NDP has absolutely no shame. The history of the NDP’s performance in office is one of a profound lack of transparency, public accountability, and good governance. On the other hand, the ULP government has been commended by the electorate of St Vincent and the Grenadines, and by international agencies and governments globally, for its practical commitment to the deepening and broadening of transparency, public accountability, and good governance. Upfront, let me say that under the ULP government no statutory body or state-owned company has ever suffered the ignominy of a “qualified” audit report as for example occurred in 1998, 1999, and 2000 under the NDP government in respect of the “crown jewel”, the state-owned National Commercial Bank.
 

I assert, further, that in opposition the NDP has shown no serious commitment to good governance and public accountability. Occasionally, there are demagogic utterances by them for the sake of partisan, political point-scoring. Evidence abounds to support this assertion but a detailed discussion of this is for another time.

Today, my purpose is to explain yet again what Petro Caribe is about and to address the relevant, connected public policy issues. In the process, the people of St Vincent and the Grenadines would be able to make up their minds about the folly and falsity of the NDP position of Petro Caribe.

WHAT IS PETRO CARIBE ABOUT?

The Petro Caribe initiative of the Government of the Bolivarian Republic of Venezuela was unveiled by the late President Hugo Chavez, although similar ideas and programmes were floated by preceding Venezuelan Presidents without much follow-up. Chavez made the initiative actually happen.

Under the Petro Caribe initiative, petroleum products from Venezuela are sold to a number of Caribbean countries, including St. Vincent and the Grenadines, at prevailing international market prices but by way of a concessionary financing arrangement based on a sliding-scale formula. Essentially, the purchaser (St Vincent and the Grenadines) pays the seller (the state-owned Petroleos de Venezuela – PDV) one-half (50 per cent) of the cost of the petroleum products within 90 days of delivery and retains as a loan the other one-half (50-per cent) at a very low interest rate (one per cent) over a very long period (25 years). The actual percentage changes depending upon the current sale price of the petroleum products, but the basic arrangement is as I have outlined. The details are available from the Energy Cooperation Agreement signed at Puerto la Cruz, Venezuela, on June 29, 2005, which was laid in Parliament and is available on the internet.

This arrangement is quite beneficial to countries like St Vincent and the Grenadines which participate in the Petro Caribe arrangement. In effect, the Government of St. Vincent and the Grenadines receives soft-loans on an on-going basis to carry out essential public policies and programmes. Without funds from the Petro Caribe initiative, St. Vincent and the Grenadines would be required to borrow for public expenditure these same monies at burdensome higher rates of interest over a shorter, and far more problematic, period of time. It is for this simple reason that the opposition NDP position of “unsigning Petro Caribe” makes absolutely no sense; they seem to prefer selling our citizenship and passports to disreputable foreigners, although some Caribbean countries do both.

In order to give practical effect to the operationalising of the Petro Caribe arrangement in St Vincent and the Grenadines, two companies were set up: (i) PDV (SVG) Limited in which Venezuela owns 51 percent and St Vincent and the Grenadines owns 49 percent although St Vincent and the Grenadines invested no money in it; and (ii) Petro Caribe (SVG) Limited, a wholly-owned state company of St. Vincent and the Grenadines, registered under the Companies Act. PDV (SVG) Limited is the conduit for selling the petroleum products on behalf of PDV (Venezuela) to St. Vincent and the Grenadines. Petro Caribe (SVG) Limited administers the financing arrangement under the Petro Caribe initiative and repays the ongoing long-term loan to PDV in Venezuela

It is to be noted that some Caribbean countries have been purchasing all petroleum products (diesel, gasoline, kerosene, and LPG) only or mainly under Petro Caribe. In St Vincent and the Grenadines, for safety of supply and competitive reasons, the government agreed to purchase diesel only for the VINLEC power plant at Lowmans (Leeward) and LPG (cooking gas) for about 20 per cent of the local market; no gasoline comes through Petro Caribe. Thus Rubis and Sol import diesel and gasoline; SOL imports some diesel through Petro Caribe; and Rubis is the major supplier of LPG. In fact, VINLEC puts out its supply for diesel for its Cane Hall Power Plant for competitive tender.

The joint venture company PDV (SVG) Limited, has constructed a modern Fuel Storage Plant at Lowmans. St Vincent and the Grenadines has put in the land; and the Venezuelans has invested some US $30 million. This plant is to become fully operational shortly; at that time more petroleum products would be purchased from Venezuela, and stored. We own 49 per cent of it, even though our investment there has been comparatively small.

CURRENT INDEBTEDESS UNDER PETRO CARIBE

As of May 15, 2017, the indebtedness of St Vincent and the Grenadines under the Petro Caribe arrangement amounted to $190.35 million approximately (the actual sum is one hundred and ninety million, three hundred and fifty thousand, seven hundred and four dollars, and eighty one cents: (190,350,704.81). These monies are broken down as: Loans to Government, $108.38 million; loans of $81.96 million to specified government entities (and a small government-secured loan for an intra-island sea transport company), of which approximately $74 million is to IADC for airport construction at Argyle.

It is important to note that not one cent has been paid as yet from the Consolidated Fund (the Treasury) to repay the Petro Caribe debt. All the repayments have been made thus far from the annual flows of the Petro Caribe financing itself. So, if for example, $25 million comes to the government annually for long-term financing (“the other fifty percent”), the government finances the very debt itself from the long-term flows and utilizes the remainder for developmental projects.

THE REGIME OF ACCOUNTABILITY

There are four regimes of public accountability for Petro Caribe (SVG) Limited: (1) Internal accountability mechanisms as required by the Companies Act and any modern functioning company; (2) Submission of audited financial statements to the Registrar of Companies at CIPO under the Companies Act; (3) Specific accountability under the

Petro Caribe (Special Purpose) Fund Act, No. 13 of 2016; and (4) Seven Mechanisms of Parliamentary Accountability and Oversight, including through relevant reportage by the Director of Audit, and the Public Accounts Committee. Let us look at each in turn.
 

Internally, monthly accounts in Petro Caribe (SVG) Limited are prepared through the professional leadership of a trained accountant and the Manager/CEO of the company, an experienced and sound senior public servant, Ms Fay Ferguson, who has been seconded to the company. The company’s activities are directed and overseen by a Board of qualified and experienced Vincentians, including several permanent secretaries, under the Chairmanship of Sir Vincent Beache. There are two signatories for cheques issued by Petro Caribe (SVG) Limited. Currently, those signatories are Sir Vincent and the Accountant General. All this constitutes the first regime of accountability.

Since its inception, until recently, the company’s Auditors have been the local branch of the international firm, KPMG. The Supervising Auditor has been Mr Reuben John. Indeed, the recent reorganization of the auditing firms, locally, ensures the continuation of Mr John’s role though within the local branch of another international auditing firm, BDO. The auditors produce the annual audited statements of accounts for the company which is responsible for filing them at the Registrar of Companies at CIPO. I have been advised that the annual audited statements up to, and including for, 2010 have been so filed. The Auditors have advised, too, that the draft annual audited statements up to 2015 have been prepared and are currently being finalized for submission and filing. The annual audited financial statements are the second regime of accountability.

The third regime of accountability exists under the Petro Caribe (Special Purpose) Fund Act of 2016. This Act established the Fund as a public fund with the purpose of providing necessary resources to advance the social and economic programmes of the public and private sectors. The Act provides that all monies belonging to the Fund shall be kept in such bank accounts maintained by the Petro Caribe (SVG) Limited and specifies the procedure and modality for withdrawals of these monies. Section 12 (3) of the Act provides for the auditing of the Fund by the Director of Audit or by an auditor duly appointed by her/him. From October 2016, when the Act came into force, the annual audited statements of accounts of the Fund are to be tabled in the House of Assembly. Meanwhile, of course, the company’s accounts are required to be filed with the Registrar of Companies at CIPO.

The fourth regime of public accountability takes place through parliamentary oversight in seven ways as follows:

(i) Through the presentation of, and debating on, the Estimates and Appropriation Bills annually in maters touching and concerning Petro Caribe and its financing of particular government programmes.

(ii) The itemization in the Appendix to the annual Estimates of the Disbursed Outstanding Debt in relation to Petro Caribe; that is, the government’s indebtedness to PDV. In Appendix I to the 2017 Estimates at page 667 there is the sum of $185.2 million, as the Disbursed Outstanding Debt as at September 30, 2016, owing to PDV.

(iii) The oversight through the Petro Caribe (Special Purpose) Fund Act, No. 13 of 2016.

(iv) Through Prime Ministerial Statements on Petro Caribe, over the years, detailing its operation, including government’s indebtedness.

(v) The answering of numerous question posed to the Prime Minister by members of the parliamentary opposition about Petro Caribe.

(vi) The “Laying on the table” of the Reports of the Director of Audit in which the overall accounts of the government are addressed.

(vii) Through the workings of the Public Accounts Committee (PAC). The Leader of the Opposition has been very delinquent in this regard in his capacity as Chairman of the PAC.

PUBLIC DEBT THROUGH PETRO CARIBE

Over the years I have provided details to Parliament of the sums owed by the government through Petro Caribe. As I pointed out earlier in this article, as at May 15, 2017, the public indebtedness under Petro Caribe amounted to approximately $190.35 million. The largest single loan allocation from Petro Caribe has been to the IADC for the construction of the Argyle International Airport in the sum of $73.99 million. Other major beneficiaries among the State enterprises have been the Farmers Support Company (for soft-loan on-lending to farmers), BRAGSA, and HLDC.

The main projects under the central government which have been financed by monies from Petro Caribe have been: Border Security Management; E-Passport System; Road Repair Programme; Farmers’ Support Programme; Housing Rehabilitation (Natural Disasters and Generally); Provision of Housing Materials (arising from Natural Disasters and Generally); Belle Isle Correctional Facility (Female Wing); LIAT Airline Re-fleeting Programme; Poverty Reduction Programme; Black Sigatoka Disease; Purchase of Dee’s Services Building and its Retro-fitting (for Electoral Office and Immigration Office); the SET Programme (for employment of college and university graduates); the SVG Tourism Authority (for Tourism Promotion); Purchase of Herboprot P (medication for persons with diabetic ulcers); Rehabilitation of Temporary Mental Health Centre at Orange Hill, and Accountant General (Budgetary Support).

There is a paper trail for all items of expenditure under Petro Caribe to ensure best practices of transparency and accountability in the internal accounting procedures and the annual audited accounts.

FRIDAY’S WRONG-HEADEDNESS, FALSEHOODS AND MISCONCEPTIONS

In a recent press conference (May 17, 2017, the Leader of the Opposition, Lorraine Godwin Friday, again displayed his profound misunderstanding of the nature of the four regimes of public accountability for a wholly-owned state company, such as Petro Caribe (SVG)) Limited, which is registered under the Companies Act.
 
First of all, he ignores entirely the internal requisites of accountability mandated by the Companies Act and reflective in the functioning of a modern company. Secondly, his dismissiveness of the regime of accountability through the filing of annual audited financial statements at CIPO, is plain ignorance.
 

Friday’s condition of unknowing and stubborn wrong-headedness on this later issue are evident from the following statement by him at is said press conference:

“Anyone who has looked into this matter will know by now that having financial statements filed at the Commerce and Intellectual Property Office (CIPO), is completely immaterial to the matter of accountability for public funds.

“—–The Registrar at CIPO has no role in accountability—-. CIPO is not relevant to that of accountability, plain and simple.”

The Companies Act [Chapter 143 of the Laws of St Vincent and the Grenadines] makes provisions for the filing of annual audited financial statements. These statements are prepared by independent Auditors from the financial/accounting records (including the paper trail) of the company; the audited accounts are done in accordance with international auditing standards and the law of the land. The internal accounting records and the audited financial statements are the material and relevant foundation of accountability, transparency, and sound corporate governance. Without them there can be no full or proper accountability. These international auditing standards are precisely what the Director of Audit applies in respect of the central government accounts; the Director of Audit does not invent new standards of accounting. It is amazing that Lorraine Friday misses this basic point. And the Companies Act makes clear, additionally, that the Registrar of Companies is responsible for the administration of the Act.
 

To be sure, the Director of Audit under the Audit Act [Chapter 245 of the Laws of St. Vincent and the Grenadines] may examine and audit the accounts of a recipient of Government money in relation to Government money received [Section 18], and he/she may inquire into and report upon the financial affairs of a company wholly or partially-owned by the State if requested to do so by the Minister or the House of Assembly, and if he/she (the Director of Audit) is of the opinion that it does not interfere with her/his primary responsibilities [Section 15]. And, of course, under Section 19 the Director of Audit is entitled to access information from a government owned or controlled company in order to carry out her/his responsibilities.

But what are the primary responsibilities of the Director of Audit? What are her/his mandatory duties? They are spelt out specifically in the Constitution, the Audit Act and other statutes. Under Section 75 (2) the Director of Audit shall:

“(a) satisfy himself that all monies that have been appropriated by Parliament and disbursed have been applied to the purposes to which they were so appropriated and that the expenditure conforms to the authority that governs it; and

“(b) at least once in every year audit and report on the public accounts of St. Vincent and the Grenadines, the accounts of all officers and authorities of the Government, the accounts of all courts of law in St. Vincent and the Grenadines (including any accounts by the Supreme Court maintained in St. Vincent and the Grenadines), the accounts of every Commission established by this Constitution and accounts of the Clerk of the House.”

 
Some other statute laws prescribed what the Director of Audit shall do. These are also part of her/his primary responsibilities. The Audit Act, for example, prescribes in Section 13 thereof, that the Director of Audit shall audit the accounts of each statutory body and to report as required by the Act. There is no mandatory requirement for the Director of Audit to audit the accounts of government-owned companies, although she has certain discretionary options available. Indeed, it would be impossible, physically, for the Director of Audit to audit “the central government accounts” (as per Section 75(2)(b) of the Constitution), the accounts of all statutory bodies, accounts of all government-owned companies, and accounts of all companies which are the recipients of government money. In fact, Section 13 of the Audit Act is framed in such a way for the Director of Audit to select an independent auditor to audit the accounts of statutory bodies but under the supervision/control of the Director of Audit. This is so, mandatorily, in relation to the Petro Caribe Fund under the 2016 Petro Caribe (Special Purpose) Fund Act. At the same time the audited financial statements of the Petro Caribe (SVG) Limited registered under the Companies Act in 2005 must be filed with the Registrar of Companies.

Clearly the primary responsibilities of the Director of Audit are those framed in mandatory terms (“shall”) and not those framed in discretionary terms (“may”).

Lorraine Friday insists, quite wrongly, that there is a “moral and ethical responsibility” to lay the annual audited financial statements of Petro Caribe (SVG) Limited and IADC in Parliament. There is no moral, ethical or political responsibility to do so since the audited financial statements are available to all and sundry, including Parliamentarians, from CIPO. The non-laying of the audited financial statements in Parliament is in no way subversive of Parliament’s responsibility in at least the seven ways indicated above, to hold the government to account on these matters. Indeed, the internal accounting, auditing, and reportage regimes under the Companies Act are more stringent than those for statutory bodies.

There is no magic in laying accounts in Parliament. For instance, the audited accounts of statutory bodies are simply laid in the House of Assembly without any debate whatsoever.

Friday’s initial press conference on April 19, 2017, on accountability and the IADC, contained a mountain of falsehoods and distortions which still underlay his utterances on this subject. He is yet to admit his errors; indeed, he doubles-down on them, oblivious to the truth. So, he seeks to throw metaphoric smoke in people’s eyes with dissembling twists and turns. Indeed, his contradictions become glaring and he confuses himself.

For, example, he demands audited financial statements for government-owned companies, and when they are filed at the Companies Registry at CIPO, he affirms erroneously that their filing is immaterial and irrelevant to accountability. Similarly, he declares that there are no audited accounts filed at CIPO for Petro Caribe but when they are filed he alleges a possible “cover-up”. “Cover-up” of what? Is he accusing Fay Ferguson of Petro Caribe (SVG) Limited and the experienced, esteemed independent auditor, Reuben John of KPMG, and then BDO, of being part of a conspiracy to “cover-up”? In his wild swinging, hither and thither, Lorraine Friday now seems quite wrongly to be accusing the Director of Audit, an exemplary public servant, of dereliction of duty. Who would he pick on next? What about his dereliction of duty, as Leader of the Opposition, in not taking the time to understand the issues at hand and in not calling a meeting of the Public Accounts Committee?

NDP’S FOLLY ON PETROCARIBE

The Opposition NDP has been against the Petro Caribe Initiative from the very beginning. They opposed it on ideological grounds because of their opposition to the Bolivarian ideas of the Venezuelan government. They opposed it, too, because it provided the ULP Government with very low-cost, long-term loan funds to assist in building the Argyle International Airport which they opposed, and in providing materials for the poor, employment under the SET Programme for university and college graduates, and other popular programmes which they, the NDP, feared.

 
Then, the Opposition attacked Petro Caribe on its contribution to the public debt by scaremongering in 2013, and subsequently, that the Government owed one billion dollars under the Petro Caribe initiative. Even after my effective rebuttal of this wholly bogus figure, they continued using it until the IMF brought them to their senses with the correct number, the truthful number which the Government has been telling them all along.

Then when the world oil prices fell, the Opposition NDP was in glee, not so much because of a benefit to consumers locally, but because of the reduction of oil revenues for Venezuela. The NDP predicted in 2014, and in the December 2015 general election campaign, that Petro Caribe will be dead in weeks, if not days. Venezuela’s reassurance of Petro Caribe’s continuance despite its challenges was laughed at by the NDP. Indeed, Venezuela itself offered debt-relief on Petro Caribe debt to the member-countries of the OECS, a subject on which discussions are continuing and which was incorporated into the Petro Caribe (Special Purpose) Fund Act of 2016.

Friday’s attack on Petro Caribe continues but by way of the proxy issue of accountability on which he has again lost both the argument and the opinion. It is, too, a continuation of the attacks on the Argyle International Airport which was substantially financed by Petro Caribe, the ALBA Bank, and Venezuela.

FINAL COMMENT

I reiterate that it is my Government that has lifted to a higher level, much higher than any other Government in St Vincent and the Grenadines, in practical terms (legal, institutional, and operational), the matters of public accountability, transparency, and good governance.

The audited financial statements are available at CIPO up to, and including for, 2010. I have been advised by the Manager/CEO of Petro Caribe (SVG) Limited and the independent auditors that the audited financial statements are in daft for the years up to, and including, 2015, and will be finalized and filed at CIPO shortly. Audited financial statements of the company for 2016 and beyond will be filed at CIPO, and also laid in the House under the 2016 Act in respect of the Petro Caribe Fund.

Currently monies from Petro Caribe continue to assist the development of our country and are managed under the terms of the Companies Act and the 2016 Petro Caribe (Special Purpose) Fund Act. Meanwhile, too, my government continues to service the Petro Caribe debt through the on-going flows from the annual Petro Caribe arrangement. At the same time, also, in conjunction with other OECS member-states of Petro Caribe we continue to pursue debt relief on this already very generous financing agreement.

LAST NEWS