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Guyana Telephone & Telegraph Company Limited -
A slumbering giant (a review of the company's account)
Part One
Introduction
I sincerely regret the delay in the preparation and publication of
the promised column owing to the incredible difficulties in getting adequate
information on the Guyana Telephone & Telegraph Company, Ltd. (GT&T/company).
Hopes were raised when I learnt that the company was interested in the
planned publication and in being asked specific questions to issues relevant
to the article. Consequently, on
May 14, 2004 I wrote the Chief Executive Officer of the
company, Ms. Sonita Jagan seeking answers/ information on twelve issues
considered by me as relevant to any discussion on this behemoth. The company
has not acknowledged my letter or provided any of the requested information.
In italics, the questions asked/information requested are set out
and, for the benefit of readers, the reasons for asking and other comments.
1. Copies of the company's Annual Report including the Directors
Report for 2001-2003. As a business/financial column, financial information
is absolutely critical for any meaningful examination to be done while the
report provides some form of narrative report and discussion. We have learnt
that the company does not usually provide a Directors' Report which is a
statutory requirement.
2. Details of the scope of the agreement under which Atlantic
Tele-Network, Inc. (ATN), the parent company of GT&T, provided advisory
services to GT&T. The level and nature of these fees are subject to
significant controversy and are even the subject of an Order by the Public
Utilities Commission (PUC) and a matter before the Courts.
3. Amount of legal fees paid by the company for the years 2001-2003
separated between local payments and overseas payments. Even the most casual
review of the notes to the company's financial statements and documents
filed by the parent company to the Securities and Exchange Commission
suggests that a knowledge of law is a prerequisite for a proper appreciation
of the company's financial statements. The number of significant legal
matters disclosed in its financial statements, suggest that legal fees were
a substantial cost in the company's financial statements. These were however
not separately disclosed.
4. Details of advisory services provided by ATN to the company for
2001-2003 and payments made. This detailed information was requested to
enable us to comment on the reasonableness of the charge in any particular
year.
5. Confirmation that no other local or overseas costs were borne by
GT&T in respect of these services. This was requested to determine that
there was no duplication of payment for the same service or expense.
6. Particulars of remuneration and expenses paid (to) or on behalf
of the directors. The company disclosed remuneration for the directors in
its financial statements but did not disclose any related expenses.
7. The year when the company first paid dividends and the dividends
record of GT&T. Information was required to assess the overall return
provided to the shareholders of the company including the Government of
Guyana while the record would clarify any misperceptions that the company
had for several years not paid any dividends which would have necessitated
payments to Guyana.
8. The proportion of the income of ATN which GT&T accounts for.
Information would illustrate the significance of GT&T to the ATN Group, as
well as provide some background against which to test the reasonableness of
some of the charges.
9. Whether the company is willing to negotiate for Cable &
Wireless's purchase of the company. This is a matter of public interest.
10. Would the press/other stakeholders be admitted to the Annual
General Meeting of the company? To assess the company's commitment to
transparency and procedures.
11. The progress of the company's plans in respect of its Global
System for Mobile Communication (GSM) Network and the potential launch date.
Perhaps in response to competition in the market for cellular services, the
company has been advertising the launching of GSM services without any clear
indication of time.
12. Details of the expansion plan announced earlier this year. Both
the scope (geographical coverage) and the depth (technology) of enhancement
of telecommunications are crucial to the economic and social development of
Guyana.
The failure of the company to contribute to any review of its
operations and performance speaks volumes of the company's commitment to
transparency and openness. After considerable efforts, I was able to secure
a copy of the company's 2002 financial statements audited by Deloitte &
Touche, and more easily the Form 10-K Annual Report of ATN for the year
ended
December 31, 2003 and Form 10-Q, the quarterly report for
quarter ended
March 31,
2004. While the Form 10-K suggests that significant reliance can be placed
on it for an analysis of GT&T's financial performance and conditions, it
cannot replace the audited financial statements of GT&T for the year 2003.
On specific matters of compliance with IAS's and the Companies Act 1991,
this article is forced to make reference to the 2002 audited financial
statements.
The Giant
GT&T is a goliath. It has income equivalent to over 30% of the tax
revenues of the country, and an asset base of more than one-third that of
Guysuco, the country's largest entity. GT&T is a company operating under the
Companies Act, 1991. It must therefore file annual returns with the
Registrar of Companies. It is a regulated utility and would therefore
provide information to the PUC, all of which become public documents.
Although legally a private company, it is partly owned - 20% - by the people
of
Guyana through the instrument of the State. The Government has the right to
appoint two directors to the company's Board. The Privatisation Unit is
responsible for overseeing the state's interest in the company.
But GT&T is also an extremely lucky company. Incredibly for the
country and unfortunately for Business Page, the Office of the Registrar is
temporarily closed to the public and it is not possible to access any annual
returns including financial statements required to be filed by the company.
In any case, the Stabroek News earlier this year reported that there had
been no filings by the company. When I sought to access information on the
company at the PUC, I learnt that both the Chairman and the Secretary were
out of the country on official business and was told that the files and
records held by the PUC were 'locked away'. The Government has unbelievably
not named any directors to the Board for some time. And the Privatization
Unit could offer no explanations, information or assistance.
Cash-wrapped, honey-coated deal.
Atlantic Tele-Network Inc., the parent company of GT&T has had a
charmed existence in
Guyana and its
shareholders have seen massive returns for their investment. Their luck
began almost before they opened for business in Guyana. Having come in when
the country was badly in need of investments, it extracted from the Hoyte
Administration a cash-wrapped, honey-coated deal. Had the negotiators for
the Government looked at the balance sheet, they would have realizsed that
they were actually selling hundreds of millions of dollars which the new
owners immediately took to the bank and converted into US Dollars, with
immediate and considerable impact on the exchange rate.
Ironically, one of the consequences of the purchase of such a
significant sum of foreign exchange was a significant devaluation of the
Guyana
dollar since used by the company as legal justification for its delay in
completing the Expansion Plan required by the Agreement with the Government.
The current position is that if the PUC were to find that GT&T was not
excused from fulfilling the terms of the Plan by February 1995, it could
impose on GT&T monetary penalties, cancellation of its license, or other
action that could have a material adverse effect on the Company's business.
However, the PUC last held hearings in this matter in 1998 and while
consumers no doubt would like to see progress in this matter, the company
must be hoping that the inaction of the PUC indicates that it would not
pursue the matter.
Exclusive franchise
Readers might recall that under the License issued on December 19,
1990, GT&T was granted an exclusive franchise to provide in Guyana for a
period of twenty years (renewable for an additional 20 years at the option
of GT&T!), public telephone, radio telephone (except private radio telephone
systems which do not interconnect with GT&T's network) and pay station
telephone services and national and international voice and data
transmission, sale of advertising in any directories of telephone
subscribers and switched or non-switched private line service. In addition,
GT&T was granted a non-exclusive license to provide, for a period of 20
years (renewable for an additional 20 years at the option of GT&T), cellular
radio telephone service.
In July 2002 an individual sued the Attorney General of Guyana in
the Guyana courts asking, among other things, for a declaration that the
section of the Company's 1990 contract with the Government of Guyana
granting to GT&T an exclusive right to operate a telecommunications system
in Guyana was null and void as contrary to law and to the Constitution of
Guyana. GT&T has joined the suit to contest these claims and this proceeding
remains pending.
GT&T is entitled to a minimum return of 15% per annum on its
capital dedicated to public use ("rate base"). In the absence of mutual
agreement, which has so far not taken place, rates are calculated on the
basis of GT&T's entire property, plant and equipment pursuant to a rate of
return methodology consistent with the practices and procedures of the
United States Federal Communications Commission.
The Advisory Services Agreement signed in 1991 provided that GT&T
is to pay ATN an annual fee for management services of six percent of its
gross revenues. Total fees paid in the last three years were $2.52Bln.,
representing 16% of total operating profits over the same period. When this
amount is added to the dividends paid, the total comes up to $10Bn.
Under the Agreement, the repatriation of dividends and the payment
of interest on GT&T debt denominated in foreign currency are not subject to
withholding tax, while fees payable for management services are payable in
foreign currency and their repatriation to the US is not subject to currency
restrictions or withholding or other taxes. Withholding taxes foregone on
the advisory fees and dividends alone over the past three years, amount to
close to $2Bn.
(The remaining parts of this review will
appear in subsequent issues of Business Page.)
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