Property Matters – In-Dependence?

 

“Local contractors and consultants who compete with foreign companies should be provided with the same or equivalent benefits as enjoyed by those foreign companies and should be protected from unfair competition through matters such as soft loans.”
—The Uff Report‘s 43rd recommendation, on the benefits awarded to foreign contractors.

 

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This article will delve into the large-scale program for 5,000 new apartments to be built for HDC by China Gezhouba Group International Engineering Co Ltd (CGGC). I am writing this on the night before our 57th anniversary of Independence and my reflections are bittersweet, dwelling on those old discussions about how, for many countries in the Global South, Independence was only symbolised as a spectacle. We used to call it Flag and Anthem Independence, all form with little substance.

As the fight for transparency in our Public Business is waged against those officials who are hostile to the truth, my mind runs on the widespread recent discussion on the proper performance of the National Anthem; the re-emergence of the colonial offense of Sedition; the bizarre, backward, dress-codes to enter public facilities (no sleeveless, no shorts, no cap or hat, no this and none of that) and so much else in the same vein. At the same time as the endless discussions on these issues, we have a cultivated, enforced silence on the huge deals and arrangements within which our Public Assets are bargained.

I wrote on this HDC/CGGC deal on 29th May 2019 in this space and laid-out a case to justify the non-tendering of that contract, given the fact that private capital was at risk and the limited amounts of Public Money to be invested. Apart from my objections to the non-affordability of the proposed new homes, the arrangement was broadly supported. I closed that article with criticism of the JCC, which I accused of having become moribund.

I have to now recognise the leadership provided by the new JCC President, Eng Fazir Khan, under whose watch a Freedom of Information request was made to HDC for the details of that huge contract. I also have to, once again, thank the exemplary leaders at HDC who provided the requested details within the 30-day time-limit. Those details were the subject of an article in last weeks’ edition of Express Business – ‘HDC’s sweetheart deal with Chinese contractor’.

This article will put that description of the main terms into some broader context, moving from the Thing to the Meaning of the Thing.

 

Main terms of HDC/CGGC arrangement
‘5,000 Apartment Unit Affordable (sic) Housing Project’

Item Detail Comment
Overall number of new homes 5,000 apartments Given that HDC has built an average of 850 units annually in the 16 years of the current 2002 Housing Policy, that is about 6 years’ worth of construction.
First phase 439 new apartments – 204 for South Quay in POS and 235 for Lady Hailes Avenue in San Fernando. Proposed to be done in two years.
Cost of first phase $71,739,411 USD
($485.7M TTD)
Average cost per unit is $1.1M TTD, which does not include the land. That equates to $1,300 per sq. ft., which is about 30% more than the $900 per sq. ft. rate achievable by local contractors.
Projected cost of overall program $5.5 Billion TTD HDC is to use its best efforts to secure 60% of the contract sum in USD.
Taxes Tax exemption from VAT and Corporate Tax (sic). Even if that exemption is not granted, HDC will still refund all those taxes paid. My information is that this is likely rooted in a Taxation Treaty between T&T and the PRC.
Local Content At 2.7 (pg. 10) CGGC “…pledges to use as many workers and materials as possible for the Project… Local content in terms of materials is listed at pg. 109 as comprising basic materials such as cement, sand, gravel, timber paint, glass etc.
Local Labour At 2.2 (d) on pg. 19, HDC “…shall, using its best efforts, provide assistance in obtaining…visas, resident permits, working permits for 400 of the Contractor’s Personnel, 200 extra shall be granted if necessary… At 2.1 ‘Project Characteristics’ on pg 54 “…labour allocation shall be dominated by skilful workers come from China and other countries, supplemented by local workers. The ratio of foreign workers to local workers shall be around 1:2…
Housing sites for workers Two 2 Hectare (about 5 acres) sites to be provided. Those to be with security, including 24-hour police presence.
Sales of new homes HDC is to fully guarantee all the sums due to CGGC. That removes any risk, which had been assumed as the key element in this project. This is evidently not a PPP and HDC is responsible for finding qualified buyers for these new homes, with no such risk or delay attaching to CGGC.

So, my initial assumption about this CGGC contract was entirely incorrect, since none of the usual PPP risks leave HDC. The essential safeguard of competitive tendering appears to have been abandoned for no good reason, with high construction cost as the stated and predictable outcome. No risk-transfer is evident, given the payment guarantee.

Given the provisions for up to 600 work permits, it is hard to see the scope for local employment.

Finally, the Framework Agreement, which sets a target of 5,000 units will extend several years into the future. So this is a non-competitive arrangement to spend an estimated $5.5 Billion TTD of Public Money, beyond the reach of the Office of Procurement Regulation. At an average construction cost of $1.1M TTD for each of those new homes, the qualifying income is two times the national average, so it is impossible to describe those as being ‘affordable’. Hence my sic.

Despite the pretence at party political rivalry, I am not expecting any real objections or queries from the Opposition

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7 thoughts on “Property Matters – In-Dependence?

  1. “So, my initial assumption about this CGGC contract was entirely incorrect, since none of the usual PPP risks leave HDC” how is this so? (1) Construction Risks -Estimated Cost vs. Real Project Cost- Can CGGC adjust their bid proposal price? If not, then they are absorbing this risk; – Project Completion Time – There is a timeframe for delivery by CGGC;-Standards of Construction – Is there anything in the contract that allows them to vary the quality of their final product? (2) Operating Risks -Operating risks are related to operations and maintenance cost of infrastructure of project. – this is not VAT or Cooperate tax exempt which, I assume, their bid was based on;(3)Design Risks – This is internal to CGGC; they are responsible for the designs; (4)Market and Revenue Risks – here HDC absorbs the risks; (5)Legal Risks – HDC is absorbing any risk here; (6)Financial Risks -Exchange Rate Risk; is there any adjustment made to allow for fluctuation in exchange rate? If not, the risk is take by CGGC -Interest Rate Risk-this is carried by CGGC; (7)Political Risks-How is this taken by HDC?(8)Force Majeure Risks – is there a distribution of this risk, or is all handled by HDC?(9)Environment Risks -is there anything that waives compliance with our Environmental Regulations? if not, CGGC is taking any risk here – As far as the final rate is concerned – I believe the 30% increase in rate is adequate considering it incorporates, design and financing to completion. Its like comparing apples and oranges. Can you send me a link to the complete contract.

    1. Thanks, Kenrick – I haven’t seen you in this space before, you usually comment on FB…the PPP risks to which I refer are the financial, exchange rate and interest rate risks…the contract actually does not pass those risks to CGGC…in my opinion, the other risks are not particular to PPP – I will insert a link to the full 290-page document I analysed…thanks again

  2. This is an EPC contract agreement; they are not financing it – the Terms are as you find in most contracts of this nature – The Contractor has design liability, but not financial liability – am I missing something? Where is the Employer’s requirements? Was the technical proposal reviewed? and by whom? Who is the appointed engineer- this is a contract not a bid, he should be named. We should be careful with China, the proposal specifications should be included.

  3. The Emerg-en-see here is the differences in size and economic power of global contractors to local ones that we consciously ignore. The power of the CGGC allows it to take many risks that few of its competitors can consider. If it defaults, its legal adjournment pettifoggers and quack counselors can marinate legal claims for decades. Its wealth exceeds the GDP of many of its clients and like Sandals, it can ensure that its losses are insured by hook or by crook. Afra’s ratio of fiscal waste here (66.6%) seems to be a minimum that accrues to all corporations’ contracts regardless of the product. If we were to educate our economists to undo the Ford Corporation, Steve Jobs and Elon Musk’s models and apply a Vijay Prashad or Afra Raymond-Sandals model, the balance will change significantly, but we are locked into J. M. Keynes, Adam Smith, Milton Friedman and lately Alan Greenspan’s theories, completely obliterating Henry George, Max B. Ifill, Dennis Pantin and Lloyd Best’s sage recommendations among many others. Our dependence is much larger than our debt. I guess that we are no longer looking.

  4. …………hmmmm …random thoughts …..shades of Sandals??……predatory Chinese global agenda….. NAPA and the poor standards of construction by that Chinese entity which would have seriously compromised the integrity of the building and endangered life and limb.Thank you Afra,but when do you sleep?

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