Mon | Dec 6, 2021

OCG blasts Vaz for 'influencing' sale of St Ann property by UDC

Published:Tuesday | April 30, 2019 | 4:05 PM
Minister without Portfolio in the Ministry of Economic Growth and Job Creation, Daryl Vaz -File photo

Jerome Reynolds, Assistant Editor - Online  

An investigation by the Office of the Contractor General (OCG) has singled out Minister without Portfolio in the Ministry of Economic Growth and Job Creation, Daryl Vaz, for strong criticism in relation to the divestment of the Rooms on the Beach Hotel and beach lands in St Ann accusing him of undue influence.

The hotel was sold by Montego Beach Limited to Puerto Caribe Properties Limited as well as the beach lands were sold by the Urban Development Corporation (UDC) to the Puerto Caribe Properties Limited in 2017.

Montego Beach Limited is a wholly owned subsidiary of National Hotel and Properties Limited, which is a wholly owned subsidiary of the UDC.

The OCG report, which was tabled in Parliament this afternoon, states that a sale price of US $9.3m was initially put forward by the UDC however the UDC Board approved and divested the properties at a sale price of US$7.2m.

“The lands were sold below market price and the Government did not optimise income from the divestment process,” the report read.

According to the OCG, the UDC was unable to negotiate freely and from a position of ‘strength’ with Puerto Caribe Properties Limited because of the direct involvement of the Vaz, and other state agencies.

The report notes that Vaz denied the claim.

“Notwithstanding, the OCG notes with reference to the 486th Meeting Minutes of the Board of Directors of the UDC, that the Honourable Minister Daryl Vaz advised the meeting that should there be any matter needed to be dealt with urgently that it should be brought to his attention and he would have it dealt with, which points to how pivotal the Minister’s role was to the divestment process,” said the report.

“It is the considered opinion of the OCG that the GOJ applied an excessive and generous discount towards the Beach lands (Mean Value of US$3.5M) to Puerto Caribe Properties Limited as no market value consideration was placed on the land when it was included in the Sales Agreement,” it added.

According to the report, the Ministry, through the negotiation process, surrendered its position of strength, that is, to negotiate a price close to market value but instead did completely the opposite in the name of attracting an investment.

This, the OCG argued, had the effect of depriving the country of revenue and the integrity of the revenue was not preserved.

The UDC was also criticised for its role in the divestment.

“The UDC must be singled out for failing to stand its ground by way of the recommendation of the sale price (US$9.3M) which was also excessively discounted, and in fact revising their recommendation to US$7.2M, the resultant effect of the Beach land being sold for very little consideration or value, notwithstanding that the mean value of the Beach land was US$3.5M.”

Here are the main findings

a) The OCG is of the considered opinion that the valuation of the lands/properties which have been sold to Puerto Caribe Properties Limited/ Moon Palace Jamaica Grande Hotel was in keeping with the established procedures for the divestment of government-owned lands. However, despite this adherence to the process for the purposes of securing a valuation, there remain concerns regarding the overall divestment process and the agreed upon sale price.

b) It is accepted that the divestment of the referenced lands have been held out to be a strategic investment opportunity, and as such, would be subject to certain exceptions which are detailed in the GOJ Land Divestment Manual. This categorisation of the referenced transaction as such is not in dispute.

PROPERTIES SOLD

c) The properties which were sold to Puerto Caribe Properties Ltd were owned by the Urban Development Corporation, a body corporate and a public body, which, by reason of assignment is an Agency of the Ministry of Economic Growth and Job Creation, its parent Ministry.

d) The valuation for the Rooms on the Beach property ranged between US$5,500,000 and US$6,600.000; the valuation of the Garden, Beach and landscape and access area were between US$2,930,200 and US$3,250,000, while the Moon Palace beach lands were valued between US$3,400,000 and US$3,700,000. The referenced lands were, therefore, cumulatively valued between US$11,830,200.00 and US$13,550,000.00, at the lowest and highest ends, respectively. 

e) The sale price, negotiated for all the referenced properties was US$7.2 Million or approximately US$4.6 Million below the lowest given cumulative valuation figures and approximately US$6.3 Million below the highest given cumulative valuation figures. A sale price of US $9.3m was initially put forward by the UDC, however, the UDC Board approved and divested the properties at a sale price of US$7.2m. Notwithstanding the fact that the divestment of these government lands may be described as an exception to the established procedures, the Government of Jamaica did not negotiate from a position of strength. 

BELOW MARKET VALUE

f) The lands were sold below market price and the Government did not optimise income from the divestment process. The initial offer was US$7M for lands mean valued of US$12.6M. The offer included Beach Lands registered at Volume 1236 Folio 249 leased in the amount of US$17,295.15 per annum with an average value of US$3.5M. This offer is an insult to the Jamaican people and the acceptance of the offer is tantamount to a departure by the UDC, the Ministry and ultimately the Cabinet from fiscal responsibility and good governance.

g) The Beach Lands registered at Volume 1236 Folio 249 leased in the amount of US$17,295.15 per annum with an average value of US$3.5M was handed over to the owners by the consent of the Honourable Minister Daryl Vaz and the non-objection of the Most Honourable Prime Minister.

h) There are varying perspectives from the Most Honourable Prime Minister, the Honourable Minister Daryl Vaz, the UDC Management, the MEGJC and the UDC Board regarding the circumstances surrounding and the role that each party played during the negotiations with Puerto Caribe Properties Limited and which resulted in a final sale price. The UDC has indicated that the negotiations were done at the Ministerial level. The Most Honourable Prime Minister has emphasised that the discussions that were held at the Ministerial level could not be accurately described as negotiations and that the purchasers were advised according to the GOJ divestment policy, that is, to apply directly and negotiate directly with UDC regarding their interest to acquire government lands. It is also the case that the Board of the UDC and the Honourable Minister Daryl Vaz indicate that the sale price was determined by way of Board decision. 

VAZ's ROLE

i) Notwithstanding, the OCG notes with reference to the 486th Meeting Minutes of the Board of Directors of the UDC, that the Honourable Minister Daryl Vaz advised the meeting that should there be any matter needed to be dealt with urgently that it should be brought to his attention and he would have it dealt with, which points to how pivotal the Minister’s role was to the divestment process. 

j) Given the assets which are being divested and the strategic importance which has been placed on same, this portrayed uncertainty regarding ‘the decision maker’ and with regard to the negotiations and divestment of these lands it can be described at best as an untidy state of affairs given the conflicting accounts presented to the OCG. The OCG considers that the numerous negotiations/discussions surrounding same to be untidy and not the most effective approach to preserve the integrity of the revenue. In support of the OCG’s concerns, reference is made to a Meeting of September 29, 2016, between representatives of Puerto Caribe Properties Limited and the UDC. There the representatives of Puerto Caribe asserted that an offer had been made to the GOJ to acquire the lands for an overall price of US$7 Million. Based upon the disclosures to the OCG by the Officers at the UDC, the Office questions whether a price had been determined prior to that ‘negotiation meeting’. 

k) The OCG is of the opinion that the UDC was unable to negotiate freely and from a position of ‘strength’ with Puerto Caribe Properties Limited because of the direct involvement of the Honourable Minister Daryl Vaz, and other state agencies. This has been denied by the Honourable Minister Daryl Vaz.

l) Reference is made to the comments from the Ministry of Finance and Public Service in its letter dated November 10, 2016 wherein various concerns were raised regarding, inter alia, the valuation of the property, the Beach Policy and tax waiver. The OCG questions whether due and sufficient consideration was given to the Ministry's comments having regard to its responsibility to comment on matters which affect the public purse

m) The OCG is of the opinion that the GOJ, through the appropriate state agencies should have negotiated from a position of strength with the intent of obtaining a sale price similar to a reasonable market value as per the valuations which would preserve the integrity of the revenue. The OCG notes that the Rooms on the Beach Hotel, was not a liability to the public purse and was in a highly sought after area.

SALE PRICE

n) Additionally, and with regard to the remaining life of the Lease Agreement for Rooms on the Beach, although the UDC did not do its own calculation, there was a considered and stated amount of US$500,000 which Moon Palace was willing to offer Mr. Issa for the remainder of the Lease. If this was in fact a reasonable and indicative value of the cost of buying out the subsisting lease agreement, then the OCG is uncertain of the basis of the heavily discounted price at which the properties were disposed of.

It is the considered opinion of the OCG that the GOJ applied an excessive and generous discount towards the Beach lands (Mean Value of US$3.5M) to Puerto Caribe Properties Limited as no market value consideration was placed on the land when it was included in the Sales Agreement. Page 25 of 32 As it relates to the seeming ‘rush’ to conclude the transaction the OCG is uncertain as to whether there was an unstated emergency circumstance. Additionally the OCG is uncertain as to whose benefit this urgency was resolved.

o) The Ministry of Economic Growth and Job Creation (MEGJC) through the negotiation process surrendered its position of strength, that is, to negotiate a price close to market value but instead did completely the opposite in the name of attracting an investment. This had the effect of depriving the country of revenue and the integrity of the revenue was not preserved. Further, the surrendering of the position of strength in the
negotiation process has made a farce of the negotiation process whereby the market price was unjustifiably discounted. A fortiori, the Government failed to optimise income from the divestment process in keeping with a stated purpose of the referenced 2015
Manual.

UDC FAILED

p) The UDC must be singled out for failing to stand its ground by way of the recommendation of the sale price (US$9.3M) which was also excessively discounted, and in fact revising their recommendation to US$7.2M, the resultant effect of the Beach land being sold for very little consideration or value, notwithstanding that the mean value of the Beach land was US$3.5M.

q) The unit of the MOFPS headed by Mrs. Hope Blake should be commended for the recommendation provided to the MEGJC in its November 10, 2016 letter, that as it relates to the sale of lands, consideration be given to ensure consistency with the Beach Policy being developed and that the integrity of revenue be preserved.

OCG recommendations

1. The divestment of any government asset, whether for strategic purposes or otherwise, should be subject to a minimum reserve price, which is internal to the Government of Jamaica and which should steer the direction of the negotiation process.

2. Negotiations for the divestment of state assets should be undertaken in keeping with established procedures and should, in no way, unless expressly stated in law or policy, be subject to discussions at the Ministerial level especially in matters of sale price.

3. All divestments, either at inception but prior to any agreement being finalised, have a documented and suitably comprised divestment team which is ultimately responsible for the overall divestment.

4. For future divestments, greater analysis should be undertaken to ascertain the financial impact, in particular, where the sale price is considerably lower than the valuation.

5. In instances where the divestment is considered a Special Case, Section 5.2.5 of the Manual should be amended to include that a cost-benefit analysis and or economic impact assessment of the sale be done prior to the finalisation of any divestment of government-owned lands.  

6. Relevant sanctions should be developed to address any deviations to the established rules.

7. Cabinet submissions should not be presented until or unless all the necessary facts have been included and the transaction is structured in the way it is intended. In this instance, the Cabinet Submission was sent for approval without the Beach Lands being included in the first instance and without the comments from the Ministry of Finance and Public Service, in the second instance.  

8. Report be referred to the Auditor General for consideration as deemed appropriate.

9. It is also recommended that the Beach Policy forms a part of all negotiations and/or transfer of Lands

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