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State entities $44B in debt

Published: 
Saturday, November 11, 2017
JSC concerned at wayward borrowing

A total of 39 State enterprises had racked up a debt of $44 billion by the end of 2016.

These were the shocking findings contained in a September 2017 Joint Select Committee report that examined the borrowing practices of State enterprises, with an emphasis on regulation of borrowing, purposes for which funds are borrowed and sustainability of debt servicing ratios.

In the report, focus was given to the quantum of State enterprise debt, the sustainability of the current debt obligations, the purpose for which monies are borrowed and the mechanisms in place to monitor and evaluate state-owned companies that have borrowed funds.

Two state companies - the Urban Development Corporation of T&T (Udecott) and the Petroleum Company of T&T together accounted for more than half of $44 billion debt.

Udecott’s debt of $11.4 billion included a $3.5 billion loan financed by Republic Bank Ltd for the “the Government Campus Plaza fit-out project” and another $496 million from First Caribbean International Bank for the “fit-out of Government Campus Plaza.” Udecott also still owes $497 million on a 2009 loan from First Citizens Merchant Bank for the controversial Brian Lara Cricket Academy in Tarouba.

The second highest debtor, the Petroleum Company of T&T Ltd, still owes the Deutsche Bank of Canada US$750 million and Bank of America US$850 million. This amounts to TT $11.2 billion.

Trailing behind were the T&T Mortgage Finance (TTMF), which owes $5.5 billion, and the National Insurance Property Development Company (Nipdec), which must repay on a $4.3 billion loan.

The National Gas Company (NGC) was lent a total of $4.2 billion, with US$200 million being borrowed in 2004 for the “Cross Island Pipeline” project. The amount is to be repaid by 2020.

The Telecommunications Services of T&T (TSTT) services a total of 12 loans amounting to $2.2 billion.

The National Infrastructure Development Company (NIDCO) borrowed $ 2.1 billion, with $1.5 billion going toward the refinancing of the Point Fortin Highway Project and the total in to be repaid by 2031.

The report contained no details about how the funds were used, but the JSC has called a press conference for Monday where it is expected to address the troubling issue. The committee is chaired by Independent Senator David Small.

The 105-page report stated that at the time of the inquiry, “the State Enterprise Government Guaranteed debt stood at $19 billion, while the non-Government guaranteed debt stood at $25 billion” bringing the total figure for state enterprise debt to a staggering $44 billion.

Among the ten findings, the committee discovered that state enterprises with government guaranteed borrowing, as well as non-government guaranteed borrowing did not use debt to revenue ratios for financial or debt management analysis. The committee also learned that of the companies that borrow without government guarantee on the strength of their balance sheet, “several did not have updated strategic plans.”

Also, in two instances the committee found that state-enterprises were “unable to pay their debt and there have been instances in the past when funds were borrowed without the proper approval process and state-enterprises strayed from their stated mandate with minimal repercussions.”

In seven recommendations put forward, the committee advised that the “Investment Division should implement mechanisms to track returns on investments, liquidity ratios are used to determine whether entities are able to cover debt obligations and immediately enforce a mandate to have strategic plans of state enterprises who borrow without government guarantee completed and submitted within three months of this report.”

The committee also advised that the Ministry of Finance should make an up-to-date strategic plan a mandatory requirement when processing loan applications for state enterprises and pursue avenues to give legal force to the State Enterprises Performance Monitoring Manual, including the insertion and enforcement of a penalty structure.