'We made a judgment call given all the circumstances'
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'We made a judgment call given all the circumstances'
- President Jagdeo
Stabroek News
May 28, 2000
Did Beal Aerospace Technologies bluff the government by suggesting that they had options in Brazil and Florida when in fact Guyana was their only real alternative to Sombrero island, given the fact that they wanted to build their own launching facilities and not use existing facilities? These and other questions were put to a top level government team consisting of President Bharrat Jagdeo, Prime Minister Sam Hinds and government's chief negotiator Edgar Heyligar by Stabroek News editor-in-chief David de Caires and senior reporter Gitanjali Singh in a wide ranging interview at the President's official residence on Friday afternoon on the Beal deal, debate on which is still raging.
Beal signed an agreement with the government on May 19, allowing it to construct a spaceport to launch satellites in about three years time from Guyana. This would be the first privately owned spaceport and would make Guyana a member of the still exclusive rocket launching club. Under the agreement Beal would buy 25,000 acres of land from the government at US$3 per acre. It would pay no taxes for 99 years but would pay a graduated launching fee increasing from US$25,000 per launch to US$100,000 per launch depending on the number of successful launches each year.
de Caires suggested Beal was bluffing when it said that it could make arrangements to launch rockets from alternative sites such as Alcantara in Brazil or at Cape Canaveral in Florida for though that was clearly possible in principle, Beal's number one option was to set up its own launching site on Sombrero island and if that failed in Guyana. After the long delays in getting the green light from the British government, he suggested, its negotiators opted for Guyana which was always the number two option. de Caires also suggested that during the negotiations with the government Beal was holding out because it felt that its fortunes with Sombrero island would change. However, the company eventually decided it could wait no longer and took a decision to go ahead with the Guyana deal. At that stage, Guyana could have got better terms, he argued, as Beal had nowhere else to go. Guyana was an ideal site.
President Jagdeo responded that even if that was the case, which he did not concede, government was not willing to take the risk of calling the company's bluff. He noted that if the government had played hard ball and the company had walked away, the government would have been severely criticised for having a high tech investment within its reach and being incapable of holding on to it, not least by the media including Stabroek News. The President said the government made a judgment call and believed that it had done the right thing. The investment would produce jobs and some revenues for Guyana, but more importantly it would establish its credibility as a suitable place for high tech investment.
Beal had signed an agreement with the government of Anguilla, a British dependent territory, to launch satellites from Sombrero island but its environmental impact assessment was heavily criticised by environmental groups in Britain and Anguilla and it never got the nod to go ahead. The company recently commissioned another environmental impact assessment for that project. Sombrero is an island off Anguilla.
Beal has retained ICF Consulting, one of a list of consultants proposed by the government, to carry out an environmental impact assessment here and approval of this assessment by the Environmental Protection Agency is a condition of the agreement. de Caires questioned the government's contention that seeking expert advice for the negotiation would only have been justifiable if the government was involved as an investment partner. He argued that it was essential for the negotiating team to have retained consultants with expertise in this field to advise them on the issues involved so they would have had a clear idea of what had been done elsewhere, the cost of launches, the amount of land required, possible damage and insurance. Heyligar responded that a lot of background information had been received from various sources. He also argued that such expertise was not needed for the main issues which the negotiating team had to deal with, which included the sale of land and launching fees.
The President said the government had gotten a verbal opinion from the US government on the technology being used by Beal and was satisfied with it.
de Caires said that though the Beal parent company might be financially credible the government was dealing with a subsidiary and it might have been useful to have obtained a confidential report on this, especially as the parent company was giving no guarantee. The President, however, said that this was not necessary because if the company was unable to raise the resources to finance the project, the deal would fall through and the land would revert to the government.
As to the need for a business plan, the government did not feel that this was required as there was a schedule of the activities which Beal would be embarking on. A business plan, he felt, was appropriate when the government was to be a partner in a joint venture, not when the investor was the sole owner of the project as it was in his interest to do things efficiently so he could make a profit.
As regards losses or damage sustained as a result of launching activities the Prime Minister noted that under Article 7 of the agreement Beal was required to maintain insurance "of the type, in the amounts, and conditions required by the Associate Administrator for Commercial State Transportation of the FAA under CFR Part 440". The Article went to provide that Beal shall have Guyana "added as an additional name to the insurance policy or policies it obtains protecting the US Government, and shall ensure that the terms of the financial responsibility protect Guyana to the same extent as the US Government." The protection was in the vicinity of US$1 billion, he said. Beal was also required under the agreement to insure against environmental and other liability.
To obtain an environmental permit, Beal would be required to provide an emergency evacuation plan, attest to the safety of the fuel and make provisions for removal of any hazardous waste. The use of nuclear energy required for deep space rockets will not be permitted.
de Caires questioned whether the waiver of taxes for 99 years was legally valid under existing legislation. It was pointed out by the President that this device of remitting taxes had been used in several previous agreements including those concluded by the previous administration but that additional legislation would be considered.
Asked whether the launching fees could not have been used as a temporary measure until the company was in a position to pay corporate income tax, the government team said the Omai and Aroaima deals had shown it was unwise to rely on collecting revenue by way of income tax as because of transfer pricing, intra-company loans and the manipulation of expenses profits were often not shown even though operations were being carried out from year to year. Aroaima had shipped out thousands of tons of bauxite but had not paid a cent in taxes or dividends. However, Singh pointed out that according to information obtained from the Arianespace website profits had been made ranging from a high of US$27 million in 1995 to US$11 million in 1997. The highest number of launches ever obtained in one year was 16.
The President noted that all the evidence indicated that the industry was likely to become more competitive and that it might be unwise to rely on taxes for revenue. It was better to have a revenue earning mechanism that was more direct like a fee on launches. Beal was taking a risk and was not certain to recover its investment, the government was taking no risk. Singh said that several satellites could be sent up in one launch but the Prime Minister said that the revenue might be similar if one or ten satellites were launched as the fee related to the payload. Beal had argued in the negotiations that it would not make a profit in its operations in Guyana but rather in the manufacturing and assembly of the rocket abroad. The deal in Sombrero island would have involved a rental of US$280,000 a year and no launching fees.
The government team expressed the hope that this investment would attract other high tech investments. It noted that Beal had been given no monopoly or exclusive rights. The approval of the U.S. State Department to the transfer of the technology to Guyana was still required. Also, if Beal was unable to obtain Political Risk Insurance it was entitled to terminate the Agreement under Article 11.3. In the meantime, Beal Guyana Launch Services LLC, the Beal subsidiary with which the agreement was signed, will apply to the Environmental Protection Agency for interim permission to drain and clear the area where the primary site will be, on the coast between the Waini river and the Atlantic ocean. Building will only take place on part of the primary site, the Prime Minister said, the precise area was not known.
President Jagdeo said land in that area had little or no value for the foreseeable future and that government would be prepared to consider allotting land to other interested investors in that area free of cost.
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