Government warned against unilateral moves to break telecoms monopoly
Stabroek News
February 10, 2002

Legal counsel for the phone company have cautioned the government against a unilateral break of the firm's monopoly, arguing that negotiations to break this monopoly had to be linked to the finances of the company as the government had guaranteed a 15 per cent rate of return in 1990.

Senior counsel Miles Fitzpatrick and Rex McKay, wrote to Attorney General, Doodnauth Singh, last week - copying the letter to Cabinet Secretary, Dr Roger Luncheon - drawing attention to the linkages between the government's contract with the Guyana Telephone and Telegraph Company Ltd (GT&T) in 1990, its licence and statute.

McKay and Fitzpatrick pointed out to Singh that Section 6.9 of the privatisation contract guaranteed "a minimum rate of return of 15% on capital dedicated to public use" to GT&T for its investment in Guyana. The licence issued to GT&T, the lawyers said, was subject to the agreement the government entered into with its parent company, Atlantic TeleNetwork (ATN) in 1990.

The senior counsel further pointed out that Section 33 of the Public Utilities Commission (PUC) Act 1999 bound the PUC to give effect to agreement, licence or laws with utilities in determining the rate the utility was entitled to.

"...In the event of a conflict between such agreement or licence and any written law, the agreement or licence shall prevail," McKay and Fitzpatrick wrote. This amendment of the PUC Act had been heavily criticised but was rushed through parliament on October 24, 1997 without allowing it to benefit from the wisdom of a parliamentary select committee.

"It is clear that there is a very strong 'linkage' between the government's undertaking to ATN in the privatisation agreement concerning GT&T's guaranteed rate of return, clause 2(c) of the licence issued to ATN by the government of Guyana pursuant to the agreement and the statutory responsibility of the PUC in respect of the government's undertaking concerning GT&T's rate of return," McKay and Fitzpatrick argued.

Prime Minister Sam Hinds had recently announced that the government was running out of patience and called on GT&T to enter talks to break its monopoly and reform the telecommunications sector without any "preconditions". He had said that the issue of rate making was out of the government's control and the PUC was not subject to direction. Following this, Dr Luncheon said the government was prepared to move unilaterally and break the monopoly of GT&T if good sense did not prevail.

However, McKay and Fitzpatrick said that while the PUC could not be directed unless authorised by the PUC Act itself, the government held responsibility for the return to the GT&T.

"If the PUC fails to discharge its statutory duty in respect of GT&T to ensure its 15% rate of return, the government is enjoined by law - that is by the provisions of its privatisation contract with ATN - to do something about it," they argued.

"In other words, the government should take responsibility for that situation not only as the national executive but also as a contractual party subject to law," McKay and Fitzpatrick said. They noted Hinds' public statement on Thursday about the negative relationship between a PUC, which did as it liked and the government's need to mobilise foreign investment for Guyana.

The senior counsel submitted to Singh that it was not proper for the government to tell GT&T, which had expressed concern about the immediate implications of the drastic reduction on its settlement rates, "that is no concern of ours and that is exclusively a matter for the PUC."

McKay and Fitzpatrick said that however the 15 per cent rate of return on capital was calculated, the company's earning from January 1, was considerably less than the requirement. They also noted the approach of the PUC to GT&T's application for increased rates. They noted that the application of December 1997 received a temporary rate increase order within 30 days, while US consultants were asked to advise on a permanent order. In the current application, the advice of the US consultants was sought before making a temporary order.

In the light of this, the letter said, the lawyers found Dr Luncheon's remarks that the developments in the regulatory sectors and the consequential and financial charges had "not as yet created the right mind set in the management of GT&T," disturbing.

McKay and Fitzpatrick cautioned that there were "certain grave dangers" in the government taking a unilateral road, rather than addressing the financial situation of GT&T. They reminded that the Constitution protected both foreign and local investors from deprivation of their property by government without paying the correct market value as compensation and also entitled such persons to equality before the law. The lawyers noted that common law of Guyana "upholds and enforces" the contractual obligations of the Government of Guyana in commercial matters, wherever litigated.

"The existence of such laws and the apparent respect for them by the state are essential to the maintenance and development of any modern economy. Statements by high government officials which indicate that the Government of Guyana insists on negotiating the alteration of its contractual and legal obligations only on its own terms and will embark on unilateral action in this respect if it deems necessary can do grave harm to the fabric of our economic and legal system," McKay and Fitzpatrick warned.

Further, they also noted the disparities in the treatment of GT&T and the power company and that the latter had freedom from rate control by the PUC.

McKay and Fitzpatrick reminded the government that since July 2000, GT&T has been ready to enter negotiations with the government in good faith on a level playing field. For them, good faith requires for its existence the respect of both parties for their current legal obligations. They insisted that a level playing field could not be achieved by creating an unnecessary financial crisis within GT&T. (GITANJALI SINGH)