Lessons from the flawed procurement process


Sunday, May 11, 2014    

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By pulling the plug on the EWI licence to construct the 381-megawatt energy facility; removing ministerial responsibility from the embattled Phillip Paulwell; and putting an enterprise team in charge of the way forward, Prime Minister Portia Simpson Miller quieted the political storm that was gathering around her Administration a week ago.

The prime minister's positive response to key demands of the private sector leadership, civil society activists and media opinion demonstrated a welcome willingness to listen and act quickly.

This has secured relative political calm and stability in the economic and financial markets — vital ingredients for continued successful implementation of the agreement with the International Monetary Fund on which so much depends.

Also, as president of the governing People's National Party (PNP), Mrs Simpson Miller's actions mollified those senior officials and ministers — and I understand there were several of them — who found Minister Paulwell's handling of the energy procurement project seriously flawed. And she kept faith with other elements in the party by not throwing the minister under the proverbial bus.

By allowing Mr Paulwell to announce the Cabinet decisions in the House, the prime minister avoided immediate questioning about the decisions, including her reasons for retaining Mr Paulwell in the Cabinet as a super-minister responsible for science, technology, energy, and mining.

But she has left herself open to fair criticism that she was ducking the responsibility of leadership, to be seen to be in charge in times of crisis.

The procurement process for the proposed LNG plant continued to play out last week as Cabinet decided to terminate the licence and take over the project after Energy World International (EWI) failed to meet the deadline for paying over a performance bond of US$36.85 million, as required under the licence.

The drama centred on the role of Minister Paulwell in facilitating the entry of EWI in the bidding process after the closing date.

Minister Paulwell and the Office of Utilities Regulation disagreed with a ruling from the Office of the Contractor General (OCG) that the process was flawed and should be terminated. It all came crashing down when the Inter-American Development Bank (IDB) sided with the OCG and pulled financial support, effectively killing it.

Cabinet presided over last rites ceremonies last week and set a new process in train. Few details came with the announcement of the enterprise team to be headed by Dr Vincent Lawrence.

Mr Paulwell, who made the announcement in Parliament as he opened the 2014-2015 Sectoral Debate Tuesday, affirmed that Government remained committed to the 381-megawatt LNG project to achieve lower electricity prices.

The Administration has invested huge political capital in a project from which it expects early dividend, namely, reducing light bills by 30 per cent by 2016, just before the next general election is constitutionally due.

"The enterprise team will be mandated to have the project implemented by 2016. That timing is sacrosanct," Mr Paulwell declared while announcing Government's decision to revoke the EWI licence. We need more details on several matters.

One of the first matters arising is ensuring that Mr Paulwell's ministry and the Office of Utilities Regulation handle the revocation of EWI's licence in such a way as to ensure that there are no legal ramifications down the road.

Another is the composition, mandate, terms of reference, and working relations of the enterprise team to be headed by Dr Lawrence.

What will be the reporting relationship between Minister Paulwell and the enterprise team since he retains ministerial responsibility for the energy portfolio? Who else will serve on the team? Will its activities be transparent?

Dr Lawrence, a PNP heavyweight who was the most powerful non-elected public official during the earlier PNP Administration of PJ Patterson, comes to the position with tremendous engineering, business and public policy experience. He has the full confidence of the political directorate. He has the essential attributes to get the job done.

But he's no stranger to controversy over procurement, having been criticised by a previous contractor general in connection with the Sandals Whitehouse hotel project when he was chairman of the Urban Development Corporation.

Given greater public attention to issues of governance and transparency in procurement procedures, and given the circumstances in which the LNG project collapsed under Mr Paulwell, I would be very surprised to see the successor process fall victim to the same or similar failings.

Getting governance right

One way to secure a better outcome is to include a nominee of the Office of the Contractor General on the enterprise team so that there are no surprises about procurement procedures.

I also assume that the enterprise team will not restart a tender process, as this would waste valuable time. My expectation is that Cabinet would authorise the team to go the route of direct soliciting or single sourcing in which they seek to negotiate a deal with a capable entity.

It is well known that Jamaica Public Service (JPS) has had a project on the table for some time and is reportedly dusting it off to bring its price closer to the US 12.8 cents per kilowatt hour for electricity that EWI had "guaranteed" to Mr Paulwell.

And, Energise Jamaica, the grouping of influential Jamaican firms and personalities, is also reportedly revising its bid to make its offer price more attractive. Energise Jamaica was an also-ran in the now-collapsed bid process.

As we await further and better particulars about the way forward, there are some lessons from the past that might help make that course more navigable.

The first is that political urgency and goals, however laudable, should not be allowed to trump due process and good governance again. IDB withdrawal of funding, which collapsed the EWI bid, starkly revealed the financial and reputational damage that comes with skirting due process.

A related lesson is the need to recognise the independence of oversight agencies established for that purpose. Mr Paulwell's attempt to get the OCG to change its opinion in the wake of the IDB decision was improper. To his credit, the minister apologised, a rare occurrence in Jamaican politics.

There are also lessons from the collapse of the 2010 Exmar project that was discarded after running into procurement problems with the contractor general. The salvage team that Prime Minister Bruce Golding compiled, under the leadership of Chris Zacca (now PSOJ boss), didn't complete the rescue.

Is there something fundamentally flawed about a single large-scale energy project that is seen as a political answer to energy price and economic competitiveness? Should we be looking at a series of small plants to replace ageing JPS plants over time?

We also need to debate and agree the balance between ministerial authority and responsibility and between economic development and good governance.

Politicians are responsible to the electorate for improving the common good. But often they lack the authority to get things done, and sometimes they are hamstrung by red tape and bureaucratic humbug.

But the answer cannot be to get around these by exercising authority which the elected official does not possess in law. Officials must abide by the laws and regulations they establish. If the laws are stupid or counter-productive, explain why and change them.

The nation's lawmakers have it within their remit to remove unnecessary hurdles in the way of approvals and facilitate investment. But as a country we cannot get rid of laws or institutions established to hold officials accountable, reduce the risk of corruption and cronyism.





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