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Paulwell puts himself in the cross hairs

Claude Robinson

Sunday, May 04, 2014    

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PHILLIP Paulwell is one of the hardest-working ministers in the Portia Simpson Miller Administration, but his handling of the process which granted Energy World International (EWI) a licence to build a 381MW electricity-generating plant raises serious doubts that he's best suited to resurrect a project that's now on life support.

At the time of writing, Prime Minister Simpson Miller was yet to respond to the growing chorus for her to relieve the minister of portfolio responsibility for the project, rescind the licence granted to EWI, and restart the process.

Her response will have serious implications for Jamaica's short- to medium-term economic prospects, our credibility with multilateral agencies and the global marketplace, as well as our political and governance processes. Mrs Simpson Miller must be deliberative, but she must also be swift and decisive.

The current effort to build an LNG facility to reduce electricity costs by replacing aged and more expensive diesel-fired plants supplying the JPS grid comes after decades of starts and stops by various administrations, from PJ Patterson (PNP) to Bruce Golding (JLP) and back to Portia Simpson Miller (PNP).

Troublesome issues have ranged from inability to locate natural gas at a reasonable price, which dogged the Patterson Administration, to questionable governance and procurement procedures, which collapsed the deal which Golding appeared to have struck with the Belgian-based Ex-Mar Consortium.

In the current version of this long-running drama, the project was mired in controversy from the very beginning when Minister Paulwell facilitated the EWI bid a month after the tender process had closed.

In September 2013, Contractor General Dirk Harrison issued a special report which concluded that acceptance of the late proposal by EWI was irregular; unfair to the other bidders; the intervention of the minister in the process was improper; the integrity of the entire process was compromised. The proposal should not be accepted.

"Based upon the documentary evidence which was reviewed, it is clear that the 'goal post' kept moving to facilitate EWI's proposal and that the process in its current form could not stand up to review," Contractor General Harrison wrote in that report.

Mr Paulwell and the Office of Utilities Regulation disagreed with the OCG's conclusion. Indeed, the minister said: "We cannot have the OCG derailing this matter again. It has to go forward."

And so it did. EWI came second in the ranking but was bumped up to first place when Azurest-Cambridge failed to meet its first financial obligation.

Despite doubts about the facilitation of EWI by the minister and the OUR, public criticism of their actions was muted because, I believe, people wanted to see the project go ahead. It's universally acknowledged that Jamaica is uncompetitive at 42 cents (US) per kilowatt hour for electricity, and so the carrot of 12.88 cents dangled by EWI was irresistible.

Three developments last week changed everything. First, we had the disclosure by the Inter-American Development Bank (IDB) that it would not be a non-equity partner with EWI; second, we had the revelation that the minister had amended the licence submitted by the OUR (as required) and substituted and signed his own licence which appeared to make concessions to EWI; and third, EWI failed to meet the performance bond of US$36.8 million.

Why wasn't EWI treated in the same manner as Azurest-Cambridge and disqualified for failing to meet the performance bond?

There's a larger issue. The failure to meet the deadline for the performance bond; the lack of clarity about EWI's ownership, organisational structure and operational capacity raise doubts about whether it can raise the capital needed absent the imprimatur of the IDB. Among other things, the cost of money to EWI will be higher, thus we cannot be sure that the 12.88 cents is still on the table. Simply put, the project is in trouble.

I make no claim to being a financial or energy expert, but commonsense reading of the original and amended licences (available on the OUR website) suggests that the minister removed some of the safeguards inserted by the OUR to protect Jamaican taxpayers.

It's significant that the OUR press release on the matter stated that; "In arriving at its recommendations, the OUR ensured that safeguards were put in place to protect the interests of Jamaican consumers, and minimise the implementation risks associated with the project."

So far, Minister Paulwell's response is that these are contained in the implementation agreement. He has to release that agreement now so the Jamaican people can make their own assessment of the credibility of that statement about protecting the people's interest.

It's about procedure, Mr Paulwell, not patriotism!

Minister Paulwell, in his interview with the press on Tuesday, said; "I believe that if we are patriotic, we must see what has happened with the IDB as a damnation on our country, and the OCG and the OUR and myself must try to rectify that."

He went further: "For the IDB to say that they have a difficulty with the process, that is not an indictment on EWI, that is an indictment on the country, our country... If the IDB is saying that the rules of procurement that have thrown up EWI as the second preferred bidder, if that is flawed, then everything else must be in question."

No, minister. The flaw is not that EWI came second. It is that you facilitated a process that the relevant government agency said was improper and that it was not consistent with their own procurement rules either. The blame is not on the country, although it has implications for all of us.

Given the political investment of the Administration and the minister in getting the project going in time to make a difference by the next general elections, it is natural that every effort will be made to press on, including finding alternative financing to plug the hole left by the IDB's departure. The national imperative of lower electricity rates cannot be brushed aside either.

This Administration, and others before it, has frequently expressed disagreement with findings of the OCG and the scope of its authority. Independent oversight of the proposed investments at the Port of Kingston comes to mind.

But they need to remind themselves that the OCG is a creature of Parliament, established for the express purpose of holding governments accountable to the procurement rules established to minimise corruption and prevent arbitrary rule. However strong may be the desire to secure investment and development -- and it's a strong desire in these parlous times -- government must avoid the temptation to overturn its own rules and procedures.

I believe the minister's other point about reviewing the role of the OUR in procuring large-scale investment projects is worthy of consideration.

But the solution is not to hand over responsibility to the minister, as Mr Paulwell has suggested. Rather, it should emerge out of broad consultations with all stakeholders, especially the Jamaican people.

In the meantime, the prime minister must decide the way forward. This may involve placing responsibility for the project in her office, with the appropriate skill sets.

Whatever is determined to be the way forward, two things are inescapable: Mr Paulwell is too compromised by his handling of the process to retain leadership of it. Further, the way forward must be a transparent process that accords with Government's own procurement rules and procedures and those of our multi-lateral partners such as the Inter-American Development Bank. kcr@cwjamaica.com

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