KINGSTON, Jamaica — As controversy surrounding government’s approval of Energy World International (EWI) as the preferred bidder for the operation of a 380 mega watt power plant festers, Energy Minister Phillip Paulwell Friday afternoon issued the following statement.Paulwell’s statement in full:Procurement ProcessThe Minister’s RoleWhy Did the Minister Sign the April 4, 2014 Licence?Why Was the Licence Amended?Step-in RightsFinancial InformationThe Implementation AgreementThe Performance BondThe Continued Quest for Cheaper Energy for Jamaica

The Minister of Science, Technology, Energy & Mining (Minister) is aware of the intense public interest and debate surrounding the grant of a licence to Energy World International (EWI) for the 381 MW Project. Given the importance of this project to national development, the Minister wishes to bring clarity to this matter.

The legislative framework provides that the Office of Utilities Regulation (OUR) should manage the procurement process for new generating capacity. Consistent with that framework, the OUR has full latitude to discharge its role and function. As far as the Minister is aware, while there have been several delays, there has been no impropriety in the OUR’s management of the procurement process.

EWI was selected as the preferred bidder on October 4, 2013 and a Power Purchase Agreement (PPA) was signed and dated December 2, 2013. The Minister was advised that on the basis of the PPA, EWI made arrangements for the purchase of equipment, which had to be shelved due to the delays in the procurement process.

Having selected the preferred bidder, conducted its due diligence exercise and approved a PPA between the Jamaica Public Service and EWI, the OUR made a recommendation to the Minister for the grant of a licence to EWI.

Having received the recommendation from the OUR, the Minister became responsible for the terms and conditions of the licence, in keeping with the Electric Lighting Act. This role is also reflected in the OUR Act, which states that no entity shall provide a utility service without a licence issued by the Minister. As the terms of the licence are the purview of the Minister, it may be amended “as he thinks expedient”.

The OUR, in making its recommendation, also proposed terms to be included in the licence.  Several of these terms were substantially different from those contained in the Form of Licence attached to the Instructions for Final Proposals (IFFP) that was issued to all bidders, by the OUR. This Form of Licence (a document containing standard terms) would have been a critical consideration for all bidders in deciding whether to submit a proposal.

The IFFP states that the performance bond is due ten (10) days after the issuance of the licence. The recommendation from the OUR for the grant of the Licence was dated March 26, 2014. The Minister reviewed the recommended terms and sought the advice of the Attorney General’s Chambers on the deviations identified.  While awaiting the advice of the Attorney General’s Chambers, the Minister was advised by the OUR on Friday, April 4, 2014 at approximately 3:00 pm that the bid bond of US $7M, posted by EWI, would expire on April 15, 2014.  In an effort to ensure that the performance bond of US$36.85M would be due before the expiration of the bid bond (April 14, 2014), the Minister was advised by the OUR that the signing of the licence on April 4, 2014, was an absolute necessity.  Although not in receipt of the advice and convinced of the urgency, the Minister signed and issued the licence as recommended.

Having received the signed licence, EWI indicated that it would be unwilling to proceed with the Project on the terms of the licence, as issued.  The basis of its unwillingness was the substantial differences between the recommended licence and the Form of Licence contained in the IFFP as well as its reservation that the risk profile of the Project would increase exponentially and jeopardise its ability to obtain financing. The EWI indicated to the Minister that it had previously made these concerns known to the OUR when the latter shared the draft licence with it.

Acting on legal advice from the Attorney General’s Chambers, the Minister amended the licence to make it, as far as possible, consistent with the Form of Licence, while ensuring that the interests of the Jamaican people were protected. That amended licence is dated April 14, 2014.

The following two amendments to the licence have dominated public discussions thus far:

1) The step-in rights during the construction phase; and

2) The non-inclusion of the requirements for financial information.

Step-in rights are generally rights granted for an entity/person to assume ownership of an asset for a discounted purchase price.  In the context of electricity generation, the usual intent would be to ensure the continuity of a service as opposed to the mere acquisition of property prior to commissioning. For this reason, step-in rights are usually most appropriate post commissioning of an electricity generating plant.

Step-in rights during the construction phase were not contained in the Form of Licence in the IFFP.  Further, it should be noted that step-in rights in the construction phase are not a feature of any other licence granted to any other independent power producer in Jamaica. Additionally, the Amended licence still provides for step-in rights after commissioning of the plant and the Minister has the power to revoke the Amended licence upon a breach by EWI at any point.

The clause that was recommended in respect of step-in rights during the construction phase contemplated a limited role for the OUR to make recommendations to the Minister in respect of the step-in event. As the OUR is mandated under the OUR Act to monitor services, this expanded role during the construction phase would have exceeded its statutory powers. In that regard, the statutory powers of the OUR pursuant to its establishing Act is to monitor services and there are no services being provided at the stage of construction. The Minister would not have the power to expand the role of the OUR in a licence as this would be a matter for Parliament.

Schedule 1 of the Amended Licence requires EWI to provide evidence of financing of the Project in accordance with the PPA.  In the event that EWI fails to supply that information, this would be a breach of the Amended Licence which may lead to its revocation.

While EWI’s financial status is relevant, projects of this nature are usually project-financed and contingent on an effective and financeable PPA. The PPA is therefore an important document that a potential financier will consider in making a decision to finance a project. Unlike all other PPAs, which are usually effective on signing, the OUR made the effectiveness of this PPA subject to the grant of the licence by the Minister, which may have delayed the discussions with potential financiers.

The OUR’s recommended licence contained a requirement for EWI’s Audited Financial Statements for 2013, which is an unusual requirement in a licence. Further, this requirement was not contained in the Form of Licence in the IFFP nor has it been a feature of any other licence granted to an independent power producer.

The Minister made the decision to have certain matters that were not appropriately included in the recommended licence, transferred into an Implementation Agreement between EWI and the Government of Jamaica. That Implementation Agreement, a copy of which will be posted on the Ministry’s website, also included terms designed to declare the Project a Strategic National Priority and reflected the requirement for the posting of the performance bond that was stated in the IFFP.

Much has been said about the absence of the performance bond. For clarity, it should be noted that the original licence was superseded and the stipulated period for the posting of the bond would expire 10 days after the date of the Amended licence dated April 14, 2014.

Within that 10 day period, there were two intervening holidays and the Inter-American Development Bank’s (IDB’s) communication to EWI that it was not willing to finance the Project. Given the impact of these two factors, the Minister has allowed further time on the basis that EWI has advised that it has placed the funds with HSBC Hong Kong and that it is now awaiting the completion of normal internal banking procedures for the performance bond to be posted.

The Minister understands that the basis for the IDB’s refusal is a previous report of the Contractor General on the manner in which EWI was introduced into the process. I have been advised that the process which formed the basis of the concern was brought to an end by the OUR and a new process instituted, by way of limited tender. Further, that limited tender process is the said process that was utilized by the OUR to name EWI as the current preferred bidder. The OUR sought to make this plain in its response to the Contractor General dated September 27, 2013, posted on its website.

The Minister’s considered view is that this Project remains one of critical importance to Jamaica and represents a significant and viable opportunity to realize the reduction in the cost of electricity that has eluded the country for so long. The Ministry and the Minister have worked tirelessly towards lowering electricity prices and will continue to pursue cheaper energy solutions for the Jamaican people. This Project is of such national importance that it behoves all Jamaicans to ensure that we preserve our country’s international reputation and foster greater business and investor confidence going forward.