Will we finally see accountability at Petrojam?

Sunday, December 09, 2018

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THE forensic report of the auditor general into the operations of the Petroleum Corporation of Jamaica (PCJ) and Petrojam is finally out and has, as expected, exposed what I would describe as deep-bone rot at the two entities. The report depicts two entities in which money was being spent wantonly among politically connected people in a context in which Petrojam's financial position was weakening. Governance and management systems were virtually non-existent. The report is detailed and written in language that the non-technical person can understand, and on that score the country has been done a tremendous service by the professionals at the Auditor General's Department.

This report comes at a time when Jamaica's political environment has been 'trumpisized'. Trumpisized means that truth and facts no longer matter, or do not matter much, and when the facts are beyond dispute the institution or the individual transmitting those facts is thrashed, berated, or belittled. We saw this with the public defender's report on the conditions of lock-ups being used under the state of emergency. That report was described as false, misleading, or alarmist by some government and police officials. To me, the public defender has all but been called a liar.

The foregoing behaviours are typical of US President Donald Trump, who denies the obvious, discredits the institutions of government, and personally attacks public servants. Jamaica had better wake up to this dangerous embrace of comfort with falsehood and denigration of those who seek to call attention to the wrong. I would not be surprised if the report of the auditor general on Petrojam and the PCJ is discredited by spokespersons for the Government; for to do otherwise will require that action be taken to hold people accountable, and that is a highly unlikely prospect. But I wait to be surprised.

The public, however, needs to know the facts of this telling report and I will attempt to highlight some of them.

The key findings as summarised by the auditor general include: project cost overruns, consultancy arrangements involving millions of dollars which brought no value to the company, violation of procurement rules which also served to undermine the value for money principles of doing business, explicit nepotism, excessive rental expenditure, overpayments, absence of evidence on how ex-refinery prices are determined, and questionable spending on donations and non-business events.

The non-business events include two surprise parties, held three months apart, in honour of the former Energy Minister Andrew Wheatley and former board chair Perceval Bahado-Singh. These parties cost over $2.5 million and were held at high-end hotels in Montego Bay with only a handful of employees invited.

The prime minister has still not filled the seat in Cabinet left vacant by the departure of Wheatley, and there is good reason to believe he was holding it open in the hope that the report would exonerate his long-time friend, or so that he could use the report as a basis for not readmitting Wheatley to the Cabinet.

The last time the auditor general issued a damning report of this kind was in 2011, and the result was that at least one Cabinet minister and one senior government official were forced to resign. A few months ago, in the wake of the Petrojam saga, Wheatley agreed to step aside, but in November he publicly exonerated himself. But this scandal goes beyond Wheatley to the very Cabinet. For if the prime minister knew of these overruns and reckless expenditure and did nothing he is fully culpable, more so given the fact that he was so equivocal about action against Wheatley. If he did not know (at least about some of the things), then he is guilty of dereliction of duty. For what then would be the kind of reports that he was requiring of ministers in relation to their portfolios? Holness was elected, and is being paid, to protect the interest of the Jamaican people, and the report of the auditor general is damning evidence that there has been no oversight, no accountability, no monitoring, no reporting, and no action taken in relation to reports.

EX-REFINERY PRICES

I, like many Jamaicans, have always been suspicious of the pricing methodology used by Petrojam at arriving at ex-refinery prices. I found the weekly price change report arbitrary-sounding. The auditor general's report notes that there are no minutes of meetings of the Pricing Committee, so there is no indication of how ex-refinery prices are determined. These ex-refinery prices are discretionary, but the auditor general found no evidence that these prices were being set in transparent manner. The implications of this level of malfeasance are frightening.

The report does not state how far back this practice of arbitrary pricing of fuel goes and if it occurred during the People's National Party's time at the wicket, but it is time that this be fixed.

COSTLY CONSULTANCIES, COUNSELLING AND OVERRUNS

The report showed that some US$133,000 or $17.4 million was paid to a consultant to “undertake financial and market assessment and financial and future sustainability assessment of Petrojam” (page 37). But the auditor general found no evidence that Petrojam received value for money. Holness, who currently holds direct ministerial responsibility for Petrojam, and in his capacity as head of the executive, needs to tell the country who this consultant was and, mindful of the auditor general's other finding that procurement guidelines were breached, tell the country why that consultant was selected.

Alongside these costly consultancies were counselling services procured at a cost of $3.2 million as at May 2018, with a balance of $626,000 due to the counsellor as at September 2018. But guess what? There was no written contract and no evidence that employees received counselling.

The famous north perimeter fence, which ended up costing $96.8 million was initially estimated, in November 2016, by the National Works Agency (NWA), to cost $29.8 million. After much back and forth, Petrojam decided, in January 2017, to utilise “…the direct contracting emergency methodology in engaging a contractor at the cost of $96.8 million to execute the work….” (page 58). But as the auditor general notes, this method of contracting is used when “…procurement …is an unexpected and a pressing necessity or exigency … [but] Petrojam did not provide any justification that these elements were met.” (page 58)

The culture of poor management decision-making at Petrojam is obviously not limited to the period since Holness came to power or while Wheatley was minister. For example, the company took a bad decision in 2015 when it rented anchors when there was damage to the dock. According to the report, “Whereas Petrojam may have made a good decision to rent anchors, its failure to plan and execute the project within the agreed timelines resulted in Petrojam paying a total of US$1.1 million in rental costs.” (page 61). A somewhat similar act of mismanagement occurred in 2014 in a contract dispute between Petrojam and a contractor. The company improperly terminated the contract resulting in a $77-million settlement to the contractor.

The auditor general “…noted deficiencies in human resource recruitment and management practices at both PCJ and Petrojam, which included explicit acts of nepotism….At PCJ, from a sample of 27 officers …11 related to posts …filled without being advertised”. (page 12)

With respect to donations, the report shows that, in 2014/15, of a budget of $87 million for donations about $40 million was spent. By comparison, in 2015/16, the expenditure was $54.4 million against a budget of $41 million, an over-expenditure of $14.4 million or about 33 per cent. There was a reversal in 2016/17 when expenditure was about $35 million out of a budget of $67 million, but hell broke loose in 2017/18 when expenditure was $84 million from a budget of $57 million — 47 per cent over-expenditure. But the most significant point is that donations grew by 141 per cent between 2016/17 and 2017/18, moving from about $35 million in 16/17 to $84 million in 17/18.

MISSION: ACCOUNTABILITY

The practice of nepotism, combined with generally poor management, lack of board oversight, indulgent splurges, Cabinet complicity or indifference, oil losses, and arbitrary pricing, altogether define the findings of this report and the condition in which Petrojam and PCJ have long existed. Urgent action ought to have long ago been taken.

One of the conclusions of the report is that “Petrojam's core refinery operations remains vulnerable….” (page 12) and as a consequence the auditor general recommends, among other things, that the “Government of Jamaica… commissions an immediate review of the key functional areas of PCJ and Petrojam… The stewardship of those charged with governance should be assessed in the context of significant cost overruns, as well as nugatory expenditure, which could be deemed a consequence of mismanagement”. (page 17)

Let us see what Prime Minister Holness does.

Dr Canute Thompson is head of the Caribbean Centre for Educational Planning, lecturer in the School of Education, and co-founder and chief consultant for the Caribbean Leadership Re-Imagination Initiative, at The University of the West Indies, Mona. He is also author of four books and several articles on leadership. Send comments to the Observer or canutethompson1@gmail.com.

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