A second partner in the contentious Sandals Whitehouse hotel project said yesterday that it too had been in the dark about the extent of the cost overrun that eventually ballooned to US$43 million.

Former chairman of the state’s National Investment Bank of Jamaica (NIBJ), David Coore, told the Public Accounts Committee (PAC) of Parliament that some overruns had been expected but not the massive amount that forensic auditors found.

“There were indications that there would have been some overruns but certainly the NIBJ did not have any idea the sum was going to be so large. Maybe if we had been more equipped, if we had taken a greater interest in the nitty gritty of the project.” Coore said.

Coore said that up to September of 2004, months before the project was due for completion, the NIBJ believed expenditure was on target and had not been advised otherwise.

The remarks by Coore mirrored that by Patrick Lynch, a director of Gorstew, one of the three partners in the hotel project, in an earlier appearance before the PAC.

Lynch had, however, told the PAC that Gorstew tried strenuously but to no avail to get the information from the other partner, the state-run Urban Development Corporation (UDC), which acted as project manager.

Supporting Coore, Rex James, the former NIBJ president, also admitted the bank had “no idea (it) was going to end up with the type of overruns it ended up with”.

But Coore, a lawyer and former finance minister, said the NIBJ had “detected no intention to conceal information from the shareholders of Newtown” as to the extent of the “discrepancy between the originally projected cost and the actual outturn”.

He also told the PAC the NIBJ could not be called upon to bear the cost of the overruns based on the Heads of Agreement signed by the partners and under which it was agreed that:

. Gorstew would be responsible for any overruns it caused

. The UDC would bear the costs of overruns which were due to inefficient implementation of the project or poor contractual arrangements

. Overruns due to events outside the control of the parties, such as changes in the exchange rate or government policy (would) be borne by the UDC and the NIBJ.

According to Coore, since no such events had taken place, the NIBJ was in effect absolved.

The former NIBJ chairman also defended the bank’s breach of its own rule – that no single disbursement should exceed 15 per cent of its capital base.

Opposition member of the PAC, Audley Shaw contended that the NIBJ had overstepped the investment policy in making US$45.9 million available to the Sandals Whitehouse project, an amount representing 68 per cent of the just over J$4-billion capital base of the NIBJ.

That decision, Shaw claimed, had brought the “entity perilously close to insolvency”.

Responding to the charge, Coore insisted that the stipulation was “a guide and not a rule of law” and moreover, the requisite approval to exceed the entity’s prudential investment limits had been sought and was given by the finance ministry.

“In so far as the NIBJ is concerned, the NIBJ can feel fully justified in the decision to support this particular enterprise to the extent that it has done,” Coore noted.

Asking who would pay the debt incurred on the project, PAC chairman Mike Henry expressed concern as to whether taxpayers would be the ones to foot the overrun costs.

To that, James suggested if Ackendon Newtown, the joint venture company which owns the hotel, had generated the debt, it should repay it.

“That is Rex James’ position,” he retorted.

But committee member Delroy Chuck was concerned that the NIBJ had continued to make sums available without realising that the project was overstepping the budget.

“This is where I feel all the partners fell down. I would be the first to admit that US$70 million was unrealistic, but who was responsible for telling the developers that you cannot do it for US$70 million? Somebody was negligent for not informing the NIBJ that it was going to be more than the US$70 million.”

According to Chuck, Nevalco Consultants Limited, the UDC’s project management representative on the ground, should “have raised the red flag”.

“In September 2004, somebody should have raised the red flag and said the US$70 million was unrealistic. UDC as project manager should have said so. Who is responsible for making these decisions?” he queried.

The NIBJ, however, maintained that while a hotel could have been built at US$60 million, it would not have been built at the quality and level of the Sandals Whitehouse hotel.

James told the committee that the NIBJ’s investment in the venture was to be seen as further fulfilment of its mandate to generate economic activity. Furthermore, he said, the operators of the hotel were benefitting from the hotel to the point where they had been able to more than double the rental agreed on in the first year of operation.

And while the bank had been aware of the risks, it could not have abandoned the project. In addition, James said, there was “no doubt the hotel would be able to repay the debt as Sandals was good at running hotels”.