Auditor General Leigh Trotman, apart from his usual excellent but perhaps frustrating efforts every year in pointing out errors, omissions, mistakes, and other deficiencies in the operations of the Government through the publication of his annual report, has outdone himself this year.
Let me just back up for a moment and note that Trotman has followed in some very good footsteps, as reports from the Barbados Audit Office before he took over the top post have also been equally solid in their reporting.
This year, however, Trotman launched a review into PPPs (public-private partnerships), those strange vehicles which are now seen as perhaps the only way for Barbados to get new investment of the magnitude needed for economic progress.
Let me say that Trotman has only scratched the surface. We need him to continue in this vein for the next few annual reports, because his office is allowing the country to take a good look at what these deals really involve, and how they can hurt us while we think they are helping us.
Before I try to express in my untutored layman’s way what I think is the problem with PPPs, I must tell you that I support them in concept, but am wary of them in practice. Therefore, I consider them all “sweetheart deals,” and I don’t care who of all my business friends (okay, I don’t really have that many) get mad at me for saying so.
They are sweetheart deals to the extent that they remove the basic notion that capitalism needs competition in order to benefit the consumer.
A government like ours, which has departments and “statutory” corporations to provide services to its citizens, eventually finds that it needs to get out of that kind of service provision.
Why?
Perhaps it is becoming too complex due to consumer expectations, technological changes, or growing demand. Or because the government itself can’t raise the capital for the project as it is already too much in debt.
For all these reasons, countries are increasingly looking to PPPs to propel their national development. But in return for taking the risk of getting into a business which will require a lot of investment and know-how, and with which the country may have no track record and hence a doubtful success prognosis, the investors set their demands at the highest level.
This usually means no competition, as we have seen with Cahill and other deals. You must let us have a monopoly on this market, they say to the government, and on top of that you must guarantee to buy “x” amount of what we produce for “y” amount of money.
Added to that, you must supply us with “z” amount of the raw material you want to use in this process and if you don’t, you must allow us to bill you as if you had, or a pay higher rate for the end product if the quality of your raw material is not up to scratch.
The weaker the country’s economy at the time of the deal, the more likely the government will be to accept these terms, often at their most onerous extremes.
And thus is born the PPP from hell – a multi-decade-living, all-rights-owning, taxpayer-gouging monster created out of government weakness and lack of proper regulation.
These issues have been touched on to various extents in just the two entities delved into by the Auditor General, but they are also present in the reported agreements signed with Cahill Energy, not to mention earlier monopolies (they weren’t called PPPs back then) such as the Mobil Refinery and Cable & Wireless.
For example, the Auditor General, in his report, criticised Government for not following through on “the non-performance of the agreement by the contractor” which operates the solid waste management facility. Trotman noted that the contract, entered into in 2009, requires the contractor to produce certain “minimum quantities of finished compost” every year, but “no evidence was seen that the solid waste management facility has produced the tonnage of compost required since the commencement of the agreement,” and there was no word as to whether the Government planned at any time “to obtain compensation.”
He also criticised the Barbados Water Authority (BWA) for paying a $5 million-plus-value added tax (VAT)“mobilisation fee” to its building contractor without stating how it was to be repaid; then for subsequently agreeing on a repayment plan which was “disadvantageous” to the BWA in that “it allowed the contractor the option of completing the repayment of [the] $5 million plus VAT in approximately 15 years, whereas the BWA is scheduled to make lease payments to the preferred bidder/landlord totalling more than $65 million in approximately 13 years.”
These are but two very brief examples of a wide ranging report.
So I agree with Trotman in his assessment that, since the “estimated costs for nine of these projects selected for review exceeds $600 million, and total payments by the Government entities will be in the region of $1.8 billion,” it was “necessary that Government agencies understand the PPP process before entering this procurement arrangement”.
