THE 2015 AUDITOR GENERAL’S REPORT (AGR) is timely and revealing. It contains much more than the special audit on public/private partnership (PPP) projects.
It expresses concerns about the true state of Government’s financial statements. Special attention is given to the treatment of Government’s capital assets, which goes that accrual accounting is not being used. Giventhat these issues are somewhat technical, attention is drawn to the misuse of PPPs.
In 2011, there was a major divide between the minister of finance and the minister responsible for the Barbados Water Authority (BWA). In a letter dated September 8, 2011, the latter wrote: “With immediate effect, I am instructing that no member of the staff of the Barbados Water Authority is to attend any project review committee meeting convened by the current minister of finance, the Honourable Christopher Sinckler. You are permitted to do so if such meetings are called by the prime minister of this country.” What a breakdown in the governance structure that went unpunished.
The AGR reveals that the “BWA signed a memorandum of understanding (MOU), dated December 22, 2011, which gave the contractor exclusive rights for the project. This was eight days after it had commenced negotiations on the bid, and approximately 15 months before the agreement was signed”. In fact, the agreement with the company was signed in March 2013.
The Auditor General expressed concern that the BWA was at a disadvantage in allowing the commencement of works before the conclusion of negotiations with the company. In support of this concern, a costly legal opinion suggested that the BWA “would have been liable to the contractor, the arranger of finance and all other consultants in damages in the event that it failed to complete the project”.
While the above concerns were raised from a legal perspective, the issue of transferring risks from a financial perspective is the predominant reason why PPPs are attractive for a government. The MOU made provision for the payment of an advanced fee of BDS$5 million, plus VAT, to the contractor. There was a statement on the repayment of the advance.
The letter written and signed by Minister David Estwick, earlier quoted, made it clear that he would determine when the BWA’s staff could resume meeting with Minister Sinckler. Given the timing of the minister’s letter and the dates revealed in the AGR, it is not difficult to conclude that the project in dispute was the BWA’s new headquarters.
Rates drop
The BWA subsequently agreed on a process for the repayment of the advance to the contractor. This could only have happened if Minister Estwick permitted his staff to resume meeting with the minister of finance. The latter would have agreed to the interest rate of 2.5 per cent on the advance, the regulated minimum savings rate at the time. The auditor general noted that the rate was way below the interest rate of 8.25 per cent payable on the bonds used to secure financing for the project. Furthermore, the contractor’s repayment period was 15 years, two years more than the time for the lease payments.
The devil is always in the details. The contractor claimed for unforeseen additional costs of $6 111 194 that exceeded the $5 million advance. On top of this, the BWA refused to provide the auditor general with the requested information on the additional costs.
The recent AGR continues to attract lots of attention. This attention extended to the role of the Public Accounts Committee (PAC). The critical issue in all of this is the need for the reform of the governance structures in the country.
It is one thing to change the legislation relating to the PAC, but it is quite another thing for the procedures and/or regulations to be used to prevent proper prosecution of the matters at hand. In fact, I can recall an Opposition member of the PAC refusing to attend the first 12 meetings of the PAC, only to make himself available for the 13th at which he did his best to prevent the matters at hand from being prosecuted. The real issue is that the country’s interest needs to be above the party’s interest.
There is only one way to stop politicians from dominating decision-making in this country and that is to change the governance structures to increase broader-based participation and to minimise the loopholes. The ultimate responsibility should still rest with the Cabinet, but the process of checks and balances has to be strengthened and the intent of legislation and the law enforced.
• Dr Clyde Mascoll is an economist and Opposition Barbados Labour Party advisor on the economy. Email: [email protected]
