FAILURE to ACCOUNT

The main issue now arising in relation to the Beetham Water Recycling Project (BWRP) is the complete failure of our country’s system of Public Financial Management.

The $1.043 Billion BWRP was omitted from Trinidad & Tobago’s 2014 national budget.  By any standard that is an unpardonable failure to account for that mammoth sum of Public Money.  Although the national budget-making exercise is collective in nature, the ultimate responsibility for that function is held by the Minister of Finance & the Economy.  That Minister is Larry Howai, who is a Certified Management Accountant and was a career Banker, up until his appointment in June 2012.

The JCC have been long-time campaigners for Public Procurement Reform, together with our Kindred Associations – T&T Chamber of Commerce; T&T Manufacturers’ Association; T&T Transparency Institute; American Chamber of Commerce; Federation of Independent Trades Unions & NGOs and the Local Content Chamber.  In the preamble to our 2012 draft Bill we identified Public Procurement Reform as heralding the “stated intention to strengthen the quality of governance by promoting these principles of good governance by systemic re-engineering of the public financial management system. This Bill is thus one of a raft of relevant Bills for the re-engineering of the public financial management system.

Public Procurement Reform is therefore a fundamental part of the modernisation of our Public Financial Management system.  We need that system to map our pattern of income and expenditure in order to gather the basic information to allow us to plan how we are going to spend the future income.  Budgeting is a critical component of that system.

SIDEBAR: PNM’s Public Procurement Position

I was contacted last week by a senior PNM MP who shared with me certain of their ‘official stated positions’ on Public Procurement from 2009, in an attempt to rebut my assertion that there was no known PNM position on this critical issue.  In late 2006 PNM shelved the White Paper on Public Procurement and the accompanying draft Bill, which would have saved the country all of these ongoing losses of Public Money, so I remain unconvinced.  PNM left office after losing the May 2010 elections to the PP, so a 2009 position is not very persuasive.

The Private Sector/Civil Society group continues to extend its invitation to the Leader of the Opposition for dialogue on this critical issue of national development.

The government laid its long-awaited Public Procurement & Disposal of Public Property Bill in the Senate on Tuesday, 2 April, with a three-week period set for public comments before formal debate on that new law.  The fiasco of the BWRP being omitted from the 2014 budget is an inescapable example of both failure of Public Financial Management and questionable procurement process.

Our country must move out of this period of chronic waste and theft of Public Money.  It is important that we achieve that by a peaceful transition to adopt the advances used in other countries to control corruption in public transactions.

It is therefore necessary to closely examine this BWRP episode so that we can draw lessons for our collective progress.

The (*estimated) timeline is instructive -

  • February 2013* (reported in local media)– WASA obtains a $246M USD IDB loan for wastewater works, including this BWRP.  That loan is reported to be the largest granted by the IDB in the Western Hemisphere.  Exactly when and why that loan was rejected remains unclear. WASA is also collaborating with PUB-CPG Consultants of Singapore to provide technical support and services for the development of the Beetham Wastewater Treatment Plant Reuse Project. (p. 8)
  • June 2013* – NGC appointed CPG Consultants, to prepare the Request for Proposals (RFP).  [Hansard pp. 152] Given that the RFP was advertised on 2 September 2013, it seems reasonable to suggest that this appointment was in mid-2013.
  • 9 September 2013 – the budget statement is delivered by Minister of Finance & the Economy, Sen Larry Howai, with no mention of the Billion-Dollar BWRP, the RFP for which was published a mere seven days prior.  The 2014 budget contains statements relating to the adequacy of water supplies and the highlighting of five new waste-water treatment plants, as detailed in last week’s column.  Those statements are contrary to the rationale, given elsewhere of course, for BWRP.
  • 21 November 2013 – the Minister of the Environment & Water Resources, makes a formal statement detailing the expansion of Desalcott’s daily output from 32 million to 40 million gallons. [Additional link]
  • 10 March 2014 – BWRP contract was awarded to SIS Ltd and its subcontractors in the sum of $1.043 Billion. [Hansard pp. 150-161]
  • 14 March 2014 – WASA announces that Desalcott’s expansion programme is delayed and will take effect in April, instead of January as originally anticipated.

That timeline is worrying enough, but consider the other aspects.

It is worth repeating that the underlying commercial elements of the project remain undisclosed.  According to section 1.1 of the RFP issued by NGC -

…NGC will be responsible for supplying Feedwater to the WRP at no cost to the Contractor. The Contractor will be responsible for the processing of the Feedwater into Product Water at the WRP and supplying the Product Water to NGC.

NGC will enter into a Water Sale Agreement (WSA) with WASA concerning the sale of the Product Water. WASA in turn will sell the Product Water to industrial companies at Point Lisas…

So, NGC will be supplying wastewater at no cost to BWRP, which seems to usurp WASA’s role.  WASA will then buy the recycled water (Product Water) from NGC, before selling that to industrial users at Point Lisas.

This raises questions as to the terms of those agreements and just who are the beneficiaries of this arrangement.  The answers will go to the very heart of this matter since the stated rationale for this entire exercise is the supposed inability of WASA to finance these works.  Will the new arrangements improve WASA’s financial position?  Are those critical figures also being deliberately suppressed?

All of which leads right back to the issue of the omission of BWRP from the 2014 national budget.  How and why did that happen?  No play on words here, but the Minister of Finance & the Economy needs to offer the public a clear accounting for this unacceptable position.

Are we witnessing a situation in which the entire Cabinet was aware of this huge BWRP and a deliberate, collective decision taken to omit that from our national budget?  Or are we seeing that a small group of high-level Public Officials were able to activate and implement a huge project out of the ‘line-of-sight’ of the Finance Minister.  Which is it?

One of the lessons from enquiries into the global financial collapse is the pernicious practice of ‘Regulatory Arbitrage‘, in which the players in the financial market were able to choose to which regulatory regime they would subject various products.  That practice allowed bad, ‘smartman’ practices to grow until the historic crisis exploded.  Those arose in some of the most advanced jusrisdictions due to the several financial market regulators in operation.  The same ‘smartman’ behaviour was evidently at the root of the CL Financial collapse here.  One of the important lessons from that global crisis, which our country seems to be adopting, is that the financial system is better regulated by a single entity.

The same solid lesson should also be fundamental in our efforts to develop an effective Public Procurement system for our country.  To my mind, this matter is also a notable example of ‘Procurement Arbitrage‘, in which major players in the State sector can choose to take less transparent paths to implement pet projects.  For whatever reason, this reminds me of TIDCO paving roads some years ago.  A little bit again and we might hear that NGC is undertaking road projects.

Clause 7 of the government’s Public Procurement & Disposal of Public Property Bill specifically excludes Government to Government Agreements and projects funded by International Financing Agencies from oversight by the new system.  That is an unacceptable exclusion since it would immediately place the greater part of State procurement outside of transparent and accountable oversight.  That exclusion will, in turn, spawn a fresh round of the detrimental ‘Procurement Arbitrage‘ identified in this BWRP issue.  The JCC is strongly objecting to that attempt at taking the path to obscurity.

The fact is, that as matters stand, we do not know what other ‘off-budget‘ projects are in play.  How can the public properly establish the extent of the State’s commitments?   This deplorable episode does little credit to the progressive notion of ‘Good Governance’ in our nation.

The Minister of Finance & the Economy must give a proper accounting for this glaring omission from the 2014 national budget and a clear set of details for the BWRP, to include the underlying commercial elements which are driving the entire arrangement.

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  1. #1 by David on April 12, 2014 - 6:47 pm

    Reblogged this on Barbados Underground.

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