Auditor General raises a stink over SBRC agreement
Auditor General Leigh Trotman has reviewed the 20-year deal signed between Government and the Bizzy Williams-owned Sustainable Barbados Recycling Centre (SBRC) and has concluded that there is more than just a strong odour of waste.
In fact, he believes there is good reason for Government to create a stink, with a view to getting back some of the monies it has handed over to SBRC since 2009 under the controversial agreement intialled by the ruling Democratic Labour Party (DLP) administration.
“It is clear that aspects of this agreement between the Government and the contractor are in need of serious review, especially with regard to the non performance of a requirement of the Agreement by the contractor. The impact of this should be determined and any adjustments which are necessary should be made,” said Government’s lead financial watchdog, following a special audit of the Public Private Partnership (PPP) agreement.
While suggesting there may be grounds for Government compensation, the Auditor General pointed to a requirement under Clause 37 of the SBRC contract which called for the establishment of an in-vessel composting facility.
However the facility was never constructed even though the agreement specifically stated that SBRC should be ready to load Municipal Solid Waste into digesters located at the facility within 14 months of either the issuance of all of the required Town and Country Planning approvals or the required environmental approvals.
The contract also speaks of a 30-day “cure period” before which the contractor would be required to “compensate the employer in the amount of $1,000 per day”.
However, the Auditor General said there was no evidence that the contractor complied with any of these stipulations of agreement, adding that based on a legal opinion received on the matter, “this would seem to be a fundamental breach of the agreement”.
He also highlighted the fact that SBRC had entered a claim for $20.17 million in arrears as at 24th November 2015 and that the company was guaranteed payments every time Government fell short of the guaranteed 24,000 tonnes of waste per month or 360, 000 tonnes per year under the 20 year contract.
This has already cost the Treasury in excess of $5 million in charges between 2011 and 2013 and a further $5 million from January to October last year.
“This issue highlights the need for thorough analysis of these PPP projects before going to market for bids, since factors such as guaranteed revenue would be important to the investment decisions of the private sector and the payments by state agencies,” the Auditor General said, noting that an unsuccessful attempt was made by the Chris Sinckler-led Ministry of Finance back in 2011/2012 to cap SBRC’s annual payments at $15 million. However, it was informed that Government was contractually bound to pay the contractor $21,862,800 annually.
In all nine PPPs, valued at in excess of $600 million, came under the Auditor General’s microscope.
In his 125-page report, Trotman also zeroed in on the new Barbados Water Authority (BWA) headquarters building which also came up for legal review based on concerns that Government was not only liable to the contractor, but the arranger of financing for the project, as well as all other consultants in the event that the project had failed.
“The opinion of the legal representative highlights the dangers with commencing a project before negotiations have concluded. Without the ability to stop the project, BWA’s negotiation strength would have been diminished,” the auditor said.
He also pointed out that the Memorandum of Understanding signed by the BWA for construction of its head office made provision for payment of $5 million, plus VAT, to the contractor, but did not state how this advance was to be repaid.
In the end, it was agreed that the monies would be repaid in about 15 years, whereas the BWA was scheduled to make payments to the preferred bidder/landlord totalling more than $65 million in 13 years – or about two years less than the time allotted to the contractor to repay the advance.
“The other point is that the interest rate of 2.5 per cent was low when compared to the interest rate of 8.25 per cent payable on the bonds used to secure financing for the project. In effect, BWA in its lease payments would be paying an interest rate of at least 8.25 per cent, while providing a loan to the contractor at 2.5 per cent.
Furthermore, “the Deed of Mutual Release also indicated that the contractor incurred unforeseen additional costs of $6,111,194 which, as agreed, would be applied against the remaining Advance Payment, with the sum of $24,435 still outstanding to the landlord immediately prior to financial close.”
The other PPPs, which came in for audit were the Eric J. Holder Municipal Complex in St Joseph; the Judicial Centre in Bridgetown; HMP Dodds, St Philip; the HMBS Pelican; Road Rehabilitation using Foam Bitumen, as well as a new Sanitation Services Authority headquarters and a leachate treatment plant, which remain under construction.
In the case of the Eric J. Holder Municipal Complex, the Auditor General took issue with the bidding process, pointing out that the accepted bid was received after the official tendering process had ended.
As for the Judicial Centre and HMP Dodds, he said there was no tendering process at all, while only one private sector bid was received for construction of the BWA headquarters, the Solid Waste Management Facility, the HMBS Pelican and the Road Rehabilitation using Foam Bitumen.
In the case of the proposed SSA headquarters and leachate treatment plant, the Ministry of Finance had indicated an increase in subvention to the agency would have been necessary to meet any lease payments. “Therefore, any policies/guidelines developed on affordability would also need to be applied to statutory corporations which rely on funding from the Consolidated Fund,” the Auditor General said.
He pointed to the need for decision makers to have knowledge of whether PPP arrangements were more cost effective than under a traditional procurement method and, in this regard, said the financial analysis of the proposals needed to be strengthened to achieve this.
“In addition, the analysis of affordability should be emphasized and there should be available evidence that risks in the projects have been fully analyzed and taken into consideration,” the Auditor General said, adding that “the lack of evidence of risk analyses for some PPP projects raises questions as to whether there was adequate transfer of risk to those best able to handle them.”