Wednesday, February 21, 2018

Our billion-dollar OPV hole


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There is little reason for celebration if the country did nothing wrong on the Offshore Patrol Vessel (OPV) deal but suffers a billion-dollar loss. It is why the country is divided on the settlement, and it will not end here. This will be a headline act leading to the Tobago House of Assembly (THA) election and, after that, fundamental questions will remain unanswered.

Three questions arise. First, exactly how much did the country lose on this OPV project? Second, going back to the original issue, what is the plan for dealing with the maritime risks, and what new spending is required? And third, was corruption an issue in this OPV procurement, and how quickly will the Government implement the lessons learnt from this aborted purchase?

At the heart of the country's dilemma is the usual absence of details and the People's Partnership Government's credibility challenge. Those politically opposed to the Partnership will obviously see no merit in this settlement, but this Government never helps its own cause. If this climb halfway up a $2.5 billion hole is good news, it demonstrates how bad things have been for the Government.

On that first question of the amount lost, get this fact out of the way. This settlement is not a windfall of any kind for the country. The work of those who identified the contractual failures of BAE Systems (BAE) since 2009, and the Cabinet which terminated the deal in late 2010, was about loss reduction. The country's outlay on the vessels, training, infrastructure, legal expenses, financing and other costs related to this procurement must run close to TT$2.5 billion. If TT$1.32 billion is recovered from BAE, then we are still in a TT$1 billion hole. A billion-dollar loss is no cause for celebration.

In the aborted contract, the country is the big loser. While BAE's annual reports consistently recognise the risks of doing business with governments, the company's big deals with sovereigns sustain its global business model. The local deal was very small in the context of BAE's annual earnings, though it required specific disclosures in the financials when it fell apart. It is therefore unlikely that BAE sustained a loss on the aborted deal, but if it did, it was small.

More important for BAE, even though the company had breached its contractual commitments to this country, the settlement provided it with a decent exit and left us with its losses. From a financial perspective, BAE had already sold the vessels to Brazil, landed orders from Brazil for additional vessels, and achieved its objective of doing more business in the lucrative Latin American market.

Further, this TT$1.32 billion payment to the country does not come out of BAE's pockets. In the company's 2010 and 2011 financials, BAE held 125 million pounds sterling as deferred income on behalf of this country, the company's recognition that it had not yet earned this income. The settlement is a refund of money which was this country's anyway, and leaves us in search of OPVs with TT$1 billion less.

That brings us to the national security issues which remain unanswered. It is not clear whether the Cabinet terminated the OPV contract solely on account of BAE's contractual failures, or on account of the fact that the OPVs did not fit into a crime-fighting strategy of the Government, and BAE's breaches created an exit opportunity for the country. We cannot answer those questions because there is still no coherent plan to fight crime; no details of the "Maritime Wall" the Government proposes and its justification; no expected cost and no timeframe for delivery.

We do know that the Government is considering Colombian vessels. The OPVs will likely come out of the Colombian government-run COTECMAR, which builds the vessels using a design developed by the German shipbuilder Fassmer, not BAE. When the Colombians took delivery in 2010 of the first OPV from that facility, the vessel had taken 18 months to build. This is a smaller OPV compared to BAE's and unlike BAE's it does not have the armament facilities. It means that at best, even though it may do so at a cheaper cost than BAE, new Colombian-built OPVs may not be deliverable until 2015.

This brings us to the next question. In an industry rife with allegations and admissions of corruption involving suppliers, government officials and intermediaries, the Government has not said whether corruption was an issue in the original deal. BAE has recently settled corruption allegations, including US$479 million in fines in the US. Next month, the BAE lobbyist who figured in the US issues, goes on trial in Austria on charges of involvement in corrupt arms deals. It will focus attention on the global trade in legal and illegal arms and the corruption of government procurement, especially in these deals with billion dollar spending.

And speaking of big spends, the final question relates to the lessons the Government has learnt in handling billion-dollar public sector procurement projects. The OPV deal is at times similar to the Point Fortin Highway project, with a lack of information, transparency, and citizen engagement. But the highway project exceeds the value of six OPV settlements. What lessons from the loss-cutting OPV settlement will the Government implement to avoid a repeat, starting with the Point Fortin Highway project? When the Government talks about the poor accounting issues with the OPV project, what exactly happened and who is being held responsible? More importantly, what in the highway project and Government procurement generally will be changed on account of whatever discovery the AG and his legal team made, leading them to believe that some parts of the country's counterclaim against BAE had to be abandoned?

The country is already divided on this OPV settlement, and losing a lot of money is really no cause for celebration when we did no wrong.

Clarence Rambharat is a lawyer and a university lecturer