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BAE offered $910m

By Asha Javeed asha.javeed@trinidadexpress.com

When UK firm British Aerospace Engineering (BAE) Systems agreed to settle its dispute with Trinidad and Tobago over an arbitration which they initiated over this Government's decision to cancel an order for three offshore patrol vessels (OPVs), BAE was only prepared to offer £91 million (TT$910 million).

Furthermore, BAE had demanded a confidentiality clause in their settlement.

The firm's decision to settle followed an aribitration hearing in May over a span of two weeks. However, that sum wouldn't have been enough to cover the £98.764 million debt which the T&T Government owed in outstanding loans from the cancelled project.

The details were disclosed in a five-page note to Cabinet, dated October 24, 2012, with the code AG (12)154 and titled: "Execution of Deed of Settlement between the Minister of Finance on behalf of the Republic of Trinidad and Tobago and BAE Systems Surface Ships International and BAE Systems Plc (BAE Systems)", which was obtained by the Sunday Express.

Attorney General Anand Ramlogan "was able to negotiate an uplift of approximately £40.0 million from the initial offer of settlement from BAE to £131.0 million".

"Cabinet is advised that the Attorney General was of the view that the proposed settlement would be beneficial to Government and instructed Charles Russell (a British law firm) to negotiate a Settlement Agreement with BAE to give effect to the agreement between the parties," the note stated.

In the Deed of Settlement with BAE, the Government "agrees that any public statements may not refer to the terms of this Deed except to the extent of the wording contained in Schedule 3 of that Deed."

Schedule 3 read: "BAE Systems and the Government of the Republic of Trinidad and Tobago have reached a full and final settlement of the dispute between them in relation to the contract for the supply of three Offshore Patrol Vessels in the sum of £131 million. BAE Systems and the Government are pleased that the dispute has been settled amicably."

The note advised that: "Cabinet is asked to note therefore that extreme caution must be exercised by all members of Government before making any reference whatsoever to this matter, and only if such reference is required, since any failure by Government to observe the terms and conditions of the Deed will jeopardise the settlement between Government and BAE."

In the note which Ramlogan's Ministry prepared to Cabinet, it disclosed that T&T could benefit from the acceptance of BAE's £131.0 million.

"Cabinet is advised that the Ministry of Finance and the Economy has given due consideration to the treatment of the proceeds of £32.236 million in the fiscal accounts and in accordance with international best practice, the proceeds from the settlement could be classified as the sale of assets and to that end, the proceeds from BAE should be revenue enhancing and could be utilised either to reduce the fiscal deficit or to increase public expenditure," it said.

"Cabinet is advised that the methodology for treating with the proceeds of the settlement: repayment of debt and enhancement of public revenue would result in a reduction in the debt stock of £98.764 million or 0.6 per cent of Gross Domestic Product (GDP) with an associated savings on principal repayments and interest costs which latter amount to approximately £5.417 million. In that connection, the Minister of Finance and the Economy has taken steps to cancel the performance bond under the contract and to provide formal notifications to the bank of the settlement agreement," it also said.

The note had advised Cabinet on why it should agree to BAE's settlement.

The reasons put forward were:

1. The benefits to the people of Trinidad and Tobago arising out of the settlement of the matter in the amount of £131.0 million since the early repayment of the loan would result in the remittance of a surplus of £32.2 million to the Government which would utilise the proceeds for revenue-enhancing purposes and as such the amount would be available for more pressing projects;

2. The repayment of the loans would result in a total interest savings of approximately £5.417 million which would therefore be available for more important purposes;

3. The operational costs for the three OPVs would have amounted to approximately $32.0 million per annum;

4. There is a tangible diplomatic value in the amicable resolution of a dispute (on favorable terms to Government) between the Government and a UK Contractor, in circumstances in which the UK Government had taken a specific role as advisor to Government;

5. The Permanent Secretary, Ministry of Finance and the Economy has taken steps to request a refund of £2.1 million from the UK Ministry of Defence to Government in respect of excess monies paid by the Government pursuant to the Government Contract between the Government of the United Kingdom and Government.

"This excess arose because as at the date of termination of the OPV Contract, the monies paid by Government to the UK Ministry of Defence exceeded the value of the work done and the services provided by the UK Ministry of Defence under the Government Contract," the note stated.

6. The immediate settlement of the matter would be a further saving of any further costs for legal services and attendance of witnesses in the United Kingdom which would have to be incurred in relation to the further hearings on quantum which will take place if the matter is allowed to proceed.

7. Attorneys-at-Law for Government had advised that notwithstanding the technical strength of Government's claim against BAEs, even if Government were to succeed on liability, there was a good chance that due to evidentiary problems and poor record-keeping from the start of this Project, Government might not have been able to prove its entire counterclaim for all expenses incurred in the Project.

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