Using Manx Cable Co for MEA borrowing was like “lawful tax avoidance as opposed to unlawful tax evasion”

At this morning’s session (Thursday 29^th May 2008) the Tynwald Select Committee investigating the MEA ‘affair’ heard evidence first from Chief Financial Officer, Mark Shimmin.

Mr Shimmin, who was the Financial Controller from 2000 – 2002, before taking up his current post, was very hesitant in responding to many of the questions put to him; and on several occasions read out pre-prepared answers.

He was initially asked by Committee Chairman, Speaker Steve Rodan, to comment on the financial model employed by the MEA’s financial consultants, accountants Deloitte Touche, which was used to prepare a report on the MEA’s capital works’ programme; and whether they could afford, on the existing tariffs, to meet their liabilities.

Mr Shimmin said the Treasury understood a modelling exercise had been performed based on figures provided by the MEA; but confirmed, under further questioning, that although they had checked the figures they were not independently reviewed.

Apparently there was an issue of the lack of knowledge and resources within the Treasury; plus they were working within a very tight schedule so there was no time to appoint any body. However, the Treasury was satisfied that the figures were more than just indicative and on the 20^th June 2001 approved the £185m bond.

Mr Rodan inquired if the Treasury treated the MEA differently to the way they treated other government departments progressing capital projects; to which Mr Shimmin replied, “Yes”.

Committee member, Clare Christian MLC wondered if he would have expected Deloitte to review the MEA’s figures.

Mr Shimmin thought they would have flagged up any concerns regarding the reasonableness of the MEA’s assumptions.

Onchan MHK, David Quirk inquired if Treasury officials were being put under any pressure during this period; to which Mr Shimmin repeated the view, expressed by other colleagues, they were working to a distinct time frame and under pressure as “the lights were going to go out”. This pressure was political; and it was aimed at letting “the MEA crack-on with its schemes.”

Mr Rodan quizzed Mr Shimmin that when the tendering process came to an end for the power station, on the 15^th June 2001, and NepCo/Enron were announced as the winners and Treasury was asked to approve the £85.6m tender - having noted that financial regulations and capital project procedures had not been followed - what steps had been taken to check the quote was value for money before making a recommendation to Treasury to give approval.

Mr Shimmin pointed out that the source of the paper was Capital Projects - and reminded the Committee that Ian Thompson had considered the issue a ‘fait accompli’ - but he thought the tendering process had been resilient and robust; not that he could vouch for the detail.

Mr Rodan pressed him on why he had recommended to Treasury the NepCo bid be given concurrence.

Mr Shimmin again reiterated they were under pressure to get things approved so the MEA could get on with their job; albeit he admitted the situation was far from ideal.

Dudley Butt MLC put it to Mr Shimmin that he had recommended acceptance without having read the business case, but Mr Shimmin said he was getting the bond issues and the tender process mixed up. However, he referred the Committee back to Ian Thompson’s evidence, that if they had they taken more time it would have “killed the bond issue” and put it back to after the summer recess. It was a ‘fait accompli’ he restated.

Mr Shimmin just said he would have to repeat his previous answers.

Mr Rodan wondered if any thought had been given to attaching conditions to the approval of the bond, to which Mr Shimmin replied no; but with hindsight perhaps they should. He added that, even if they had tried, he doubted it would have succeeded because there was little political will to do so, the MEA would have probably opposed it, and the feeling was “Let the ‘A’ team get on with it”.

Mr Butt suggested that everything seemed to have been sown up in one week, but Mr Shimmin said, although it had been a short timescale, it had been going on for longer; and it was just that many of the bits came together in the same week.

Mr Rodan inquired who had given the political go ahead for the bond to be taken to the July Tynwald.

However, Mr Shimmin was very evasive and just said the political members were aware of the issues regarding compliance but there was no political will to hold up the MEA’s projects.

Mr Rodan said twelve months later compliance had not improved so a Treasury ‘direction’ was issued, and then withdrawn, followed by correspondence from the DTI asking what was going on; and wanted to know what knowledge Mr Shimmin had of this.

Mr Shimmin said he was aware of only some of what had gone on so he couldn’t really help too much, other than the DTI “was not standing alongside the Treasury”.

Mr Butt referred to a report to Treasury in October 2002 where he was saying information from the MEA was of little value, and appeared to be suggesting the DTI and the MEA had little interest in reports.

Mr Rodan referred to a November 2002 and a February 2003 meeting when it was suggested that compliance issues would be addressed and quarterly meetings with the MEA arranged.

Mr Shimmin said he thought that two meetings were held but they had served no useful purpose, and although they were intended to improve relations with the MEA, no satisfactory improvement resulted, so the meetings ‘fizzled out’. He confirmed no minutes or notes of the meetings were made as Mr Proffitt had insisted they were informal and no record should be made.

Mr Rodan wondered if this had been “Operation Fresh Start”, to which Mr Shimmin said it was; but added it was not a success.

Mr Rodan mentioned that a meeting had been held between Mr Bell and Mr Gelling and inquired if referring the matter to the PAC had been contemplated.

Mr Shimmin said this meeting had been for “an expression of a political view” but no referral to the PAC resulted.

Had there been any thoughts of referring the matter to the FSC, in regards to the actions of the Board members, was Mr Rodan’s next query.

Mr Shimmin just referred to the dates a series of Questions had been asked in Tynwald and Keys during 2005.

Mr Rodan said they had received a letter from former Board member, Dr Taylor, who had claimed that they had been advised to purchase items for the power station outside the UK, for the VAT benefits, and asked if Treasury had agreed with this procedure.

Mr Shimmin said a policy on procurement had been agreed and this included 10 criteria for purchasing from the EU; and that they had sought to make the MEA aware of those issues.

Mr Rodan said that at a MEA Board meeting in November 2004 it was claimed the Treasury knew or should have known about extra borrowing; and did he have an explanation.

Mr Shimmin said the treasury did not know, and that they had not expected any extra borrowing, which is why the Treasury Minister had made the statement in Tynwald (that no extra funding over the £185m was expected).

He then pointed to the letter from Mark Moroney, representing the MEA, to KPMG in June 2005, that set out the MEA had used the Manx Cable Company deliberately to get around the need for Treasury concurrence; and this was viewed by the MEA as the same as lawful tax avoidance as opposed to unlawful tax evasion.

Mr Rodan said that Colin Kniveton had given evidence that Mr Wilcox had claimed the MEA costs had been indicative, that the quotes came to a lot more, and so the MEA didn’t know what the full cost of the project would be until it proceeded; and wondered if he thought that reflected the position. Mr Shimmin thought it did.

Mr Butt questioned Mr Shimmin on the ‘direction’, issued by Mrs Williams, but he said, although he was aware of it, he did not have much to do with it; but he knew it was used to “bring matters to a head”.

Mr Butt returned to the allegation by the MEA Board that Treasury knew, or should have known about the ‘overspend’ and the extra borrowing.

Mr Shimmin claimed they had been working in a high pressure situation and was adamant they had not been told and did not know, and he maintained the MEA was obliged to gain Treasury concurrence for borrowing money even though they thought they did not. He was also adamant that no collusion had taken place, there was no reason to, he stated; and they had never expected the MCC to be used in the way it was. In concluding, he reminded the Committee of Colin Kniveton’s evidence, that what the MEA was doing was not open and transparent.

The final question was from Mr Quirk who asked if Mr Shimmin was satisfied, as a result of any changes that had been made to Financial Regulations etc, if all departments and Boards were now compliant.