DTI ‘led by the nose’ by MEA over financial information

The Tynwald Select Committee, set up to investigate the MEA ‘affair’, took evidence from three current and former DTI officials on Tuesday morning (1^st July); David Morter, former Director of Infrastructure Development, Chris Corlett, current Chief Executive, and Ken Bawden, the former Chief Executive.

 

The story they had to tell contrasted sharply with evidence presented to the Committee by Treasury officials; and clearly presents the Committee with a dilemma – who to believe.

 Mr Morter’s responsibilities, from May 2002 until November 2006, when he returned to the Marine Administration division of the department, included a liaison role between the DTI and the MEA.

Prior to joining the DTI Mr Morter’s experience included working on ships, which he described as “floating power stations”; and for Saudi Ramco.

 

He explained to the Committee that he would attend the ‘quarterly’ meetings to take notes and give advice to the Chief Executive. He confirmed that the Agendas for the meeting were based on an ‘historic’ format but he would always ask if there were any other items people wanted including.

 

His description of the meetings, as a discussion of general operational matters, gave the impression that the matters discussed, although not trivial, were of little consequence compared to the scale of the infrastructure projects being undertaken.

 

However, it became clear that the DTI’s role in overseeing these projects more or less ceased once Tynwald had given them the green light; and that responsibility ‘passed’ to the Treasury.

 

Mr Morter’s impression was that the Treasury was getting the information it required; and he could only recall isolated occasions that the DTI was asked for assistance in gaining information from the MEA for the Treasury.

 

In fact it was his recollection that, of the meetings where he was in attendance, the Treasury officials did not raise concerns of this nature.

 

He said the DTI’s relationship with the MEA was good and he could only recall one occasion that relations became “frosty” and that was when a letter had been ‘misread’ by the MEA Chairman. However, the Minister quickly sorted the matter our.

 

Apparently this incident related to answers given to ‘supplementary questions’ in Tynwald; although he later responded, to questioning by Mr Butt MLC, a series of correspondence, in late 2004, from Onchan MHK, Peter Karran had also irritated the MEA.

 

In reply to a question from Mrs Christian MLC, Mr Morter said that Mr Proffitt took exception to the introduction of a ‘Task Team’ process for reviewing capital schemes. He said Mr Proffitt couldn’t see any point or value in it and indicated he wouldn’t co-operate.

 

Mrs Christian referred to evidence that Alan Teare, from the Capital Projects Unit had given, regarding a meeting when financial information had been requested, and Mr Proffitt had said he would provide it at the end of week; implying reluctance to provide information.

 

Mr Morter said that this was not the impression he got from the meeting and that Mr Proffitt had provided figures verbally and that these were similar to the figures later provided in writing.

 

David Quirk MHK inquired whether, with hindsight, he could now see the concerns that the Treasury had regarding the flow of information; but Mr Morter, even on reflection, didn’t think he could.

 

New Committee member, David Callister MLC, asked if Mr Morter had been aware of the original figures in the ‘Pink Book’ for the power station and whether the figures provided (for what was spent), by the MEA, tallied.

 

Mr Morter said that a figure of £90.4m was provide verbally but that there was an expectation to claw back £8m in the claim over the collapse of Enron; which brought it back into line with the £80m budgeted figure.

 

Mr Butt referred to the evidence that Mr Proffitt had stated he would not comply with the Capital Procedure Notes (CPN), and asked if that had given him concern.

 

Mr Morter replied that it had caused some concern but he was aware that steps were being taken to resolve the dispute between the MEA and Treasury. He was of the opinion that the MEA worked differently to government departments, and that the issues involved were more complicated, particularly with the changes in the project, and he was not really sure if the CPN allowed the sort of changes the MEA required.

 

Mr Morter, also confirmed to Mr Butt, in a final exchange, that he was not aware that the £80m budget for the power station was not being adhered to.

 

Next to answer questions was Mr Corlett. He read out a long description of his areas of responsibility, and stated that the DTI has only a limited role in respect of ‘overseeing’ the statutory boards, such as the MEA. Examples of the DTI’s role were given as having an input into the tariff setting by the MEA and the complaints process.

 

Mr Corlett said he took it upon himself to acquaint himself of the legislation relating to the MEA and the legal advice that had been received on this subject. He said that the powers granted were only general powers, and that the legislators had given the job of running the MEA to their Board and not the DTI. Therefore, it was not for the DTI to direct the MEA.

 

He told the Committee he saw the MEA as one step removed from government, as it is financed by tariffs and not taxes.

 

Committee Chairman, Mr Rodan SHK put it to Mr Corlett that the MEA is answerable through the DTI Minister, but Mr Corlett suggested only for policy issues, although he emphasized that the Board were still “expected to deliver”.

 

Mr Rodan wanted to know what Mr Corlett’s understanding was of the MEA’s requirement to provide financial information.

 

Mr Corlett said that the requirement only extended to areas of policy, so effectively the pre-Tynwald approval period, as financial matters do not form part of their remit.

 

He explained in the case of the MEA’s telecoms proposal, it was made clear to them that a business case would need to be made, and they assisted with the preparation of a case. Overall he was satisfied though with the information being provided at the quarterly meetings.

 

Mr Rodan asked Mr Corlett his reaction to Mr Proffitt’s statement, which was made six months after Mr Corlett took up his post, that Treasury wouldn’t be supplied with financial information.

 

Mr Corlett believed it related to a procedural dispute – which was something he learnt subsequently – and that the MEA was claiming it needed to proceed promptly and the CPN process was too slow and compliance would delay progress. However, he said the MEA had agreed to provide financial information even though they did not think they needed to adhere to the CPN process. Mr Corlett added that he thought they had provided information; but really the matter fell outside his remit.

 

Mr Corlett was also questioned about the meeting, which he had attended and taken notes, when Mr Proffitt had said the cost of the power station was £90.4m. Had he thought it was the final figure inquired Mr Butt?

 Mr Corlett replied that he had thought it represented a slight overspend and, when Mr Butt said it was now known to cost £120m, he admitted that he had perhaps not been given an accurate figure.

Mr Rodan changed the subject and put it to Mr Corlett that it had been a suggested Mr Proffitt would leave his post a year earlier than planned.

 

Mr Corlett explained that Mr Proffitt had taken the view he had been employed to provide certain infrastructure projects and, they having being completed, he needed a new challenge; and this opportunity lay in the telecoms direction. However, if this was not to proceed then his services would no longer be needed.

 

Mrs Christian pointed out that no business case had yet been provided. Mr Corlett agreed and said that he and Mr Morter had required more information, including financial information for treasury – which he described as for policy purposes – and ultimately this was successful. He cited the ELAN project as the fulmination of this proposal.

 

Mrs Christian suggested that the process of producing the ‘telecoms business case’ was the trigger for revealing the financial problems; but Mr Corlett said he thought it was the production of the draft accounts which slowly uncovered the loan issue.

 

Mrs Christian referred to a file note which indicated that the MEA Board was desperate to get the business case approved.

 

Mr Corlett didn’t disagree and said the MEA was keen to progress the project but it took time for them to get together the information the DTI required for the Treasury He thought the MEA were frustrated by the slow process and probably thought the DTI were delaying progress.

 

Mrs Christian and Mr Quirk wondered if Mr Corlett thought the DTI should have a more important role to play on the financial side; to which Mr Corlett indicated it depended on if there is the political will to change; but historically there hasn’t been.

 

Mr Callister queried the decision to build the power station.

 

Mr Corlett explained that it was a policy issue: two cables or a power station, diesel or gas, etc and it was the responsibility of the DTI to spell out the pros and cons of the different options in protecting the ‘national interest’.

 

It was clarified through further questioning that the DTI led the policy making, which was then approved by Tynwald, and then it was for the MEA Board to deliver.

 Whether the DTI should have a more hands on role financial matters was left some what open.

Mr Rodan brought up the matter of the £10m for wind-farms.

 

Mr Corlett described how it had come out at meeting, when the issue of addressing disturbances to wild birds was being discussed, that the money had been spent elsewhere. This he said had caught the DTI by surprise.

 

Mr Rodan appeared very disappointed that a lack of financial information had allowed the money to be spent elsewhere without the DTI’s knowledge; a situation he found most regrettable.

 

Mr Corlett rather limply replied that the DTI had taken him at his word over the figures.

 

Mr Rodan scathingly suggested it was more a case of the DTI being led by the nose.

 

Further questions and answers followed which highlighted the lack of involvement the DTI took in respect of ensuring the MEA was working within the £185m bond; mostly due to the DTI taking the stance it was an ‘operational issue’ and therefore Treasury’s responsibility.

 

Mr Corlett stated that “hindsight is gloriously 20:20” but reminded the Committee they had been dealing with infrastructure projects on a scale not seen before; whilst at the same time having to deal with the added complication of the collapse of the principle contractor – Enron.

 

In the final phase of questioning of Mr Corlett, Mr Rodan wondered if there had been strict compliance to financial regulations whether the MEA would have been able to step in following Enron’s collapse; but Mr Corlett said he didn’t know. However, he did say that the MEA had to act quickly in order to keep sub-contractors and suppliers on side.

 

Mr Rodan said it would obviously be helpful to other government departments to know how the MEA had managed to act so quickly.

 

Mr Corlett said it was his understanding that there were clauses in the regulations that stated ‘step-in’ was to be included in the contract. But he pointed out that the scale and magnitude of the Enron collapse, which had been rapid, had not been envisaged. So even though some provisions had been made in the contract, they did not make provision for the manner in which Enron did collapse.

 Presumably this is an issue that the Committee will be following up in another part of their inquiries; as they have decided to divide their investigations into several parts. This initial stage is to investigate the MEA’s apparent failure to comply with financial regulations.

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