Manx Herald Isle of Man: Pulrose power station project a success – it got built, Wilcox tells MEA Select Committee

Pulrose power station project a success – it got built, Wilcox tells MEA
Select Committee
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Herald Editor on 31 May, 2009 03:54:00
 
Former Director of Corporate Services, Clive Wilcox told the Tynwald Select
Committee - investigating the Manx Electricity Authority (MEA) ‘loans
scandal’ - construction of the new power station, at Pulrose, was a success;
not because it came in on budget but because it got built!
Mr Wilcox had been answering questions about how and why the MEA’s projects
ran over ‘budget’ by £120m or so, and whether he, and others, knew the
reasons; what they had done about it and who had they told.
He informed the Committee the project had started too late and, with a pressing
need to provide a secure power supply, getting the project completed was the
most important matter. He effectively told the Committee it would have been
pointless to work to the original ‘budget’, until it had all been spent, and
then stop and not complete the project; just because you didn’t get enough
money at the start to finish the job.
The Committee didn’t seem too impressed, or convinced, by this argument, with
Clare Christian MLC pointing out the ‘budget’ was the sum allowed to build
the scheme; and wondered why they hadn’t modified the scheme if they didn’t
have enough money.
Mr Wilcox replied they had looked at that option but having a “functional
power station” was the greater imperative.
The session had commenced with Mr Wilcox explaining Mike Proffitt had introduced
a new structure to the MEA when he became CEO, including a defined capital
projects unit, and attendance at Board meetings, by the different
‘Directors’, on a rotational basis.
He said Ashton Lewis had the responsibility for the capital projects, and, by
temperament, had been a “very strong project manager”; and this had caused a
few frictions along the way. However, Mr Wilcox thought it was more of a
“back-handed compliment” as he had an enormous project to build; and he was
“very focused on delivering it.” He stated Mr Lewis reported directly to Mr
Proffitt.
It was established though, by the Committee, Mr Wilcox was responsible “for
the money” and for monitoring expenditure against the budget. He said he had
been happy with every set of figures he had produced for the Board.
It was put to him, by Dudley Butt MLC, Mr Lewis had told the Committee he
didn’t know how much the project cost - he just built it; but Mr Wilcox
replied you only had to look at the “numbers in the Board packs”. He later
emphasized there had been no under-reporting of the expenditure to the Board.
He gave the Committee an overview of the financial information contained within
the Board packs; which consisted of 5 main headings, with about 20 lines of
information, a number of sub-contracts and some separate staff costs.
Committee Chairman Steve Rodan remarked they appeared to be very detailed
numbers and inquired what was provided to Treasury.
Mr Wilcox explained he had produced a quarterly report for them so they could
report figures against those in the government’s ‘Pink Book’ (IOM Budget
Book).
He said figures were prepared differently for the big capital projects, to the
smaller, almost maintenance type jobs, in order to provide information that was
more useful for Treasury. However, he was exceptionally scathing of Treasury
officials’ use of the figures saying he doubted they used them
“intelligently, if at all.”
So had he provided “accumulated figures” inquired Mr Rodan; but Mr Wilcox
replied that would have been an “intelligent way but they just wanted
quarterly figures.”
Mr Rodan wanted to know if it would have been possible for Treasury to keep
track of the expenditure; to which Mr Wilcox said it was possible, as the
figures he gave were always correct, but if they were not using the figures
intelligently he was not going to waste time on preparing them.
Mr Rodan checked to whom in Treasury he sent the information; and Mr Wilcox
confirmed it was the person Mr Proffitt had mentioned in his evidence - a Mr
Rivers.
Mr Wilcox then took exception to an inference from David Quirk MHK, and stated
he had no idea who, in Treasury, Mr Rivers worked for; and that remained the
case to this day.
Mr Butt suggested he had said he had stopped sending the information to
Treasury, which Mr Wilcox confirmed was correct, and as he had previously
explained he was not going to spend time sending figures which were of no use;
so this duty was delegated to Clodagh Maher (MEA Financial Accountant), he said.
Mr Callister started exploring how the cost of the power station had gone from
£80m/£90m to £129m, and whether this had been reflected in his figures; to
which Mr Wilcox confirmed they would have gone from £0, at the start, to £129m
at the end.
So roughly £40m added on, said Mr Callister; and checked he didn’t disagree
with the figures. Mr Wilcox did not.
Mr Butt wondered when they had surpassed the £185m; but Mr Wilcox couldn’t
recall a particular day.
Mr Butt also wanted to know if he had reported the overspend; but Mr Wilcox
replied, “Not as such”, and repeated he just reported actual spend and
against forecast.
Both Mr Butt and Mrs Christian asked similar questions about his duty to report
on financial matters to the Board, especially if it had important implications;
and Mr Wilcox confirmed this was so. He said the necessary information was
supplied to the Board, and everybody would be concerned, but the critical thing
was having an operational power station.
It was again confirmed the MEA believed the original figures were indicative and
not a cap; and, in Mr Wilcox’s mind, there had been no intention to overspend.
He again reiterated the building of the new power station had been left too
late.
This prompted an exchange on the type of contract used by the MEA, with Mr
Wilcox stating if they had tried to use a fixed price, turnkey method it would
not have worked. He didn’t think they could have got all the prices together
within 2 years, by which time they would be out-of-date.
Mrs Christian asked if he was familiar with the CPN and Mr Wilcox went into a
lengthy explanation of his knowledge and thoughts on the workability of the
notes. He said he had been aware of a longstanding argument about them – and
still wasn’t sure if the issue had been resolved – but that fell outside his
remit. As for financial regulations, some were unworkable, such as not being
able to have a separate bank account, not that the MEA had complied with that;
and it hadn’t been enforced.
Following the ‘direction’s’ row with Treasury, Mr Wilcox said Mr Proffitt
came to see him and told him to provide a financial summary to the Treasury; but
he had informed Mr Proffitt this was already done quarterly.
Mrs Christian told Mr Wilcox about a memo from Ian Thompson (Treasury Capital
Projects Unit) about the agreed information - which was not required to be too
detailed, but an overview and to include cashflow - and was that what he sent.
He didn’t recall being asked for the latter.
Mrs Christian then put to him 5 out of the 12 reports sent had narrative and no
financial figures, so what was being sent had to be different to what was
submitted to the Board.
Mr Wilcox maintained he sent what Treasury asked for, and could not recall ever
having spoken to the CPU at Treasury; he thought any contact was via the MEA
CPU.
Mr Callister put it too him that the project had been described as the largest
capital project on the IOM; and wondered if it had proceeded with no capital
constraints; but Mr Wilcox replied that was not so.
“So there were constraints”, came the retort from Mr Callister, and there
hadn’t been an “open ended cheque”; but Mr Wilcox thought they were trying
to trap him into saying something they wanted to hear.
Moving on to the loans from Barclays, Mr Rodan inquired if he had thought they
had needed Treasury approval; to which Mr Wilcox replied he didn’t think they
did but, regardless of that, he still thought Treasury had consented.
Mr Rodan asked him to clarify his response; and Mr Wilcox said he thought
Treasury knew of the loans even though they had not formally approved them.
Mr Rodan suggested was it a case of Treasury had given “tacit consent from the
knowledge of the information provided”; and Mr Wilcox thought that was the
case as they had not suggested otherwise.
Under further questioning, Mr Wilcox explained he couldn’t point to anything
in particular which drew him to the conclusion they knew; just the fact he
thought they had been supplied with enough information to work it out. He also
gave the impression it was pretty obvious that the MEA had spent more than the
£185m, and when they needed more money, to meet the shortfall, they would just
borrow it themselves; as there wasn’t time to go through the government bond
type process again.
Mr Butt didn’t appear to accept this argument and put it to Mr Wilcox it had
only taken two weeks to get approval of the Bond; but Mr Wilcox suggested they
didn’t fully appreciate how the process for raising money through a bond
worked; and the time it all took.
Mr Callister put it to Mr Wilcox the level of interest payable on the Bond was
such the MEA could never afford to pay it; and did he agree. Mr Wilcox tried to
explain why the MEA had raised the finance, so it had some permanent capital,
and it had been the best way to do it; but Mr Callister was clearly not
convinced.
Stating the taxpayers and electricity consumers were picking up the bill, with
£10m p.a. interest bill to fund, he suggested it was a very expensive way to
borrow; but Mr Wilcox replied, “I think it is very cheap compared to other
methods.”
However, he couldn’t persuade the Committee, who continued to suggest it was
unsustainable; especially as the total borrowing had risen to £305m, said Mr
Butt.
Mr Wilcox reiterated that was the cost for doing it the way the government
wanted to do it; and reminded the Committee they could have gone down the route
of importing all the power from the UK, but chose not to.
Mr Butt maintained it had not been sustainable as the government is now paying
the cost.
Mr Wilcox later said that relations got so bad, at one point, between the MEA
and Treasury that by the time he left the MEA, in 2005, Treasury was unhappy
with almost everything about the MEA. He also said he thought, had the MEA gone
to the Treasury for additional funding they would have refused, in order to
prevent Mr Proffitt completing the project.
Mr Rodan wondered even if this meant a half built power station, but Mr Wilcox
thought they would have finished it “one way or the other”.
Mr Wilcox stated it had been him who suggested they borrow the money through the
MCC, as the company owned the cable and was going to own the power station.
Mr Quirk wanted to know if it was Mr Proffitt that had told him to do it; but Mr
Wilcox said the Board signed it off; and, he added, Mr Proffitt had been
“scrupulous” in making sure he had not been involved because of his links to
Barclays. He made it clear it was well known Mr Proffitt was Chairman of
Barclays Wealth, and that he had been very proud of being the Chairman.
A further discussion took place about why they had not approached Treasury but
Mr Wilcox repeated his previous answers and said he had nothing to add.
Mrs Christian wondered if they thought they would earn enough to pay the
interest; and Mr Wilcox pointed out they were making better use of the cable,
and earning more income than when National Grid had a share.
The final few questions related to the role of Paul Dewar, the MEA’s internal
auditor, and the allegation he had been denied access to certain information.
Mr Wilcox’s view was Mr Dewar’s main duties were to audit transactional
areas: sales from the MEA shops, purchases and the payroll etc; and perhaps he
hadn’t had access to MCC and the capital projects as they were “may be not
the best areas” for him to spend his time.
According to Mr Wilcox, MCC only had about 14 transactions a year so it would
not have been the best use of his time.
Further sessions are scheduled for 19th June, when former Board members are due
to give their evidence.