The government has given Water Authority, Cayman three months to sell off its public sewage system assets, despite the Central Tenders Committee being unable to choose a winning bid since the tender closed in December 2010.
The deadline has been imposed because the proceeds from the sale have already been factored into this financial year’s budget, which ends 30 June, according to minutes of Water Authority board meetings released under the Freedom of Information Law.
Cayman Islands Governor Duncan Taylor, the Central Tenders Committee, the Office of the Auditor General and the Water Authority, Cayman Board of Directors have all raised concerns about how the proposed sale of Water Authority assets was being handled, according to the minutes.
The validation period for two tenders received by December 2010 has been extended six times since the tender closed. A third bidder, which submitted the highest bid with the lowest cost to customers, pulled out due to delays by the Cabinet-appointed Wastewater Technical Committee to make a recommendation, according to the minutes.
In February, the Cayman Islands government passed responsibility for divesting the assets over to the Water Authority and its board of directors.
Premier McKeeva Bush, in his latest Strategic Policy Address, said the government planned to raise $59 million from divestment of public assets in this fiscal year. How much would be raised from divesting the wastewater assets was not mentioned in the address, although in a recent Finance Committee meeting of the Legislative Assembly, it was revealed that monies to help complete the construction of two high schools would come from the sale or lease of Water Authority assets.
As of the most recent audited annual report of the Water Authority, for the fiscal year 2008/2009, the Water Authority sewerage system was valued at $19.4 million.
Despite the “very aggressive time line”, as it is referred to in the minutes, efforts by the Water Authority board to meet and correspond with Minister of District Administration, Works, Lands and Agriculture Juliana O’Connor-Connolly, under whose ministry the Water Authority falls, between November and January went unheeded. She was a “no show” at a 19 December meeting which her ministry had arranged between her and Water Authority officials. The meeting had been arranged in response to a 17 November letter from the chairman of the Water Authority Board, Lemuel Hurlston, which raised concerns over the divestment process.
In an e-mail dated 30 January, 2012, the ministry subsequently informed Water Authority director Gelia Frederick-van Genderen that it wanted the tender process to be restarted. However, at a meeting between ministry and Water Authority officials on 29 February, the ministry reported that it had received guidance from Central Tenders Committee chairman Nick Freeland that to fast track the divestment process, the authority should ask for updated proposals from the three tenderers based on new financial data instead of completely retendering and that a business case and an evaluation report should be put forward.
A business case on the divestment of the wastewater assets had not previously been done and an evaluation report had been drawn up by an evaluation review committee whose members were chosen by Cabinet.
According to the minutes, ministry staff said the Central Tenders Committee had opined that “as the project had gone through the entire process already, the business case need only outline the basic principles for selling the asset”.
The ministry advised that a new technical committee should be set up, consisting of Water Authority management staff and two board members. Ms Frederick-van Genderen, director of the Water Authority, is chairwoman of this new evaluation committee.
Concerns over how the sale of the assets was being handled date back several months. On 12 September, 2011, the then permanent secretary of the Ministry of District Administration, Works, Lands and Agriculture, Kearney Gomez, informed Ms Frederick-van Genderen that Governor Taylor, Auditor General Alastair Swarbrick and the Central Tenders Committee had expressed concerns over the divestment process and told her that the Office of the Auditor General would be reviewing the process in more detail.
The following day, Mr. Gomez e-mailed the Water Authority to say that he had been advised at meetings with the governor and the chairman of the Central Tenders Committee that the technical committee’s report, submitted to the Water Authority, was “unacceptable” and the matter would not be on the Central Tender Committee’s agenda at its next meeting.
One of the concerns raised over the process was that the decision to offer the assets for sale by tender was made by Cabinet and the evaluation of bids was carried out by a technical committee appointed by Cabinet, with no input from Water Authority management. The Central Tenders Committee also had raised concerns that the evaluation report contained no substantial information on the impact the divestment of wastewater assets would have on customers and the local cost of doing business.
According to the meeting minutes of 19 October, 2011, “The Chairman [Mr. Hurlston] confirmed that the decisions on these matters were completely removed from the authority management and to some extent out of the hands of the board. It might therefore safely be said that the divestment decision was a ‘political’ one made by the shareholders (the Governor-in-Cabinet) and handed down to board members and management of the authority for implementation.”
The minutes showed that the Office of the Auditor General advised that Cabinet had no remit to set up a technical evaluation committee and that this should be done through the Water Authority. The Office of the Auditor General had made it clear that the Water Authority should manage the process and the ministry and Cabinet involvement should be limited to being informed of the status of the project.
At an extraordinary meeting of the Water Authority Board of Directors on 5 March this year, the board was informed that the Legal Department was reviewing whether a new request for proposals would have to be sent for public tender or if the authority could continue the divestment process using procedures proposed by the Central Tenders Committee. According to the minutes of that meeting, Mr. Hurlston noted that the divestment process had difficulties as the Water Authority Board was “subordinated and marginalised by the appointment of the [Wastewater Technical Committee] outside of the authority”.
One board member, Otto Watler, said at the 5 March meeting that he was concerned that the process now appeared at this late stage to have been handed over to the Water Authority, saying it seemed the authority would be “used as a scapegoat to blame for all the delays in this divestment process”.
Mr. Hurlston at an earlier meeting noted he was not satisfied with the level of due diligence on the bidding companies. “The technical committee appears to have assumed that that function was the responsibility of the CTC and vice versa,” according to the minutes.
One of the remaining two bidders did not exist as an operating company anywhere and had no experience on its own – an issue the Water Authority’s technical adviser/secretary raised with the Cabinet-appointed Wastewater Technical Committee. “The experience and expertise of that company, Cayman Aqua Management, was based entirely of its partners AECOM and Veolia Water. The Wastewater Technical Committee secretary suggested that the committee include a requirement that if this company was chosen, the experienced partners must have a significant participation in the ownership of Cayman Aqua Management, as their proposal was “vague about the composition of the various international corporations in this company and does not include any information on share distribution, shareholders’ agreements, etc.” the minutes read.
According to the minutes, Mr. Hurlston said the ministry and board should ensure that the divestment process is “fair, transparent and compliant with the relevant regulations and commitments”. He noted that “doing something the same way and expecting a different result will not work”.
Mr. Hurlston and Mr. Freeland, contacted by the Caymanian Compass for comment this week, referred the Compass to the ministry. The ministry did not respond by press time.