Mea - Where Do We Go From Here

[Utah 01]

That is the reply of an apologist. No, many of us don't cut corners to make life easier or for personal expediency; procedures are there to be followed and are usually in place for the protection of individuals or 'the greater good'.

 

As far as Profitt is concerned (and what could be more appropriate a surname - well, I could think of a few more), he may not have had personal authority to make the loan but he must have good 'mates' in the upper echelons of the bank who would probably have been only too willing to indulge in a bit of mutual back-scratching.

 

The money involved here is ultimately the Manx tax-payers money and its guardian, the Toytown government, has failed miserably to safeguard its constituents interests. The 'whatever it takes' mentality may be acceptable in the dodgy dealings in the private sector but it is not acceptable in the public arena.

[Lost Login]

I am not sure what Profitts name has to do with out I am not not aware of any allegation that money has gone sideways in this deal

 

Cut corners may be slightly the wrong phrase but in business the idea is to get the job done. On the way you may trample on a few toes put a few noses out of joint but that is tough. That at times involve taking risks, making decisions going for the opportunity. If you can go from point A to D direct to achieve your objective and miss out B & C then you may well even if it ruffles a few feathers if it saves costs time etc and has no other serious issues.

 

I have done it myself when I want a bit of work for which case there might be a formal route to get it. Maybe it is via the clients accountant or lawyer. Do I sit nicely by and obey all the rules or if I have a contact number for the client do I go straight to the client and cut a deal there and then. If I sit meekly by I may stand a much smaller chance of getting the work. That is not dodgy dealing it is doing what is required to try and get the work to keep the staff employed.

 

In this instance what I have heard interviews is is that Profitt had a task to do and he went and did it. It does not sound as if he had a great relationship with some of the politicians and the less he could have to do with them the better. It is as if steps B & C were endless red tape, meetings and prevarocation which might have delayed in getting the job done. I do have a bit of sympathy with him in this case as with many of my dealings with Government or Civil servants on matters I find that they thet are often theorists who do not really understand practicle issues and I wish they would try working in the real world.

 

Yes maybe he should have played the political game, tugged his forlock etc but so far I have not heard anything that has come out which has suggested that the ultimately deal, a power station costing X funded as it was would have happened any different. That is what I want to know is the case. If the odd corner was cut and we got what was required for the Island at the right price great. I get the impression that some are more concerned to ensure that every I was dotted and T crossed in the paperwork and if that was the case go hand the rest of it.

 

As for mutual back scratching well if you believe that these days is how deals are done and that it overides all commercial issues then you are way behind the times. Our friendly lawyer on the sight will I am sure put me right if I am wrong but for a start as a director if you at a meeting and do not declare your interest in a matter then that matter is potentially void. There is no way a deal at that sort of level would go through the nod on either side and whilst as MEA chairman he may have a fair bit of sway at the MEA as chairman of a division at the bank I would guess any influence if any would have been minimal. The strings would have been pulled from elsewhere.

 

If I was in the same position the most I could have done was probably ensured that in two equal bids my favourite lender got the work rather than a competitor. I do not believe that there is any way an unfavourable deal would get preference. We are not talking two fat guys in a room coming to a deal while smoking a cigar which is what I think many people feel happened. The victorian days have long gone

 

I do not see myself as an apologist for the government or any body else in tis affair. I have no family or friends in government or in the bank and I am no way contected to any of the matters except as a tax payer and user of electricity. I am just fed up of phrases like "the Toytown government, has failed miserably to safeguard its constituents interests" which I take to mean that if they had done a better job this issue might have cost less or been financed differently. to date I have not seen one scrap of evidence of this. Yes potential failure of scrutiny, approvals, systems and budgeting which all need to resolved but I have yet to see any suggestion that the deal might or could have been done differently if these had all worked correctly. i.e where are the cash savings/losses

 

 

That is the reply of an apologist. No, many of us don't cut corners to make life easier or for personal expediency; procedures are there to be followed and are usually in place for the protection of individuals or 'the greater good'.

 

As far as Profitt is concerned (and what could be more appropriate a surname - well, I could think of a few more), he may not have had personal authority to make the loan but he must have good 'mates' in the upper echelons of the bank who would probably have been only too willing to indulge in a bit of mutual back-scratching.

 

The money involved here is ultimately the Manx tax-payers money and its guardian, the Toytown government, has failed miserably to safeguard its constituents interests. The 'whatever it takes' mentality may be acceptable in the dodgy dealings in the private sector but it is not acceptable in the public arena.

[Chinahand]

As ever P.K. the devil is in the details and it would be just great if things were nice and simple, but they aint! My knowledge of the MEA affair comes from the PKF report which as I've declared before I was tasked to critique, read, eat, drink and sleep, analyse for coded messages from God, check for accuracy, ommissions and white dog poo. The report is on line - so far it is the only really good publicly available info on this affair and it is pretty comprehensive!

 

The MEA by statute CANNOT take out a loan, any loan, without Treasury approval.

True, but MCC isn't bound by the Electricity Acts and it has taken loans out without Treasury approval - sometimes with no fuss at all, sometimes with a huge amount of fuss.

 

You like asking questions - when the MEA took out the controversial loans what reaction do you think they were expecting? Huge fuss, no fuss? Do you think they were just having a laugh?

 

The MEA financial estimates for Pulrose et al were around the £180m mark.

 

The Treasury (i.e. Joe Public muggins taxpayer) put up the £180m for MEA to produce the goods.

 

The MEA estimates were so abysmally inaccurate that the project ended up costing half as much again - £300m plus!

 

This is probably were the mess starts - the £180m was an indicative cost - not a budget, not a finalized project proposal. It excluded a pressure reduction station and the building of the spur pipe from the UK Ireland pipeline to the IOM.

 

I'm sure people will trumpet "How could they be so incompetent to exclude these" - but just a second - the reason they were excluded was that it was assumed that BGE would build them and charge the costs back to the MEA while they were being used. This didn't happen and rather than paying £10 quid a year for 30 years or whatever they paid up the £300 up front.

 

Once you add in these two items things are still over budget, but not unacceptably so - the figures you are quoting are the initial indicative costs.

 

The MEA board arranged for the financial shortfall to be made up by two loans to their subsidiary Manx Cable Company.

 

The loans were made out to the Manx Cable Company allegedly without Treasury knowledge by a division of Barclays Bank.

 

The then CEO of MEA - Mike Profitt - was also the chairman of the division of Barclays Bank that gave the MEA the extra money.

 

Mike Profitt "had no conflict of interest" i.e. as chairman he claimed he had no input into a massive £120m loan from his division......

 

Mr Profitt is a much maligned man. I have no idea what his involvement was on the Barclays side, but he declared his interest and wasn't involved on the MEA side of the loans.

 

Do you think he wanted the role of pantomine villian? So you think he thought "Oh no one will notice £120 million" I'll just hide it in the petty cash? You do like having a laugh don't you. Do you really think Barclays allows itself to be run on the nudge nudge wink wink over £120 million loans

 

To my mind this raises certain questions:

 

1. Why do Manx banknotes not have "Bank of Toytown" printed on them?

 

2. Why was the cost estimate so wildly inaccurate, I mean, wrong by half as much again? Energy professionals - you've got to be having a laugh!

 

1. Haa Haa aren't you the joker

2. See comments I've made above about costs.

 

3. Why were the loans deliberately made out to the Manx Cable Company if not to circumvent the legislation which states that the MEA cannot take out loans without Treasury approval?

 

I've spent many hours thinking about this one. One thing I'm certain about is that the MEA didn't think it was hiding things, deliberately circumventing legislation etc. PKF says this affair was at its most basic a break down in communications and I agree.

 

My take on it was that the MEA viewed itself as responsible for getting the project done, the people involved are all very much doers, succesful business men who got on with things. They were reporting their capital spend to Treasury, Treasury had the statutory accounts - they didn't think there were any serious problems. As I've said above the project wasn't so much more expensive than you'd expect, the only problem was that additional things hadn't been included in the initial costing, not out of incompetence, but out of them being funded differently.

 

Almost certainly the MEA weren’t going – oh crap we’ve massively overspent, this is a disaster, lets hide things. Quite the opposite – they were on record as saying how well things were going. They were proud of what they’d achieved.

 

Two things then combined – Money was needed to finish the infrastructure projects and HSBC was not allowing restrictions on the cable put in place as covenants to the first MCC loan to be relaxed.

 

HSBC was demanding that the cable couldn’t be operated above 40MW and so there was an interest in refinancing that loan to remove these covenants so that the cable could be operated at the 50MW testing had shown it could sustain. That's a 25% increase in capacity - that's a lot of money to be saved /made via energy trading.

 

I am sure there was the additional point that MCC had taken loans out before without a long winded approval process, but I don’t think the attitude was – O shit we need money – we can’t get it without approval from Treasury – oh I know we can use MCC to thwart Treasury approval.

 

I believe it was more – we need money, we’ve previously done it without approval via MCC, we can raise interim finance this way and then refinance with approval via the bond later.

 

I’m as certain as I can be that the MEA didn’t view what they were doing as underhand, or deceptive.

 

In hindsight I'm sure they wished they'd got approval - its been acknowledged by Treasury and the Chief Minister they've have been given the money, but they thought they didn't need to ask then and there and when the money was needed the risks of the entire project collapsing were very real indeed if there had been delays.

 

4. Why was the project left to run itself so over budget with no apparent government scrutiny of the spending of £millions of public money?

 

5. How is it the project ran miles over budget with apparently no-one in MEA bothering to tell anyone in Tynwald?

As I’ve repeatedly said, the project wasn’t that over budget – how the assets were to be paid for changed – resulting in more up front costs, but the overall costs were not “that” much higher than expected.

 

I fully agree that there was a massive break down in communication over oversight. I think the MEA are more to blame than Treasury and the DTI, but they have big responsibilities too!

 

6. Why does Barclays Bank have a divisional chairman who has no authority when it comes to sanctioning massive £120m loans?

Because he recused himself from the process. Barclays internal audit in London has investigated this - don't pretend they'd let back scratching in the IOM get in their way.

 

7. Why does a small area of less than 40k households and no heavy industry need a state-of-the-art (i.e bloody expensive) power plant in the first place?

 

This is an interesting one - its been fully acknowledged the cheapest thing to do is to build two cables and have no independent generation on the IOM. But the politicians, not the MEA, vetoed this.

 

If you have on-Island generation then its pie in the sky that you can get what you need for vastly cheaper sums that what was spent by the MEA. The IOM's power costs are considerably cheaper than Bermuda's which is a reasonable comparator. In the UK Northern Ireland and the Channel Islands are sometimes slightly more expensive and sometimes slightly cheaper than here - on average there isn't a big difference [check out the FTO report here].

 

The Channel Islands import most of their energy via cable so are a good comparison to show how much more expensive our electricity is due to us generating it ourselves - the FTO report states:

 

Until 2003, the average domestic electricity bill in the Isle of Man was lower than in the Channel Islands, Northern Ireland and the Republic of Ireland. After the initial tariff increase in the Isle of Man in 2004, domestic electricity prices in the Republic of Ireland were lower than those in the Isle of Man, although prices in Northern Ireland and the Channel Islands were, on average, more expensive.

 

So the idea that the IOM is saddled with a "bloody expensive" power system is simply not true.

8. Who actually believes that power produced in the IOM via gas subsea pipeline and shipped to the UK via subsea cable is produced cheaply enough to be sold in the UK at a profit?

 

When supply doesn’t meet demand in the UK electricity can cost hundreds of pounds per Megawatt hour – by having excess supply and the interconnector the MEA can and does make big money supplying electricity to the UK.

9. Why do the Manx people put up with this nonsense from their "elected" representatives and the rest of the cosy rosy rip-off club?

 

10. Who are Mec Vannin anyway?

 

As Brenda Cannel said there was a blood lust against the MEA in Tynwald - I hope this is begining to calm down. Yes the MEA took out loans with out permission - but they had done so before without censure.

 

The idea that the Island has been saddled with a hugely expensive and wasteful electricity infrastructure is simply untrue.

[Twitch]

Perhaps the MEA needed the money in order to purchase Manx Telecom from O2...wonder what that would have cost? £120M?

 

From the PKF report....

 

Acquisition of Manx Telecom

 

14.25 The possibility of acquiring Manx Telecom (“MT”) was first raised by the Chief Executive at a Skyward Committee meeting in July 2003. He was subsequently authorised to approach mm02 (parent company of MT) and to set up an acquisition team (comprising himself, Dr Retief and Mr Wilcox) and a strategic think-tank (comprising Ms Cackett, Mr Shallcross and Mr Spencer) to support the acquisition team.

 

14.26 The Skyward Committee minutes of 22 August 2003 state that Mr McCallion and The Chief Executive approached the Chief Minister, Treasury Minister and DTI Minister (“the Ministers”) to inform them of their plans and that all ministers expressed their full support for the proposal. We are informed by the DTI that the Ministers consented to the MEA having confidential discussions with mm02 to determine whether and under what conditions they may have been prepared to sell.

If MT was not acquired, Skyward could compete in its own right or alternatively via partnership with the likes of Domicilium.

 

14.27 The minutes of 23 January 2004 state that acquisition of MT would avoid the need for the MEA to obtain a telecommunications licence under the Telecommunications Act 1984 (see further paragraph 14.68 below). In March 2004 the Ministers gave the MEA cautious approval to approach mm02 to understand the circumstances under which MT may be sold and the possible purchase price, as recorded in a letter from the Chief Minister to the MEA Chairman. In May 2004 mm02 advised the MEA in correspondence that MT was not for sale, although this position may be reviewed if a significant premium was to be offered.

[P.K.]

Well Mr Chinahand as you are known for being a MEA apologist I wondered what it would take to eventually smoke you out.

 

Chinahand: As ever P.K. the devil is in the details and it would be just great if things were nice and simple, but they aint! My knowledge of the MEA affair comes from the PKF report which as I've declared before I was tasked to critique, read, eat, drink and sleep, analyse for coded messages from God, check for accuracy, ommissions and white dog poo.

 

Who tasked you to critique it and why? Why don't you actually declare your interest? Like all of these things I have ever seen the PKF report is as dry as the Sahara. It does have some interesting detail though.

 

Chinahand: MCC isn't bound by the Electricity Acts and it has taken loans out without Treasury approval - sometimes with no fuss at all, sometimes with a huge amount of fuss. You like asking questions - when the MEA took out the controversial loans what reaction do you think they were expecting? Huge fuss, no fuss? Do you think they were just having a laugh?

 

An investigating QC stated that as a MEA subsidiary the MCC should not have been able to extend it's remit beyond that of the MEA especially in the area of taking out loans so no, I don't think they were having a laugh at all.

 

PK: The MEA financial estimates for Pulrose et al were around the £180m mark.

The Treasury (i.e. Joe Public muggins taxpayer) put up the £180m for MEA to produce the goods.

The MEA estimates were so abysmally inaccurate that the project ended up costing half as much again - £300m plus!

Chinahand: This is probably were the mess starts - the £180m was an indicative cost - not a budget, not a finalized project proposal. It excluded a pressure reduction station and the building of the spur pipe from the UK Ireland pipeline to the IOM. I'm sure people will trumpet "How could they be so incompetent to exclude these" - but just a second - the reason they were excluded was that it was assumed that BGE would build them and charge the costs back to the MEA while they were being used. This didn't happen and rather than paying £10 quid a year for 30 years or whatever they paid up the £300 up front.

Once you add in these two items things are still over budget, but not unacceptably so - the figures you are quoting are the initial indicative costs.

 

Sorry but that one just doesn't wash. An "assumption" that causes an overspend of that magnitude by a project team IS incompetence. What else is it, a big surprise or something? If so if they weren't doing their jobs!

 

As BGE are an EU company the PRS was built by MEA on their behalf to avoid all that messy regulation nonsense and came out about on budget at £22m?. As I understand it the pipeline cost about £30m which was omitted from the original estimate. Yes the £185m was an indicative cost but don't try and hide behind it. It's a broadbrush estimate MADE BY MEA and don't forget that after being briefed by MEA and agreeing to go ahead that Mr Bell told Tynwald :

The MEA believes that, subject to electricity demand not massively outstripping its projections, the borrowing of £185 million will provide secure and long-term finance sufficient that the MEA will be able to fund any future capital projects without further government or external borrowing.There are no further plans to issue any further bonds. Indeed, the Treasury is not likely to agree to further external borrowing in future. The annual financing costs associated with the proposed bond will be fully met by the MEA, and I say again that no cost will fall on the taxpayer.

It seems from the PKF report that Tynwald was under the impression that the £185m would be sufficient MEA funding for years. MEA told PKF that it was always a "given" in MEA that the £185m was just a "down payment" if you like and to quote the MEA exec sum :

On Mr Proffitt’s appointment he developed a very close working relationship with both the Department of Trade and Industry and the then Chief Executive of the Treasury (Mr Cashen) for 3 years and they jointly with Clive Wilcox, Director of MEA Corporate Services negotiated the £185m Bond with the clear understanding that at some future date it would be tapped for additional funds.

This statement is completely at odds with the statement made by Mr Bell to Tynwald. Now the MEA board would have been fully aware of Mr Bell's statement so I am wondering where on earth they have got this "at some future date it would be tapped for additional funds" bit from. Any offers Mr Chinahand?

 

PK:The MEA board arranged for the financial shortfall to be made up by two loans to their subsidiary Manx Cable Company.

The loans were made out to the Manx Cable Company allegedly without Treasury knowledge by a division of Barclays Bank.

The then CEO of MEA - Mike Profitt - was also the chairman of the division of Barclays Bank that gave the MEA the extra money.

Mike Profitt "had no conflict of interest" i.e. as chairman he claimed he had no input into a massive £120m loan from his division......

Chinahand: Mr Profitt is a much maligned man. I have no idea what his involvement was on the Barclays side, but he declared his interest and wasn't involved on the MEA side of the loans.

Do you think he wanted the role of pantomine villian? So you think he thought "Oh no one will notice £120 million" I'll just hide it in the petty cash?

You do like having a laugh don't you. Do you really think Barclays allows itself to be run on the nudge nudge wink wink over £120 million loans.

 

Let us get one thing absolutely straight right here. As Chairman of the Barclays Division that made the loans I'm pretty sure Mike Profitt would have made some money out of it. Basically his remuneration package is bound to include performance bonuses on business results, it would be pretty unique if it didn't, and the MEA loans would have been a very nice little tickle thank you very much. I'm not saying he knew of the other bids so that his division was bound to win but he would have been very pleased his division got the business otherwise he just wouldn't be chairman. With a major capitalisation project coming along this, of course, raises the question of his suitability to be on the MEA board in the first place but the appointment was made by Comin. This is the same MEA board, by the way, who were told by Barclays that they would reduce the interest rate if the loan was backed by Tynwald. Rather than approach Tynwald the MEA turned the offer down so the loan cost a lot more than it could have.

 

PK: To my mind this raises certain questions:

Why do Manx banknotes not have "Bank of Toytown" printed on them?

Why was the cost estimate so wildly inaccurate, I mean, wrong by half as much again? Energy professionals - you've got to be having a laugh!

Chinahand: Haa Haa aren't you the joker

See comments I've made above about costs.

 

I try to raise a smile because there are so many miserable bastards in this world.

 

PK: Why were the loans deliberately made out to the Manx Cable Company if not to circumvent the legislation which states that the MEA cannot take out loans without Treasury approval?

Chinahand: I've spent many hours thinking about this one. One thing I'm certain about is that the MEA didn't think it was hiding things, deliberately circumventing legislation etc.

 

Rubbish. The PKF report:

We understand that Government policy is for all Iinternal Audit reports to be copied to the Treasury, the Chief Financial Officer and the Public Accounts Committee. We note that there is significant disagreement between the views of the MEA and Treasury over the extent to which the MEA is required to make its Internal Audit reports available to the above named parties and whether it was in fact required to do so. The MEA states that it has never been asked to provide copies of its IA reports to the above named parties whereas the Treasury states that this policy has been clearly stated to both Mr Dewar and Mr Proffitt. The MEA acknowledges that Mr Clive McGreal, in his capacity asTreasury Chief Internal Auditor, requested MEA Internal Audit reports from Mr Dewar but this request was turned down

So MEA wasn't hiding things then....

 

Chinahand: My take on it was that the MEA viewed itself as responsible for getting the project done, the people involved are all very much doers, succesful business men who got on with things. They were reporting their capital spend to Treasury, Treasury had the statutory accounts - they didn't think there were any serious problems. As I've said above the project wasn't so much more expensive than you'd expect, the only problem was that additional things hadn't been included in the initial costing, not out of incompetence, but out of them being funded differently.

 

Plus lots of other guff about the "communications breakdown".

 

Basically the Treasury claim they didn't bother looking too closely at the MEA reports because at no time did MEA tell them that there had been a few "local difficulties" with funding. The MEA claim they did not have to report very much to the Treasury in the first place!

 

However crucially the MEA obtained a further £70m in 2003 and £50m in 2004 all the time being aware that Mr Bell had stated quite categorically to Tynwald that

The MEA believes that, subject to electricity demand not massively outstripping its projections, the borrowing of £185 million will provide secure and long-term finance sufficient that the MEA will be able to fund any future capital projects without further government or external borrowing

and they didn't bother to tell him.....

 

Chinahand: I fully agree that there was a massive break down in communication over oversight. I think the MEA are more to blame than Treasury and the DTI, but they have big responsibilities too!

 

Agreed.

 

PK: Why does a small area of less than 40k households and no heavy industry need a state-of-the-art (i.e bloody expensive) power plant in the first place?

Chinahand: This is an interesting one - its been fully acknowledged the cheapest thing to do is to build two cables and have no independent generation on the IOM. But the politicians, not the MEA, vetoed this.

 

The old plant is knackered, no question. So they should have put in another cable and had the projected costs been more accurate then that might have been the only option. One of the big hitters for the gas pipeline was that Tynwald wanted to retain an independant generation capacity for - no good reason that I could think of! The pipeline has been put in at just the time the UK becomes a net importer of gas. So IOM power generation, far from being independent, is now a hostage of fortune to - Russia! Nice work people.....

 

Chinahand: So the idea that the IOM is saddled with a "bloody expensive" power system is simply not true.

 

Yes it is. You either import energy via a cable or you import energy via a gas pipeline. Which cost more?

 

Don't mention Skyward...........

[WilDDog]

Perhaps the MEA needed the money in order to purchase Manx Telecom from O2...wonder what that would have cost? £120M?

More like they wanted to buy new vehicles for the whole of workforce.