Editorial: Another failure of due diligence?
It is true, as Kelly Tomblin, the CEO of the Jamaica Public Service Company (JPS), observed, that her firm hasn't yet inked a specific performance contract with Spain's Abengoa SA for the construction of JPS's proposed 190-megawatt, gas-fired power plant. Its only agreement is that Abengoa was identified as the preferred bidder on the project and JPS, according to Ms Tomblin, wouldn't have gone further unless it was assured of Abengoa's "financial abilities".
All the same, that JPS, the light and power provider, reached this far with Abengoa suggests, on the face of it, a monumental lapse of due diligence on someone's part, rendered all the more egregious by the context in which this project developed and the urgency with which Jamaica needs to upgrade its power infrastructure. Two things are important in the circumstance:
1. An explanation by JPS to its stakeholders of how it happened.
2. How the problem is to be fixed and in what time frame.
The background to this deal, of course, was the collapse last year of the previous project, managed by the Office of Utilities Regulation (OUR), for the development of a 360-megawatt power plant and associated liquefied natural gas (LNG) storage and regasification facility, for which the Australian-Hong Kong firm, EWI International, was declared the preferred bidder.
However, there were complaints that EWI was parachuted late into the bidding process, in breach of the Government's procurement rules, an accusation with which the Office of the Contractor General agreed, but which the Government initially attempted to resist. The administration's position, however, became untenable when the Inter-American Development Bank (IDB) made clear that it wouldn't help to finance an EWI project.
Not only was that project scrapped, but a public-private sector group, the Electricity Sector Enterprise Team (ESET), was established to provide policy and operational guidance for Jamaica's energy sector. JPS, an electricity generator which has a monopoly in the transmission and distribution of electricity, was given the right to develop the downsized gas-fired plant.
A fortnight ago, JPS announced it had reached agreements, first, with a US company, New Fortress Energy, to supply LNG for the new power plant, and second, with Seville-based Abengoa, for the generating facility - a US$300-million project, including associated infrastructure.
Within a week of those declarations, Abengoa filed for bankruptcy protection in Spain. It has debt of around US$21 billion, inclusive of exposure in subsidiaries and associated companies.
That Abengoa had problems should have been no secret, especially since its sale in May of €97.6 million of its treasury stock, then borrowing €275 million from its top stockholder. In August, the firm disclosed its intention to raise €650 million in capital, as well as to sell assets to pay down debt and calm concerns about its liquidity, which, by then, was an issue for analysts, who feared it was not generating enough cash to meet its obligations. That, given the background noises of EWI, should have been a red flag to anyone doing due diligence on Abengoa.
Given Abengoa's Byzantine structure, with, based on 2014 filings, 608 subsidiaries, 17 associates, 28 joint ventures and scores of temporary joint ventures, unravelling its finances and restructuring the company could be complicated. We expect JPS, and the oversight agency, ESET, to run hard and fast to a more stable partner for Jamaica's energy sector.