Sun | Dec 5, 2021

Editorial | Auditor general must probe CAP

Published:Wednesday | November 24, 2021 | 12:07 AM

On the outside chance that it has slipped her attention, Pamela Monroe Ellis, the auditor general, should dispatch a team of auditors to the Clarendon Alumina Production (CAP) to fully review the company’s operations, including how it goes about spending taxpayers’ money and whether it insists on good value for its expenditure.

Mrs Monroe Ellis periodically conducts these special audits of government departments and agencies. So, going into CAP would not be unusual. This one, however, is urgent, given the in-fighting on CAP’s board and the questions that have arisen over the competence of consultants it has hired to conduct a sophisticated and complex set of tasks, the process by which the hiring was done, whether the work should continue, and if the services were needed in the first place.

But for the drawn daggers of CAP governors, the situation has what, from a distance, appears to be sleaze of the kind Mrs Monroe Ellis found at Petrojam, the government’s oil refinery, when she did a special audit of that company.

CAP is a Government company. It was 45 per cent of the 1.41-million-tonne capacity Jamalco alumina refinery in Hayes, Clarendon, which was recently shuttered because of a fire at its power house. CAP’s partner in the business is Hong Kong-based Noble Group Holdings, a commodities trader and processor.

CAP was created in the early 1980s when, during a downturn in the world aluminum markets, the US company, Alcoa, decided to mothball its expensive Jamaica alumina refinery. The Jamaican Government, headed by Edward Seaga, decided to lease the refinery, keep it open, and market the alumina it produced. When Alcoa returned to Jamaica towards the end of the ‘80s, it was with Jamaica as a 50-50 partner in the operation, now called Jamalco. Jamaica’s stake was whittled down to 45 per cent after a 2007 expansion of the refinery, which was largely financed by Alcoa. Alcoa sold its stake to Noble in 2014.

Bogged down by the Government’s selling of its alumina, or using its portion of Jamalco’s production to guarantee high-cost debt, CAP has found it hard in recent years to turn profits. According to finance ministry figures, it was, before the fire, projected to lose US$17 million this fiscal year. At the same time, Robert Montague has complained that while the Government’s partner seemed to have done well from the refinery, CAP has not enjoyed the benefit. That is one of the matters the auditor general ought to probe.

NO VALUE FOR MONEY

At the same time, with the contretemps among board members, taxpayers, the company’s ultimate owners, need explanations of the specific issues behind the hiring of a consultant, ostensibly to map a strategy for the incorporation of CAP – or is it Jamalco? – and why this has now caused the big bust-up, leading to this week’s dramatic resignation of its chairman, Norman Reid.

Mr Reid, it seems, felt he was the victim of an attempted coup d’etat by board members, who, in his absence, approved the renewal of a rolling six-month contract for consultants. Those contracts have been periodically rolled over since 2019. Mr Reid, it appears, wanted to end them. He did not believe that CAP was any longer getting value for money – if it ever did.

There are other things about the now controversial assignment that need to be untangled for the public. If, indeed, it is CAP that is being prepared for incorporation, it would be useful to know what difference is intended between its new and current structure as a limited liability company that has operated for nearly 40 years. What is CAP’s new strategic direction?

After all, according to the Government’s report on the finances of public bodies, CAP employs only five people, just half of the number of people on its board. Their job, we suspect, is primarily to keep the accounts and interface with Noble’s managers at the refinery.

PURPOSE OF THIS ENTERPRISE

The questions are pertinent. It is known that Jamalco’s shareholders, Noble and CAP (the latter translates to the Jamaican Government) are keen to list the refinery on the stock market. As part of this process, Jamalco is being prepared for incorporation, which we expect will include a fair bit of disentangling of assets. Should the listing happen and Jamaica retains residual shares in the now publicly traded Jamalco, CAP, on the face of it, will become merely a special-purpose vehicle holding the Government’s asset. It, like other shareholders, would receive dividends if the company makes profits. CAP would no longer have a direct say in how the company is run.

In any event, should the people at CAP, or the mining minister, Mr Montague, need help deciphering trends in the global bauxite/alumina/aluminum market, we would have thought that that expertise existed in the Jamaica Bauxite Institute (JBI). Further, at this stage of the disentangling, savvy corporate lawyers would be expected to be at the table. Or the Government might believe that it has the expertise in-house.

We would also expect that preparing Jamalco for incorporation and listing would be led by the major shareholder and the managing partner, and this process would be undertaken by a major brokerage company – even if it is one in Jamaica – with a proven track record. The larger share of that bill would be Noble’s. It seems unusual that invoices are done to the account of CAP.

In leading people through the thickets of this affair, the auditor general must first establish for taxpayers the purpose of this enterprise, on whose behalf it is being undertaken, to what purpose, and whether the quality of the job so far done was worth the disengagement of international firms, or by-passing other local professionals.