Damning report into MEA scandal

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A DAMNING report into the Manx Electricity Authority loans scandal has identified a serious lapse by Treasury, totally inappropriate operating procedures and overly-optimistic and unsubstantiated profit predictions.

We interviewed Mr Proffitt in June 2009 - the first part is shown above. Subsequent parts are available to watch on our youtube channel http://www.youtube.com/user/iomtoday

LANDMARK: Pulrose power station, paid for by the loans. BELOW: former MEA chief executive Mike Proffitt.

LANDMARK: Pulrose power station, paid for by the loans. BELOW: former MEA chief executive Mike Proffitt.

The report concludes the former chief executive Mike Proffitt should never have been authorised as the signatory for a total of £120 million of loans from a bank for which he had been appointed chairman.

It finds that Mr Proffitt submitted inappropriate expense claims and misused his MEA business credit card.

And it recommends that the Financial Supervision Commission considers whether it should launch an investigation into any of the individual ex-MEA board members named in the report.

The long-awaited final report of the Tynwald select committee inquiry into the MEA loans affair is presented for debate to this month’s Tynwald sitting.

LANDMARK: Pulrose power station, paid for by the loans. BELOW: former MEA chief executive Mike Proffitt.

LANDMARK: Pulrose power station, paid for by the loans. BELOW: former MEA chief executive Mike Proffitt.

Committee chairman Steve Rodan told iomtoday: ‘There is considerable scope for more inquiries. More could have been done with unlimited time. But we believe the main issues of concern are now out in the open.

‘It’s been an incredibly complex exercise. All evidence required careful corroboration. There had been some difficulties initially in obtaining documents but we believe we managed to get everything of relevance.’

This inquiry was set up back in July 2005, nine months after revelations first surfaced that the MEA had taken out extra loans totalling £120 million via its MCC Ltd subsidiary.

Expenditure on capital projects including construction of the new power station at Pulrose had spiralled significantly above the original £185 million funded by a government bond in 2001.

The final report examines the reasons why expenditure escalated to such an extent that substantial additional loans were taken out, the procedure for procuring those loans and whether that procedure complied with the legislation in force at that time, the decision-making procedures by the MEA board, the financial controls and the MEA’s proposals for entering into telecommunications.

It concludes that it was a serious lapse that Treasury either did not submit the conditions relating to expenditure of the bond monies to the MEA or, if they did, they did not retain any documentary evidence or require MEA to give a written undertaking that they would comply with those conditions.

The report finds the board placed too much reliance on the chief executive and failed to adequately monitor his performance, and failed to consistently control and monitor expenditure.

‘We conclude that the MEA chief executive and his officers’ predictions for future profits and tariff reductions were overly optimistic and unsubstantiated,’ it states.

The committee also concludes that because of Mr Proffitt’s declared interest as chairman of Barclays Private Clients International, having previously been a non-executive director. he should not have been appointed by the MEA board in 2003 and by MCCL in 2004 as an ‘authorised officer’ with the ability to give instructions to the bank in connection with the loan facilities for £70 million and £50 million taken out with Barclays Bank.

‘We conclude that MCCL entered into the additional loan agreements, guaranteed by the MEA, with inadequate consideration of all the options which were available and with no realistic plan for paying the interest or repayment of the loans,’ the report finds.

It says the main reason why the board chose to borrow through the MCCL subsidiary was to avoid the constraints of the Electricity Act 1996, and that the transfer of funds from MCCL to MEA contravened that Act.

In their evidence former board members stated they had not obtained Treasury approval for the MEA to obtain the additional loans, partly because it would have taken too long.

But the report says that Treasury concurrence could easily have been obtained within the required timescale. ‘We do not understand why the additional funding seems to have been arranged in such a rushed manner.’

It also described as ‘nonsense’ claims by Mr Proffitt in his evidence that Barclays would have taken the hit on the loans and his suggestion that ‘we protected the MEA and the government from the failure of the project’.

‘We believe that the board should have considered not only whether it could legally borrow through MCCL, but also whether it was ethically correct,’ states the report.

Turning to the Skyward telecommunications subsidiary, the select committee said it failed to understand how expenditure on it could have reached over £1.5m ‘without a single penny of profit having been received or any likelihood of any profits being forthcoming in the short term’.

The report further concludes that Mr Proffitt submitted inappropriate expense claims and misused his MEA business credit card, and that the MEA chairman authorised Mr Proffitt’s claims without satisfying himself that they were all correct and appropriate.

The disputed claims related to flights and hotel costs for a visit to the World Energy Council in Spain and a business trip in London in connection with his company REH.

The report reveals that a file was delivered to the police but it was decided no action would be taken. The report asks why the then Attorney General John Corlett imposed a condition that Mr Proffitt could not be interviewed by the police without his agreement - and it says it has still not established whether he was ever interviewed by police.

Its final recommendation is that the Financial Supervision Commission should examine the evidence and conclusions contained in the report and consider whether an investigation into any of the individuals named should be carried out under the Financial Services Act 2008 to see whether they are fit and proper to work in the financial services sector.

Mr Rodan told the Examiner: ‘It is up to the FSC to consider whether there is sufficient evidence that warrants further action.’

Former board member Dr John Taylor, who the report stresses was not party to many of the critical decisions, said in full response to the report’s finding that any criticism of him personally are ‘misconceived’ and there is ‘absolutely no basis’ for making a reference to the FSC.

He said the committee would be failing its task if it referred the whole issue to the FSC without any guidance as to who it thinks is responsible.

Without that guidance, the FSC will be required to start ‘yet another roving enquiry into the whole affair costing the government yet further millions set against the tens of thousands of pounds legal costs borne by individuals personally whilst unfairly caught in an unclear conclusion’.

What do you think? Write to us at Isle of Man Examiner, Publishing House, Peel Road, Douglas, IM15PZ or email opinions(at)newsiom.co.im.

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