Jamaicans question 'irregular' deal with Australian company EWI Business Date October 10, 2013 - 3:04PM 54 reading now (53) Be the first to comment Read later Michael West Michael West Business columnist View more articles from Michael West
The Jamaican government is facing scrutiny from the opposition for striking a 'highly irregular' deal with EWI. Photo: Paul Jones
The media in Jamaica is abuzz with speculation of how an Australian company operating out of Hong Kong has suddenly and mysteriously won the tender to build the nation's new power station.
So it was that this reporter had the unusual privilege of appearing on Jamaica Speaks, the country's leading current affairs radio show this week, sharing what little we knew about Energy World International.
EWI is the major shareholder (36 per cent) in Energy World Corporation (EWC), a company listed on the Australian Securities Exchange. It is controlled by EWC chairman and chief executive Stewart Elliott and has done very well financially from related party deals with directors over the years.
Emails had begun arriving from concerned citizens in the Caribbean republic four weeks ago seeking information about EWI. The Jamaican government is facing scrutiny from the opposition for striking, in the words of opposition energy spokesman Gregory Mair, a "highly irregular" deal with EWI.
Advertisement Instead of lining up with the other energy companies in the tender for the 360-megawatt power station by the Office of Utilities Regulation, EWI had gone straight to Jamaica's cabinet to have its pitch approved. Anti-corruption campaigners are up in arms.
Usually in major tenders for essential national infrastructure, the identity of the bidders is either well-known – like a Leighton Holdings for instance – or can be well-established from public materials. In this case however, the winning bidder for the $US700 million ($740 million) project in Jamaica was shrouded in secrecy.
Apart from a page of lofty claims on the website of Energy World Corporation, citing its status as a "pioneer of modular LNG development", the track record of EWI can most charitably be described as lacking in verifiable detail.
So it was that concerned Jamaicans resorted to the internet and discovered a handful of stories in BusinessDay written by this reporter.
Energy World does fine line in hot air but not much LNG For all the gas expended little has been produced Despite claims on the EWC website that it had a 25-year track record in building power stations, despite reports in the Sri Lankan press this year that it was constructing a $US1.35 billion port and LNG terminal in Colombo, despite it receiving multimillion-dollar payments from Energy World, and despite it suddenly emerging as preferred bidder on the power station project in Jamaica, EWI does not appear to have a website of its own. Even a telephone number proved elusive.
Requests made by BusinessDay to EWC for more information on EWI, such as management and office details, met with no response. Yet this is a matter of critical social and economic importance for the Caribbean nation. Energy costs are exorbitant in Jamaica and wages are low.
Apart from press reports, what little the Jamaicans have with which to evaluate the bona fides of EWI can be found in the statutory announcements by EWC to the Australian stock exchange, where it showcases its projects, trades its shares and raises its equity capital.
Over the years, EWC has told the stock exchange it has been building LNG plants in Indonesia, Australia, the Philippines and Papua New Guinea. Over the years, these projects have all been delayed.
In its recently lodged 2013 annual report – audited by Ernst & Young – details of the progress of its 2 million to 5 million-tonne plant to be constructed in the Western Province of Papua New Guinea – along with a deep-water port and power station – appear to have vanished.
It is difficult to tell but this may have had something to do with the fact that the PNG project appeared to have been accidentally located – at least in a company presentation to the stock exchange – on acreage already pegged by US oil group Talisman. Certainly, Talisman did not seem to know anything about it when contacted.
PNG project, delayed PNG project or no PNG project, chairman Elliott and his colleagues have since turned their attentions far further afield.
Last month, just before news of the victorious tender in Jamaica, the following report appeared in the press in Sri Lanka: "Sept 06, Colombo: Hong Kong-based liquefied natural gas (LNG) power generator, Energy World International, will invest up to US$1.35 billion to establish a LNG terminal and a power plant in Sri Lanka, according to industry reports.
"The firm has reportedly been granted cabinet approval last month to set up a LNG Hub Terminal in the Colombo Port.
"According to the Energy World International, the LNG import receiving terminal will act as a hub for onward distribution of LNG throughout Sri Lanka."
Efforts by BusinessDay to establish a dialogue with the Sri Lanka Ports Authority over this $US1.35 billion project did not come to fruition. EWC did not respond to questions.
The company does operate a 195-megawatt gas-fired power station in South Sulewesi, Indonesia, which it is expanding (revenue $126 million), accompanied by gas reserves. And it also operates a tiny plant in Alice Springs ($7.3 million revenue).
These assets provide cash flow and were incorporated in a restructure in 2002 when the present entity was born after a number of corporate incarnations from its Perth origins.
There is no doubt though that EWC aggressively over-promotes the status of its other assets.
It told a UBS resources conference in 2009 that production from its Abbot Point LNG project in Queensland was to commence in about three years. The Queensland government's Planning Department, however, when contacted this year by BusinessDay, was unable to provide any detail about the progress of this venture, let alone formal approvals.
Philippines project The routine of statements-then-delays which characterises EWC's ASX releases is also reflected in the Philippines. In 2008, the company announced its LNG hub was "scheduled to commence operations in July 2010".
In 2009, it was "scheduled … to commence operation in 2011".
In 2010, it was "planned to commence commercial operation in 2012".
In 2011, "site works and construction of the Hub Terminal have already commenced and commercial operation is planned for 2012 and 2013".
In 2012: "We have not procured funding for the Philippines LNG Hub". "We envisage that we will complete the construction of the Philippines LNG Hub and associated works around year end 2013."
Finally, the latest annual report for 2013: "We anticipate that we will complete the construction of the first train and associated works by second quarter 2014 and . . . commence operations thereafter".
Deep in the notes to the EWC accounts – audited by Ernst & Young, filed with the stock exchange and regulated by the Australian Securities and Investments Commission – is mention of the contractor for this project.
Slipform Engineering (a private company controlled by Elliott which was registered in the British Virgin Islands before Hong Kong) is performing the "engineering, procurement and construction of the Philippines LNG Hub" and was paid $US42.7 million on a $US87.3 million contract during the year.
According to one provider of Hong Kong company information: "Slipform Engineering International (H.K.) Limited is a live business incorporated in Hong Kong on October 8, 1997. Their business is recorded as Local Company. It is not part of a group. The company has no filed accounts. The company was incorporated 16 years ago."
Further, EWC and its minority shareholders are also paying Malory Properties Inc (a company incorporated in the Philippines, of which Elliott holds 40 per cent) to lease the land for the project. This 20-year lease on jungle acreage in Quezon Province is costing shareholders $US22,349 a year.
Warning signs Apart from over-promotion, the warning signs of conflicts of interest are legion for EWC shareholders.
While Elliott controls 724.7 million shares in EWC via EWI, eight of the 11 directors hold no shares.
The latest EWC annual report lists some $US335 million of related party payments to companies controlled by Elliott and other directors. All up, $US626 million is payable from the listed company to these related parties.
Dealings with major shareholder EWI have fallen away in favour of other related parties such as Slipform Engineering in the past reporting period.
Of the $200 million in "property, plant and equipment" payments in 2008 and 2009, $40 million went to Slipform Engineering a company incorporated in the British Virgin Islands and wholly owned by the EWC chairman.
Like EWI, Slipform has proved elusive to contact. Despite the size of its contracts with EWC, it does not list key executives nor office addresses in the regions of its operations cited in the EWC presentation materials.
Last year's annual report makes these mentions of EWI in the notes to the financial statements: "On 18 November 2005, the [EWC] shareholders at a general meeting accepted a loan facility with the Company's major shareholder, Energy World International Limited ("EWI"). On 16 December 2011 A$12,588,746 was repaid to EWI as a final settlement of its outstanding debt. This included a break fee of A$2.67 million which was in accordance with the 2005 signed agreement.
"The Company's major shareholder, EWI, a company of which is a personally related entity to Mr S. Elliott, provided financial support to the Consolidated Entity. As at 16 December 2011, EWI had advanced the Company interest bearing liabilities of US$8,601,723 (A$8,673,375) (2011: US$9,919,175 (A$8,673,375)). Interest accrued and payable at the end of financial year from this loan amounted to US$516,334 (A$495,876) (2011: US$3,455,822 (A$3,261,132)). Also refer to note 21(h). These amounts were fully repaid on 16 December 2011, including break fees for the early repayment."
EWC also paid a $2.34 million fee for "executive management services" to its major shareholder EWI and EWI also leases an apartment in Sydney's leafy Seaforth for $6000 a month which it describes as its head office.
Apart from its dealings with EWC, EWI is also involved "as an investor in the development of a 450-room, five-star deluxe hotel on the former Grand Hotel Excelsior site at Valletta, Malta", according to the EWC website.
Elliott told the Jamaican press this week he expected EWI's development of the new power station would deliver a 30 per cent reduction in electricity prices – LNG would be shipped from Indonesia to provide feed for the power plant.
In light of the track record of EWC however, and the deep schism between its claims and its achievements, Jamaicans could be forgiven for treating this bold assurance with a grain of
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