-
by pltm
(PLTM) - A crucial report that warned the then National Democratic Party-administration about the financial implications about the failed BVI Airways project that ended up costing tax payers $7.2M never made it to Cabinet, according to new findings.
The National Democratic Party (NDP) administration commissioned a financial analysis from the firm of independent accountants BDO which was received January 9, 2015. Cabinet approved financing of $7M for the project on September 23, 2015, but the airline would receive an additional $200,000 without further Cabinet approval.
According to the Auditor General's report, the BDO financial assessment report recommended changes for a more equitable arrangement, but that report was not included among the papers presented to Cabinet when it considered financing of the project.
BDO advised that the provisions in the Memorandum of Understanding (MoU) signed between the Government and the operators that required the Government to assume the financial risk of the project while guaranteeing the other parties significant returns needed to be renegotiated to a more appropriate risk and reward.
The Auditor General's report highlighted that BDO noted that the 20% interest rate contemplated under the MoU to be far too aggressive given the lack of risk being borne by Castleton Holdings LLC, the company originally commissioned to explore the possibility of BVI/Miami commercial flights.
Further, the Auditor General’s report stated that BDO recommended an interest rate between 5%-8%.
BDO further indicated that the Government should not proceed unless interline agreements are completed.
According to Auditor General’s report, BDO advised that the Government would be taking on significant liability risk by signing a revenue guarantee contract with parties that apparently lacked relevant operational experience and the age of the aircraft would likely lead to greater maintenance costs.
The firm recommended that more modern aircraft should be considered even though they may be more expensive to lease.
The Auditor General found that none of the recommendations made by BDO were adopted.
BDO Senior Official Sat On Airline Board
Despite the warnings from BDO, one of its senior staff accepted an appointment from Government to sit on the airline board.
According to the report, the Government's nominee to the Board of Directors for BVI Airways was Ryan Geluk, BDO’s Deputy Managing Director.
The Auditor General’s report outlined that Geluk was nominated as Director in March 2016 and reported that the he attended one meeting together with Financial Secretary Neil Smith and Chairman of the BVI Tourist Board, Russell Harrigan which was held in Miami in September, 2016.
The report noted that the airline at the time was still seeking approval from the regulatory authorities and appeared to be having difficulties with ASSI's delayed processing of the manuals and documents submitted.
Apart from the Miami meeting, the director reported that he was not provided with information regarding the airline's operations and the only set of financial statements reviewed were unaudited and for the 15 months pre-operational period from commencement of the venture to March 31, 2017.
First Rejected
The BDO report was not the first on the planned project. Bruce Bradley, a Washington DC based real estate developer and his company, Castleton Holdings LLC had tried in 2014 to get the Government to pump money into the route.
A MoU was signed on June 5, 2014 between Bradley’s company and the Government. However, by December, 2014 the plan was rejected by Government.
Sixel Consulting Group Inc. a data analytics and air services development consulting firm undertook a feasibility study jointly with the Government and Castleton in July 2014. In addition, Falko Regional Aircraft Ltd. Was commissioned by the BVI Airports Authority (BVIAA) to assess whether the runway could safely accommodate the propose flights.
The Auditor General report outlined the discussions subsequent to the submission of the Sixel and Falco reports led the Government’s rejection of te project on the grounds that the financial risks were too high and the absence of interline agreements rendered the success of the project uncertain.
Then why did the NDP Government restart negotiations and turnover $7.2M without much changes to the 2014 plan?
The Auditor General found that the discussions on the proposal were revived in January 2015 on the prompting of Lester Hyman, who was identified as the Government’s long-standing legal counsel in Washington DC.
According to the report it was Hyman who introduced Bradley to former Premier and Minister of Finance, Hon. Dr. D. Orlando Smith in late 2013.
-----
Copyright 2023 by Virgin Islands Platinum News. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
