Al Edwards, Business Co-ordinator
WITH the Minister of Industry, Commerce and Technology Phillip Paulwell having to salvage his political career with what had to be a credible performance in the House of Representatives on Tuesday over the NetServ debacle, the salient questions that will require immediate answers are how can a similar situation be avoided and what measures can be put in place to prevent individuals from "profiteering" from Government effects to attract foreign investment to Jamaica and with it much needed employment.
At this juncture there is no suggestion that Phillip Paulwell acted in an underhanded manner or for that matter made any financial gain from this fiasco. Rather, this can be put down to a case of over exuberance and a willingness to fulfil his vision of expeditiously creating 40,000 jobs in the IT sector over the next three years. What this highlights is his inexperience, naivety and calls into question his abilities as a senior Government minister.
Responsibility
He has to accept some sort of responsibility for this sorry affair. Why? Because he presided over the disbursement of $180 million of taxpayers's money to a company that went into receivership after less than seven months in operation because he refused to heed due diligence reports that would have alerted even a teenage business student to the fact that NetServ and its leading principal, Paul Pereira, were not to be trusted with such an enterprise.
To say that NetServ managed to take candy from a baby is understating the matter and Paulwell is that baby - young, vulnerable and susceptible to the chicanery of a "Samfie".
Paulwell's intentions were noble but, in effect, he should have accepted responsibility and tendered his resignation. He has more than egg on his face and, to continually claim he cannot be held responsible for this shambles, demonstrates a continued politically naivety and a lack of understanding of how government works. In many democratic parliamentary administrations he would have had to resign largely because his position would have become untenable. The case of British Member of Parliament and Tony Blair's former Head of Communications, Peter Mandelson's resignation after receiving an undeclared loan from a Labour Party colleague with a view to purchasing a house springs to mind. For this he had to go.
It now begs the question, can the nation have the confidence in Mr. Paulwell's abilities to attract credible foreign investors to Jamaica? After the English Sports debacle and now the NetServ scandal the answer is no. Alas, politics is not a game where you have three strikes then you're out. In his statement to Parliament on Tuesday, Mr. Paulwell said: "As the Minister responsible for the INTECH Project, I have searched through the records and through my own heart and soul to see where I may have erred."
Well, perhaps a little assistance can be proffered with that search if one may be so bold.
Due diligence and reports as to corporate fitness in the world of business tends to be conducted before and not after the fact.
In March 2000, Michael Dawson made overtures to JAMPRO as to the possibility of setting up telecommunication facilities in Jamaica. In May of that year he submitted a proposal to JAMPRO to establish a call centre operation with JAMPRO requesting that NetServ provide further information on its plans for setting up a call centre in Jamaica together with a business plan submission.
In July NetServ submitted its business plan before the Ministry of Industry Commerce and Technology (MICT) and JAMPRO representatives outlining their plans to establish two call centres of 288 seats each. The company also outlined its level of capital expenditure and its request for Government funding. NetServ claimed it could provide 10,000 jobs in three years.
The very next month an appraisal report prepared by the National Investment Bank of Jamaica (NIBJ) was submitted to the Loans Approval Committee. Instead of investigating the corporate fitness of the company and its operations in both Trinidad and Grenada before giving a tentative commitment, the NetServ project was approved subject to a number of conditions precedent to disbursement as proposed by the NIBJ. It was at that very meeting that it came up that NetServ may have been involved in unacceptable Internet practices including sex and gambling. Although investigations found nothing conclusive of the sort, other questionable issues were discovered which were blithely ignored pending a due diligence report.
So as early as August last year, there was cause for concern that needed immediate attention which Mr. Paulwell must have been aware of. Anyone involved in commercial activity and in particular doing business with an unknown entity is acutely aware of the ramifications of the William Congreve aphorism, "Married in haste, we may repent at leisure. Some by experience find those words misplaced: At leisure married they repent in haste."
More to the point, haste seems to be the operative word here. In fact during the month of August a Term Sheet was sent to the company from NIBJ with the offer of financing and, within days of that, a meeting with NetServ Jamaica was held to authorise the acceptance of the loan offer from the NIBJ with the Board authorising directors, Paul Pereira and Michael Dawson, to execute the agreement and security documents pursuant to the said letter of offer.
Sunday Business understands from a source placed in the world of politics that an earlier due diligence report was so damning of NetServ that it was decided that another report would have to be commissioned. Instead of exercising due care the NIBJ, in November of 2000, paid a cheque of J$90 million into a NetServ account.
Due diligence reports
Pat Francis, in her capacity as head of JAMPRO, alerted both Paulwell's ministry and the NIBJ to two due diligence reports that should have had both Government entities pulling out all the stops to at the very least put the brakes on granting further funds to NetServ.
One of the reports commissioned by JAMPRO, the "Knowles Report" from Trinidad, says: "Confidential Bank Sources within Royal Bank, Republic Bank and First Citizens Bank in Trinidad have indicated that this individual (Pereira) is NOT RECOMMENDED for any unsecured financial transactions. His association with a Corporation called "GANT & CO" in Florida was a disaster since it was closed by the Securities Exchange Commission after "taking" various Trinidad and Caribbean individuals of hard earned investment moneys estimated at US$200,000.
"Paul Pereira is regarded in the local business and banking community as lacking the essentials of financial integrity. His interwoven corporate empire is classified as extremely suspect and high risk being shrouded in secrecy and mystery (although on the surface the legal essentials may be generally in compliance). We caution against any unsecured credit or financial dealings with this individual, especially at a Government level."
Red tag
Surely this was a red rag to a bull, which demanded immediate attention. The KPMG Corporate Intelligence Report though less damning was far from effusive. So who dropped the ball and who should raise their hands up and take responsibility for allowing this situation to go unchecked. Remarkably, no one has, to date.
Pat Francis and her team at JAMPRO have to some degree been exonerated, the commissioning of the Knowles Report going some way to put them in good stead. JAMPRO did its job and that may be considered enough. It presented its findings to the Ministry of Industry, Commerce and Technology (MICT) and the NIBJ and left the matter there, no doubt deferring to the MICT's executive capacity.
But in this case was it enough to just do the job. Shouldn't JAMPRO have made it emphatically clear that NetServ and Pereira could not be recommended to begin operations in Jamaica with Government funding? One can draw the conclusion that in its efforts to fast track this shambles JAMPRO was coerced into facilitating the process as quickly as possible "for the good of the country".
If JAMPRO were reticent about NetServ credentials we may never know. Perhaps Mrs. Francis is too gracious to say "We told the MICT this project shouldn't have seen the light of day but it was hell bent on going ahead with it. Are we now expected to say we told you so?"
The Opposition Spokesman on Industry and Commerce, Karl Samuda, claims that the NIBJ did not receive the Knowles Report for a clear 41 days after it was received by JAMPRO. If that is the case why did JAMPRO hold on to it for this length of time, and this in itself begs a number of questions.
Was a copy of this report sent to the Minister of Information, commerce and Technology for his attention? If so, on what date was this done?
Ultimately it is the Permanent Secretary who gives the greenlight for funding and approval for projects in his or her Government Department. As such, was the Permanent Secretary in the MICT made aware of this report and, if so, on what date, in what manner and by whom?
Mrs. Francis must now confirm that this report was sent to the NIBJ and specify dates.
There are calls for NIBJ boss Rex James to state his case and proffer an explanation for approving the financing of NetServ's operations in the Mutual Life Centre.
Investment decisions
To date he has kept his own counsel. But what is the role of the NIBJ? It was appointed the administrator and trustee of the Information Technology Revolving administration Loan (INTECH) Fund on behalf of the Government of Jamaica. Investment decisions are taken by a Loans Approval Committee after due diligence analysis is completed by NIBJ. The Committee approves the terms and conditions of a loan. The Loans Approval Committee is comprised of representatives from the MICT, NIBJ, Self-Start Fund, JAMPRO, Ministry of Finance and Planning and the Factories Corporation of Jamaica.
Bearing this in mind it seems unlikely that the NIBJ would or could for that matter hold out on a Government Department determined to see a project get off the ground. Can one seriously see Mr. James saying to a Government Minister "sorry in my judgement this project and the personalities involved do not warrant funding and so the NIBJ coffers will remained close to this company." I think not.
Senator James Robertson and Harold Brady have been dragged into this fiasco largely as a result of their roles as "road sweepers" for NetServ. These are the people who ensure that when a foreign company is looking to establish operations in their country it contracts their services as "professionals" to ensure the road to completion goes smoothly largely by cutting through red tape and taking the clearest path through the bureaucratic jungle.
For his services to NetServ which included looking at premises and introductions to the right people, Senator Robinson was to receive a substantial fee which Mr. Pereira subsequently reneged upon. The Senator is most unhappy about this and his party leader Mr. Seaga has asked him to stop pursuing his legal action through a Florida court to recover his "fee", no doubt for the greater good of the JLP who sense blood in the water. Wherever the Great White goes pilot fish are sure to hitch a ride. Brady and Robertson were opportunists, they cannot be held to account for this mess that saw taxpayers's money being given away to a questionable company.
That was the week that was for Paulwell. He exposed his limitations as a senior Government minister and his political ineptitude. On Tuesday, fighting for his political life in Parliament, he said that as a Government minister he wasn't expected to read a balance sheet regarding a company seeking Government funding to start a business in Jamaica. Even if this was so you don't say so in Parliament thereby tele-graphing your ignorance and lack of ability.
After all, the country reposes confidence in you. Further-more isn't Mr. Paulwell supposed to be the Minister for Industry and Commerce among other things? Industry-Commerce balance sheets surely there has to be some correlation.
On that very day in Parliament he extended an invitation to the media to view the NetServ operations and see how the money was spent. The date set was Friday of that week at NetServ's offices located at the Mutual Life Centre in Kingston's Oxford Road. With the flames of controversy threatening to cook his goose one would have thought he would be the first one at the door to greet the media and show them around to allay their fears. Alas, Mr. Paulwell did not show.
Perhaps he was a little worse for wear after his exertions at the Patriot's Appreciation Party held on Thursday night at the Constant Spring Golf Club where he was the life and soul of the party.
Sad indictment
It is indeed a sad indictment of the Government's lack of faith in local companies that many who applied to the INTECH Fund were met with swift rejection yet foreign companies that prove to be shady continually benefit from the Government of Jamaica's largesse. IMEX Technologies and Paymaster are among a host of local companies that failed to receive financial assistance from the INTECH Fund for viable projects.
If Mr. Paulwell will not take responsibility for this sad and sorry affair, then who will or should?
