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Submitted by Falkland Islands News Network (Juanita Brock) 30.06.2011 (Article Archived on 14.07.2011)

A public meeting took place at 1700hrs on Tuesday, 28 June 2011 in the Court and Assembly Chamber of the Town Hall.


By J. Brock (FINN)


A public meeting took place at 1700hrs on Tuesday, 28 June 2011 in the Court and Assembly Chamber of the Town Hall.  Present were the Hon Jan Cheek (Chair), the Hon Emma Edwards, the Hon Roger Edwards and the Hon Sharon Halford.  This meeting was taken up with a budget presentation by the Financial Secretary Mr Keith Padgett, who gave a 10 minute talk followed by a question and answer period with Mr Padgett as well as with the other members of Legislative Assembly present.


Mr Padgettís presentation covered Financial Pressures facing the Falkland Islands Government and how the Government purse was coping with them.  He explained that while he presented a budget surplus in his report for the up and coming financial year, there would be a small deficit for a few years following.  He mentioned that there would be more money around if the Illex fishery was as good as this year and if there were more positive news in the hydrocarbons industry.  He cautioned that these factors were not added into current budget calculations because they were volatile and could turn south as well as north in subsequent years.  A series of graphs were shown on how taxpayersí money was spent and he outlined capital projects and other investments Government intended to make.  He then explained where the money came from, saying that fishing and taxation were two main contributors, followed by income earned from the Public Works Department, investments and the Health Service, with revenue from MST as well as from paying clients from outside the Falklands.


Q-1 By Stella Prindle Middleton:  Did I see the slide right, Keith?  Was income for MST at half a million?  And then from the income from one of the last slides, the income for hwalth was 2. something Million?  Is that a combination of MST and paying customers?


Mr Padgett said that in just under a year FIG expected to get just under half a million Pounds from MST and thatís all included within the health budget but in this financial year, because MST only started in January, only half a yearís worth of MST was recovered.  MST has not gone up but it is the full effect of it being collectable for a year.


Q-2 by Roger Spink:  What was the budgeted out turn for the end of this year that ended the 30th of June this year and what is the expected actual out turn?


Mr Padgett said FIG expected to cut a small deficit for this financial year.  FIG are still working on the year in figures but it is evident already there is going to be a significant surplus.  A part of that is because investment returns were better than originally anticipated than it was a year ago but more importantly, FIG has a significant amount of Illex income that wasnít expected.  FIG originally budgeted for £2.5 Million Illex income.  Though the surplus is significant Mr Padgett wasnít prepared to say how significant the surplus was at the meeting.


Q-3 By Derek Howatt:  I was wondering why FIG have become involved in providing a wind farm at Mount Pleasant.  He went on to say that at the moment FIG were not involved in providing Electricity Services at Mount Pleasant and he thought it would be something for the private sector.  He didnít think FIG was wanting to get into providing additional services.  He felt that would be something the private sector could become involved in.


Mr Padgett said the Government was asked by the MoD if FIG would broaden the electricity generating network.  If it goes ahead the project, in order to make money for FIG MoD have the money to spend for electricity but they havenít got the finance available to spend in building a wind farm..


Q-4 by Lewis Clifton:  Just as a follow-up, can I ask where FIG is in terms of privatisation?  He went on to say that one of the great selling points of the post of Director of Procurement and Efficiency was that the Government would roll out Privatisation and perhaps this was taking away an opportunity.   He asked if there was a stalemate on whether government is either Government is looking to take privatisation or had it taken it off the record completely?


Mr Padgett said it has not been taken off the record.  He went on to say he did not know particular details about where we are specifically but he had seen the copy of a draft report that the Director of Procurement and Efficiency has put together on the methodology that might be used for privatising services and which services might be involved or not but he doesnít know what state the project is in.


He added that the MPA wind farm wasnít Government expanding its services but it was FIG reacting to a request from MoD to help them out.  They have a power station that is nearly at the end of its life and though they can afford electricity payments the red tape, budgeting and time necessary to replace it is prohibitive for timely replacement.


Luis Clifton said it just seems to fly in the face of localisation in terms of what the Ministry of Defence is hoping the private sector will bid for at Mount Pleasant.  It seems to me that this isnít balanced anymore.


JC: My understanding is that this proposal on wind power has been in the pipeline for three years or more Ė maybe four years.  It was certainly well underway by the time the new Assembly were elected.  And given that we now seem to have a bit of expertise in that field, it seemed silly to drop it there and then because it looks like a useful revenue maker as well as being helpful to the Military.  It looks like a useful revenue making opening for Government.  On privatisation generally I think we are all in favour of the principle of it; and, going back to Government Services that could be privatised, the better in principle.  I think, to be fair, the person who was appointed to lead on that then got side-tracked into doing other things that people wanted.  Some people were elected on the basis of a review of FIGAS and other things which he became heavily involved in.  But there is certainly no lack of will to go ahead on privatisation.  Itís something we welcome with open arms.


RE:  Privatisation and Localisation which you mentioned Ė we are hoping to continue.  You know better than me.  I have been away for the last month and I believe you had some quite sensible discussions in the last month, have you not?


Lewis Clifton:  Indeed we have and thatís why I canít see where FIG setting up a generation plant of electricity at Mount Pleasant would fit within that overall concept of localisation.


EE:  I think there was also going to be some additional spin-offs which maybe Government could tap into to help development within Camp around the Fitzroy area, hopefully developing local businesses in the Fitzroy area, such as a cold store for vegetables for that particular region.  And so with the wind farm that would certainly help stimulate business growth in that area.


Mr Padgett thought it was also a marginal use of resources.  In order to run a wind farm at MPA would take very little resources than it does to run the wind farm that weíve got.  And weíve got the skills to maintain that and run it.  It doesnít make much sense to duplicate that.


Q-5 by Lewis Clifton:  Are we not harnessing a degree of energy efficiency that perhaps we should?  I realise there are benefits but if we look at it in terms of our own current wind farm, are we really harnessing the degree of energy that we need to take forward that budget and reduce costs overall without rushing up the road and constructing another plant up there?


RE:  I think you will find within our own wind farm that we are actually world-leading when we are putting the amount into the grid.  It was always recognised that the limit we could put into our grid would be about 25% and so to be able to enlarge the wind farm and so on we would have to enlarge the base and they were looking at providing a certain amount of electricity to local Military hardware in the area but that didnít come about.  But through various controls on the wind farm, we are actually putting in about 40% and you realise we put the price of electricity up but if we did not have the wind farm, electricity prices would be some 7p a unit higher than what they are at the moment.  So I recon to get 39.5% over a full 7 day period from the wind farm into our grid is something to be very proud of.  And we should be thanking Glenn and his boys for doing it.  We are getting every ounce of energy we can from that wind farm into our grid.  We might even be able to get more once weíve got the flywheel and the storage capacity that are planned for it.


Q-6 by Tim Miller.  Is it not also the fact that these manufacturers regard FIG Power and Electrical Department as their agents, providers, builders, what have you, in this part of the world?  They have developed a good relationship with the Power and Electrical Department.


JC:  I think itís true that they developed a very good relationship and are providing ideas that can be trialled to increase the efficiency of the system weíve got.


Q-7 by Stella Prindle Middleton:  On the Capital Expenditure where you included the wind farm being built, do FIG expect to recoup that capital expenditure in the use of the wind farm at MPA?


KP:  Yes  If it goes ahead and this is not certain yet.  All we have done is make provisions in case it does but if it goes ahead part of the Memorandum of understanding with the Military will be to run that for a period of a year at a price that will mean we will get a full return on that capital.


SPM:  Any idea how many years?


KP:  it depends on what the terms of the MOU are but I think from the last set of figures Iíve got, we are looking at 5 to 7 years.


Q-8 by Stella Prindle Middleton:  I remember these discussions several years ago between MPA and us and I think I remember the facts being put that it would increase our efficiency because we would make it Ė it would tie into our grid?  (Using MPA and they could go back and forth/)


JC:  There are no plans to link the two wind farms at the moment.


RE:  I think there was some years back the possibility of trying to link the two grids together so that you had this bigger base.  If you got a bigger base you can put 25% in there.  If you double your base it effectively doubles the input you can have while maintaining that 25% but thatís no longer possible.  But our capital programme is on a rolling three-year programme so a lot of those things that you saw on that list for £10Million will not all be spent in the one year.  The money has been put up front for one year but it is a rolling three-year programme where we have agreed to provide £12Million over a rolling programme.


Q-9 by Lewis Clifton:  Keith, in your opening there you mentioned something about the volatility of fishing licence revenues while I can appreciate and I suspect that many folks can that there is always a little uncertainty whether Illex is going to come or whether itís not going to.  So I wasnít sure whether it was something underneath what you were saying, given at the end you said that whilst fisheries revenues are less than what they were, for example a decade ago, there is almost a matching return in terms of taxation.  So is there something else there that you are looking at that may be missing from fishing licence revenue receipts now?


I would have thought that the way the whole ITQ system is eventually falling into place that the Government stands to gain greater returns from the fishing industry through corporate taxations.  I wasnít sure what you were getting at?


JC:  I think we are already seeing that, arenít we, in the rise in the corporation tax since the introduction of the ITQ system.


LC:  There was something else in the beginning there that I couldnít quite grasp.


KP:  The volatility bit is really about Illex.  The amount that we get from Finfish and from Loligo is better than stable and increasing very slightly Ė not dramatically but at least the graph is going the right way.  Illex just bounces around everywhere.  We never know what we are going to get in for Illex.  The other problem is that Illex season doesnít finish until after we set our budget.  So even while we are setting our budget we might know as we did in this last season that it looks pretty good but we are never sure if there are going to be refunds or when the seasonís going to shut so we never can be completely sure on it.


One of the aims of the Medium Term Financial Plan is to cut down the reliance on that income.  So year on year we have reduced the amount that we include in the budget for Illex receipts.  We used to have £10 to £12Million a year now weíve got about £2Million.  And £2Million is something the Fisheries Department think is stable in the longer term.  We probably can expect to get a couple a million with an occasional good year and occasional bad years.  We might have to refund fishing licence fees or, like this year, when we got some pretty hefty chunks of money.  So the volatility is really about Illex and not fisheries in general.


As you say, the home based fisheries companies Ė the ones that are paying tax here Ė are the ones that are contributing most to that growth in the taxation figure that you see in the chart.


RE:  And of course I have been overseas for the last month talking about the effects of not having a regional management organisation for the straddling fish stocks in the South West Atlantic; and the fact that the Argentines are continuing to plunder the area around and outside our zone affecting the amount of fish and quotas that we can issue within our zone.  So that is bound to have an effect on fisheries revenue for the future.


LC:  We just need some more warm water squirts like we had this summer and all the Illex will come back.


RE:  hake has come back a bit I believe.  There are other stocks that are not coming back.


Q10 by Stephen Luxton:  The increase in quarry prices was to bring the quarry up to cost recovery, presumably to break even.  There was a lot of material supplied this last summer for works at Mount Pleasant.  Was that therefore supplied by implication it would suggest that was supplied at a subsidised rate rather than at cost or profit.  Was that the case?


KP:  I am struggling because what I am not sure of is that when PWD supply to the MoD we add an on-cost and I think that on-cost would have been on it.  So the production cost of it would have been subsidised but I think we will have made a surplus on the selling cost.


Q-11 by TIM Miller:  Bearing in mind that you got a small surplus forecast for this coming year and at the time of the budget you didnít know how much extra you were going to get from Illex but you thought there might be some coming in, why then did you take the decision to jump quarry prices by 20% for two years in one, rather than just carrying on with the 10%?  That 20% is going to be quite a hefty smack into the construction and development industry over the next 12 months?


RE:  I think for two reasons Ė one was to make the quarry viable so it pays back and the other one was a bit of a surprise Ė with all the extra production the cost of maintenance and so on out there went up a lot more than what was expected. Because itís a fairly old, hard Quartzite rock as you are well aware.  And once you start bumping up the output as we did then the actual costs went up so I think that was the reasoning behind putting it up in one year but we have guaranteed that we wonít put it up next year  So itís all in one go rather than 10% this year and 10% next year.


TM:  It still seems a lot for one year.  I would have thought if you had kept the original idea and spread it over 2 years the actual increase in cost to the Government wouldnít actually amount to that much.


RE:  We would have been continuing to subsidise by 10% for the whole year. And we couldnít see why..


JC:  I question whether it fair to ask the tax payer to subsidise businesses?


LC:  Itís a bit of a loaded question if I may say so.  Having been one of the biggest private sector purchasers of quarry product over the last 18 months I frankly was gob-smacked by the increase of 20%.  I mean thatís a 30% increase in 12 months.  Whilst Keith is set up there and talked about the three development strategies that we have in place, there are only three products that you can contribute to the construction industry here in the Falklands Ė water, sand and stone.  And the Government pretty much has control over all three.  I hear what Roger says about maybe more production equals more maintenance.  But there were periods during the summer Ė long periods when you couldnít get stone for love nor money.  And I made all my projections on a budgetary promise of 12 months ago and I find out the price has gone up 20%.  And itís not clear to me at all whether thatís just because it costs this much and we must recover this much to make it work  I suspect there are some deeper rooted issues in there but I would, if somebodyís able to, like an explanation as to why the product has gone up 30% in 12 months.  That is just a killer not only for what Iím trying to do but for every person thatís trying to put in a house foundation and it has also, I think, quite a significant impact on many of the cost lines that you are looking to do in the renovation of the dockyard, the bits of road Ė other installations.  I am appalled and.  I suppose I say that having some experience a number of years ago when the Public Works said they couldnít make the quarry work because it was falling apart and not properly maintained and needed some new kit.  Well, the new kit is here and it now seems to be falling apart and I think that bodes a question as to whether there has been responsible R&M because it looks now as though the user Ė the consumer Ė is bearing the cost that perhaps shouldnít have been there in the first place.


RE:  I will take your question to the Director of Public works and get a more full explanation for you, which I can either get next month or I can let you have it when he gives it to me.


LC:  Thank you very much but just to return to the point that I think Tim was making, there were some promissory undertakings made that the price would not increase by 20% so I canít understand why the rush.  Government has had perhaps the biggest day of sunshine in rock production ever with that quarry in the last two building seasons.  Why is it suddenly jumping it up by 20%?  I donít understand.  I canít even contemplate any rationale that might be there.


KP:  Itís basically because it is still making a loss even with all that increase.  The Quarry is still making a loss.  It still costs more to produce the stone than Government gets for it.  And bear in mind that during that time that the quarry runs on steel components and the price of steel has gone up massively and it runs on fuel and fuelís gone up massively.  So even if we might have projected that it brought neither Ė say 5 years at 10% that would make it to break even Ė itís not going to.  We are still making a loss.  And itís not because the equipmentís falling apart.  We have to replace teeth on crushers and the like.


LC:  Thatís not the story that comes down the road when you need stone and canít get it.


KP:  I canít speak for the Quarry Manager.  All I know is the financial side.


LC:  Part of my point is there are three construction products that are available in the Falklands and the biggest one of those that is needed for the construction of anything is stone.  And it seems to me that was one cost centre in Government that could have been privatised and could perhaps become more efficient.  The whole privatisation thing seems to have been stymied over the period so we are left now not knowing what the figures are though I am grateful to Roger who may be able to provide but it seems to be costing everybody an arm and a leg for a very fundamental product.  Thereís no shortage of it.  It just costs a bloody fortune.


JC:  It costs a fortune to produce.  Thatís what Keith has been telling us and I accept that.  I am not an expert in quarrying or maintenance of quarrying equipment but If I am told that we are still not covering the full cost, I have to accept that and believe it.


RE:  I would ask the question for you anyway, Lewis, so that we can get some basis on which to Ö


SH:  The one good point Lewis did make was that a lot of people couldnít get stone this season when they wanted stone because the Quarry was over-committed to supplying stone to MPA.  And I think it was because of that that a lot of people who were after stone just couldnít get it.


LC:  Itís also shut down because the machinery canít cope.  Not only this summer but the last one as well.  For weeks and weeks you couldnít get anything.


Q-12 by Tim Miller:  Would you be able to estimate roughly what the deficit from the Quarry would have been in the next 12 months based on their current projections had they just done the 10% increase this year and then a 10% increase next year?


RE:  I will put that in the question


KP:  I donít remember what the figure was but we can work that out.


Q-13 by Lewis Clifton:  Can I also enquire about the budget for the three development strategies?  Whatís the cost Ė the financial package apportionment for each one of those areas.  Keith, is it £1Million for Tourism Development Strategy or not?


EE:  Not that much


LC £2Million for Rural Development?


KP:  I canít remember the figures, Lewis.  They were in the EXCO papers.


EE:  I think Tourism is about £390,000.00 but over three years.  But I am not 100% sure of that.


LC:  And are these the funds that FIDC sometimes talks about Ė funds that are going to them to be reallocated?


KP:  The RDS funds are in the FIDC budget and the tourism strategy budget is within FIG and that will be released as various projects are approved by the working group that is co-ordinating that and the EDS funds are within FIG as well.  Again, thatís being released as individual projects to Executive Council.  I think it is probably something in the order of £750,000.00.  Itís that figure but I canít remember the exact split.  Itís probably not too far off a third from each.


EE:  Weíve got a little bit of over-lap. You canít develop tourism without being able to develop the rural areas as well.  You canít say there are finite numbers going here and there because there is definitely overlap in all three of the strategies.  Certainly for the tourism one I am wanting to get a member of the business community sitting on it because I really want to see if itís going to work with the private sector working hand in hand with this and weíve really got to get the private sector coming on board to get the businesses up and running.  Itís vital that we get input from them to make sure that these strategies work.


RE:  There are opportunities there for privatisation and localisation in the tourism industry.  We are looking for new investments.  Tourism is being talked about Ė we need the input for privatisation and localisation so thereís good opportunities there for you


LC:  As long as I can get quarry products, I have got plenty on my hands, Roger.


EE:  Maybe this tourism strategy might be able to subsidise and help fund elements of the Quarry.


LC: We need foundation products for the new lodge as well 


EE:  Crushed path somewhere.


Q-14 by Derek Howatt:  I just wondered whether any specific money had been set aside for improving the ďeĒ in ďe-government?Ē  Wasnít there an e-government project?  What funding has been allocated to that?


KP:  There is some money in the Capital Programme for developing a more interactive FIG website and a more informative FIG website.  Andrew Lee is in charge of a project looking at e-government that involves people from several Government Departments.  Itís not a staggering sum but there is some money in there and will remain there until we understand what kind of e-government we want to see.


Q-15 by Lewis Clifton:  Keith, you were talking about the high cost and prices that roll out of control.  As a concerned citizen I am somewhat shocked by figures I hear as to recruitment costs for well-paid contract officers.  One hears stories of £50,000.00 or £60,000.00 per recruitment.  And I know one of those to be quite accurate.  Is there not a cheaper method thatís available to Government to recruit?  It seems to me that folks flit off in aeroplanes, two and three at a go and come back without it being done right.  It seems to me to be an awful lot of money being spent on recruitment where perhaps it neednít be.


JC:  There was something put in Penguin News about it being £170,000.00 for the year thus far.  That may have been back in April.  However, that figure didnít include a portion of those airfares where people are going to do several recruitments or interviews and other business.  We have talked about the fact that it would be useful to apportion those so we see how much of those could be fairly put down to recruitment costs.


EE:  I think itís also fair to say that with the failure of one of those high posts and the candidateís not coming up to scratch.  Theyíve gone back out into the big wide world but there was a clause in the contract between the company and FIG and this time itís being done for free.  There is no additional cost to FIG for it.


JC:  The payment would be for a successful recruitment Ė not for an unsuccessful one.


SH:  What Emma is talking about there is when we use the firm that head-hunts Ė I believe if they donít get it right the first time, they have to continue until they do get it right at no additional cost.


LC:  So our second Director of Community Services didnít cost anything?


JC:  I donít know if there would have been great recruitment costs there but Keith would be in a better position to tell you.


KP:  I honestly canít answer on specific posts.  What I would say in general, Lewis, is that I got a query towards the end of last week from PAC.  This is one of the areas that the Public Accounts Committee is looking at.  They will be looking in far more depth than I can give you any answers tonight. So you might want to look forward to their report with interest.


EE:  We will look forward to receiving Keithís report with interest.


Roger Edwards welcomed Caroline Graham the Los Angeles correspondent from the Mail on Sunday.



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