OAG report highlights failed ReGen project

The Auditor General has released her long-awaited report on the failed ReGen project, The Integrated Solid Waste Management System for the Cayman Islands (ReGen) – as at October 2021.

ReGen, the proposed solution to integrated waste management, was the Government’s first public private partnership agreement and the project failed on several levels, the AG found.

The report covers the ReGen project from its inception in 2014 to October 2021.

Sue Winspear, the Auditor General, gave some background: “In August 2021, I was asked by the then Governor and incoming Government to review ReGen and the Project Agreement signed in March 2021. I agreed to undertake a performance audit and issued a draft report to the civil service in early December 2021.”

The objective of the audit was to determine whether the Government would obtain value for money from ReGen. The audit considered ReGen’s objectives, value for money during ReGen’s procurement and value for money during ReGen’s contract life.

Ms Winspear said that she understood that the Government used that report and her recommendations in its ongoing negotiations with the Contractor. However, the AG did not receive a formal response from the civil service on the report.

She continued: “On 25th July 2024, the then Minister for Sustainability and Climate Resiliency announced that the Government had decided to start discussions to exit the ReGen Project Agreement. At that time, I decided to issue to Parliament the report that I sent to the civil service in December 2021. However, I subsequently decided not to publish the report at that time given the Civil Service said that it contained commercial sensitivities.”

Since August 2024, the civil service provided comments on the factual accuracy of the report and provided significant amounts of additional evidence, which Ms Winspear said she used to update the report accordingly and now she was able to publish it, more than three years later.

Readers will note that significant portions of the report are redacted.

The Auditor General said in response: “The discussions to exit the Project Agreement are on-going. Therefore, significant portions of the report are redacted because they contain commercially sensitive information. My Office will publish an unredacted version of the report after the Government exits the Project Agreement.”

The Auditor General said that PPP agreements could provide governments with options to invest in infrastructure without having to pay the upfront construction costs.

“However, PPPs are a form of borrowing and governments must pay contractors for operating the service or facility over the life of the contract. Most governments have moved away from PPPs as they generally do not provide value for money,” she advised.

The report states that ReGen’s construction costs increased significantly after procurement. The Government increased the minimum amount of waste it planned to send to the facility and changed the scale of the energy recovery facility, for generating electricity from the treatment of non-recyclable waste.

Ms. Winspear said while ReGen’s estimated construction cost rose significantly after the preferred bidder was selected, the Government did not review these cost increases to ensure they were reasonable.

The report states that the Government did not reassess the value for money of the PPP, and whether a PPP was the best way to finance ReGen, before signing the Project Agreement.

“In the case of ReGen, the Government would have paid the Contractor a monthly unitary charge for operating the facility over the 25-year contract period,” she stated. “This was estimated to be a significant amount of money in March 2021. However, my review found that the estimate was likely to be understated. I also noted that the Government had not assessed how the unitary charges would affect its future borrowing limits and financial ratios.”

She also said while the cost of ReGen increased significantly between the procurement and signing the Project Agreement, no updated value for money assessment was done.

“It is very likely that an updated value for money assessment would have shown that conventional funding or borrowing would provide better value for money than the PPP,” Ms Winspear said. “In addition, the Government’s financial health had significantly improved since it prepared ReGen’s Outline Business Case in 2016 and it had been funding major capital projects using conventional funding for a number of years.”

The report states that ReGen’s Project Agreement contains adequate safeguards for most project risks, but some safeguards needed to be strengthened.

More information about the report can be obtained by contacting Sue Winspear at (345) 938-3201 or Angela Cullen, Deputy Auditor General (Performance Audit) at (345) 922-3220.

This report and the original OAG reports on which this report is based are available at www.auditorgeneral.gov.ky.