Ministerial Response - Jersey Development Company - 15 March 2011

Findings

Comments

1

Evidence  suggested  that  the Waterfront  Enterprise  Board had not been involved with the development  of  P.73/2010, even  though  it  supposedly reforms its role and remit.

Contrary to the suggestion the Waterfront Enterprise Board  has  been  involved  in  the  development  of P.73/2010.

2

During the evidence-gathering stage  of  the  review  mixed messages  prevailed.  Evidence heard at a Public Hearing with the Minister for Treasury and Resources  suggested  that contractual commitments exist with  people  in  post  at  the Waterfront  Enterprise  Board. The proposition also stipulated that  the  current  Waterfront Enterprise Board becomes the Board  of  the  new  company. However, at a Public Hearing with the Waterfront Enterprise Board  it  was  heard  that  the States  of  Jersey  Development Company  would  have  a separate  Board  of  Directors and separate Chairman.

There  are  existing  continuing  employment  contracts with the staff and executive directors of WEB. This has been confirmed on numerous occasions.

There appears to be a misunderstanding of the nature of the Board of SOJDC and the transition process. The report which was adopted in the proposition states:

It  is  recommended  that  The  States  of  Jersey Development  Company  Limited  is  established  by restructuring  the  existing  company  Waterfront Enterprise Board Limited whereby –

• the name of the existing company is changed to The  States  of  Jersey  Development  Company Limited;
• the  current  Memorandum  and  Articles  of Association  of  Waterfront  Enterprise  Board Limited  are  replaced  with  those  set  out  in Appendix 2 of P.73/2010.

Composition

It is proposed that the Board of The States of Jersey Development  Company  Limited  shall  in  the  future comprise –

• An independent Chairman
• A Managing Director
• A Finance Director

• A  non-executive  director  appointed  by  the Minister for Treasury and Resources
• Three  non-executive  directors  with  relevant financial,  banking,  commercial  and/or  property expertise.

Thus the membership of the Board of SoJDC will be changed  as  set  out  above.  There  will  only  be  one Board and there is no mention of any other Boards.

A Proposition to approve the membership of the new Board of SoJDC will be debated shortly by the States Assembly.

3

Confusion remains as to how the  States  of  Jersey Development  Company  will differ  from  the  Waterfront Enterprise Board.

The Report and Proposition sets out the changes both within the report and in the new Memorandum and Articles of Association.

4

The recommendation made by the previous Sub-Panel which suggested that the proposition should  be  amended  to  show, without  any  room  for  doubt,

This is a matter of interpretation. The Proposition was drafted to make it as clear as possible that the States of Jersey Development Company would not be the same as the current Waterfront Enterprise Board.

that  the  States  of  Jersey Development Company would not be the same as the current Waterfront  Enterprise  Board has  not  been  actioned,  even though it was accepted by the Chief Minister.

5

The Minister for Treasury and Resources  should  be responsible  for  implementing shareholder  governance  and oversight  over  the  Board  of Directors of the Company, as set out in the Deloittes report, in order for the States of Jersey Development  Company  to  be successful.

Agreed – this is as per the Proposition.

6

Since  its  inception,  the Waterfront  Enterprise  Board has  not  paid  any  financial dividend  to  the  States, however,  the  Treasury  and Resources Department will be reviewing its assets.

WEB  has  provided  from  its  resources  the  capital public assets shown below.

WEB currently has net assets of £41.6 million.

Whilst no dividend has been payable, WEB has a pro- forma balance sheet value of £89.6 million.

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)

Les Jardins de la Mer public park & water maze & La Fregate Havre des Pas bathing pool regeneration

Waterfront Car Park public roof gardens

Waterfront promenades

Steam Clock & gardens

Weighbridge & landscaping avenues

Skateboard park

Contribution to Parish of St. Helier street improvements

Boat hoist & quay at La Collette

Roads, services & sewers

Lorry park wall & upgrade marina lights

Total

£2,203,000 £1,490,000 £1,363,000 £1,406,000 £856,000 £2,250,000 £125,000 £50,000 £1,000,000 £4,239,000 £566,000

£15,548,000

The  Sub-Panel  found  that the  States  of  Jersey  would have to bail out the Board of Directors  of  the  "new" Company  if  things  went wrong.  Past  developments of WEB have been far from ideal,  and  an  expansion  in its  role  and  remit  places  a huge  amount  of  risk  with SoJDC.

The  Memorandum  of  Understanding  that  will  be entered  into  between  SoJDC  and  the  Minister  for Treasury  and  Resources  sets  out  the  full  risk mitigation measures that SoJDC must comply with.

DTZ  commented  in  their  report  of  May  2010  as follows (page 50) "Risk management principles are set out in Proposition P.79/2009 and the accompanying Memorandum  of  Understanding  relating  to  the creation of SoJDC. We have already commented on these in detail in our Review of Proposals for SoJDC in May 2009 and consider them to be appropriate for the future operation of the company."

And "We have also explored with WEB their current approaches to risk management at a project level and established  that  a  number  of  these  principles  are supported  by  existing  good  practices  and  processes within WEB including market demand assessments, the  application  of  sophisticated  financial  risk modelling  tools  in  assessing  project  feasibility,  and risk  management  matrices  that  are  used  to  manage non-financial risks through the project lifecycle."

8

P.73/2010  states  that  the Regeneration  Steering Group  will  "formulate detailed  development proposals  and  planning applications".  This  should be considered carefully as it could lead to confusion as to the role of the accountable Minister and uncertainty by third  parties  negotiating with SoJDC.

SoJDC  is  a  development  company  and  will  be working to the remit given to it on specific sites by the RSG. This will be defined as part of the transfer of assets in accordance with the process set out in the report.

The company will not be negotiating with third parties until a clear remit has been agreed. Thus there will be no uncertainty in negotiations as they will be with the Company.

9

In order for the new States of  Jersey  Development Company to be successful, it is  paramount to  recruit  the appropriate skills in order to operate  risk  management processes  on  a  sustained basis throughout a project.

This was considered fully and reported upon in the DTZ  report  dated  May  2010.  DTZ  commented  (on page 41) that "If SoJDC is take on a significant direct development responsibility, this could require a much greater ramping up of resources, although peaks and troughs in workload could be managed effectively by the hiring of contracted staff."

10

It  appears that  the  Articles of Association for the States of  Jersey  Development Company  extend,  not reform, the role and remit of the  Waterfront  Enterprise Board.

The  Chief  Minister  and  Minister  for  Treasury  and Resources  agree  that  the  legal  framework  of  the company does not, of itself, guarantee delivery and that the future performance of directors and staff is key.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

The  function  of  the  Regeneration Steering Group is to provide a basis for decision-making  by  the  Minister  for Treasury and Resources who would then issue guidance or directions to SoJDC in respect  of  specific  schemes.  The Articles  of  Association  in  P.73/2010 should  address  this  by  providing  for directions  which  would  be  legally binding  on  the  company  and  its Directors.  The  Directors'  service contracts should include obligations to comply with such directions.

Reject

The  Chief  Minister/Minister for  Treasury  and  Resources do not agree that the report by  HBJ  Gateley  Wareing advocates further amendment to the Articles of Association.

The  Articles  of  Association approved  by  the  States Assembly  in  P.73/2010 already include a mechanism for the Minister for Treasury and  Resources  to  give directions  to  the  Directors (Article 22(a)).

The  Chief  Minister/Minister for  Treasury  and  Resources propose to keep the position under  general  review  in  the light  of ongoing  experience, noting  that  the  Articles  of Association may be amended from time to time.

2

A review of resources and procedures within SoJDC should be undertaken by an independent external body, including an  external  "red  book"  valuation  of WEB property assets.

Reject

The  internal  resources  and procedures  of  WEB  were reviewed and commented on in  detail  in  the  independent review  of  WEB  by  DTZ dated May 2010.

WEB  produces  audited financial  statements  on  an annual basis that are prepared in  accordance  with  United Kingdom Generally Accepted Accounting  Principals  (UK GAAP) and the requirements of Jersey Law.

Specifically,  FRS15  requires tangible  fixed  assets  to  be externally  valued  at  least every 5 years and subject to internal  reviews  in  the intervening  period  by  a qualified  RICS  valuation surveyor.

Valuations are undertaken in accordance  UK  GAAP  and with  the  RICS  Valuation Standards –  UK  Practice Statement 1  (Valuations  for Financial  Statements).  The valuations  are  prepared  in accordance  with  the  current edition (6th) of the Valuation Standards  (the  Red  Book) issued  by  the  IVSC  of  the Royal  Institute  of  Chartered Surveyors.

WEB's fixed asset values are also  subject  to  detailed review  by  the  Company's external  auditors  PwC  who independently  verify  the internal valuations.

The  conclusion  from  PwC audit report is "in our opinion the financial statements give a  true  and  fair  view  of  the financial  position  of  the Company and the Group as of 31 December 2010,  and  of the financial performance and cash flows of the Group for the  year  then  ended  in accordance  with  United Kingdom  Accounting Standards  and  have  been properly  prepared  in accordance  with  the requirements  of  the Companies  (Jersey)  Law 1991.

It  would  therefore  be superfluous  to  undertake external  red  book valuations,  at  significant cost,  of  WEB  property assets  as  these  assets  are already  stated  in  WEB's audited accounts at market value.