JAMAICA: UNIVERSAL ACCESS FUND - A MEDDLING

UNCLAS SECTION 01 OF 03 KINGSTON 001144

SIPDIS

SIPDIS, SENSITIVE

STATE PASS TO USTR

STATE FOR WHA/CAR (RBUDDEN)
WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

TREASURY FOR A FAIBISHENKO

E.O. 12958: N/A
TAGS: ECON EFIN ECPS PREL PGOV SOCI PINR KCOR JM
SUBJECT: JAMAICA: UNIVERSAL ACCESS FUND - A MEDDLING
MINISTER AND ISSUES OF CONFLICT

REF: (A) 06 KINSTON 555
(B) 06 KINGSTON 2121

SUMMARY AND ANALYSIS
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1.(SBU) Embattled Minister of Industry, Technology, Energy, and
Commerce Philip Paulwell has found himself at the center of another
controversy. The latest involves his alleged mismanagement of the
Universal Access Fund and in particular the engagement of his
personal advisor, Minette Palmer, as attorney to the Fund. To
further compound matters, it was revealed that the same advisor and
her husband are principals in a company to which the Minister
recently issued a cellular license. The current controversy could
hardly have come at a worse time for Paulwell and the ruling
People's National Party (PNP),which has announced that the next
general elections will be held Aug. 27. The political opportunity
is not lost on the Opposition Jamaica Labor Party (JLP),which has
been pressuring Prime Minister (PM) Portia Simpson-Miller (PSM) to
take decisive action. But with Paulwell being a chief ally of PSM
and with the PNP's history of support for its "comrades", Paulwell
looks likely to live out another of his proverbial nine lives.
End summary and analysis.

Universal Access Fund (UAF)
--------------

2.(U) The UAF is a government entity set up to finance an
E-learning project by way of a levy charged on telephone calls
terminating in Jamaica. Since June 2005, all telecommunication
carriers have been required to pay a levy of USD 0.03 and USD 0.02
per minute on incoming international calls terminating on fixed
wired and cellular networks, respectively. To date, over USD 37
million has been collected, but the installation of internet
facilities is yet to start in schools. This development is not
surprising given the controversy surrounding the operation of the
fund from the outset. While the board appointed by the Minister of
Industry, Technology, Energy and Commerce (MITEC),Philip Paulwell,
had representatives from the local telecom companies, it was
initially chaired by the former Minister of Information and
Development, Colin Campbell, a close confidant of Paulwell and PSM.
(Note: Campbell was replaced by Dr. Herbert Thompson in 2006). To
compound matters, the UAF engaged the legal services of Minnette
Palmer, a board member and personal advisor to Paulwell, ostensibly
to assist in the UAF's establishment, paying her almost USD 450,000
over a 19-month period.

3.(SBU) This was not well received by Auditor General Adrian
Strachan, who, in his 2006 report to Parliament, pointed out that
the operation of the UAF improperly excluded parliamentary control.
He therefore advised the UAF to deposit the levy in the Consolidated
Fund, in accordance with the requirements of the constitution.
Strachan also raised concerns about the lack of a proper mechanism
to verify whether the levy received by the UAF was the full amount
due. But even after being advised by Jamaica's Solicitor General,
Michael Hylton, that the levy should be paid to the Consolidated
Fund, Paulwell's Ministry remained adamant that the fund remain
under the watch of the UAF, apparently worried that any parting with
the funds could agitate stakeholders. Ministry officials say that
if the levy is paid to the GOJ, stakeholders might withhold payment,
as the UAF is obliged to demonstrate that the levy is being used for
the purpose for which it was set up.

4.(SBU) Strachan's position is well grounded, given the law as well
as the many breaches uncovered in the payments made to Palmer.
Strachan's audit revealed no evidence that: (1) a contract existed
outlining agreed terms and rates for the legal services offered by
Palmer; (2) payments were made on the basis of deliverables in
keeping with written terms of engagement; and, (3) the selection of
the legal services was done on a competitive basis or with the
approval of the National Contracts Commission or cabinet.
Incidentally, the Opposition Jamaica Labor Party (JLP) had
previously called for parliamentary oversight and a revision of the
board to remove the three telecoms firms since they were not the
only players in the industry. The JLP was also incensed at the
presence of Palmer on the board, given her conflicted position as
attorney-at-law and director of the fund. In November 2006, the JLP
also disclosed that at least one firm, People's Telecom, owed the
fund USD 380,000 and has been pressuring the responsible Minister to
address the issue. Chairman Herbert Thompson then admitted that
there were actually two firms owing the fund almost USD 560,000.

Meddling Minister and Issues of Conflict
--------------

5.(SBU) The issues of conflict deepened in subsequent months when
it was discovered that Palmer was a director and her husband a
principal in one of the firms owing the UAF. It was no surprise,
therefore, that one telecom firm threatened legal action against the
GoJ if it was not granted an equivalent payment holiday. Another
smaller player claimed that the non-payment allowed the offending
companies to price products at lower rates, giving them an unfair
advantage. And before the dust could settle, news broke that
Paulwell was yet again at the center of another scandal, involving,
by this time, his former personal advisor. Paulwell announced, to
much fanfare, the sale of a fourth cellular license, after extensive
due diligence, to a company known as Solutrea Jamaica Limited for
USD 7.5 million. But the sale was to eventually raise questions
concerning conflict of interest and a failure to pay. When it
became unclear that Solutrea had, in fact, paid for its license, the
JLP seized upon the case. Shadow spokesman for Mining, Energy, and
Telecommunications, Clive Mullings, discovered that the license was
sold without all the required agencies agreeing to the sale. To
compound matters, Mullings uncovered that Palmer was a shareholder
of Wiiscom Technologies and a director of Solutrea, both of which
were linked to the license. Mullings noted that the interlocking
directorships raised serious concerns about the Minister's exercise
of his responsibilities.

6.(SBU) Paulwell's belated response was equally controversial,
calling the fiasco a storm in a tea cup. (Note: Solutrea
subsequently has paid the USD 7.5 million by company check, but is
requesting a guarantee from the Opposition that it will not revoke
the license if it wins the election). Minister Paulwell also
gloated about his ability to negotiate such a lucrative price, given
the country has achieved 100 percent teledensity. Commenting on the
conflicted position of his former personal advisor, the Minister
dismissed it as a non-issue, suggesting that Palmer should not be
disqualified given that she had declared her interest in Solutrea.
He said once her interest was declared she ceased being his advisor
and only provided advice to the Ministry when there was no one else
capable. Paulwell said that instead of trying to create scandals
where none exist, people should be grateful for the number of jobs
the cellular license would create. The Minister also disclosed that
another local telecoms company, Gotel would be offered a fifth
cellular license for USD 2 million to operate a CDMA network.

7.(SBU) Industry players were quick to question the process the
Minister had used to issue the license to Gotel. The players are
trying to get answers on whether the license had been again put to
competitive tender and whether the proper due diligence and fit and
proper checks had been carried out. The issue of pricing and the
company's standing with the Spectrum Authority also have been
raised.

Comment:
A History of Mismanagement and Scandal
--------------

8.(SBU) The foregoing is not surprising, given Paulwell's history
of being both a conflicted and a meddling Minister:

(A) Only recently, Jamaica's Supreme Court handed down a ruling
stating that the Minister had overstepped his bounds when he issued
a ministerial order declaring that the telecoms regulator, the
Office of Utilities Regulation, had no power to regulate rates.

(B) The court also ruled against him in his bid to get oil marketing
companies to abide by the Weights and Measures Act.

(C) Paulwell also was also party to the conflict of interest case
raised by Contractor General Gregg Christi involving a former PNP
candidate, Barbara Clarke, whom Paulwell appointed to the board of
the government-owned Petroleum Corporation, although she continued
to be a major service provider to the company.

(D) From the mismanagement of the INTECH fund, from which a number
of companies were given soft loans to set up call centers which
never materialized, to the ill-fated NETSERV, which reneged on its
commitment to provide 10,000 jobs, costing the country millions of
dollars, Paulwell has been the common denominator in several other
telecoms scandals.

(E) He was also at the center of the recent cement crisis, which
temporarily crippled Jamaica's booming construction sector (Reftel
A),as well as the Trafigura campaign financing scandal last year
(Reftel B).

Note: Most of the above incidents of mismanagement also have
involved Paulwell's sidekick and former State Minister and PNP
General Secretary, and current Senator, Colin Campbell. End Note.

Comment:
But What Explains Paulwell's Survival?
--------------

9.(SBU) Despite Paulwell's seeming propensity to self-destruct and
the mounting costs of his mistakes, he has been able to weather the
storm, remaining intact in his "super" ministerial roles. His knack
for survival appears to lie in his ability to forge loyal
relationships with his superiors. The PNP is known to place a high
premium on loyalty, which could explain why the party manages
internal conflict so expertly. Former Prime Minister PJ Patterson
is known to have told dissenting PNP members that he actually valued
loyalty over performance, and therefore ascribed Paulwell's many
follies to youthful exuberance. With the departure of Patterson
from the political hierarchy, Paulwell gambled successfully in
supporting Simpson-Miller for the presidency of the party, and was
rewarded with an enlarged portfolio ministry. With this in mind,
and with the PSM short on allies, there is little chance of his
being axed now or anytime soon unless much greater transgressions
emerge. He also has benefited from the PNP's history of supporting
its "comrades" even in the face of public outcry.

Analysis: Implications nonetheless
--------------

10.(SBU) Notwithstanding, the current controversies could hardly
have come at a worse time for Paulwell and the ruling PNP. Usually
flamboyant and media savvy, Paulwell appears to be quietly smarting
from this latest scandal, and suddenly has become media shy. In
fact, reports suggest that PNP insiders not allied to Simpson-Miller
are applying pressure internally and have even,
uncharacteristically, been feeding the media information on the
issues. Nevertheless, Paulwell looks likely to live out another of
his proverbial nine lives, continuing as a major player in the PNP's
push for a fifth consecutive term, thus highlighting the
depressingly widespread acceptance of incompetence. Even so, the
timing (just six weeks before the election) gives the JLP something
into which to sink its teeth. And the opportunity is not lost on
them; the opposition has continued its public outcry and has been
pressuring PSM to act decisively against the bumbling Minister. The
extent of any fallout from this latest fiasco may only become
evident on or after the Aug. 27 national elections.
End comment.
JOHNSON