The Office of the Virgin Islands Inspector General in collaboration with WAPA’s Internal Audit Division has issued the inspection report of the Virgin Islands Water and Power Authority’s (WAPA) contract with Vitol Virgin Islands Corporation (Vitol) for the Liquefied Petroleum Gas (LPG) Conversion Project. The objectives of the inspection were to determine if: (i) the WAPA Board and management exercised due diligence in undertaking the project; (ii) the Board approved the increased project cost; (iii) WAPA officials verified the increased project cost; (iv) WAPA officials followed WAPA’s contract procurement and administration policies; and, (v) WAPA converted the power generation units they needed to burn LPG.
We found that WAPA’s Board and management, in choosing to expedite the Project to mitigate the high cost of energy in the Virgin Islands, prioritized time over the Project’s cost. Specifically, they agreed to forgo detailed engineering plans, which would have delayed the Project by two years. Instead, they allowed Vitol to perform a FEED Study, design the storage terminals, procure equipment, and construct the Project facilities simultaneously. Knowing that such a project implementation method came with an inherent increase in cost, WAPA officials had no added controls to mitigate the Project’s cost and monitor its cost for necessity, reasonableness, and affordability. Also, untimely payments for the infrastructure fees, and a truck rack system unknown to the Board contributed to increased infrastructure cost.
WAPA’s management did not follow WAPA’s established procedures for contracts and change orders. In addition, WAPA’s contract negotiations lacked transparency. Furthermore, WAPA officials created an apparent conflict of interest when they engaged the professional services of a firm that also worked for Vitol during a similar time period. Finally, WAPA did not achieve its goal to convert the number of power-generating units it needed to burn LPG and did not ensure that its rented units could burn LPG as stipulated in rental agreements.
As a result, the Project’s total cost has exceeded $200 million, including the Board’s construction cost limit of $160 million, $10,228,191 in other professional services rendered to bring the project to substantial completion, $31,613,305 in operation and maintenance fees, $138,500 in accounting fees, and $2.2 million for a truck rack system. Not included in this cost are added fees that may have resulted from late payments that led to a third contract amendment.
Additionally, $92 million in change orders were not approved, and over $2 million was paid for professional services without the Board’s approval. Further, WAPA was left with three of five converted units to burn LPG; WAPA invested $10 million to convert two units that were removed from service; and, WAPA incurred over $43 million in rental cost for units that could not burn LPG.
We made several recommendations to address the conditions and causes cited in the report. Our recommendations addressed the following areas: (i) Project planning, management oversight, and reporting; (ii) Project cost monitoring, and Board inaction; (iii) WAPA’s procurement policies and guidelines; and, (iv) the conversion of power-generating units.
To view the report, click here.