Much of the money that has been spent in the name of advancing ocean thermal energy conversion has been funneled through the Pacific International Center for High Technology Research. Federal funds channeled to PICHTR (according to PICHTR’s reports to the Legislature and in documents provided to the Department of Business and Economic Development) amount to between $10 million and $12 million. The total gross amount of state money awarded to PICHTR through the end of fiscal year 1991 exceeds $18 million; because of accounting procedures and hold back provisions, PICHTR’s actual direct, net income is between $12 million and $13 million.
So what is PICHTR and why is it getting so much money?
A Child of the Legislature
PICHTR was established by the Legislature in 1983 as a state-run educational and research organization whose focus was to be on technologies that could be adapted for use in the Pacific. On October 23, 1985, PICHTR filed articles of incorporation setting itself up as an independent non-profit corporation. Five signatures appear on the incorporation papers: Governor George Ariyoshi; U.S. Senator Spark Matsunaga; John D. Bellinger, president of First Hawaiian Bank; Dr. Fujio Matsuda, erstwhile president of the University of Hawai`i and executive director of the Research Corporation of the University of Hawai`i; and Paul C. Yuen, dean of the College of Engineering at UH and PICHTR’s acting president.
The initial board of directors included those gentlemen, plus Kent Keith, director of what was then the Department of Planning and Economic Development; Dr. Albert Simone, president of the University of Hawai`i; Taiyu Kobayashi, chairman of Fujitsu Limited; Joseph Pettit, president of the Georgia Institute of Technology; Mahe Topouniua, former director of the South Pacific Bureau of Economic Cooperation; and An Wang, chairman and chief executive officer of Wang Laboratories, Inc. (whose products are to be found in virtually every state government office).
By May of 1990, the officers of its board of directors were (Chairman) Walter A. Dods, Jr. (who succeeded Bellinger as president of First Hawaiian following Bellinger’s death); (Vice-Chairman) Matsuda; (Secretary) Harold Masumoto (director of the Office of State Planning); and (Treasurer) Simone. Other directors included, as before, Ariyoshi and Yuen, by now acting vice president for academic affairs at the University of Hawai`i, but also: Admiral Ronald J. Hays, U.S. Navy, retired (former Commander in Chief of the Pacific); Russell J. Fynmore, executive general manager of business development for Broken Hill Proprietary, the Australia-based parent company of Pacific Resources Inc.; Admiral S. Robert Foley, Jr. USN retired; William M. Keck II, a nephew of the Superior Oil magnate W.M. Keck (whose foundation has provided the bulk of funds for the two new telescopes atop Mauna Kea); Akio Morita, chairman of Sony Corp.; and Masao Sawaki, former Japanese ambassador to the United States.
Corporate officers included Hays as president and chief executive officer and Dr. Patrick K. Takahashi as vice president for development. (Takahaski serves also professor of engineering at the University of Hawai`i and director of the Hawai`i Natural Energy Institute. He used to work for the late Spark Matsunaga and enjoys close ties to the congressional delegation.)
In the Dark
As a state agency, PICHTR filed reports on its activities with the Legislature from 1984 to 1986. As an independent non-profit, however, the first and last report it made to the Legislature was in 1987. While contracts between DBED and PICHTR are a matter of public record, the contracts that PICHTR, in turn, makes with private entities are not. Moreover, until late 1989, DBED imposed on PICHTR no requirement for detailed reporting on state-financed projects.
Former DBED Director Roger Ulveling can be credited with insisting on greater accountability from PICHTR. Ulveling had asked his staff in a memo June 29, 1989, whether PICHTR had “been reporting adequately on the progress made in the areas which we are funding.” The response to Ulveling, from Carl Swanholm, DBED’s science and technology officer, stated that PICHTR provided “quarterly expenditure reports only. These meet the contract requirements but, of course, tell us nothing regarding project progress or accountability of state funds.”
At Ulveling’s instigation, then, PICHTR’s new contract, covering the Legislature’s $7.56 million appropriation earmarked for PICHTR for the next two fiscal years (1990 and 1991) was written to “contain provisions identifying project goals, resources required and quarterly discussions of project progress and variances, if any.”
Arduous negotiations over terms of that contract lasted more than seven months. On February 9, 1990, it was finally signed, retroactive to July 1, 1989. Terms of that contract stipulate that DBED shall withhold payments to PICHTR for the 1991 fiscal year until PICHTR submits, and DBED approves, a budget for that period. This did not occur until the end of April 1991.
This new budget, agreed to as a supplement to the original contract, contains reporting and accounting requirements that are tougher yet. PICHTR has agreed to deliver to DBED within 90 days of the close of PICHTR’s fiscal year (June 30) the following: an annual financial statement with an independent auditor’s report; a report on the system of internal accounting controls prepared and issued by an independent accountant; a report on compliance with contractual provisions, which is to be prepared and issued by independent auditors; and, finally, a report by an independent auditor listing separately direct and indirect costs charged to each project with an opinion of the validity of the charges for the purpose of determining allowable overhead charges (long a sore point between PICHTR and DBED).
Until PICHTR delivers these reports, DBED may withhold up to 10 percent of the total payment called for in the contract.
‘Micromanagement’
For the last two years, resolutions have been introduced in the Legislature calling for the legislative auditor to review “the appropriation and expenditure of public funds to support” PICHTR. However, if the Legislature is concerned about this, the first place it might turn to for insight is its own membership.
Typically, so far as state appropriations are concerned, PICHTR has gone to the Legislature with bills seeking earmarked appropriations. The language of the bills specifies that the money shall go to PICHTR (thus ruling out any competitive bidding on the various research proposals for which PICHTR is seeking funds), with DBED being little more than a conduit. To perform the actual work, PICHTR, which has only a skeletal research staff, then customarily subcontracts with other entities (private consultants, university professors, graduate students, institutes and the like –including many directed by PICHTR officers or board members).
In testimony before the House committees hearing their solution, Hays, PICHTR’s president and chief executive officer, summarized the relationship between the state and PICHTR: “[A] major change in the relationship between PICHTR and the state … coincided roughly with my arrival at PICHTR. I was informed … that, unlike all previous years, state funds would be disbursed only for projects which were specifically approved by DBED. Prior to my arrival, all funds appropriated by the Legislature for PICHTR were turned over to PICHTR by DBED after the president of PICHTR notified the director, DBED, of intended use.
“I argued against the change in procedure… I also argued that micromanagement by DBED was not the intent of the Legislature… Despite the logic in the arguments and the precedent of many years, I lost the battle after months of disruptive dialogue between DBED and PICHTR. In retrospect, I was wrong in my opposition… If DBEDT wishes to exercise such control where state funds are involved, DBEDT is clearly entitled to do so.”
Still, Hays strongly opposed the proposed legislative audit. “Our apprehension,” he told the committees, “is based on the traditional outcome of audits. A good auditor can always find fault.” Hays noted that PICHTR had recently passed muster of the Defense Contract Audit Agency (the Pentagon’s auditor), adding that “with the stringent requirements of the federal government” having been satisfied, “we now have the capability to do business with anyone and meet any contracting or accounting standard.”
Puzzle Pieces
Hays’ assurances aside, a review of contracts between DBED and PICHTR does raise some questions.
Consider, for example, the ties between PICHTR and a succession of two consulting firms. In 1987 (perhaps earlier), PICHTR entered into an agreement with a company it identified as the Sanki America Corp. The budget bill passed by the Legislature that year (for fiscal years 1988 and 1989), called for the state to reimburse PICHTR $500,000 for its payments to Sanki. Attached to the contract between PICHTR and DBED providing for such payment is a document identified as describing the “Sanki/PICHTR project.”
That attachment reads, in its entirety: “Consulting services to be provided by Sanki American Corporation: To finalize and facilitate cooperative agreement projects with both the public and private sector organizations in the Orient and develop a cost sharing program to initiate an equipment acquisition program. Remuneration for services agreed to herein shall be determined by PICHTR; total shall not exceed $500,000.” The document bears a date of May 13, 1987 and appears on PICHTR letterhead. It was signed by Cheryl A. Sato, identified as director of administrative services. A report on PICHTR’s projected expenditures, also attached to the contract, provides some elaboration: The “Legislature has provided funds for PICHTR to utilize the services of a company experienced with projects in Japan to leverage state funds by arranging for the loan or demonstration of energy and desalination technologies from Japan to Hawai`i… Sanki is the only Japanese trading company with an office in Honolulu” (emphasis added).
If Sanki indeed had an office in Honolulu at the time PICHTR executed its agreement with Sanki, it was conducting business without the blessing of the state Department of Commerce and Consumer Affairs. Records there indicate that a Sanki Corp. of Hawai`i did not file articles of incorporation until September 22, 1987, three days before PICHTR signed the contract with DBED, but four months after PICHTR claims to have entered into the agreement with Sanki.
DCCA records further indicate that a year after its incorporation, Sanki reported itself to the DCCA as “inactive.” However, PICHTR asked for and received from the 1988 Legislature an additional $500,000 to continue the agreement with Sanki.
A Crowded Office
The directors of the Sanki Corp. were Paul (the corporation’s president), Wally and Jane Yonamine. Wally is a local boy who became a baseball star in Japan, playing for the Tokyo Giants. Paul is his son. The firm’s address was in the mauka tower of the Grosvenor Center downtown, in a suite of offices on whose outer door now appear the names of: ICMG, Inc.; Thomas B. Hayward Associates, Inc.; and Takenaka & Co.
ICMG was incorporated February 29, 1988, with Paul Yonamine and James H.Q. Lee the sole officers. ICMG’s annual corporation report in February 1990 indicated Lee had dropped out of the picture. Paul Yonamine was indicated as the president and treasurer.
An ICMG employee, Mark Hertel, told Environment Hawai`i that at first, Paul Yonamine had operated a Honolulu branch office for Sanki America, a Japanese trading firm with its U.S. headquarters in Los Angeles. ICMG took over the business of the Honolulu branch, he said, and continued to perform services for PICHTR. Hertel was asked what connection existed between ICMG and Thomas B. Hayward Associates, Inc. (the private consulting business of Admiral Thomas B. Hayward, U.S. Navy, retired, who is the head of the state’s Office of Space Industry and prior to that, was head of the state’s High Technology Development Corp.). Hertel said there was none other than sharing the same office suite.
Nothing can be learned through public documents as to the nature of Takenaka & Co., the third name on the door of Suite 1655. It has not filed to do business in the state. A woman answering the telephone number listed for this firm said it was a branch of a mainland-based financial and real-estate investment company. Paul Yonamine sat on its board, she said, and did consulting work for the firm.
Down the hall from Suite 1655 are the offices of Takenaka Corp., a Japanese real investment concern, but the person answering the telephone at Takenaka & Co. said there was no link between the two firms.
Other firms that share the same suite, according to DCCA files, include the Wally Yonamine Foundation, established in 1990 “for charitable, educational, recreational, vocational and cultural funding and programs for the people in the state of Hawai`i,” and the Wally K. Yonamine Scholarship Fund, whose flawed “statement of intent to dissolve” was rejected by the DCCA on April 10, 1991, in a memo addressed to ICMG, Inc.
Overhead Times Three
State funds that PICHTR has received for its work with Sanki-ICMG total $2.5 million over the last five years. A memo from ICMG to DBED, however, indicates that ICMG has received $1.9 million of that amount ($1.7 million after excise tax is paid). According to the memo, from Hertel to Swanholm, dated November 23, 1990, “PICHTR has taken off amounts for RCUH, HNEI and PICHTR overhead charges, Governor’s recisions and other projects, at times, before determining our contract amount…[T]he net amount is considerably less than the $2.5 million that appears to have been allocated for this effort. The tangible returns on the projects ICMG has generated over this period are nearly equal to the net amount. The additional value of goodwill, contacts and positive public relations should provide for an even higher return.” (RCUH is the Research Corporation of the University of Hawai`i, headed by PICHTR Board vice-chairman Matsuda. HNEI is the Hawai`i Natural Energy Institute, headed by PICHTR’s vice president for development, Patrick Takahashi.)
ICMG, which contracts with PICHTR through PICHTR’s International Technology Transfer program (under the direction of PICHTR vice president Takahashi), is supposed to scour Asia in search of technologies developed there that might have application in Hawai`i or PICHTR’s greater sphere of influence. So far, among the projects it is credited with bringing to Hawai`i are a new geothermal technology, called down-hole coaxial heat exchange (whose “investors” are several Japanese firms, including Sumitomo Metals, Inc.); a solar dryer for woods and fruits (with Sumitomo Metal Industries again providing the machinery); an “indigenous materials” project involving the governments of Korea and Japan (apparently searching for clays suitable for ceramics); a hydrogen storage project with the Materials and Energy Research Institute of Tokyo; and an agreement with the Korea Institute for Energy and Resources for an “ocean mineral exploration training project.” Another very large contract for PICHTR, involving CADIX, a Japanese computer firm, was apparently brokered by ICMG.
ICMG also arranges for a couple of tours of the Orient for Hays and selected PICHTR staff each year. In addition, it helped organize annual “hydrogen photo production workshops” from fiscal 1987 through fiscal 1990.
‘Leveraging’ Funds
One of the rationales PICHTR cites in its frequent pleas to the Legislature for funds is that state dollars spent by PICHTR will draw into Hawai`i investments of equal or greater value –investments, furthermore, that will be in high-technology, an industry that the state has been pursuing with near-religious fervor.
To measure PICHTR’s accomplishments in this area, one must be able to determine how much money PICHTR has in fact drawn to the state. Federal appropriations can be tracked, of course. Private funds are another matter.
The reports that PICHTR provides to DBED make frequent reference to contracts being pursued with businesses or foreign governments. On closer inspection, however, PICHTR does not seem to be delivering on its promises on a regular basis.
Consider, for example, its attempts to attract money from a French government agency for PICHTR’s project to develop an “autonomous underwater vehicle.” In PICHTR’s five-year strategic plan, submitted to DBED in December 1989 and appended to its contract with DBED, PICHTR indicates it intended to “secure funding for PICHTR/French IFREMER project” by the first quarter of the 1991 fiscal year (a period ending September 30, 1989). Six months later, in June 1990, PICHTR’s annual project status report to DBED states that it completed a proposal to the National Science Foundation, seeking the award of $2.2 million “to carry out joint Deep-Sea Borehole Re-entry research” — related to the autonomous underwater vehicle –“with the Makai Ocean Engineering firm and the Institut Francais de Recherche pour l’ Exploitation de la Mer (IFREMER).”
It was something less than that. More than a year later, on January 28, 1991, PICHTR’s vice president for administration, William E. Paupe, informed DBED that IFREMER had not actually been approached about this yet, but the French consul general in Honolulu had told PICHTR he would forward the idea on to Paris. Paupe wrote, “at this point, there are no indications of support or non-support from the French government.”
By April 16, 1991, PICHTR was reporting to DBED that it had “held discussions and approach with IFREMER representatives and secured commitment for technical data exchange.”
PICHTR claims the National Science Foundation proposal is to be funded, albeit at a level more modest than $2.2 million. The contract was not in hand at the time Environment Hawai`i went to press, but PICHTR was expecting it any day. According to Paupe, it will pay PICHTR $115,000, $126,000, and $133,000 respectively over the next three years — a level that many faculty at the University of Hawai`i are able to attract to support individual research.
David Yun, director of PICHTR’s Information Technology Division (and a professor of electrical and computer engineering half time at the University of Hawai`i), was asked to elaborate on IFREMER’s involvement. The “French have committed to funding” it, he said, although “I don’t know exactly the amount.” The director of oceanographic research at the National Science Foundation in Washington was “taking the lead” on this, Yun said.
The Motorola Connection
In 1990, PICHTR’s board of directors was told of an ambitious program of research and development of “advanced sensors.” PICHTR’s program for the fiscal years 1990 and 1991 (as explained to the directors) called for a $200,000 contribution from the state (most of it for a laboratory), a $31,000 contract with GTE Laboratories, and contracts totaling $1.14 million with Motorola. (The Motorola contracts were qualified as “pending.”) In an appendix to its contract with the state for fiscal years 1990 and 1991, PICHTR claimed to have been serving as “a research center for Motorola in the area of advanced sensors.”
In its report to DBED for the first quarter of fiscal year 1990, PICHTR claimed to have “established intellectual property rights; disclosed more than 20 sensor inventions to the state of Hawai`i and to Motorola; completed lab and personnel setup, and completed negotiations and secured funding from GTE Hawaiian Tel for gas sensor work.”
For the second quarter, PICHTR claimed to have “developed a formal working relationship with Motorola on sensors” – a statement that belies the claim made earlier in the attachment to the contract with DBED. PICHTR said it had forwarded “a completed proposal ($780,000 per year) on biosensors to Motorola, backed up by additional negotiations.” Additionally, it had received and reviewed “two initial contracts for innovative sensor development” from Motorola.
By the end of the 1990 fiscal year, PICHTR noted that negotiations with Motorola “stalled in June 1990, due to the unwillingness of the Principal Investigator to accept Motorola’s minimally acceptable terms…. It is unlikely that an agreement with Motorola can be reached at this time.”
Volume 1, Number 11 May 1991
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