The budget for the electric grid will not meet contractual obligations.
In our submission, La’o Hamutuk encouraged Parliament to ask the Government for cost projections for multi-year capital projects in the Infrastructure Fund. The next day, the Ministry of Finance gave Parliament Budget Book 6, listing expenditures by project through 2015.
By far the most costly project is to electrify Timor-Leste: the generating stations at Betano and Hera and national distribution grid. According to Book 6, the Government will ask Parliament to approve the following expenditures (in thousands of U.S. dollars):
Total 2010-2015 $596,000
On 15 September , the Government forced CNI22 to subcontract the power stations to the Indonesian company Puri Akraya Engineering, increasing the cost by $261,548,746. The cost will grow significantly higher when CNI22 implements the Government’s directive to subcontract much of the power grid , and when essential items omitted from the original plan (such as jetties for unloading the fuel) are included.
According to the ELC/Bonifica’s October 2010 Monthly Progress Report, Timor-Leste is committed to the following payment schedule:
2014 $ 3,000 (to CNI22 for management and operation)
2015 $ 3,000 (continues annually through 2017)
Total 2010-2015 $740,043
In summary, the Government is legally obligated to pay $116,300,000 more in 2011 alone than Parliament has been asked to approve. We suggest that Parliament ask Government to amend its budget proposal to include this commitment so that you can make more informed decisions.
Some state organs pay more to advisors than to their own personnel.
Some state institutions rely extensively on Timorese and international advisors and consultants who are paid much more than public servants. Although some of these costs are paid by donors, many are Timor-Leste’s own money. We highlight organs whose allocation for “705 Professional Services” is more than for salaries and wages. These 13 organs receive only 6% of the total salary budget, but they will receive 56% of the Professional Services allocation.
Organ Prof.Serv.Budget Salary Budget
State Sec. for Natural Resources 1,200 220
State Sec. for Security 337 72
President of the Republic 2,104 500
State Sec. for Council of Mins. 1,212 306
Whole of Government 171 50
Prime Minister & Council of Mins. 9,400 3,008
Public Service Commission 648 298
Courts 1,051 590
State Sec. for Energy Policy 277 181
Prosecutor-General 933 699
State Sec. for Promotion of Equality 234 205
State Sec. for Defense 228 207
Min. Tourism, Commerce and Industry 999 916
Although some “Professional Services” costs are hidden subsidies, most go to high fees to individuals. We hope that Parliament will look into which are necessary and appropriate. This is especially important now, because the Government hopes to create several new agencies soon which will be exempt from civil service salary rules.
Overspending last year’s ESI in 2011.
President Manuel Tilman asked for La’o Hamutuk’s thoughts on using $140.9 million of the treasury balance from the end of 2010 to fill the deficit in the proposed 2011 budget. This is the only way the Government can pay for $985 million in 2011 expenditures without withdrawing more than the (greatly increased) Estimated Sustainable Income from the Petroleum Fund.
La’o Hamutuk’s submission to Committee C on the 2010 Rectification Budget explained that transferring $311 million above the ESI from the Petroleum Fund during 2010 for the purposes in the budget would violate the Petroleum Fund Law. We wrote that “We do not understand how increasing the treasury balance is ‘in the long-term interests of Timor-Leste.' ” Our submission last month on the 2011 State Budget said that the $140.9 million being carried over from last year to this year should be considered as coming from the Petroleum Fund.
La’o Hamutuk believes that the Petroleum Fund law requires that money transferred from the Petroleum Fund for a particular year’s budget must be used during that year for the purposes cited in that year’s budget documents. Article 7.2 of the Petroleum Fund Law refers to the “amount transferred from the Petroleum Fund for a Fiscal Year (O montante total das transferências do Fundo Petrolífero para cada Ano Fiscal),” not “in a Fiscal Year.” This makes it clear that the money transferred should be expended during the Fiscal Year for which it was authorized. If some has not been spent by the end of the year it was appropriated for, it should be returned to the Fund.
Consequently, the requested transfer from the Petroleum Fund in the proposed 2011 budget exceeds the (imprudently optimistic) estimate of the sustainable income by $140.9 million, and the Government must provide the information required by Article 9 of the Petroleum Fund Law.
The Government’s interpretation of the Budget and Financial Management Law regarding Special Funds would undermine Parliament’s Constitutional authority.
Articles 32.5 and 32.6 of Law No. 13/2009 on Budget and Financial Management state that expenditures from Special Funds require authorization from the Minister of Finance, and that Parliament must have previously been given estimates of revenues and expenditures for the Special Fund within the fiscal year.
The proposed 2011 State Budget Law includes general lists in Articles 9.2-9.3, with a little more information in Annexes II-B and II-C . However, this is insufficient to allow Parliament to decide on more than $350 million in expenditures during this year alone.
Budget Book 6 provides additional information about estimated expenditures from the Infrastructure and Human Capital Development Funds, although we believe that it should be more specific and detailed.
Parliament should amend Article 9 of the proposed Budget Law to incorporate the list in Budget Book 6 as part of the law, stating that the Government must inform Parliament in advance of any changes to that list, either between projects or from one year to another. If this amendment is not made, Parliament cannot fulfill its responsibility to approve “a breakdown of the revenues and expenditures of the State” and will violate Articles 145.1 and 145.2 of the Constitution of RDTL.
The Infrastructure Fund is a dangerous precedent and premature expenditure.
President Tilman also asked our views on the $317 million allocated the Infrastructure Fund. These are explained in our December submission to Committee C, and further elaborated above. In summary, we urge Parliament not to approve the Infrastructure Fund until it has debated and ratified the National Strategic Development Plan, and until the mechanisms to implement the Plan and manage the Fund are in place. It would be premature to appropriate so much money without clear legal processes to ensure that it will be managed well and spent wisely to advance the interests of the people of Timor-Leste.
Thank you for your attention. We hope that this information is helpful and welcome any comments or questions.
Juvinal Dias and Charles Scheiner
La’o Hamutuk Natural Resources Team