Transparency, over company protest

In 2010, Timor-Leste became the third country in the world to be certified as compliant by the Extractive Industries Transparency Initiative, which publishes reports from companies and governments detailing payments for oil, gas and mineral extraction.  Reports were published for 2008 and 2009 in four languages, available on paper and from Government and NGO web sites.

However, the process bogged down in 2010, and the reports for 2010 and 2011 have yet to be officially published. Under EITI rules, the 2010 report must be released before the end of 2012 to maintain Timor-Leste's compliant status.

EITI is run by "Multi-Stakeholder Groups" which include representatives from government, oil companies and civil society.  Timor-Leste's MSG has had a contentious year, and the companies have objected to a more detailed breakdown of reporting of their payments. Nevertheless, the draft reports for 2010 and 2011 were ready nearly two months ago, and were approved by most of the MSG on 26 November. Although the MSG usually makes decisions by consensus, the majority of its members decided to circulate the reports despite the companies' objections.  (See the update at the end of this blog for the final versions of these two reports, which were released in late December 2012.)

La'o Hamutuk has not been part of the MSG since 2009, but we continue to support initiatives to increase transparency of public finances and petroleum company operations, and publish relevant information on our EITI web page. Therefore, we are publishing preliminary versions of the EITI reports for 2010: ($2.15 billion total payments) and 2011: ($3.45 billion total payments).

For the first time, the EITI reports detail which companies paid penalties and interest for late payment of petroleum taxes, totalling $21 million in 2010 and $52 million in 2011.

The following is the Executive Summary of the preliminary Timor-Leste EITI Independent Reconciliation Report for 2011. The full report breaks down each company, revenue stream and discrepancy.

The Third (sic, actually Fourth) Timor-Leste Extractive Industries Transparency Initiative reconciliation covering the period from 1 January to 31 December 2011, was carried out by Moore Stephens in accordance with our Service Contract dated 30 April 2012 and as approved by the Multi-Stakeholder Working Group.

The assignment consisted of a detailed reconciliation of the payments made and declared by the Oil & Gas companies to revenue data provided by various entities and agencies of the Government of Timor-Leste.

The overall objective of the reconciliation exercise was to help the Government of Timor-Leste, and other relevant stakeholders, to determine the contribution that the Oil & Gas sector is making to the country’s economy and social development, and this to improve transparency and responsibility in the extractive resources sector.

Principal findings arising from reconciliation work
The main findings resulting from our work are as follows:

1. All oil companies and all Government Agencies have lodged their reporting templates for the 2011 reconciliation exercise. In total, 13 Oil & Gas companies and 3 Government Agencies have been included in the reconciliation scope.

2. Total differences between payments declared by the oil companies during 2011 and Government Agencies receiving these payments, prior to our reconciliation work, amounted to USD (4,244,840), as follows:
Total payments declared:
  Companies $3,436,243,783,  Government $3,440,488,623,  Difference (4,244,840) , 0.1%

3. Following our reconciliation work, we were able to adjust all the discrepancies, both in respect of declarations made by the companies and those made by the Government Agencies:
Total payments declared 
  Companies $3,453,285,817, Government $3,453,285,817, Difference 0.
The types of adjustments made during our reconciliation work, together with their values, are detailed in section 4.3 of this report.

4. We set out in the tables below a summary of the amount declared by the extractive companies at the end of the reconciliation exercise.
(numbers are the same from the Companies and Government, with all differences zero.)
1 ConocoPhillips 1,991,016,698
2 Eni Timor-Leste 401,268,453
3 Santos 365,391,369
4 Inpex Sahul 386,287,273
5 Tokyo Timor Sea Resources 290,213,987
6 Woodside Petroleum 607,763
7 Minza Oil & Gas 91,746
8 Petronas 107
9 Oilex 417,407
10 Reliance Exploration & Production 3,563,379
11 Talisman 6,419,484
12 Japan Energy E and P 29,751
13 AusAid 7,978,400 Total 3,453,285,817

5. We set out in the tables below a summary of the taxes declared by tax at the end of the reconciliation exercise.
(numbers for each revenue stream are the same from the Companies and Government, with all differences zero.)

Petroleum Tax Directorate 1,319,808,421
1 Income tax 659,025,791
2 Additional Profits Tax/Supplemental Profit Tax 569,338,573
3 Branch Profits Tax -
4 VAT 16,196,459
5 Withholding Tax 16,185,154
6 Wages Tax 7,399,504
7 Penalty / Interest 51,662,940
8 Other Payments -
National Petroleum Authority 2,125,498,996
9 FTP - Condensate/Crude Oil 119,655,237
10 FTP - Liquefied Petroleum Gas 35,015,765
11 FTP - Gas 83,102,923
12 Profit oil & gas payments 1,883,696,071
13 JPDA - Application Fee 5,000
14 JPDA - Seismic Data Fee -
15 JPDA - Development Fee 3,064,000
16 JPDA - Contract Service Fee 960,000
17 TL Exclusive Area - Application Fee -
18 TL Exclusive Area - Seismic Data Fee -
Central Bank of Timor-Leste 7,978,400
19 TL Exclusive Area - License Fee/Surface Fee 7,978,400
Total 3,453,285,817

Tim Woodward, Partner,  Moore Stephens LLP
150 Aldersgate Street, London EC1A 4AB

Update, 16 January 2013:
The final versions of the 2010 and 2011 EITI reports were officially released on 28 December 2012, just in time to conform with EITI rules. They are slightly more disaggregated than the preliminary versions. In his cover letter, Minister for Petroleum and Mineral Resources Alfredo Pires, who chairs the Timor-Leste EITI Multi-Stakeholder Group (TL-MSG) wrote:

   "Timor Leste, will no longer compromise on contract discloser and disaggregated information.
   "I realize that, for one reason or another, not everyone shares the view that the current reports should be so detailed. The current report does not have the full consensus of the TL MSG but it does have the blessing from the majority of the TL MSG.
   "After carefully considering the implications of publishing such a detailed report, and having carefully looked at the pros and cons, I reached the conclusion that the pros outweighed the cons, therefore as Chairperson of the TL-MSG I have ordered the publication of the 2010 and 2011 reports as agreed by the majority of TL-MSG."

Measuring inflation more effectively

For Tetum, full texts, and additional information, click here.

Timor-Leste's National Statistics Directorate (DNE) publishes Consumer Price Index (CPI) reports to measure inflation in Timor-Leste. They are updating their 11-year-old system with technical help from the Australian Bureau of Statistics. Using information from the (as-yet-unpublished) 2011 Household Income and Expenditure Survey (HIES), they will change the weights for different product groups and also hope to produce a monthly national CPI. DNE recently organized a workshop where two ABS experts explained how CPI is derived and presented proposed changes. Following a lively discussion, DNE encouraged participants to share additional thoughts, so La’o Hamutuk wrote the following:

La'o Hamutuk Submission on revising TL's Consumer Price Index (abridged)

21 November 2012

Download PDF of La'o Hamutuk's complete submission in English or Tetum.

Thank you for encouraging La’o Hamutuk to give suggestions. We believe that a solid understanding of today is essential to developing good strategies for tomorrow, and are glad that DNE has asked users of your publications for input.

We are not experts in statistics, although we see CPI as an important tool for advancing economic justice. Measuring inflation is a challenging undertaking which cannot be reduced to a single monthly number, and we hope our observations will help policy makers understand and control the increasing cost of living for Timor-Leste’s citizens.

Timor-Leste’s economy and consumption patterns are very different from Australia. Timor-Leste has a diverse  economy, and our small size makes variations more extreme. In addition to the obvious differences for the 25% of Timorese who live in Dili, there are differences among and within the districts. Those which border Indonesia purchase more “informal” imports, while those which produce coffee have seasonal variations. In each district, people who live in towns buy differently from those in more remote areas. Therefore, we worry that increasing the frequency of national CPI statistics while reducing the number of places sampled could introduce inaccuracies.

We appreciate that the CPI measures effects on households. In an economy like Timor-Leste, where a small fraction of people has most of the income, indicators based on dollars (such as GDP and GNI) give a misleading picture. In spite of double-digit GDP growth, the percentage of Timorese people in poverty has increased to more than 50%, and we hope that the new CPI will reflect the living conditions of this disadvantaged and vulnerable majority.

Market principles often don't apply in Timor-Leste. When buyers don't know that a product is cheaper somewhere else, or if going there is too difficult, some sellers charge more. When vendors don't understand that some income is better than none, they ask the same price until a perishable product becomes unsellable. Can DNE's published price data include variation of prices among stores or localities to help reduce this lack of information?

Timor-Leste is extremely import-dependent, and the prices of imports are often very different than the prices of local products for which they substitute. DNE’s recent 2011 Trade Report shows that exports were $13 million, with $319 million in imports. The Balance of Payments is more striking – during 2011 $1,764 million left Timor-Leste while only $381 million came in (plus $3,240 million in oil income, which could drop to zero in about 12 years). Imports are mostly purchased by more affluent, urban people, and a CPI which mainly includes imported goods does not reflect most people’s lives. Is it possible to disaggregate the data, to enable comparison of changes in price differences between, for example, imported and locally produced rice? Increasing local production to substitute for imports is essential to Timor-Leste’s future, and such data would assist policy development.

Approximately half our population lives below the poverty line, largely in rural areas, and we suggest that a separate CPI be calculated to indicate their costs of living. With fewer options and less resources, they are hit harder by inflation, and it is important to measure and understand these effects.

For example, Timor-Leste imports vehicles and fuel, but almost no rural people have cars or motorcycles. They walk, occasionally using horses or public transportation when they require goods or services not available in their vicinity, such as health care or education. Rather than purchase Aqua, they walk long distances to undrinkable sources. Rather than purchase LPG or kerosene, they gather firewood. They cannot purchase many tradable items which others buy, sometimes doing without, producing for themselves or bartering in the subsistence economy. But when they really need to purchase something, inflation makes their scarce money buy less. How can the CPI reflect their reality?

Konta Jerál Estadu loke informasaun hakfodak no tristeza

Liga iha ne'e atu hetan informasaun no dokumentu tan.
Click here for more information and documents in Tetum, English or Portuguese.

 Fulan kotuk Parlamentu simu Opiniaun Tribunal Rekursu kona-ba Konta Jerál Estadu (KJE), relatóriu finanseiru Governu durante tinan 2011. Prezidente Komisaun C konvida La’o Hamutuk atu hato’o perspetiva ba KJE iha Audiénsia Públiku, 15 Novembru.

La’o Hamutuk hato’o katak rubrika ida mak hamosu tristeza iha planu Fundu Infrastrutura ne’ebé la lista iha Orsamentu Jerál Estadu (OJE) 2011, mak kontratu $1,258,192 ne’ebé asina ho Nevan Construction atu harii residénsia ba Ministra Finansa, hodi aumenta kontratu $283,515 ne’ebé asina ona iha 2010. Hodi ilustra katak delegasaun podér fiskalizasaun Parlamentár nian ba Ministra/u Finansa atu realoka Fundu ne’e bele kria risku katak rekursu povu nian la ba povu nia interese.

Maske Tribunal fó opiniaun katak KJE ne’e kumpre ona Lei Orsamentu no Jestaun Finanseiru (LOJF), maibé La’o Hamutuk iha opiniaun ne’ebé diferente tanba iha despeza barak hosi Fundu Kontinjénsia la urjente atu halo. LOJF hateten despeza hosi kontinjénsia akontese bainhira iha “caso de necessidades urgentes e imprevistas.”

Hanesan despeza $176,322 ba saláriu asesor Olgario de Castro durante 2011, loloos tenke preve ona antes iha Orsamentu Estadu no hetan aprovasaun. Olgário durante ne’e nudár Prezidente ba Konsellu Investimentu Fundu Petrolíferu Timor-Leste. La’o Hamutuk preokupa tanba sá nia tenke hetan saláriu espesiál ne’ebé urjente duke selu hosi dotasaun ba konsultan sira iha Ministériu Finansa.

Despeza seluk ne’ebé preditavel no tenke mai hosi alokasaun normal iha orsamentu ministerial mak despeza ba saláriu no viajen internasionál ba konsultan no profesóres UNTL, bolseiru APTECH-India, iklan iha Foreign Policy Magazine no besik tokon $9 ba kompañia Esperansa Timor Oan (ETO) atu fornese kombustivel ba Ministériu Infrastrutura. La’o Hamutuk hanoin kontinua polítika hanesan ne’e sei hatún autoridade Parlamentár, enkoraja planeamentu ne’ebé fraku no hafraku transparénsia no kontabilidade estadu nian.

 La’o Hamutuk mos apresia Opiniaun Tribunal hodi sujere rekomendasaun Tribunal tenke implementa ho obrigatóriu. Hanesan rekomendasaun ba kontabilidade, aprovizionamentu, no informasaun komprensivu no disagregadu. Katak dokumentu prestasaun konta estadu nian tenke inklui pagamentu ne’ebé ministériu sira halo ba “instituições autónomas” ne’ebé iha nia okos.

La’o Hamutuk konkorda Opiniaun ne’e atu KJE inklui reseita Autoridade Nasionál Petróleu, Banku Central, RTTL no TimorGAP. KJE mós tenke inklui osan ne’ebé tama ba Fundu Petrolíferu, la’ós de’it ida ne’ebé transfere ba Orsamentu Estadu, nune’e bele hadi’ak liu tan transparénsia no kontabilidade ba Parlamentu no públiku.

Aleinde ne’e, KJE mós mensiona despeza tokon $68 ba kombustivel veíkulu no jeradór. Ne’e la konsistente ho relatóriu Diresaun Nasionál Estatístika ba Estatístika Komérsiu External katak iha 2011 Timor-Leste importa gazoel no gazolina ho valor tokon $37, ba uzu estadu, komersiál no públiku. La’o Hamutuk deskonfia iha buat balu la’o laloos, no sujere atu Parlamentu Nasionál bele husu resposta Governu ba diskrepansia ne’e.

TL's MCC scores getting worse

A few days ago, the U.S. Government's Millennium Challenge Corporation (MCC) released its annual scorecards for Low- and Low-Middle income developing countries. These Fiscal Year 2013 (FY13) scores describe the situation in 2011.

The 20 scores come from ratings by several international agencies and compare each country with others in the same income category. They are in three broad areas: Economic Freedom, Investing in People and Ruling Justly. If a country passes at least half the indicators in every area, they are eligible for an MCC Compact (major grant support), under the philosophy of helping those who help themselves.

The graph at right shows how Timor-Leste's scores on MCC indicators have changed over last four years. Timor-Leste has not been Compact-eligible since Fiscal Year 2009, although we do receive some support through the MCC Threshold Program to help improve our anti-corruption and health scores.

Since 2010, MCC has categorized Timor-Leste as a Low-Middle Income Country (LMIC)  since 2010, due to oil revenues which make up about 3/4 of our income. MCC has rated Timor-Leste since 2004; click here for previous scorecards and an analysis of MCC's history in Timor-Leste.

Unfortunately, MCC ratings for Timor-Leste declined significantly this year. Although this is partly because some MCC indicators are inaccurate for Timor-Leste, most of it is because our economy, governance and human services are not improving as quickly as other LMICs.

We scored well on Fiscal Policy because we had no external debt in 2011. The Health Expenditure score is a statistical error. (MCC measures this as a percent of GDP, and Timor-Leste's GDP does not include  oil revenues, producing a score four times higher than it should be. As a percentage of GNI, we spend less on health than all but three LMICs.)

Timor-Leste improved on Business Start-up (because it takes less time to get a business license) and moved up slightly on Freedom of Information (because other countries got worse). MCC changed how they decide if Civil Liberties is passing, so we moved from fail to pass even though our score did not change.

Unfortunately, Timor-Leste's scores worsened on every other measure, although none moved from "pass" to "fail." We now barely pass Natural Resource Protection and Political Rights. Our 13.5% Inflation rate is higher than all other LMICs, although not quite failing (defined as above 15%).

Our Control of Corruption score continues to fall -- only two of the 33 LMIC countries (Iraq and Republic of Congo) scored worse. Nobody gets MCC Compact funding without passing Control of Corruption.

To become eligible for a compact again as a LMIC, Timor-Leste needs to pass Control of Corruption, at least one more indicator in "Investing in People" and at least two more in "Economic Freedom." In addition, we must maintain passing grades in all indicators which we passed in Fiscal Year 2013.

Follow these links for MCC's FY2013 scorecards of all countries, a description of the indicators or the history of MCC and Timor-Leste.

What interests the UN Security Council?

After neglecting Timor-Leste for 23 years, the United Nations Security Council has held 48 substantive open debates on this country since August 1999, totaling more than 135 hours. You can follow Security Council Members’ interests by counting how often they say particular words and phrases. For example, “impunity” was mentioned every ten minutes during debates in 2010, but only once in the three-hour debate last February. Similarly, “rule of law” and “accountability” have received less attention recently, although much more than they were given during UNAMET and UNTAET.

La’o Hamutuk often suggests that the United Nations and other development partners give more attention to human security (health, education and socio-economic justice) and less to the security sector of military and police. Every year, 25 times as many Timorese children die preventable deaths from illness and malnutrition as people of all ages are killed by violence. Although the Security Council talked about poverty and economic issues in 2010, their focus has moved elsewhere. We hope that their final Timor-Leste debate on 12th November will consider how the international community can help Timor-Leste’s state and people build our non-oil economy to achieve sustainable, inclusive development.

On 4 November, La'o Hamutuk wrote what may be our last letter to the Security Council prior to their discussion of Timor-Leste. Click here for more information, including analysis, UN documents and La’o Hamutuk’s many past letters to the United Nations.

Update, 19 November:
The Security Council held its final meeting on Timor-Leste on 12 November.  Timor-Leste was represented by Foreign Minister Jose Luis Guterres, since the Prime Minister was occupied with a g7+ conference in Haiti.  For the first time in 8 years, the word "impunity" was not uttered even once during the 2-1/2 hour meeting. Access transcripts and other documents here.