Checking the Petroleum Regulators

Liga ba artigu ida ne'e iha Tetum

Although Article 129 of Timor-Leste’s Constitution defines the High Administrative, Tax and Audit Court (Tribunal Administrativo, Fiscal e de Contas), it is still not fully established. However, the recent publication of two audit reports by the Court of Appeals, which serves as the interim Tribunal de Contas, is a major milestone. The Court’s Audit Chamber (Câmara de Contas) carried out financial audits of two state institutions – the National Petroleum Authority (ANP) and the National University of Timor-Leste (UNTL) – and posted them to its website.

La'o Hamutuk has made English translations of the ANP report and the summary and recommendations of the UNTL report. We have also posted the complete Portuguese original ANP and UNTL reports to our website.

Both audits identified significant weaknesses, but they move Timor-Leste toward better governance, which makes it more likely that the people’s money will be used wisely and for the public interest in the future. Each agency wrote a response which is appended to the Court's report -- they corrected and clarified information, justified some of their practices, and agreed to consider many changes.

Checks and balances between Timorese institutions are essential safeguards against corruption and mismanagement. We hope that ANP and UNTL will implement the Court's recommendations quickly, and that other state agencies, including Public Institutions and Public Businesses on the margins of the General State Budget, will take note.

This article focuses on the audit of the National Petroleum Authority (ANP) during 2010-2012. The Court appreciated many of ANP practices, including its good cooperation with the audit, but pointed out that ANP Annual Reports (2010, 2011, 2012) are often late and do not include complete financial information. They also told the ANP that its internal procedures must be approved by its overseers – the Australia-Timor-Leste Joint Commission and Timor-Leste’s Minister for Petroleum and Mineral Resources – and that its procurement processes should comply with Timor-Leste’s Procurement Laws.

Losing track of Timor-Leste’s money

The ANP has two components. One part, which regulates petroleum projects in the Joint Petroleum Development Area (JPDA), is a bi-national agency established by the 2002 Timor Sea Treaty, funded by fees from oil and gas companies with contracts in the JPDA ($4.9 million in 2012), including Bayu-Undan, Kitan and Sunrise. The other part, regulating oil and gas projects in Timor-Leste’s Exclusive Area and onshore activities including processing and sale of petroleum products, is financed by a transfer from Timor-Leste’s General State Budget, hidden in the appropriation for the Ministry for Petroleum and Mineral Resources ($1.5m in 2012, $2.2m in 2013, $3m in 2014). As the Court pointed out, ANP does not keep track of how much money is spent by each part, so it is impossible to know whether the money it receives from the companies and from the State are being used appropriately.

ANP had accumulated a cash surplus of $4.4 million by the end of 2012, including $0.8m profit in 2012 alone. Given the lack of separate accounting, the Court and ANP cannot tell how much of this is from JPDA activities and how much was unused money transferred from Timor-Leste’s budget. As the Court pointed out, this makes it impossible to know how much money ANP will need from Timor-Leste public funds each year. 

During the closed-door Ad-hoc Budget Committee last January, Parliament increased the appropriated transfer to ANP from the 2014 State Budget from $2 million to $3 million, which La’o Hamutuk was told is for an independent evaluation of ConocoPhillips projections of reduced Bayu-Undan revenue. Although this topic is outside the scope of the Court's audit, La’o Hamutuk wonders why this expense, which relates to JPDA activities, is not being paid for with company fees. ANP's submission to Parliament did not mention it.

When 2012 ended, ANP had $6 million in the bank, on which it earned just $263 in interest. The Court encouraged ANP to put this into no-risk, interest-bearing investments, which the Court estimated could have returned more than $29,000 that year.

Privileges from lack of accountability

Two years ago, La’o Hamutuk wrote “In many resource-curse afflicted countries, people with the opportunity to skim money from oil and gas activities become a privileged, corrupt class. We do not think this has happened yet in Timor-Leste, and hope it never will.” At the time, we were concerned that the ANP was purchasing better health care for its people than was available to other state employees. We are saddened that the Court found more examples of this sense of entitlement, and we hope that ANP will be more receptive to the Court’s suggestions than they were to ours.

The Court pointed out that ANP’s hiring and procurement processes, conducted according to its internal regulations, often involve only one person and have unclear rules, making them vulnerable to collusion, embezzlement or other corruption.

According to the Court’s Audit, ANP spent $2.3 million (43% of its expenditures) on personnel in 2012 and another 20% on consultants. The ANP sets its own salary scales, which have not been approved by the Petroleum Ministry or Joint Commission. ANP personnel costs averaged $29,256 per employee, more than five times the average for other civil servants, managers and advisers employed by Timor-Leste. In 2012, two ANP staff were internationals; since mid-2013 all 78 staff are Timorese. In its response, ANP asked the court not to compare its remuneration with that of other public servants because of "the nature of oil industry, of which the ANP is unavoidably a part, and the important role that ANP plays in the process of building the State of Timor-Leste and the fact that salary issues are politically sensitive."

In addition to their salaries, ANP staff receive a Pension Fund (equal to 15% of their salary, totaling $226,000 in 2012, which they get when they leave ANP), health insurance ($51,000 in 2012), and unlimited health care reimbursements ($29,000 in 2012). They also get money for family vacations ($2,400 for each family of four, totaling $102,000 in 2012), which is paid even if they don’t take a trip. As the Court pointed out, this may be expected by foreigners who leave their home countries to work, but ANP staff “are not expatriates, in other words, they do their work in their country of origin, Timor-Leste.”  To add injury to insult, many of these benefits should be subject to wage and withholding tax, but ANP does not pay all the taxes they owe.

Flying (and paying) high

The Court also cited ANP for not following standard Timor-Leste procurement procedures, or even its own internal policy of obtaining at least two quotes for any purchase over $500. They criticized the agency for purchasing airplane tickets and accommodation by direct award (single-source, without an open tender) and pointed out that two travel agencies – Harvey World Travel (an Australian company with a Dili office) and Ratna Artha Wisata (an Indonesian company in Bali) – together received over a million dollars from ANP during 2010-2012. In 2012 alone, ANP paid Ratna Artha Wisata $314,455. In another example, the Court described how ANP paid more than $44,600 for six tickets between Dili and Brisbane in 2010. At $7,441 per ticket, this is three times the round-trip business class fare and eight times what it should have cost to fly economy class.

The Court recommended “that the ANP must urgently change the way it purchases airline tickets, since its practice does not promote competition between suppliers and jeopardizes compliance with the principles of economy, efficiency and effectiveness of public expenditure.” Although the Court did not allege corruption or collusion, we hope that the Prosecutor-General, Anti-Corruption Commission and/or Provedor (Ombudsman) will find out who benefited from these practices.

Conclusion

La’o Hamutuk has predicted such problems since early 2007, when the first draft of the ANP Decree-Law was circulated. In our 31-page submission on the 2008 draft which eventually became law, we asked for “more creativity,  checks and balances, decentralization, public involvement, stability, transparency, independent oversight, accountability and legal effectiveness than is in the current draft law, and we again urge a careful and conscientious effort to learn from problems elsewhere to enact laws which will truly protect current and future generations of Timor-Leste citizens.”

La’o Hamutuk’s submissions on the General State Budget have repeatedly questioned the secrecy and the lack of accountability for ANP usage of the people’s money. For example, in January 2013 we told Parliament "TimorGAP, IPG and ANP merit the same budgetary scrutiny and financial oversight as all other state agencies, including by Parliament. We continue to encourage Parliament to require budgets and financial reports from these institutions. …. If Parliament approves this funding without adequate information, you will fail to meet your responsibilities under Article 95 of the RDTL Constitution.”

Timor-Leste should be proud and relieved that one state institution, the interim High Administrative, Tax and Audit Court, is taking its Constitutional responsibilities seriously. We hope that they will audit other public institutions, and that these bodies will implement their recommendations promptly. It would be even better if every public entity studied the reports on ANP and UNTL and took steps now to fix defective practices the Court might question in the future. Most of them are pretty obvious.