Konvite ba briefing/diskusaun kona-ba OJE 2013

Atu aumenta kapasidade analiza no hatene liu tan informasaun kona-ba proposta Orsamentu Jerál Estadu 2013, La’o Hamutuk hakarak konvida sosiedade sivíl ne’ebé interese ba analiza orsamentál nian atu bele mai tuir briefing no diskusaun kona-ba OJE 2013  ne’e sei realiza iha:

Loron Sesta Feira, 25 Janeiru 2013
Tuku 10.00 too 12.30 ka tan
Iha: La’o Hamutuk, Rua dos Martires da Patria, Bebora, Dili

Ita boot bele hetan dokumentu sira no ami nia komentariu kona-ba OJE 2013 iha http://www.laohamutuk.org/econ/OGE13/12OGE13.htm.

Download aprezentasaun husi briefing ida ne'e hanesan PowerPoint ka PDF.
Download English translation of the briefing as a PowerPoint or PDF.

LH advice on 2013 state budget

This week, La'o Hamutuk testified before two Committees of the Timor-Leste National Parliament about the proposed General State Budget for 2013.  We praised some good aspects, and identified other elements which need improvement.

You can download our written submission in English or Tetum.  It covers the following topics:

• We appreciate the slower rate of escalation in the total budget.
• Declining oil revenues should inform budget planning.
• Double-digit economic growth, amidst inflation, does not benefit most people.
• Parliament needs total cost information for the Tasi Mane oil infrastructure project and other multi-year projects.
• Non-renewable electricity gets more and more costly.
• The Contingency Fund should be smaller.
• Important information is missing or confusing in the budget documents.
• Veterans’ pensions: how much in future decades?
• Parliament should analyze the risks of public borrowing.
• The MDG-Suco housing program perpetuates past mistakes.
• Government continues to neglect human resources.
• Other legislation also requires attention.

We also wrote a short paper on energy policy, in Tetum.  More information, documents and analysis are on our frequently updated budget web page.

2013 Budget Documents available

As we begin a new year, La'o Hamutuk is making the 2013 budget books prepared by the Ministry of Finance available on our website with  summary information and preliminary analysis.

Update 21 January: La'o Hamutuk testified before two committees of the RDTL National Parliament last week. Download our submission in Tetum or English.

The total budget will be $1.8 billion, about the same as in 2012. About one-fourth of it will be financed with unspent money in the Infrastructure and Human Capital Development Funds, reducing the anticipated withdrawal from the Petroleum Fund in 2013 to $1.2 billion. This is 4.6% of Timor-Leste's anticipated petroleum wealth less unsustainable than the $1.5 billion the Government withdrew from the Petroleum Fund during 2012.

Although capital expenditure will be less than in 2012, recurrent expenditure will increase by 20%.  For more information and analysis, see La'o Hamutuk's web page on the 2013 budget.  We have also  published the final Budget Book for the October 2012 mid-year rectification.

2013 State Budget moves toward sanity

This week, Timor-Leste’s Government will send its proposed General State Budget for 2013 to Parliament for approval. La’o Hamutuk appreciates that Timor-Leste will no longer have the second-fastest-growing state budget in the world. The appropriations in the new budget are more consistent with Timor-Leste’s limited oil and gas reserves. As we await the Budget Books which will contains the details, we examine the overall picture.

The Government issued a press release yesterday, summarizing the Council of Ministers meeting which approved the proposed 2013 Budget, which appropriates $1,798 million, as follows:

• $160.3 million for Salaries and Wages
• $461.7 million for Goods and Services
  (including $42.4 million through the Human Capital Development Fund, $8.5 million of which is carried over from 2012)
• $236.5 million for Public Transfers
• $  47.2 million for Minor Capital
• $891.9 million for Development Capital
  (including $752.9 million through the Infrastructure Fund, $444.4 million of which is carried over from 2012).

New appropriations and loans add up to $1.34 million, a significant and welcome moderation of rapid budget escalation.

The above graph shows that the total size of the 2013 budget will be $1.8 billion, about the same as the final rectified 2012 budget. Executed expenditures during 2012 will probably be less than $1.4 billion, so 2013 is still a significant increase in spending.

The biggest change is on the revenue side. Instead of withdrawing $1.5 billion from the Petroleum Fund as was done in 2012, the 2013 budget will withdraw only $1.2 billion. This is 4.6% of Timor-Leste's anticipated petroleum wealth, and is still more than the 3% Estimated Sustainable Income, although it is less unsustainable than the 6.7% the Government withdrew from the Petroleum Fund during 2012. La'o Hamutuk appreciates this move in the direction of fiscal responsibility, and we hope it will continue.

The remainder of the non-oil "budget gap" will be filled with $453 million carried over from unspent money in the Infrastructure and Human Capital Development Funds at the end of 2012. The Infrastructure Fund began operation in 2011 and had $132 million left at the end of that year, which was carried over to  2012. During 2012, the Government appropriated $707 million more for the Fund to finance ambitious, multi-year, mega-projects. However, only about 14% of the non-electricity Infrastructure Fund allocations for 2012 had been spent by mid-December, with another 25% committed.

On the expenditure side of the 2013 State Budget, salaries and purchases of goods and services will go up significantly compared with 2012. Public transfers (pensions, veterans' benefits, etc.) were recently increased in the October budget rectification and will continue at this higher level. Capital expenditure will get smaller, perhaps in recognition that some of the most unrealistic proposed projects will not benefit Timor-Leste or are impossible to implement on ambitious schedules.

Note: This blog entry, including the first graph, was revised on 19 December to reflect information in the budget books, which we posted on La'o Hamutuk's web page on the 2013 budget on 2 January. We will continue to provide updates, analysis and documents on that page.  
The first graph shows the Government's figure for Timor-Leste's non-oil GDP as a green line with squares.  From 2009 on, the Government and IMF have revised the method by which this is calculated, and it is not comparable with values before 2009.

Perceiving corruption accurately

Click here for the Transparency International and MCC scores published in late 2013.

Transparency International just reported that Timor-Leste moved up 30 places in their annual Corruption Perceptions Index, the biggest climb up the index of any country in the world. Last month, Timor-Leste’s ranking dropped seven places on the U.S. Government’s Millennium Challenge Corporation’s Control of Corruption indicator. Why are they so different? Is corruption here getting worse or better?

As a new, small country struggling to develop its state and economy, Timor-Leste pays a lot of attention to its ratings on international indicators, but these indicators are often misleading, ignoring unique characteristics of our extremely petroleum-export-dependent economy or misrepresenting the rapid changes Timor-Leste is going through.  We should understand these scorecards before we use them to shape policy, and we should give greater weight locally-produced, country-specific data (such as the Government’s not-yet-released Household Income and Expenditure Survey) to really know Timor-Leste’s situation.

Transparency International (TI) calculates a Corruption Perception Index (CPI) for nearly 200 countries every year and publishes them in early December. As with the MCC scorecard, the CPI uses data which is up to two years old, so the new scores represent the situation during 2010-2012.

In the new 2012 CPI, Timor-Leste scored 33 out of 100, ranking 113rd best out of 176 countries rated. In last year’s CPI, our score was worse, and we ranked 143rd out of 183 countries. Great news: Timor-Leste reduced corruption more than every other country in the world! But is it true? We  have a rapidly growing state budget, a minister facing prison, reports about corruption in the media every day and falling scores from other rating agencies. Published international perceptions should be consistent with the country itself.

La'o Hamutuk looked into how Transparency International calculated their figures. We learned that perceptions of corruption in Timor-Leste did not change significantly since last year, but our score got better for four reasons:

1. Transparency International included seven fewer countries/territories in the 2012 CPI that had been included in 2011 – Macau, Samoa, Vanuatu, Kiribati, Tonga, Solomon Islands and Maldives – because not enough data was available.  All of these had scored better than Timor-Leste in 2011, so removing them automatically moved us up seven places – from 143 to 136.
   
   
2. This year, TI has updated the methodology by which the calculate the CPI, and are using fewer data sources to construct the index overall (17 in 2011 and 13 in 2012). For Timor-Leste, TI used only three indicators for Timor-Leste, down from five last year. This year, they no longer included data from the Asian Development Bank, which had ranked Timor-Leste in a three-way tie for lowest score among 31 countries in 2011. Without the ADB indicator, our ranking automatically improved significantly.
   
   
3. Many countries have corruption perceptions about the same as Timor-Leste, so a very small change in score can result in a large change in ranking. Last year, Timor-Leste was tied for rank 143 with nine countries, so that a tiny improvement would move us up nine ranks. This year, we are in a five-way tie for rank 113, and the score difference between rank 113 and rank 130 (about where we would be without the two prior methodology changes) is only 5 out of 100.
   
   
4. The three indicators TI used this year for Timor-Leste are from the World Bank (Country Policy and Institutional Assessment score on “Transparency, Accountability and Corruption in the Public Sector”), the World Economic Forum (Executive Opinion Survey, two questions on corruption), and Global Insight (Country Risk Ratings). The World Bank publishes their data, and Timor-Leste’s score got slightly worse, from 3.0 to 2.5.  World Economic Forum scores are not published in detail, but Timor-Leste improved slightly, from 3.05 to 3.3. The difference – and almost all of the improvement -- is from the Global Insight score. Neither TI nor IHS (the company which produces Global Insight) would share raw data with La’o Hamutuk, but Timor-Leste apparently improved significantly.

In an email to La’o Hamutuk, Transparency International Research Manager Deborah Hardoon explained why Timor-Leste moved up in the rankings: “The improvement in rank number results from several aspects of comparing countries/territories on a relative index, where position is determined by the assessment of other countries as well as your own. Timor-Leste’s gain in rank comes from the combination of fewer countries this year, the decline of perceptions of corruption for other countries, fewer data sources used to construct Timor-Leste’s score and a small net increase of the raw underlying data sources. We would not say this was an ‘improvement’ per se, as one of three data sources moved in the opposite direction and the change in CPI score is less than the margin of error. Moreover, Timor-Leste still scores worse than nearly 2/3 of all countries – a score of 33 out of 100 clearly demonstrates that much remains to be done to clean up the public sector in Timor-Leste.”

Nevertheless, La’o Hamutuk joins others in appreciating that some international agencies perceive that corruption here is declining compared with other countries. In this year’s CPI ranking, Timor-Leste did better than 19 countries which had scored better than us last year (Dominican Republic, Ecuador, Egypt, Indonesia, Madagascar, Mozambique, Sierra Leone, Vietnam, Lebanon, Nicaragua, Guyana, Honduras, Iran, Kazakhstan, Pakistan, Bangladesh, Cameroon, Syria and Eritrea), many of whose scores fell drastically. Rather than celebrating, Timor-Leste should redouble our efforts to make this improvement significant and permanent.

Timor-Leste needs to do a lot more to reduce and prevent corruption in this country. Wishing and indicators won’t make it happen – and neither will speeches, dialogues and conferences alone.

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?