28 October 2011

Acting Audit Court reviews 2010 State Accounts

Under Timor-Leste's 2009 Budget and Financial Management Law, the High Administrative, Tax and Audit Court is responsible to review the annual audited report of State Finances. Since the HATAC hasn't been established yet, the Appeals Court is doing its function. On 20 October 2011, the Court sent Parliament its Opinion  (Portuguese original) on the 2010 State Accounts, and on 28 October, Parliament Committee C held a hearing with the Minister of Finance. La'o Hamutuk wrote a letter (also Tetum) with some of our concerns about the Opinion, which is abridged below:

We do not understand or agree with the Court’s concluding Opinion that the state accounts are valid. The court identified too many fundamental flaws, and we describe several others below, to reach this conclusion.

The Court should have been given more information than the Government provided, as the current Opinion points out. We encourage Government to be more forthcoming to the Court, Parliament and the public. We support the Court's recommendations for a more disaggregated, comprehensive and accurate system to manage and report on state finances, as well as for better systems for reconciliation and control of cash.

Rapid budget growth is a symptom of the resource curse. During 2008-2012, Timor-Leste’s State Budget grew faster than any nation in the world except Zimbabwe, and it is not sustainable, manageable or producing good results. The 2010 mid-year budget was an extreme case, which transferred a lot of money out of the Petroleum Fund without a valid reason, sacrificing future generations for current greed.

Taking more than the Estimated Sustainable Income (ESI) from the Petroleum Fund for short-term convenience violates both the Petroleum Fund Law and good policy. It is illegal to withdraw money from the Petroleum Fund merely to increase the balance in the Treasury account for the following year. During December 2010, the Ministry of Finance directed the BPA to transfer $211 million from the Fund, although the Treasury contained enough for several months’ expenses. At the end of the year, the Treasury Account held $340 million dollars, the highest amount in Timor-Leste’s history.

The Court recommended that donor assistance be included in this review and in the State’s budget execution reports. We do not share this view, except for possible future direct budgetary support from donors. 

The Court mentions evidence of possible violations of law. We hope that they provide full information to the Anti-Corruption Commission.

The end-of-the-year budget execution rush is bad policy. The graph at right shows the 235 contracts over $250,000 that Timor-Leste signed during 2010, totaling nearly $700 million. Nearly half (107) were signed during November and December. Hasty spending before the fiscal year ends often leads to waste, corruption and poor outcomes.

The Court should have discussed the largest outlay in 2010, the national electricity project. La’o Hamutuk has written extensively about this debacle, but we remain hopeful that Timor-Leste will learn from it. Timor-Leste signed a $330 million (later increased to $406 million) contract without competitive bidding on 15 September 2010 with Puri Akraya Engineering to build the power stations. The previous December, Timor-Leste’s largest contract ever ($367 million) was signed with Chinese Nuclear Industries No. 22 (for the same power plants and the national high voltage grid), which was reduced to $298 million when PAE was contracted. These two contracts totaled $629 million at the end of 2010 (they are still increasing; today the total project cost is around a billion dollars and rising).

Parliament had not approved the outlays obligated by these contracts, which are ten times  more than the 2010 budget says. The 2010 mid-year budget adjustment appropriated $60 million for this project during 2010 (budget execution reports say that $90 million was spent), but omitted multi-year costs. The original 2010 budget gives a project cost of $48 million, with no expenditures listed after 2010.

To avoid repeating similar violations, we encourage Government to implement a system to provide accurate information to Parliament and the public about total expected costs of multi-year projects and future contractual obligations, including alterations while the projects are being implemented.

We discussed many of these issues in more detail in our submission to Parliament last week on the proposed 2012 State Budget.

26 October 2011

Public Meeting/Enk. Publiku with Patricia Isasa

Tetum iha kraik
Argentinian torture survivor and human rights activist has been in Timor-Leste for a few weeks, meeting with victims, justice campaigners and officials in Suai, Maliana and Dili, sharing her experience of a successful, 33-year struggle to bring her torturers to justice.  Although she was 'disappeared' in 1976 and imprisoned for more than two years, it took until 2009 for an Argentinian court to convict six of "her" perpetrators and sentence them to long prison terms.

Patricia will share her experiences in a public meeting "Forgetting Past Crimes Strangles Justice Today and Tomorrow." The meeting, which is free and open to the public will be in Tetum and English.
Friday, 28 October, 9:00 am - 1:00 pm
at CAVR (ex-comarca/prison), Balide, Dili
Patricia Isasa: "Strategies and Challenges in Struggling for Justice"
Ines Martins: "Justice for Timor-Leste is still an Unresolved International Obligation"

Relasiona ho Visita Aktivista Justisa Sra. Patrisia Isasa mai iha Timor Leste iha fulan ida nia laran, atu fahe ninia esperensia no ninia hanoin konaba luta kontra Ditadura Militar iha Arjentina iha tempu neba to hetan duni justisa ba ninia an hodi hatama autor nebe halo violensia kontra nia no povu Arjentina ba Tribunal to tama ba Komarka.

Bazeia ba esperensia nebe mak Timor Leste mos infrenta iha tempu pasadu iha okupasaun Indonesia nia ukun ho Ditadura Militar, ami husi Lao hamutuk organiza Enkontru Publiku iha Dili ho topiku jeral  “Haluha Krime Pasadu, Hamate Justisa iha Agora no Futuru”. Ba Enkontru publiku nee, ami nakloke hodi konvida ita boot sira atu mai partisipa hodi rona no mos fahe Esperensia ba malu atu nune ita hamutuk luta ba hakotu korenti Impunidade nebe mak agora buras iha rai doben Timor Leste.
Enkontru Publiku nee sei halao iha ;
Loron        :  Sesta-feira, 28 Outobru 2011
Fatin        :  STP- CAVR (ex. Komarka Balide)
Oras        : 08:30 - 13:00    
Narador mak 
Sra. Patrisia Isasa : ho topiku Estrategia no Dezafiu luta ba krime Pasadu hodi hetan Justisa
Ines Martins husi Lao Hamutuk : ho topiku Justisa ba Timór-Leste Nafatin Nu'udar Obrigasaun Internasionál ida ne'ebé Seidauk Atínje.

23 October 2011

LH to PN: 2012 Budget proves the Resource Curse is here

Timor-Leste Parliament's Committee C (Economy) held a hearing on the proposed 2012 State Budget last Friday, with testimony from La'o Hamutuk and other NGOs.
(L-R around table: MPs Manuel Tilman, Aderito Hugo da Costa and Cipriana Pereira. Guteriano Neves, Alexandra Arnassalon, Charles Scheiner and Juvinal Dias from La'o Hamutuk.)

We presented a 16-page submission (full text in Tetum and English) with the following main points:

The Resource Curse is truly here.
  • The “Dutch disease” of inflation, currently over 13%, exacerbates poverty in Timor-Leste.
  • We continue to neglect non-oil development and depend on imports.
  • Our people are our most important resource, but the budget will cut the share for health and education while infrastructure mega-projects get most of the money.
  • The MDG-Suco program exemplifies careless budget practices.
We should learn from Timor-Leste’s past experiences.
  • Timor-Leste is a world leader in budget escalation, with a 407% four-year increase second only to Zimbabwe.
  • The budget will spend 7.2% of our petroleum wealth from the Petroleum Fund, more than double the Estimated Sustainable Income. By 2014, Petroleum Fund withdrawals will be larger than oil revenues deposited into the Fund.
  • Special Funds continue to erode Parliamentary authority, and the Budget documents are not accurate or complete about how the Infrastructure Fund is being used.
  • Parliament needs complete information on expected project costs, such as the $950 million national electricity project, the $1.4 billion south coast highway, and other elements of the Tasi Mane petroleum infrastructure project.
  • Electricity continues to dominate, receiving more than $370 million, with results lower than expectations.
  • Agriculture deserves more than 1% of the budget, since it is the livelihood of more than 80% of our population.
Some new developments give more reason for concern.
  • Parliament needs more information before approving borrowing. This budget is the first request to authorize loans, $33 million, but future loans will be much larger.
  • The Tasi Mane project could be a multi-billion-dollar white elephant.
  • The South Coast Highway will eat up another billion or more.
  • The Timor-Leste Investment Company gets $200 million, which may be squandered on futile, useless, money-losing projects.
Our submission included 21 recommendations for Timor-Leste's Parliament:

20 October 2011

Highway dreams -- and their costs

For the last few years, La’o Hamutuk reported on the most expensive Government project in Timor-Leste’s history. The ill-conceived, poorly-planned, mismanaged and badly implemented national electricity project includes two heavy oil power plants and a high voltage grid. Even if there are no more cost overruns, this project will cost Timor-Leste more than $950 million dollars to construct ($443 million has already been spent) – plus hundreds of millions more for fuel, operation and maintenance.

Timorese policy-makers think big, and the electricity mega-project is about to be eclipsed by the South Coast Highway between Suai and Beacu, part of the Tasi Mane petroleum infrastructure corridor. Cars and 10-ton trucks will speed along its two carriageways at 100 km/hour, completing the 152-km trip in less than two hours.

Timor-Leste paid PT Virama Karya nearly a million dollars for a “Preliminary, Detailed Design and Environmental, Social and Economic Assessment” of this road, which was done in association with Multi Arch, LDA. A few weeks ago, the consultants presented their 75-volume report to the Government.  They estimate construction costs at $9.2 million per kilometer (about 20% less than similar roads in Indonesia) for a total outlay of $1.39 billion.

The proposed 2012 State Budget describes some of the expenditures for this project, although we believe they are understated (see table at right). This total, $767 million, is about half of what Virama Karya says the road will cost. If may be intended to pay for just a single carriageway, as the Strategic Development Plan suggests that the lanes may be built one at a time.

La’o Hamutuk estimates that the total cost of the road during its 30-year life (including construction, loan interest, and maintenance) will be $1 billion for a single-carriageway road, and $1.7 billion if both carriageways are built. 

Today, traffic along this route is less than 100 cars and trucks each day. If we optimistically assume tremendous growth due to the Tasi Mane project, this could increase by a factor of ten, to 1,000 per day. If the Virama Karya design is built and partly financed with concessional loans, each car or truck driving the length of the highway will benefit from a state subsidy of $156, more than a dollar per vehicle-kilometer. (Even if only one carriageway is built, Timor-Leste will have paid 60c for each vehicle-kilometer travelled, or $91 for a car which drives its length.)

One way to recover some of this money would be to charge tolls on this highway, although this seems unlikely given the Government’s decisions to reduce fuel and import taxes and to subsidize electricity users. If motorists paid tolls about the same as are charged in Indonesia (about 4¢/km for cars and 12¢/km for trucks), the state could recoup about 10% of its outlay.

The money which will be spent on this highway – more than $1,000 for each Timorese citizen and more than two years of our non-oil GDP – could do a lot for the education and health of our people, building human resources which could sustain Timor-Leste for generations. Petroleum revenues enable the “resource curse,” and petroleum-fueled vehicles justify an "Easy Street" for spending them.

07 October 2011

Key issues in the 2012 State Budget

This page is condensed from a fuller discussion on La’o Hamutuk’s website, which links to the budget documents and includes more information and graphics. 
On 21 October, La'o Hamutuk presented a submission on the State Budget to Parliament's economics committee.

Last week, Timor-Leste’s Government presented Parliament with a proposal to spend $1.76 billion during 2012, including $1.56 from the Petroleum Fund and $33 million in foreign loans.Timor-Leste's proposed 2012 budget is 35% larger than 2011, and is more than five times as large as the 2008 budget proposed four years ago. According to the IMF, Zimbabwe (with runaway inflation) is the only country in the world whose state budget grew faster during this time; Congo (DRC) places third with an increase of 3½ times.

The budget violates the principles of sustainable use of the Petroleum Fund, although it explains that Bayu-Undan oil and gas production is declining. The projected 2013 budget will spend as much from the fund as oil revenues will bring in.This year's Estimated Sustainable Income (ESI) is $665 million. This is $69 million lower than last year's, because the Government overspent the ESI during 2011 and because ConocoPhillips expects higher Bayu-Undan operating costs and lower future production. However, every state budget since 2009 has broken the 3% sustainable spending rule, which has more to do with public relations than with policy.

The proposed budget includes $33 million in loans for water and roads during 2012, with more in future years. This is the first time the Government has asked Parliament to approve borrowing.  The budget proposal "does not show repayment because most of the loans have a ten year grace period."  Over the next four years, the budget anticipates borrowing $447 million dollars. This is a small fraction of what will probably be needed to implement the Strategic Development Plan, but full information is not given. We urge the Government to provide information on the full costs of mega-projects like the Suai-Beacu highway before Parliament approves the budget and the loans, rather than repeating the mistakes of the Heavy Oil project.

In the 2012 budget, capital expenditures for electricity are $282 million (down from $447 million in 2011), although the new power plants require more money for generator fuel, from $46 to $89 million. Notwithstanding the increases in generating capacity and prepaid meter installations, EDTL gross revenues only to go up a little, from $14.5 to $16.1 million, requiring a $73 million subsidy (not including hundreds of millions in capital costs).

The Infrastructure Fund allocates $163 million to the Tasi Mane south coast petroleum infrastructure project. More than half of this is to build the Suai supply base for offshore oil operations, which is budgeted at $329 million between 2011 and 2014. The Government has just appointed Eastlog Holdings PTE to construct the supply base, which will become the property of the new TimorGAP national oil company. Another $45 million is allocated during 2011 for the Suai-Beacu highway, which is budgeted to absorb $547 from the Infrastructure Fund and $220 million in loans between now and 2016.

Timor-Leste 2012 State Budget continues to neglect Timor-Leste's human resources essential to economic development and quality of life. Only 6.3% of state expenditures will go for education, and only 2.9% for health. UNDP recently pointed out that countries making progress toward the MDGs spend about 28% of their budgets on education and health, concluding that “not enough priority is being accorded to education and health. If Timor-Leste is to move faster in achieving the MDGs in these areas, then the share of social services in the budget will have to be virtually doubled.” The 2012 budget moves in the opposite direction, reducing the budget allocation for these social services from 9.6% of the 2011 budget to 9.2% for 2012.

The Decree-Law establishing a state-owned investment company went into force two weeks ago, and the Timor-Leste Investment Company (CITL) will be capitalized with $200 million from the 2012 State Budget. CITL is intended "promote the development of investment opportunities and national wealth growth, leading important strategic projects with significant commercial impact." Like Singapore’s Temasek, “CITL is a state owned enterprise with profit seeking objectives. It is owned by the Government but functions on a commercial basis." CITL is empowered to incur debt by issuing bonds; it can also purchase shares in other companies.

03 October 2011

Orsamentu Estadu 2012 loke inovasaun

Iha loron 21 Outubro, La'o Hamutuk hato'o submisaun kona ba OJE2012 ba Parlamentu Nasional.

Orsamentu Jeral Estadu ba tinan eleisaun 2012 nian haksoit sai maka’as liu 35% ba orsamentu estadu 2011  ne’ebe maka’as mos. Proposta orsamentu biliaun $1.76 ne’e inklui imprestimus kiik primeira vez ba Timor-Leste. Mayor parte rendimentu ba orsamentu ne’e mai husi  Fundu Petroleu ho montante biliaun $1.59, maske estimasaun Governu ba rendimentu sustentavel ne’ebe atu foti husi Fundu Petroleu iha biliaun $0.67 deit.

Governu aprezenta orsamentu ba Parlamentu iha Sesta-Feira semana kotuk, hodi hadiak pratika pasadu, hodi publika tiha ona iha website Ministeriu Finansas. Ami rona katak ida ne’e akontese tamba iha preokupasaun katak website La’o Hamutuk bele sai tan fontes de facto ba Orsamentu Estadu. Ami sente orgulhu hodi partisipa iha kompetisaun ida ne’e, no publika ona tan dokumentus orsamentu nian ida ne’ebe fasil atu bele asesu ba iha pajina web la’o Hamutuk nian kona-ba orsamentu estadu 2012 (mos iha Ingles), ne’ebe sei inklui analiza no komentariu durante iha semana balun oin mai.

2012 Budget breaks new ground

Soaring 35% above the already huge Timor-Leste State Budget for 2011, the proposed $1.76 billion State Budget for election year 2012 includes a little borrowing for the first time. The bulk of its revenue, $1.59 billion, comes from the Petroleum Fund, notwithstanding the Government's estimate of the sustainable withdrawal (ESI) from the fund at only $0.67 billion.
The Government presented the budget to Parliament last Friday and, in an improvement over past practice, has already posted the budget documents on the Ministry of Finance website. We have heard that this welcome increase in transparency is because they feared that La'o Hamutuk's website would again become the de facto budget source. We're honored to participate in that competition, and have posted the budget documents in a more accessible form to La'o Hamutuk's page on the 2012 budget (also Tetum), which will include analysis and commentary over the next few weeks.

On 7 October, we blogged a summary of some key issues in this budget.