18 December 2015

Hyundai E&C’s history of corruption

On 12 June 2015, Timor-Leste's National Procurement Commission announced that it intended to award the contract for the design and construction of the Suai Supply Base to the consortium of Hyundai Engineering & Construction Co., Ltd and Hyundai Engineering Co., Ltd.  The contract was signed on 27 August 2015, and the project primarily involves constructing a 3.3 km concrete seawall, with construction expected to be completed by September 2018. This is the largest contract in Timor-Leste’s history – $719 million – more than the total that the country has spent on education since independence in 2002.  Timor-Leste's Audit Court invalidated the contact, reportedly because of Hyundai's record and irregularities in the procurement process, but the Government is appealing the ruling.

Hyundai E&C (HEC) is the largest engineering company in South Korea, and is among the fifteen largest international contractors in the world. It employs 60,000 people and has annual income of more than $16 billion dollars. The company wields considerable political influence in South Korea as one of the major chaebol (family-run conglomerates) which dominate Korean business and politics; its former CEO, Lee Myung-Bak, was the President of Korea from 2008 to 2013.

Since 2012, Hyundai E&C has been sanctioned many times for collusion by the Korean Fair Trade Commission (KFTC), the government body in charge of investigating and prosecuting corruption cases and anti-competitive practices involving Korean businesses. This article contains links to Korean Government documents, and also uses Korean media articles as secondary sources. Some links are in English, while others link to Korean language documents.

HEC has most often been charged with bid rigging, where nominal “competitors” secretly agree in advance who will win specific contracts, while also conspiring on what prices to bid to maximize profits for the winning (lowest) bidder. This causes the people to have to pay much more for infrastructure.

One major scandal involved contracts for the construction of a second subway line in Incheon. In January 2014, KFTC issued a press release (Korean) announcing fines of ₩132.2 billion won (around $120 million) for 21 companies. Another KFTC document (Korean) shows that HEC itself was fined ₩14.74b ($13 million).

In April 2014, the Public Procurement Service (PPS) banned (Korean) Hyundai E&C and other companies from bidding on government contracts between May 2014 and May 2016. However, HEC appealed (Korean) PPS’s decision to blacklist them, and the pending appeal allowed the company to continue to bid for contracts while the case was in progress. The appeal was never decided.

In a separate ruling in December 2014, Seoul High Court ruled (Korean) that Hyundai E&C and the other companies did not have to pay fines in relation to the Incheon Subway collusion, but the blacklist remained in effect. The Court decision was only about the fines in the Incheon case -- HEC has also been convicted in many other collusion cases, and those fines and sanctions still stand.

13 July 2015: President Park Geun-hye
calls for special pardons to mark the
70th anniversary of Korea's
independence from Japan.
Finally, on 15 August 2015, the Korean Ministry of Land, Infrastructure and Transport announced (Korean) that, as part of amnesties issued for the 70th anniversary of Korean independence, the government had lifted the ban on the construction companies’ bidding for government contracts “to promote national unity and economic vitality.” However, the press release also said that fines and criminal convictions for corruption would remain in place.

La’o Hamutuk previously circulated a JoongAng News article which said that HEC had been blacklisted by the Korean Government for collusion. Even though the ban technically never came into effect, HEC was convicted of corruption in 2014 and banned from bidding for public contracts for two years. Although they were un-blacklisted for this case in August 2015 (two months after Timor-Leste decided to award them a $719 million contract), HEC has been penalized for many other corrupt and criminal activities.

The Four Rivers construction project, which began in 2009, led to a major scandal in which several major construction companies were indicted in 2013. HEC was fined ₩22b ($20 million) by KFTC, and the Supreme Court upheld the fine (Korean) in December 2014. In addition, media including Korea Times Daily, KHL Group and Korea Economic Daily reported in late 2013 that HEC and several other companies were to be banned from bidding for government contracts by the Public Procurement Service for 15 months over the Four Rivers scandal.

Hyundai E&C has been fined many other times. Indeed, The Korea Times wrote on 8 December 2015 that KFTC has fined HEC a total of ₩182.4b ($165 million) since 2010.
  • In March 2014, HEC was fined over ₩10b ($9 million) for bid rigging in relation to Daegu metro and Busan subway contracts.
  • In April 2014, the Korea Herald reported that HEC had been fined ₩13.3b ($13 million) for bid rigging in relation to the Ara Waterway project.
  • In April 2014, KFTC announced (Korean) that they had fined HEC ₩13.4b ($13 million) for collusion in relation to the Kyungin canal project. K-Water (the Government agency for water management) also blacklisted HEC for nine months.
  • In July 2014, media including Yonhap News reported that a record fine of ₩435.5b ($420 million) had been imposed on a group of 28 companies for colluding over contracts for building a high-speed rail system in Honam. According to JoongAng News, HEC’s individual fine was ₩59.8b ($58 million).
  • In October 2014, Yonhap News reported that HEC was fined ₩6.3b ($6 million) for colluding on bids for a construction project in Youngilman port in Pohang.
  • In May 2015, HEC was one of 22 companies fined ₩175b ($160 million) by KFTC for colluding over gas pipeline and office construction contracts in 2009 and 2011. Yonhap News reported that HEC was fined ₩36b ($32.5 million) in relation to this case.
Large corporations have often abused the disproportional political power they hold in South Korea. Hyundai E&C has sometimes managed to evade penalties by filing appeals and receiving pardons, but the company has a long record of convictions for corruption. The people who manage Timor-Leste’s people’s money should ensure that every company receiving a government contract meets standards for integrity and has no record of criminality. If not, our limited management experience and capacity could allow corrupt foreign companies to steal the money we have saved from our people’s oil and gas wealth.

La’o Hamutuk hopes that this article will help Timor-Leste’s judges and policymakers decide whether to award nearly a billion dollars to a company which has repeatedly flouted the law and the public interest.
Update: On 16 June 2016, Hyundai E&C announced that it had given up waiting for Timor-Leste's appeals court to overrule the Audit Court decision and that it was withdrawing from the project. 

17 December 2015

TL's Human Development Index dropping, but data is lacking

The United Nations Human Development Program (UNDP) just released its 2015 Human Development Report, with statistics and rankings for nearly every country in the world. The report calculates a Human Development Index (HDI) – combining measures of income (GNI per capita), health (life expectancy) and education (years of schooling) – to assess how people are doing. The results are discouraging for Timor-Leste: our HDI is 0.595, ranking 133rd out of 188 countries and territories. Even worse, our HDI has dropped steadily since 2011.

Download the report textstatistical annex (Excel)Country Profile for Timor-Leste, and Explanatory Note for Timor-Leste.

Although the HDI was created as an alternative to Gross Domestic Product (GDP) which would consider quality of life as well as money, it does not work this way for this country. Unfortunately, UNDP has no health or education data newer than the 2009-2010 Demographic and Health Survey (DHS). Progress in education in the last six years is not shown, while progress in lifespan is based on a statistical model. Therefore, changes in HDI for Timor-Leste primarily reflect changes in Gross National Income (GNI) per capita, which has been falling since 2011 as oil and gas production drops because the fields are being depleted, exacerbated by last year’s drop in market prices.

Nevertheless, the new Human Development Report is more accurate for this country than the one issued last year, which included overly optimistic projections for GNI. UNDP improved its estimates after discussions with La’o Hamutuk, and the new report also revises Timor-Leste’s HDI for past years. The heavy black line on the graph at right shows Timor-Leste’s HDI trend from the 2015 report. HDI has dropped since 2011 because GNI pc (dotted black line) has been falling.  The thinner red solid and dotted lines show the erroneous values UNDP reported in 2014, which the Government said “confirms good progress”.

Unfortunately the 2014 report was incorrect. With new data and better methodology, the 2015 report shows that Timor-Leste’s global HDI rank is 133, and it has been 132 or 133 every year since 2010, indicating no progress. UNDP calculates an “average annual HDI Growth 2010-2014” for each country. Timor-Leste’s value of negative 0.22%/year is among the worst – only five other countries (Cuba, Libya, Jamaica, Syria and Central African Republic) are losing human development as rapidly as Timor-Leste.

In addition to its narrative report and analysis, the Human Development Report (HDR) includes a statistical annex with valuable information on nearly all countries regarding health, education, economy, inequality, labor, gender, poverty, population, environment and other topics. Unfortunately, some of the information on Timor-Leste is outdated – for example, Multidimensional Poverty comes from the 2009-2010 DHS. We hope that the imminent publication of the 2015 census, Livings Standards Survey and 2016 Demographic and Health Survey will improve knowledge and policy-making about Timor-Leste’s current situation.

The 2015 HDR focuses on how work can enhance human development. Unfortunately, labor statisticians exclude subsistence farmers and fisherpeople from the labor force, limiting the relevance of this report for the more than 2/3 of Timor-Leste’s adults who are outside the formal economy. According to the HDR, Timor-Leste’s “labor force participation rate” of 37.9% is the lowest in the world.

Users of UNDP’s statistical data for Timor-Leste (and the World Bank’s World Development Indicators which is the source for many of them) should be careful. For example, UNDP reports that Timor-Leste spent 1.3% of its GDP on health (the lowest in the world). However, it lists public spending on education as 9.4% of GDP, the sixth highest in the world. Unfortunately, the education figure is wrong – it should be 2.7%, which ranks us 137th out of 160 countries with data. UNDP and the WB apparently calculated education as a percentage of non-oil GDP, ignoring the nearly three-quarters of Timor-Leste’s current economy which is based on petroleum activities.

Such data errors can be propagated in other reports.  For example, the U.S. government’s Millennium Challenge Corporation recently released annual scorecards for MCC candidate countries. Timor-Leste’s “Health Expenditure” rating plunged from 85% in last year’s scorecard to 4% in the latest one. We are disappointed that RDTL spends a little less on health each year, but this drastic drop results from correcting previously erroneous statistics.
Natural human optimism (and politicians’ wish to take credit for improvements) sometimes leads to conclusions which are not justified by facts. In another example, last month the Government celebrated that “Timor-Leste is one of only nine countries estimated to have reduced its Maternal Mortality Ratio [MMR] by over 75% since 1990.” Unfortunately, there is no data to show this. The government press release was based on an article in The Lancet which summarized a 200-page UN interagency report Trends in Maternal Mortality: 1990 to 2015. As that report says, “Timor-Leste had little to no country-level data.”

More specifically, the report uses a statistical model to extrapolate Timor-Leste’s maternal mortality rates over a 25 year period from two data points in a single year: the 2010 census and the 2009-2010 DHS. The authors assume that changes in GDP (mostly going into the Petroleum Fund in our outlier economy), fertility rate and the fraction of births attended by a health professional must have prevented women from dying in childbirth, but they had no actual information. (See Q&A on the report and Timor-Leste country profile.) According to a UN expert who works here, “maternal mortality still is a serious problem in Timor-Leste” and the interagency group’s estimate of 215 (range 150-300) maternal deaths per 100,000 live births is probably too optimistic – the 2010 census and DHS figures of 570 and 527 could be closer to reality. We await better information from the 2015 Census.

As Timor-Leste's oil and investment income declines, we are at a crossroads and face many critical decisions. Policy-makers need accurate and up-to-date evidence to inform their actions. The government has spent a lot of money over the last eight years, but the benefits for the impoverished rural majority are not yet clear.  We need to know where we are today in order to decide in what direction to go … and we need to change direction if we don’t want to end up where we are headed.

Timor-Leste’s health care and education systems do not yet respond to the needs of most of our people, and the government allocates lower funding to them in each year’s State Budget.  It would be a shame – a crime – if misleading statistics are used to justify policies which will not improve the lives and the futures of the excluded majority: women, children, farmers and the rural poor.

11 December 2015

Iha Parlamentu nia odamatan metin nia kotuk

Parlamentu Nasional Timor-Leste halo debate ba proposta Orsamentu Estadu 2016, ho nia total biliaun $1.56. Infelizmente, diskusaun subtantivu hosi proposta alterasaun ne’e hala’o iha Komisaun Eventual ida ne’ebé taka ba públiku no media. Ho esforsu atu hatán ba obstákulu ba iha prosesu lejizlativa ida ne’ebé demokrátiku ida ne’e, La’o Hamutuk fahe alterasaun sira ne’ebé Deputadu/a sira hatama. Atu hatene informasaun atualizadu liu kona-ba dokumentu proposta orsamentu 2016 iha Ingles no Tetum, bele kliik iha ne’e.

Membru Parlamentu sira aprezenta proposta alterasaun liu limanulu, inklui proposta barak ne’ebé muda menus hosi 0.2% (tokon $3) orsamentu estadu na’in hosi liña ida ba liña seluk. La'o Hamutuk lista tiha proposta alterasaun iha tabela ida no scan tiha testu sira hosi Portuguese iha file rua -- alterasaun ba Fundu Infrastrutura no alterasaun seluk nian.

Proposta alterasaun tolu sei kria foun ka drastikamente sei modifika instituisaun estadu sira. Alterasaun ba lei orsamentu tinan fiskál ida nian ne’ebé lalais no halo ho segredu la’ós dalan furak ida atu halo buat ida ne’e, nune’e mudansa rua primeiru iha okos ne’e mai duni ho intensionál loloos:
  • Alterasaun 9, hosi Pedro Costa no Paulino Monteiro, sei kria Komisaun Akompanhamentu Permanente ida atu monitoriza projetu sira ho valor liu tokon $50.

  • Alterasaun 25, hosi Osorio Florindo, atu kria Fundu ida ba Manutensaun Estrada hodi fornese fundu no seguru ba manutensaun estrada, ponte no infrastrutura sira seluk ne’ebé sei iha relasaun.

  • Alterasaun 54-59, hosi lider sira hosi CNRT, Fretilin, no Frente Mudansa, sei disolve Fundu Infrastruktura nudár Fundu Espesiál ida no muda ba “fundu autónoma” ida ne’ebé sei kontrola hosi Primeiru Ministru no Ministru Planeamentu no Ministru Obras Públiku nian. Mudansa ne’e hasai tiha lista projetu sira ne’ebé finansia hosi Fundu Infrastrutura hosi lei orsamentu (hanesan hatudu iha liman loos), hodi tau tiha tokon $377 ka ¼ hosi orsamentu tomak iha liña orsamentál ketak ida.
        Maski buat ne’e hamenus tiha espesifidade, transparénsia no kontabilidade ho momoos, maibé nia implikasaun seluk seidauk klaru. Mudansa ida ne’e sei elimina Livru 6 Orsamentu nian iha tinan sira oin mai, muda tiha informasaun públiku sira ne’ebé iha valor kona-ba implementasaun projetu bo-boot sira, nia planu no nia kustu sira. Ami mós seidauk hatene oinsá mudansa ida ne’e bele afeita ba prosesu jestaun fiskál no aprovizionamentu nian.
Maioria proposta alterasaun lubuk seluk ne’e atu kria programa foun ki’ik, aumenta osan ba fundu ne’ebé iha ona, ka muda programa hosi ajénsia ida ba ajénsia seluk. Alterasaun balu boot no interesante liu mak hanesan:
  • Muda tokon $8.0 hosi ZEESM atu harii no reabilita eskola sira
  • Aumenta tokon $2.6 ba farda PNTL no tokon $0.3 ba motorizada PNTL
  • Aumenta tokon $2.0 ba Fundu Seguransa Ai-han
  • Muda tokon $2.0 hosi infrastrutura estrada atu harii no reabilita sentru saúde lokál sira
  • Gasta tokon $1.8 atu harii Igreja Pároku Sao Francisco Xavier iha Hatolia
  • Aumenta tokon $1.4 ba kontratu foun ba juis internasionál no asesór jurídiku sira
  • Aumenta tokon $1.1 atu remata harii eskritóriu tolu tribunal distritál nian
  • Gasta tokon $0.8 atu hamoos drainajen no baleta sira iha sidade sira, no tokon $0.6 seluk atu marka enderesu sira.
  • Aloka tokon $0.5 ba turizmu komunitária no tokon $0.6 ba sentru informasaun turistiku nian.
  • Muda Tour de Timor no atividade ne’ebé hanesan ba Ministériu Turizmu
  • Hari monumentu ida ho tokon $0.75 atu komemora Masakre 12 Novembru, no tokon $0.1 ba monumentu veteranu sira iha Lautem
  • Aumenta tokon $0.65 atu suporta reintegrasaun membru F-FDTL na’in 26 ne’ebé reforma ona
  • Aumenta tokon $0.45 atu suporta klube futeból “Liga Amadora” nian
  • Fundu adisionál ki’ik ba Defensór Públiku, CAC, PDHJ, Prokurador Jerál no Polísia Investigasaun
  • Deputadu Antonino Bianco fó proposta alterasaun hitu atu ko’a besik tokon $13 hosi Ministériu Finansas no Dotacao Todo Governu nian, inklui servisu finanseiru no legal nian, viajen estranjeiru, manutensaun ekipamentu, auditoria external no postu fronteira sira.

La’o Hamutuk sei kontinua atu tuir prosesu ida ne’e, no ami apresia ba informasaun sira hosi fontes tomak. Ami mós enkoraja povu no instituisaun sira ho informasaun ka opiniaun kona-ba asuntu sira ne’e atu kontaktu Membru Parlamentu sira. Tuir sira nia kalendáriu, Komisaun Eventual sei remata sira nia servisu iha semana ne’e no aprezenta relatóriu konsensu ida hosi alterasaun tomak ne’ebé sira konkorda hodi haruka ba Plenária Parlamentár nian iha Segunda-Feira, 14 Dezembru. Parlamentu sei halo votasaun espesialidade ba kada ministériu no artigu iha Lei Orsamentu, no espera atu halo aprovasaun final iha 21 Dezembru.

Prezidente Taur Matan Ruak hateten katak nia sei veto ba lei orsamentu karik lei ne’e la apropriadu liu ba prioridade estadu nian hanesan saúde, edukasaun, agrikultura no infrastrutura rural. Karik nia veto no haruka lei ne’e fila fali ba Parlamentu, Deputadu/a sira bele halo alterasaun ka vota afavor kontra Prezidente nia veto ho votu 2/3 hosi Deputadu/a ne’ebé partisipa. Karik Lei Orsamentu ne’e labele promulga molok hahú tinan 2016, atividade estadu nian sei finansia tuir sistema “Duodecimal” ba fulan ida ka rua. iha kazu hanesan ne’e, kada ajénsia bele gasta 1/12 hosi nia alokasaun kada fulan nian durante 2015.

Laiha proposta alterasaun ne’ebé sériu hodi preokupa ba frajilidade tebes no naun sustentável ekonomia Timor-Leste nian, kansela ka adia projetu “elefante mutin” hanesan ZEESM no Tasi Mane, ka investe iha Timor-Leste nia rekursu umanu ba futuru. Maski hanesan ne’e, iha sujestaun balu ba alterasaun nian ne’ebé hahú atu preokupa ba asuntu sira ne’ebé foin temi, maibé ami dezaponta katak Parlamentu la diskute alterasaun sira ne’e ho nakloke ba públiku. Dala ruma sira sei halo iha tinan oin mai…

Ba informasaun tan kona-ba orsamentu 2016, hare La’o Hamutuk nia website ka  Submisaun kona-ba Proposta Orsamentu Estadu 2016 no blog Proposta Orsamentu 2016 prioritiza liu fantasia duke povu nia nesesidade.

Update, 15 Dezembru. Komisaun Eventual aprezenta sira nia relatóriu konsensus nian ba Parlamentu iha 15 Dezembru. Sira simu atu muda Fundu Infrastrutura maibé rejeita alterasaun naun finanseiru sira seluk. Total envelope orsamentál nafatin la muda, maibé maizumenus tokon $30 mak muda hosi liña ida ba liña seluk, maioria mudansa ida ne’e mai hosi poupansa ne’ebé ita antisipa ona hosi presu kombustivel ba jeradór nian ne’ebé tun.

Behind Parliament's closed doors

Timor-Leste's Parliament is debating the proposed State Budget for 2016, which totals $1.56 billion. Unfortunately, substantive discussion of proposed amendments is taking place in an Ad-Hoc Committee (Komisaun Eventual/KE) which is closed to the public and the media. In an effort to overcome this obstacle to democratic legislative process, La'o Hamutuk is sharing the Deputies' submitted changes. For more and updated information on documents on the proposed 2016 State Budget in English and Tetum, click here.

Members of Parliament presented more than fifty proposed amendments, including many which move less than 0.2% ($3 million) of the budget from one line to another.  La'o Hamutuk has listed the proposed amendments in a table and scanned their Portuguese-language text in two files -- amendments to the Infrastructure Fund and other amendments.

Three of the amendments create new or drastically modify state institutions. A rushed, secret alternation of one year's state budget law is not the best way to do this, even though the first two appear to be well-intentioned:
  • Amendment 9, from Pedro Costa and Paulino Monteiro, creates a Permanent Parliamentary Committee to monitor projects whose value is more than $50 million.
  • Amendment 25, from Osorio Florindo, creates a Fund for Road Maintenance to providing funding and assurance for the maintenance of roads, bridges and related infrastructure.
  • Amendments 54-59 from leaders of CNRT, Fretilin and Frente Mudansa, would dissolve the Infrastructure Fund (IF) as a Special Fund and reinvent it as an "autonomous fund" controlled by the Prime Minister and the Ministers of Planning and Public Works. The change removes the list of IF-financed projects from the Budget Law (as shown at right), compressing $377 million -- a quarter of the entire budget -- to a single line item.
         Although the injury to specificity, transparency and accountability are obvious, other implications are unclear. It could eliminate Budget Book 6 in future years, removing valuable public information on major project implementation, plans and costs. We also do not know how this will affect fiscal management and procurement processes, as it has not been discussed publicly.
Most other proposed amendments create some small new programs, add to existing funding, or shift programs from one agency to another. A few of the larger and more interesting are:
  • Shift $8.0 million from ZEESM to build and rehabilitate school buildings
  • Add $2.6m for PNTL uniforms and $0.3m for PNTL motorcycles
  • Add $2.0m to the Food Security Fund to address effects of El Nino/Climate Change.
  • Shift $2.0m from road infrastructure to build and rehabilitate local health centers
  • Spend $1.8m to build the Sao Francisco Xavier parish church in Hatolia
  • Add $1.4m for new contracts for foreign judges and judicial advisors
  • Add $1.1m to finish building three district court buildings
  • Spend $0.8m to clean drains and sewers in cities, and another $0.6m on road signs
  • Allocate $0.5m for community tourism and $0.6m for a Touristic Information Center
  • Move the Tour de Timor and similar activities to the Ministry of Tourism
  • Build a $0.75m monument to commemorate the 12 November massacre, and $0.1m for a veterans' monument in Lautem
  • Add $0.65m to support 26 families of long-term FALINTIL members
  • Add $0.45m to support "Liga Amadora" football clubs
  • Small additional funding for the Public Defender, CAC, PDHJ, Prosecutor General and Investigation police. 
  • Deputado Antoninho Bianco proposed seven amendments to cut nearly $13 million from the Ministry of Finance and Whole of Government, including financial and legal services, overseas travel, equipment maintenance, external audits and border posts.

La'o Hamutuk will continue to follow this process, and we welcome information from all sources. We also encourage people and institutions with information or opinions on these issues to contact Members of Parliament. According to their schedule, the Komisaun Eventual will finish its work this week and present a consensus report of all accepted amendments to the Parliamentary Plenary on Monday, 14 December. Parliament will vote specifically on each ministry and article in the Budget Law, and hopes to give final approval on 21 December.

President Taur Matan Ruak has said he will not sign the budget law if it does not appropriate more for the Government's stated priorities of health, education, agriculture and rural infrastructure. If he vetoes and sends the law back to Parliament, they could amend it or pass it over his veto by vote of 2/3 of the Members present. If the Budget Law is not promulgated before the start of 2016, state activities will be funded under the "duodecimal" fall back system for a month or two. In that case, each agency can spend 1/12 of its 2015 appropriations each month.

None of the proposed amendments seriously address the fundamental fragility and non-sustainability of Timor-Leste's economy, cancel or delay the "white elephant" ZEESM and Tasi Mane projects, or invest enough in Timor-Leste's human resources for the future. Nevertheless, some of the suggested changes begin to get at these issues, and we are disappointed that they are not being discussed in public. Perhaps next year...

For more on the 2016 budget, see La'o Hamutuk's website or blogs Submission on proposed 2016 State Budget and 2016 budget proposal puts fantasies before people's needs.
Update, 15 December. The  Komisaun Eventual presented its consensus report to Parliament on 15 December. They accepted the redesign of the Infrastructure Fund but rejected the other non-financial amendments. The total budget envelope is unchanged, but around $30 million has been moved to other lines, mostly from anticipate savings from lower generator fuel prices.

01 December 2015

Submission on proposed 2016 State Budget

This is an abridged translation of La’o Hamutuk’s Tetum-language submission. More information and documents on the 2016 State Budget in Tetum and English is here.

Submission to Timor-Leste National Parliament on the Proposed General State Budget for 2016
18 November 2015 

We thank Committee C of the National Parliament for inviting La’o Hamutuk to participate in your seminar last week, and offer this submission to reinforce our presentation there.

Although the Government has spent a lot of money over the last few years, Timor-Leste’s people still face many problems including malnutrition, hunger and lack of clean water and sanitation, as well as primary education which is far below reasonable standards. The needs and rights of many of our people are still not being met, and we face many challenges in fulfilling our commitment to make people’s lives more equal, equitable and sustainable. This will permanently damage our children's and grandchildren’s futures.

A good budget policy will enable the Government to effectively respond to the problems faced by the people of Timor-Leste. To follow this path, it is important that all leaders consider that the principal objective of the state budget is to implement programs which benefit Timor-Leste’s people today and tomorrow.

The National Parliament should help the Government avoid policies which focus on ‘execution’ percentages, allocate money to privilege a few people, or pay off companies or special constituencies based on pre-election promises. We need to reorient public policy so that it serves the people and allows us to liberate them, which has been everyone’s common dream for many years.

Strengthen public participation.

Although Article 30 of the Budget and Financial Management Law states that the Government should have presented the 2016 State Budget proposal to National Parliament on or before 15 October, the budget documents were submitted two weeks later. This reduced the time for Parliament to discuss the budget proposal by 25%.

Government worked on the budget for about nine months, with extensive expertise and personnel. The democratic process is undercut when Parliament – which had no information before 29 October – has only a short time in which to analyze, amend and enact it.

Parliament is being pressured to approve the budget so that it can be promulgated before the start of fiscal year 2016. We think that Parliament should not reduce its ability to fulfill its constitutional mandate, and that sufficient public hearings should hear ideas which can help to improve this state budget.

We believe that is it not urgent to approve it hastily because the law has a duodecimal mechanism in case the budget has not been enacted by the first of the year. Also, if Parliament approves the budget in January of next year, this would encourage the Government to comply with the legal requirement to submit the budget by 15 October in the future.

We are also concerned that Parliament is continuing an undemocratic tradition by establishing an Ad-Hoc Committee (Komisaun Eventual). Since this practice began, La’o Hamutuk has observed that this Committee reduces public participation in the budget process, enabling the political elite to reach a consensus and put their own wishes ahead of the public interest.

The International Budget Partnership’s Open Budget Survey Report, published in September 2015, showed that the ‘Public Participation’ pillar within the Open Budget Index has fallen sharply in Timor-Leste – we received only 10 points out of 100. Therefore, La’o Hamutuk encourages Parliament to hold a transparent budget discussion, open to everyone, rather than only a few Deputies deciding the future of the people behind closed doors, hidden from the media and the public.

The budget must be based on Timor-Leste’s reality.

This proposed 2016 General State Budget will spend $1.562 billion, virtually the same amount as in 2015. However, spending for the Oecusse Special Zone (ZEESM) has increased 63% since 2015, and the appropriations for roads, airports and the Tasi Mane petroleum infrastructure Project have almost doubled. These projects continue to dominate state spending, even though their benefits to people’s lives are not clear.

According to the budget documents, spending on ZEESM will exceed $1.1 billion between 2015 and 2020, while components of the Tasi Mane Project – Suai Supply Base, Suai airport and part of the highway between Suai and Beaçu – will cost more than $1.4 billion (this figure does not include other components of the project – the refinery in Betano or the gas pipeline and LNG plant in Beaçu). Nevertheless, we believe that the Tasi Mane Project will actually cost much more than this in coming years.

At the same time, spending on the three “national priorities” named by the Vice-Minister of Finance – education, health and agriculture – has been cut by 11% in 2016 compared with 2015. The health sector receives only 4.2% of the total budget, while education receives 8.7%, although the number of children reaching pre-primary and primary school-age has increased dramatically, there is a severe lack of equipment and medicine, and disease is widespread.

In terms of the economy, the agriculture sector – the livelihood of most households in Timor-Leste –receives less than 2% of the total budget, lower than in 2015 or 2014. It has been cut by 20% compared with 2015. We therefore doubt the Government’s seriousness about investing in productive sectors such as agriculture, tourism and small industry.

Although we understand that investment is not only allocating more money, these budgetary limitations will reduce the capacity of the agriculture sector to improve itself. Also, although some money can be saved by reducing waste and increasing efficiency, we think it is unreasonable to reduce priority for the three sectors which could strengthen our human resources and local economy, especially when the money is being reallocated to projects which will do neither.

Since 2014, recurrent spending has been more than the Estimated Sustainable Income (ESI) from the Petroleum Fund plus domestic (non-oil) revenues. Every year, the Jornadas Orsamentál workshop sets a fiscal envelope of $1.3 billion, but the final budget is increased to nearly $1.6 billion. Will we continue to lie to ourselves until our Petroleum Fund is completely empty?

Do not continue unsustainable spending.

La’o Hamutuk’s submissions to Parliament have often pointed out that Timor-Leste should be cautious about spending, as the Petroleum Fund is our only resource to finance the State Budget. The Petroleum Fund Law says that the Government must give a justification based on long-term interests if it wants to withdraw more than the ESI from the Petroleum Fund, but unfortunately Government and Parliament do not take this provision seriously when they approve budgets which withdraw more than ESI.

The Prime Minister’s letter to Parliament (pages 102-107) justifying withdrawing more than the ESI explains that “the 2016 General State Budget requires taking more than ESI as part of our continuing strategy for the development of infrastructure in order to create economic growth and improve the people’s quality of life.”

Unfortunately, this argument, while it sounds good, is not reflected in the structure of the budget. The majority of funds are allocated to projects with dubious returns, and which mostly benefit foreign companies, rather than the people of Timor-Leste. We think that this is a betrayal of the principles of the Petroleum Fund, which was intended to be spent according to the principles of good governance to benefit current and future generations.

Out of the total budget of $1.562 billion, $1.284 billion will be withdrawn from the Petroleum Fund. The Government calculates the 2016 ESI to be $545 million, so the amount taken will be $739 million more than ESI. This is 7% of Timor-Leste’s remaining petroleum wealth, the highest percentage ever withdrawn from the Fund.

In the rectified 2015 budget, the Government will withdraw $689 million above ESI, while this year’s budget proposal shows that the Government will continue taking much more than ESI in coming years: in 2017 the Government wants to withdraw 8% of Timor-Leste’s oil wealth, and in 2018 and 2019 it will take out 11%.

An important point that we wish to make to the distinguished Deputies is this: the balance in our Petroleum Fund has begun to fall, the return on our investments have been negative over the last year, and our future oil and gas revenues will be lower than we anticipated a year ago.

The Central Bank of Timor-Leste recently published its latest quarterly report on the Petroleum Fund, showing that the balance at the end of last quarter is lower than it was sixteen months ago. This is because the value of the Fund’s investments dropped by $250 million between January and September 2015, while the Government withdrew $639 million to finance its activities during the same period. The balance of the Fund is now lower than in June 2014. In addition, oil and gas revenues to the Fund totaled only $218 million in the third quarter of 2015 -- less than half the quarterly average during 2014, and 63% lower than in 2013.

Last February, we wrote to the new Prime Minister, urging that the revenue side of the budget be reviewed during the Budget Rectification in light of these developments. At that time, the Ministry of Finance did not agree, explaining that “for the 2016 State Budget the Ministry of Finance will recalculate the level of spending which is sustainable given the 2016 ESI. The 2016 State Budget should not exceed this sustainable level of spending.”

However, the Government’s calculations of 2016 ESI (page 44), done in June, are too high. For example, the end-of-2015 balance in the Petroleum Fund is likely to be $15.9 billion, not the $16.6 billion suggested in Budget Book 1. This change alone will reduce ESI by $21 million every year, and continuing low oil prices will probably reduce it further.

Although the budget books discuss the reduced revenues from low world market oil prices, they do not consider reduced profitability which has caused Kitan to shut down 10 months earlier than planned. This could have a similar effect on Bayu-Undan, and if low prices continue, it will be harder to start up new fields in the future.

Timor-Leste’s debt is increasing - this burdens future generations.

Timor-Leste has already signed $210 million in loan agreements with JICA, ADB and the World Bank, all for road projects. However, the proposed 2016 budget includes plans to spend more than $1 billion in borrowed money between 2016 and 2020 (including $821 million in 2016-2018), in addition to $29 million in 2015. This is a huge increase over the loans anticipated in the 2015 budget, which projected only $610 million in loan spending between 2015 and 2019.

In addition to fixing roads with borrowed money, the proposed budget reveals Government plans to borrow for the Tasi Mane Project ($163 million for the Suai Supply Base and $255 million for the South Coast Highway) and upgrading Dili Airport ($305 million). La’o Hamutuk is concerned that these projects will mainly benefit rich people and foreign companies, while requiring all of Timor-Leste’s people to pay for them over the next thirty or more years.

If Timor-Leste continues to take out more loans while neglecting productive sectors or wasting money on projects with uncertain return, we won’t be able to pay back the money. Many other countries have borrowed too much then been unable to pay back, and going into default often allowed international lenders to take over national sovereignty, resulting in great suffering for their people.

We hope that Parliament considers the dangers of going deeper into debt to international agencies. Every loan we take out today will have to be repaid with interest, reducing our future ability to pay for essential programs, which will have to be cut even further. Instead of paying teachers, Members of Parliament and police officers; keeping clinics open or providing rural water supply, our money will be sent to Tokyo, Manila, Beijing and Washington.

For the first time, the proposed 2016 budget includes a line in ‘Whole of Government’ for repaying loans -- $250,000, which increases to $292,000 by 2020. Although we do not know the exact amounts, La’o Hamutuk estimates that repayments for the $210 million in loans which have already been contracted will be at least $10,000,000 in 2020 alone, more than thirty times as much as Budget Book 4 predicts. Parliament should ask Government for more realistic and longer-term projections of the costs of debt service for loans already contracted and for those anticipated in the proposed 2016 budget.

We need to estimate future spending seriously.

The Government’s refusal to make serious projections for Consolidated Fund (CFTL) spending after 2016 is misleading to Parliament, making it difficult for you to analyze medium-term budget implications.

Although Article 22.3(a) of Budget and Financial Management Law No.13/2009 requires that the budget documents project the revenues and expenses for two years after the current budget year (that is, for 2017 and 2018). Unfortunately, the projections for CFTL in Book 4A and 4B are not real. Government simply takes the 2016 number on each line and adds 4% to it for each following year. This is not credible for large expenditures like generator fuel, ZEESM, veteran’s benefits and CFTL-financed infrastructure.

Also, although we understand that many line ministries have difficulties planning and projecting their costs, these four items comprise nearly half of all CFTL appropriations, and several other large lines expenditures could also be projected more accurately.

As budgetary demands increase and our wealth shrinks, more accurate predictions are essential. This is especially critical for the Deputies to consider when making decisions about whether Timor-Leste can afford to “invest” in certain multi-year, multi-billion dollar projects.

Another issue is that public transfers are not transparent and almost impossible to monitor. Public transfers are now the largest category of CFTL spending, totaling 41% (excluding autonomous agencies).

Deputies and the public cannot see how these monies are used (e.g. page 2 of Budget Book 4A), when they are spent (e.g. the Budget Execution Portal), or how much was unspent at the end of the year, to be secretly carried over for the future. Article 145.2 of Timor-Leste’s Constitution prohibits “secret appropriations and funds,” and the transfer of $218 million (14% of the entire budget) to ZEESM violates the spirit, if not the letter, of this Article.

The list of autonomous agencies in Annex III does not include three agencies which receive $10.8 million subsidies from the State Budget through Public Transfers from the Ministry of Petroleum and Mineral Resources: TimorGAP, the National Petroleum Authority, and the Institute for Petroleum and Geology. It also omits $10 million to capitalize the BCTL and BNCTL banks, as well as subsidies for other state-supported institutions.

The list also no longer includes the electricity generating and distribution system, as EDTL has been merged into the Ministry of Public Works. The Directorate-General for Electricity in MOPTC will receive a $103.5 million appropriation for operations and maintenance, plus $6.3 million more through the Infrastructure Fund, while another $6.6 million goes to ZEESM for generator fuel. Timor-Leste expects to collect only $23 million from electricity consumers during 2016, and this 80% subsidy for electricity users primarily benefits rich people, who use many more kilowatt hours.

The Tasi Mane Project should be re-evaluated.

The proposed budget allocates $102 million for the Tasi Mane Project and TimorGAP, of which $45 million is for the Suai Supply Base, $15 million is for Suai airport, and $35 million more is for the highway from Suai to Fatukai/Mola. For several years, La’o Hamutuk has expressed concern about the viability of this project, and its total cost could add up to more than ten billion dollars.

In August 2015, the Government signed a $719 million contract with Korean company Hyundai Engineering & Construction to build the Suai Supply Base. In October, the Court of Accounts ruled that the contract was illegal, although the Government is appealing the decision.

La’o Hamutuk estimated the economics of the Suai Supply Base based on Bayu-Undan procurement, and we believe it will have to supply at least five new fields the size of Bayu-Undan in order to recover an $800 million investment, even before making any profits.

Kitan is currently being decommissioned, and Bayu-Undan will continue production for only five years more. It is already dropping: monthly production levels were 27% lower in the first eight months of 2015 than in 2012. In addition, while Greater Sunrise could potentially provide considerable revenues to Timor-Leste, its future is uncertain, and no other commercially viable fields have been discovered since independence.

We therefore urge the Government not to allocate more money to projects whose legal status is currently being questioned by the Chamber of Accounts, and whose returns are uncertain given the lack of new oil fields in Timor-Leste.

ZEESM continues to ride a wave of dollars.

In this proposed budget, ZEESM will receive $218 million as a Public Transfer, 63% more than in 2015. Out of this, $170 million is allocated for Capital Development. The largest part of this money – $81 million – is allocated to build and continue road construction that started in 2014. Millions more are allocated to other projects, including $51 million for the airport, $10 million to implement ZEESM in Ataúro, and $3.5 million to buy a passenger ferry. Although Book 3B of the proposed budget gives a list of allocations for the Oecusse/Ataúro Regional Authority (RAEOA), La’o Hamutuk remains concerned that ZEESM funds are appropriated as Public Transfers, and therefore Parliament cannot see or decide what the money will be spent on.

In addition, $20 million is allocated for a ‘Special Development Fund’ to be put into a separate bank account to make ‘public investments’ and implement Public-Private Partnerships, about which there is no specific information. Although this was established by Decree-Law No. 1/2015 of 14 January, the Fund has little requirement for transparency or accountability. Article 145 of Timor-Leste’s Constitution states that: “the Budget Law shall provide, based on efficiency and efficacy, a breakdown of the revenues and expenditures of the State, as well as preclude the existence of secret appropriations and funds.”

The budget books also show that RAEOA took in $3.3 million in revenues during 2015. These are kept in RAEOA’s account, and are not transferred to the Ministry of Finance to include in the State Budget.

We understand that the National Parliament has authorized RAEOA to manage its own procurement, revenues and spending. Therefore, we suggest that Parliament review the legal framework applicable to ZEESM, change the budget allocation mechanism so that it is no longer done as a Public Transfer, and demand that the Government reveal its plans and feasibility studies for ZEESM before more funds are approved for 2016 and beyond.


We share the Government’s and consumers’ relief that inflation has fallen almost to zero, but it should actually be negative. During the last year, the US dollar has increased 11.5% compared to the rupiah, 18.6% compared to the Australian dollar and 9.1% compared to the Singapore dollar. Inflation in Indonesia, for example, is currently 6.2%, so the prices of things we import from there should have dropped by 5%. However, the Directorate-General of Statistics reports that prices here increased slightly during the last year.

In our letter to Prime Minister Dr. Rui Maria de Araújo last February, we suggested that, considering global market conditions, especially in countries which export to Timor-Leste but do not use the U.S. dollar, Timor-Leste should be able to buy things cheaper. Otherwise, importers reap the benefits of the reduced cost of imports, rather than the Government and individual consumers in Timor-Leste.

Therefore, once again, we urge Parliament to ask the Government to ensure that its spending on imported goods changes according to the global market, taking advantage of possible gains from changes in exchange rates. We must take this opportunity to reduce our spending now, before the advantage is lost, and thereby increase the economic strength of our people.


Timor-Leste has had ten years of significant oil income, and this money will last for about ten more years. We’ve received $20.7 billion in oil and gas revenues, and expect $1.7 billion more before Bayu-Undan shuts down in 2021. We’ve also received $2.4 billion in investment returns, although current returns are negative. We’ve already spent $6.7 billion of our petroleum wealth, and have saved $16.4 billion for the future. In ten more years, it may all be gone. What will we have to show for it?

09 November 2015

Proposta Orsamentu 2016 prioritiza liu fantasia duke povu nia nesesidade

Iha 29 Outubru, Governu Timor-Leste haruka proposta orsamentu ba Parlamentu ne'ebé sei gasta Billaun $1.56 durante 2016. Montante ne'e esensialmente hanesan de’it ho orsamentu 2015 nian. Gastu ba zona ekonomia espesiál ZEESM iha Oecusse sa’e 63% ba tokon $218, no alokasaun ba estrada, portu, aeroportu no Projetu Tasi Mane sa’e besik dala rua.

Aumentu 27% iha gastu ba infrastrutura fíziku sei selu ho osan ne'ebé ko’a husi alokasaun ba servisu públiku sira, inklui saúde (14%), edukasaun (7%, maski labarik ho idade eskola barak liu tan), sistema judisiál (36%), benefísiu ba veteranu sira (22%), forsa seguransa (19%) no setór sel-seluk. Agrikultura ne'ebé hetan orsamentu menus husi 2% gastu estadu nian maski nia setór ne'ebé for moris ba família Timor-oan barak liu, nia orsamentu sei ko’a 20%.

Maski Governu dehan katak prioridade sira muda ona iha tinan hirak ikus ne'e, infrastrutura kontinua domina nafatin. Gastu aas iha 2011-2013 ba sentru no rede eletrisidade troka fali ona ho osan ba ZEESM no Tasi Mane, ne'ebé nia benefísiu ba ema barak la klaru liu tan. Tuir dokumentu orsamentu nian, gastu públiku ba ZEESM husi 2015 too 2020 sei liu billaun $1.1, no Tasi Mane (inklui Suai Supply Base, Aeroportu Suai no parte balu husi autoestrada Suai-Beaçu, maibé la sura ho konstrusaun refinaria Betano, Planta LNG Beaçu ka kadoras (pipeline) mai Timor-Leste) sei absorve osan liu billaun $1.4, maski montante ba ZEESM no Tasi Mane iha posibilidade boot sei sa’e tan.

Sexta kotuk, Banku Sentrál Timor-Leste fó sai relatóriu trimestral kona ba Fundu Petróleu, ne'ebé finansia liu 80% orsamentu estadu nian. Entre Juñu no Setembru 2015, Fundu ne'e nia investimentu lakon valor tokon $450, no Governu foti tokon $194. Balansu iha fundu ne'e tu’un to’o pontu ne'ebé ki’ik liu iha fulan sanulu resin neen nia laran.

Total rendimentu mina no petróleu ba Fundu ne'e tokon $218 iha terseira trimestre – menus metade husi média durante 2014 no menus liu 63% média 2013 nian. Maski ida ne'e iha parte balu tanba folin mina iha mundu tu’un, ida ne'e mós tanba tres-quartos husi Timor-Leste nia kampu produsaun mina no gas nian uza hotu ona. Durante fulan ualu uluk 2015 nian sira prodús barríl menus 27% kompara ho produsaun iha fulan hanesan iha tinan 2012, tinan ne'ebé produsaun to’o nia pontu aas liu. Kampu mina Kitan hapara produsaun tiha ona, no Bayu-Undan nia esplorasaun sei hapara iha tinan 2021. Maski iha posibilidade katak Greater Sunrise no kampu ne'ebé karik sei deskobre tan bele fó osan barak liu iha futuru, nia probabilidade ki’ik no la matenek sei aprova polítika gastu nian bazeia ba mehi de’it.

Infelizmente, Timor-Leste nia rendimentu (“doméstiku”) la’ós-mina ki’ik nafatin no la sa’e maka’as natoon atu taka kuak ne'ebé husik hela husi rendimentu mina nian ne'ebé lakon daudauk hela. Ba 2016, Governu projeta rendimentu doméstiku (impostu no taxa uzuariu) sa’e 0.6% de’it. Maski inflasaun no kresimentu populasaun nian tu’un ona (estima katak 1.8% in 2016), rendimentu per kapita ne'ebé nia inflasaun korije ona sei tu’un liu 3% iha 2016.

Maski Fundu Petróleu karik pasa ona nia pontu aas liu, proposta Orsamentu Estadu 2016 kontinua foti osan aas liu maka’as husi Rendimentu Sustentável Estimatiza (RSE). Orsamentu 2015 sei foti tokon $689 liu RSE “3%” maibé proposta ba 2016 atu gasta tokon $739 liu RSE.  Ne'e liu 7% husi nasaun ne'e nia rikusoin petróleu, persentu boot liu tinan hotu liu ba. Proposta ne'e espekta atu foti osan ne'ebé boot liu tan iha futuru, 8% iha 2017, 11% iha 2018 no 11% iha 2019.

Proposta orsamentu ne'e espekta Timor-Leste atu empresta tokon $821 durante tinan tolu oin mai no barak liu hafoin tinan tolu ne'e. Deve barak liu uza ba aeroportu Dili, Suai Supply Base no parte balu husi autoestrada Suai-Beaçu. Ba primeira vez, orsamentu ne'e inklui tokon $0.25 hodi selu deve, maibé subestima deve sira ne'e nia kustu iha tinan hirak oin mai no la diskute osan atu selu deve sira ne'e sei mai husi ne'ebé bainhira mina no gas laiha ona.

Maski total gastu ne'ebé planu ba 2016 atu barak hanesan de’it ho 2015 nian, gastu ba “Bens e Serviços” tun, dala ruma tanba Dollar US ne'ebé forte no servisu públiku ne'ebé efisiente liu ona. Osan ne'ebé poupa husi ne’ebá muda tiha ba Transferénsia Públika (Pagamentu ba ema indivíduu no instituisaun sira) no Capital Dezenvolvimentu (infrastrutura fíziku).

Transferénsia Públika la esplika detallu iha orsamentu ka iha governu nia mekanizmu transparénsia sira seluk, entaun ita la hatene saida mak sira selu ka hira mak lori husi tinan ida ba tinan seluk. Maibé, klaru ona katak ZEESM ho veteranus sira hetan porsaun ne'ebé boot liu, ho montante ki’ik ba pensaun sira seluk, bein estar públiku no subsídiu ba instituisaun estadu sira hanesan TimorGAP.

Ami preokupa katak orsamentu ba programa sira ne'ebé fó benefísiu ba ema barak liu – hanesan asistensia saúde, edukasaun, agrikultura, estrada rural no bee – hetan ko’a, maibé projetu sira ne'ebé en prinsípiu ema sira ne'ebé riku no iha podér de’it mak sei uza liu – aeroportu, autoestrada, prosesamentu mina – hetan alokasaun osan barak liu.  Bainhira Parlamentu hahú halo analiza, diskute, muda no aprova orsamentu estadu ne'e durante semana neen tuir mai, ami husu ba Distintu Deputadu sira atu konsidera ekidade, sustentabilidade, transparénsia no demokrasia.

Fatór barak – presu mina iha mundu, taxa de câmbio (foreign exchange rate), merkadu asoens internasionál, no realidade katak rezerva mina no gas labele hafoun fali – imposivel ba Timor-Leste atu kontrola. Buat ne'ebé ita iha mak kbiit no responsabilidade atu jere ita nia rekursu ne'ebé limitadu ho matenek, no labele soe rikusoin ne’e saugate de’it liu husi gastu sira ne'ebé la nesesáriu ka gasta sira ba projetu sira ne'ebé ninia benefísiu ekonomia no sosiál duvidozu hela.

Timor oan ida-idak iha direitu ba Timor-Leste nia rikusoin petróleu dezde kedas bainhira sira moris mai, la’ós lider, assessor no kontratór balu de’it mak iha direitu ba rikeza ne'e. Ami espera katak rikusoin petróleu ne'e sei aloka ho justu no ekitavel, tuir mandatu husi Konstituisaun, ho respeitu ba direitu sira jerasaun ohin no jerasaun futuru nian.