Dili, 27 January 2011
TIMOR-LESTE GOVERNMENT RAIDS PETROLEUM FUND IGNORING THE LAW
De facto Government MPs table proposal to increase budget by US$282 MILLION for dodgy and non-transparent Infrastructure Fund. It was in turn accepted without retort by the government, namely the de facto Prime Minister and Finance Minister.
The increase in the budget is allegedly to pay for cost blowouts for two power stations, substations and transmission lines, in turn a result of the procurement fiasco that was the "second hand heavy fuel power stations" from China.
The proposal increases the original budget for the electricity sector investment from US$166.7 million to US$448.7 million. There was no satisfactory detailed justification as to how this money would be spent.
This increase takes the budget in just one day, from US$985 million to US$1.26 billion, an increase of 28% on the budget proposal, and nearly twice in excess of the 3% of the sustainable income estimate under the Petroleum Law.
It also represents 18.3% of the balance in the petroleum fund as at December 2010 of US$6.9 billion.
Without doubt this action has irretrievably eroded the petroleum fund's sustainability.
This breaches the section 9 of the Petroleum Fund Law:
Article 9
Transfers Exceeding the Estimated Sustainable Income
No transfer shall be made from the Petroleum Fund in a Fiscal Year in excess of the Estimated Sustainable Income for the Fiscal Year unless the Government has first provided Parliament with:
(a) The reports described in paragraphs 8 (a) and 8 (b);
(b) A report estimating the amount by which the estimated Sustainable Income for Fiscal Years after the Fiscal Year for which the transfer is made will be reduced as a result of the transfer from the Petroleum Fund of an amount in excess of the Estimated Sustainable Income of the Fiscal Year for which the transfer is made;
(c) A report from Independent Audit certifying the estimates of the reduction in Estimated Sustainable Income in paragraph (b) above; and
(d) A detailed explanation of why it is in the long-term interests of Timor-Leste to transfer from the Petroleum Fund an amount in excess of the Estimated Sustainable Income.
This proposed withdrawal now exceeds the limit of the value that the government is legally permitted to withdraw from the petroleum fund without providing the detailed justification as set out above. None has been provided.
There is no doubt whatsoever that this was done not just with the knowledge but also at the initiative of the de facto Prime Minister, as he accepted it without the usual retorts.
The fact that this was not ever included in the original proposed budget law that came before the parliament, nor during the committee hearing process. This is a blatant illustration of this government's incompetence in public finance management. As stated in a recent IMF report evaluating Timor Leste's public finance management, "fiscal and budgetary policies lack a solid medium-term perspective," and "the Ministry of Finance lacks the time and capacity for adequate review of rationale, costing and impact of public investment." This raises a lot of questions of this government's programs and projects, especially in the area of infrastructure development.
There are no alternatives to a legal challenge to this budget law when the "majority" rubber stamps this budget law, as they will without question or scruples.
FOR FURTHER INFORMATION PLEASE CONTACT JOSE TEIXEIRA ON +670 728 7080
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