WITH DEFICIENCES OF VIEW
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The Court of Accounts of the Republic of Moldova (CoARM) presented, today, January 24, during the joint meeting of the Economy, Budget and Finance Committee and the Public Finance Control Committee, the compliance audit report of expenses and capital investments at natural gas enterprises that have been imposed with public service obligations, as well as at related enterprises, as defined in the Law no. 108/2016 on natural gas, including those indirectly owned.
The CoARM’s team reported to the members of the Parliamentary Committees the results and findings of the audit that were the basis for formulating the general conclusions, as well as the submitted recommendations.
As a result of the audit, it was found that some activities, processes and procedures, as well as transactions, conceived, created and carried out by the JSC Moldovagaz and the persons responsible for governance, did not fully meet the compliance criteria governing this holding.
During 2011-2021, capital investments were made in the natural gas system totaling approximately 3.6 billion lei (without VAT), including 524.7 million lei made by JSC Moldovagaz, the remaining 3.1 billion lei were carried out by the companies in the natural gas transmission and distribution system.
The evidence collected by the audit reveals that of the total capital investments made by the companies in the natural gas system, during the reference period, only the investments totaling 2772.1 million lei or 77.3% were accepted by NAER for the purpose of recovery through tariff, and the investments in the amount of 815.8 million lei were considered and appreciated as unplanned, unfounded and unjustified according, and fully, being applied not according to the evaluation criteria.
An eloquent example of the investments made in the absence of cost recovery sources is the capital investment for the construction of the office building of the JSC Moldovagaz from 64 Pușkin str., Chisinau municipality.
The funds planned to be used in the construction of this building were constantly increasing. Thus, in 2005, the Board of Directors of the JSC Moldovagaz planned to allocate up to 5 million euros or about 63 million lei for the design and construction works of the building. In 2006, based on the project documentation, was determined the indicative construction cost of 230.9 million lei with a total area of 12.7 thousand m2. In 2013, the project documentation was modified, by increasing the construction area up to 13.5 thousand m2. Finally, in 2018, the value of the investments incurred was 445.6 million lei.
As a result of the lack of original documents related to the tenders held during 2011-2015, the contracts and the minutes of the execution of the works for the period 2009-2015 regarding the construction works of the building, the external public audit was limited to verify and expose on the compliance of the capital investments made by the JSC Moldovagaz to the built objective.
The financing of the construction of the building in 2010, 2011 and 2013 was carried out by contracting 3 loans in the total amount of 138 million lei, with an interest of 13 million lei being paid, as well as commissions/taxes and other payments related to the issuance of loans of 1,4 million lei.
Procurements represent a substantial component in the activities carried out by the companies within the JSC Moldovagaz group. Thus, during 2017-2021, the JSC Moldovagaz group procured goods, works and services in the total amount of 36 billion lei, of which procurement of natural gas constitutes 22.7 billion lei, transportation and distribution services of gas - 7.6 billion lei, and other goods and services constitute 5.7 billion lei.
During 2011-2017 in the natural gas system there was no legislative-normative framework regarding the procurement of goods, works and services for the performance of regulated activities.
The failure to carry out studies on the competitiveness of prices offered on the domestic and foreign markets conditioned the making of purchases through intermediaries with the payment of exaggerated commercial surcharges compared to the value of the goods declared in customs, as well as the granting of advances in proportion to more than 50 percent of the value of the contracts purchases.
The subsidiary entities of the JSC Moldovagaz, responsible for the transport and distribution of natural gas, do not have control activities regarding the study and monitoring of the market for the commercialization of the goods necessary to carry out the basic activity. The evidence collected by the audit reveals that some goods were purchased with a commercial markup that varied from 50% to 212%, which amounts to approximately 153.4 million lei, of which at least 32.9 million lei are expenses ineffective.
The expenses of the JSC Moldovagaz group by types of activities in 2021 constituted: the cost of natural gas purchased - 6.6 billion lei or 80% of operational expenses, expenses for gas transportation - 368.5 million lei or 4.4%, gas distribution expenses - 1.1 billion lei or 13%, gas supply expenses - 208.3 million lei or 2.5%.
During 2017-2021, the companies in the natural gas system, with the exception of natural gas procurement expenses, incurred expenses in the total amount of 7.9 billion lei, which are classified in:
- labor remuneration expenses which constituted 3.8 billion lei,
- expenses regarding the amortization of intangible and tangible assets of 1.8 billion lei,
- expenses regarding mandatory medical and social insurance contributions of 839.1 million lei,
- expenses related to services provided by third parties of 682.2 million lei,
- material costs and expenses of 614.8 million lei,
- other expenses of 188.4 million lei (2.4%) and other operational expenses of 185 million lei.
Transmission and distribution networks. The volume of gas imported from the right side of the river Nistru is not a measured value but a calculated one, based on the data presented by the transport and distribution operators from the Republic of Moldova, including the Transnistrian region and Ukraine.
The Customs Service of the Republic of Moldova does not have a well-defined procedure for verifying the correctness of the declaration of the volume of imported gas. Thus, only the natural gases delivered to the right side of the Dniester are declared as imported to customs, and those delivered to the left side of the river Nistru, during the audited period, were not declared to customs.
According to the information provided by the JSC Moldovagaz, only part of the gas pipelines through which the natural gas transportation and distribution companies of the JSC Moldovagaz provide these services are owned by the JSC Moldovagaz.
Of the total of 23,803.47 km of gas distribution pipelines, only 8,260.19 km (or 34.7%) belong to the JSC Moldovagaz, 6,091.75 km (or 25.6%) belong to local public administration authorities, 8,274.7 km (or 34.8%) - natural and legal persons, and around 1176.82 km (or 4.9%) - do not have property documents.
By using networks that do not belong to them, the JSC Moldovagaz group has access to a larger number of natural gas consumers, without investing in their capital repairs, thus not only ensuring a higher volume of sales, but also benefits more economically.
According to the information provided by the Ministry of Finance, only during 2000-2021, 1006.81 million lei were invested in the construction of gas pipelines from the state budget. Additionally, financing from the account of the Social Investment Fund of Moldova, sources of local budgets, as well as various other internal and external donors served as sources of financing for publicly owned gas pipelines.
According to the analyzes carried out by the audit, it was found that, during 2011-2021, the JSC Moldovagaz recorded losses from exchange rate differences in the amount of approximately 3148.3 million lei, mainly related to the debts for the procured gases. For example, during 2014-2021, the JSC Moldovagaz recorded expenses of 8,725.5 million lei and income of 6,183 million lei from the exchange rate differences of debts concerning the JSC Gazprom and LLC Factoring Finance, the financial result being a loss of 2542.5 million lei. It should be noted that the respective financial losses are directly dependent on the correctness of determining the value of the debts for the purchased natural gas.
In conclusion, the Court of Accounts emphasized the following.
According to the accounting records of the JSC Moldovagaz from the debts recorded on 31.12.2021 for the procurement of natural gas in the amount of 590.8 million dollars, only the debts in the amount of 14.6 million dollars were formed for the gas deliveries made in the first half of 1999 - until the formation of the JSC Moldovagaz, the rest of the debts were formed during the period of activity of the JSC Moldovagaz, of which 144.8 million dollars for the deliveries from 01.07.1999 - 31.12.2007, 394.1 million dollars for the deliveries made in the years 2011-2015 , and $37.3 million represents current liabilities related to deliveries for December 2021.
The analysis of the data presented by the JSC Moldovagaz for the period 2011-2021 allowed the identification of the following main factors that influenced the non-payment of the current consumption of natural gas:
- lack of payment by the consumers for the gas consumed, which totaled approximately 1519.878 million lei, of which 103.121 million lei represent settled compromised claims;
- tariff deviations related to the gas consumed (the difference between the price included in the tariff and the actual price paid) – approximately 1,876.8 million lei;
- tariff deviations related to the reduction of tariffs with the positive deviation of the gas value – 774.9 million lei;
- tariff deviations related to the reduction of tariffs with the positive deviation of the gas value – 774.9 million lei;
- unsubstantiated investments by the JSC Moldovagaz and not accepted by NAER for tariff purposes - 815.8 million lei, of which investments in the building of the JSC Moldovagaz - 445.6 million lei, as well as in the administrative building in the municipality of Ungheni - 20.7 million lei;
- expenses not related to entrepreneurial activity, adjusted for fiscal purposes according to VEN declarations by enterprises in the JSC Moldovagaz system - 1000.2 million lei;
- expenses related to the difference between the currency exchange rate and the official NBM rate – 102.7 million lei, not accepted for tariff purposes in the period 2011-2014;
- interest and commissions related to loans not accepted in the tariff – 64.1 million lei;
- expenses for the remuneration of work not accepted for recovery through the tariff in the period 2017-2021 in the amount of 246.2 million lei, etc.
Although, in the last three years, an efficiency of expenses and investments made by the JSC Moldovagaz group can be seen, they are not in a position to eliminate the effects of the non-compliant and ineffective management of the company's assets carried out between 1999-2018.
The members of the Parliamentary Committee reported that the findings of the Audit Report are sensitive subjects for our country and mentioned that this Report will also be heard in the plenary session of the Parliament, with recommendations being submitted on certain vulnerable aspects.
