The Court of Accounts of the Republic of Moldova (CoARM) presented today, March 3, in the plenary of the Parliament the results of the Compliance Audit Report of expenses and capital investments at natural gas enterprises that have been imposed public service obligations, as well as at related enterprises, as defined in Law no. 108/2016 on natural gas, including those indirectly owned.
The Court of Accounts’ team scored the most important findings of the audit that were the basis for formulating the general conclusions, as well as the submitted recommendations.
In this context, Sergiu Știrbu, Member of the CoARM, reported on the most relevant deficiencies found during the audit.
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 made by the companies in the natural gas transport 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 investments totaling 2772.1 million lei or 77.3% were accepted by NAER for the purpose of recovery through the 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 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 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, the indicative construction cost of 230.9 million lei with a total area of 12.7 thousand m2 was determined. 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 in the period 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 verifying and reporting on the compliance of the capital investments made by the JSC "Moldovagaz" to the built objective.
Purchases represent a substantial component in the activities carried out by the companies in 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 natural gas procurement amounted 22.7 billion lei, gas transportation and distribution services – 7.6 billion lei, and other goods and services amounted 5.7 billion lei.
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 ineffective expenses.
The expenses of the JSC "Moldovagaz" group by types of activities in 2021 constituted: the cost of purchased natural gas – 6.6 billion lei or 80% of operational expenses, expenses for gas transportation – 368.5 million lei or 4.4%, expenses for gas distribution – 1.1 billion lei or 13%, gas supply expenses - 208.3 million lei or 2.5%.
Transmission and distribution networks. The volume of gas imported from the right side of the Dniester 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.
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".
Out of the total of 23803.47 km of gas distribution pipelines, only 8260.19 km (or 34.7%) belong to the JSC "Moldovagaz", 6091.75 km (or 25.6%) belong to local public administration authorities, 8274.7 km (or 34.8%) - to individuals and legal entities, and around 1176.82 km (or 4.9%) - have no property documents.
At the same time, out of 1559.8 km of gas transport pipelines, only 1299.37 km or 83.3% belong to the JSC "Moldovagaz", 188.21 km (12.1%) belong to local public administration authorities, 46.58 km (3%) - belong to the Ministry of Economy and 25.63 km (1.6%) - to individuals and legal entities.
According to the information provided by the Ministry of Finance, only during the period 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.
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 during 2011-2015, and $37.3 million represents current liabilities related to December 2021 deliveries.
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:
- non-payment by consumers for 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;
- the amount of excessive natural gas losses, including suspected fraudulent consumption, not accepted by NAER for tariff purposes in the amount of 1022.8 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.
Finally, the Parliament took note of the compliance audit report on capital expenditures and investments at natural gas companies that were subject to public service obligations, as well as at related companies, as defined in the Law on natural gas, including those held indirectly.
The decision adopted by the Parliament provides for a series of important actions to remedy the deficiencies identified in the audit results. Thus, the Government will start the procedure to claim the amount of 3.3 billion lei, at the average exchange rate of 2008, related to the revaluation of the fixed assets deposited by the Government of the Republic of Moldova in the share capital of the JSC "Moldovagaz". Also, the decision provides that the executive must carry out the re-inventory of the patrimony deposited by the Government as a share in the share capital of the JSC "Moldovagaz" and to determine the patrimony that did not participate in the reduction of debts towards "Gazprom". At the same time, the activity of the Government representatives in the Board of Observers and in the Board of Directors of the JSC "Moldovagaz" will be evaluated.