Improving revenue collection in the extractive sector

Given fluctuating oil and gas prices and local gas supply not meeting demand, the Government has been trying to find unique ways to earn more extractive sector revenues. The recently released T&T EITI Report 2016 offers a series of recommendations that if implemented, can fix the country’s systems and in turn add money to the public purse. The EITI process involves an Independent Administrator /Auditor (IA) reconciling the difference company payments and Government receipts. But importantly, after thoroughly examining the gaps in the country’s extractive sector management systems, the IA offered recommendations on how to improve revenue collection, data management and audit and assurance systems.

 

One of the areas the IA stated needs to be addressed is Production Sharing Contracts (PSCs) audit and monitoring. PSCs specify the various fees, levies and contributions that operators are required to pay to the Government. The MEEI’s PSC Audit Unit is responsible for monitoring and auditing amounts due and paid by PSC operators.

As detailed in the Report, there are outstanding PSC payments due from operators to the government which are likely to be in the excess of TT$10 million. The IA outlined gaps in the reporting system that have implications on the MEEI’s ability to collect monies due.

If these gaps are not addressed, it could lead to a delay in collecting monies due to the government.

 

To tackle these critical issues, the IA recommends the following:

(a) The MEEI should review these cases promptly and take any necessary action to collect monies due and should also ensure that a system is in place in future transfers, assignments, relinquishments or terminations of PSCs so that appropriate provision is made for any monies due to be collected before approval is given by the Ministry.

(b)A review of prior periods should be undertaken as a matter of urgency in order to ensure that liabilities from PSC operators are correctly stated for any necessary action may be taken to collect sums owed.

(c) The report should be produced on a cumulative basis – i.e. showing amounts owing from prior periods as well as the current period. The outcome of the review referred to in above should be added to the report.

 

Another way to improve revenue collection in the sector is through the management of audited financial statements of mining state owned enterprises.

Some State Owned Enterprises (SOEs) do not have updated audited financial statements and this has implications for the level of assurance and financial controls environment. In light of the severe delay in producing current audited financial statements for SOEs such as National Quarries Limited and Lake Asphalt T&T, the IA recommends the Auditor General who is empowered under the constitution to carry out the necessary audits for National Quarries Company Limited and Lake Asphalt of Trinidad and Tobago (1978) Limited to be able to produce to the Ministry Of Finance (by the end of 2018) audited financial statements for the year ending 30 September 2017.

 

Improvements in the Mining Sector can contribute significantly to adding dollars to the public’s purse. It was reported during the 12th Report of the Public Accounts Committee (PAC) on Public Accounts of TT with reference to the MEEI, that the government is owed over TT$196 million by quarry operators, with the state owned National Quarries Company Limited (NQCL) owing the Ministry of Energy and Energy Industries TT$52.2 million (based on unaudited company records).

 

The IA noted that the 2015 Minerals White Paper acknowledges that there is significant room for improvement in the enforcement of regulations relating to the mining sector.

Based on the need for these improvements, stakeholders through their discussions with the IA suggested the following:

(a) Resource levels in the mining sections within the MEEI need to be reviewed so that any planned improvements can be effective in practice

(b) The process for obtaining a mining licence should be simplified and existing operations brought into a regulated environment. A time bound plan is required for licensing operators. (c) The transparency of the licensing process needs to be examined and published

(d) Government relies upon declarations of production from operators in the absence of weighbridges on sites and adequate resource to monitor production more closely. An appropriate system to monitor production – for example, introduction of public weighbridges on a progressive basis, use of drones to assess production and stockpiles – coupled with an effective monitoring regime, would improve control over operations and could be expected to improve government revenue from the sector.

Adding to the stakeholders’ extensive recommendations the IA also recommended that more mining companies should be included in future EITI Reports to widen and improve the coverage of the sector.

 

To read the full list of recommendations visit the TTEITI’s website: www.tteiti.org.tt

 

About the TTEITI:

 

The EITI is the global gold standard for resource revenue transparency and management that has been adopted by 51 countries worldwide, including many of our trading partners in Europe, Africa and the Americas. Trinidad and Tobago, Suriname and Guyana are the CARICOM countries that participate in the initiative. The EITI’s mandate is to collect and disseminate independently verified information on revenue payments made to government from the oil, gas and mining companies operating in the country’s extractive sectors, audited and reconciled with government’s declared corresponding receipts, so as to promote greater revenue transparency and accountability for citizens. The information is disseminated through annual EITI Reports and T&T has published five such reports to date covering Fiscal Years 2010 to 2016. Based on the reports’ findings, an estimated $866 million in differences between extractive companies’ declared revenue payments and Government’s declared corresponding receipts have been identified, audited and reconciled.  The reports have also provided extensive recommendations on improving Government revenue collection, data management and audit and assurance processes. Data published in the reports have also informed the findings of the recent Gas Master Plan and assisted T&T in meeting its obligations to the Open Government Partnership.