Parliamentary Commission of Inquiry Detects Virus Eating Up Public Money Parliamentarians Request Minister’s Name Be Deleted From Report

Translation of Article in Tempo Semanal 24.8.2010 on Parliamentary Commission of Inquiry on Rice Report

Tempo Semanal

Dili, 24 August 2010

Parliamentary Commission of Inquiry Detects Virus Eating Up Public Money Parliamentarians Request Minister’s Name Be Deleted From Report

On 8 August 2007 when the President of the republic Jose Ramos Horta inaugurated the AMP government and swore in Kay Rala Xanana Gusmao, formerly President during the previous FRETILIN government as Prime Minister of the AMP, the head of government began to encounter problems with food shortages.

Although this problem did not result in a famine crisis, it nonetheless challenged the political determination of the government. Because of this the government, through its head of government decided to opt for signing contracts with a group of Dili based companies to supply rice to the state of Timor-Leste.  But the process in signing the contracts became complicated because the contracts were signed prior to the National Parliament’s approval of the Rectified Budget. Even worse is that the companies in signing rice supply contracts with some companies breached procurement laws, which covered the contracts and began to betray the trust of the Prime Minister who had thought of these contractors as development partners.

In its 50 page report the Parliamentary Commission of Inquiry (PCI) reported that though at first the head of government is not implicated as having breached the law but his actions may come to be seen as having put his credibility at risk, because these companies with whom the Prime Minister signed the contracts have to date not paid their taxes, and there are indications of manipulation of the price of rice which affects public funds.

The PCI was able to deduce that from the time of the transitional budget in 2007 until 17 September 2009 the state of Timor-Leste had spent a total of US$89,701,783 to acquire 155,150 tons of rice supplies.

The PCI report deduced that during the July to December 2007 budget period, the government spent public moneys totaling US$5,018,746 to acquire 13,225 tons of rice. The PCI formed the opinion that from 2008 to 2009, the government spent a total of US$83,783,032 to acquire 141,925 tons of rice. According to details provided by the government, to 10 December 2009 the government rice stocks totaled 26,100,225 tons in state controlled as well as private warehouses.

The PCI uncovered information that since the government began implementing the policy of intervention in the rice market by selling rice directly to the Timor-Leste public, according to the government’s own estimates for 2008, the return from sales of rice by the government were US$18,038,000 and for 2009 were US$25,000,000, but at the start of December 2009 when the general budget of the state for 2010 was being debated in the national parliament, it was only US$21,500,000 for 2009.

The report also said that the PCI was unable to reach any conclusions regarding the reported loss of 4,000 sacks of rice, which according to explanations from witnesses from the Ministry of Tourism, Commerce and Industry was still under investigation by the Timor-Leste National Police.

A number of Members of Parliament did not sign the report, including Carmelita Caetano Moniz, Hermes da Rosa Correia Barros, who insisted in writing “the report should not state that the Minister’s wife supplied rice.  It should say Ms Kathlyn”. Two other MPs, Domingos da Costa and Teresa Maria de Carvalho also did not sign the report.

The report numbered: 24/CPI.II/XII/2009 dated 9 March 2009 was signed by the President of the Commission Arsenio Paixao Bano along with other MPs; Cornelio da Conceicao Gama, Jose Teixeira, Jacob Xavier, Aicha B. Umar Bassarewan, Domingos Mesquita and Duarte Nunes.

The PCI concluded that the conduct which the government entered into with the company United Food Lda, and signed by the wife of the Minister for Development, Mr. Joao Goncalves, as the 50% shareholder of the share capital holding of the company holding and a director of the company, was in breach of article 3 of Parliamentary Law No. 7/2007.

It further states that according to documents provided by the government regarding contracts signed by it with companies to supply rice to the state of Timor-Leste and which the PCI was able to analyze in detail, during the 2007 transitional budget periods between July and December, the government spent US$6,018,746 to buy 13,225 tons of rice from the company star King Lda, the PCI was able to ascertain information of payments of US$1,464,075 for a total quantity of 3,615 tons of rice at a price of US$400 per ton.

This payment was made by the government on 17/03/2008 and on 21/04/2008, but the PCI was unable to find contract documentation or detailed information regarding the contract signed with the company Star King to justify the information provided from the Treasury of the state.

Insufficient information made it difficult for the PCI to conclude what the contractual obligations and rights were in pursuant to the law or of the conditions laid down in the contract, especially as regards the obligation to pay taxes to the state of Timor-Leste.

But, the PCI was able to find general information regarding payments made by the government to the company People Food for the total of US$1,600,000 based on a price of US$400 per ton.  This payment was made on 27/1/2008 and 27/5/2008 for a total amount of rice supplied of 4,000 tons.

However, the PCI was unable to obtain other information to reach any conclusions regarding how the government entered into these contracts with People Food, so the PCI was unable to rectify the information provided by the Treasury of the state.

Beyond this, the PCI was also only able to find information regarding the payment made by the government to the company Oriental Food for the total amount of US$1,116,000 to purchase 2,790 tons of rice at the price of US$4000 per ton.  This payment was made on 1/2/2008, but the PCI was unable to find other information to further analyze this payment, so the PCI was unable to verify the information from the Treasury of the state.

The PCI found information regarding payment made by the government to the company Nabilan Food in the amount of US$1,131,000 to purchase 2,820 tons of rice, at the price of US$400 per ton.  The payments were made on 25/1/2008 and 12/2/2008.  However the PCI did not find other information to be able to verify the payment or the contract the government entered into with Nabilan Food, so the PCI was unable to verify the information from the Treasury of the state.

The PCI obtained information and some documents provided by the government regarding rice supplies purchased by the government through a contract entered into between the Ministry of Social Solidarity and the company Maubara Fitun LDA for a total amount of US$899,360 for 1,168 tons of rice at US$770 per ton.  The PCI also received some documents from the government like Payment Request, Receiving and Inspection Reports and other information.

Beyond this the PCI also obtained some information from the government regarding a contract entered into between the government and the company Timor Food to purchase rice totaling 2,500 tons at a price of US$350 per ton, for a total sum of US$874,398.

On another matter the PCI was able to analyze public contract documentation that the government entered into with the company Tres Amigos, before the National Parliament approved the Rectified General budget of the State 2008.

From the contract documents obtained by the PCI it was able to conclude that prior to the National Parliament approved the Rectified Budget of the State for 2008, the government had already entered into a contract with the company Tres Amigos for a total of US$14,400,000, despite the National Parliament having only approved and amount of US$4,080,000 to buy 8,000 tons of rice at a price of US$510 per ton in the Rectified Budget of the State for 2008.  However, the contract was later amended and increased to US$14,400,000 to acquire 16,000 tons of rice at a price of US$900 per ton.

The PCI also wrote in its report that the contract the government entered into on 22/10/2008 was not in compliance with the general rules and procedures stipulated in the Decree Law on the Legal Regime on Procurement No. 10/2005, and the Decree law 11/2005 Regarding Administrative Infractions of the Legal Regime on Procurement and the Legal regime on Public Contracts, as well as other laws binding the state of Timor-Leste, including National Parliament Law No. 7/2007 of 25 July 2007 on the Rights and Obligations of Officeholders of Constitutional Bodies.

Meanwhile regarding the contract the government entered into with the company United Food Lda, the PCI concluded that the contract with the wife of the Minister for Development as director and shareholder of 50% of the shareholding of the company United Food Lda breached article 3 of National Parliament Law No. 7/2007.

The PCI also concluded that the company United Food breached chapter IV, article 32 of the Decree Law on the Legal Regime on Public Contracts No.11/2005, regarding contractual warranties, and that it breached clause 21 of the Contract’s General Conditions of Contracts for Supply of Goods and Related Services regarding the payment of Taxes and Charges.  It is stipulated in clause 21.1 that “The Supplier shall be entirely responsible for taxes and charges levied by the state and its duly constituted authorities.”  To this date the company United Food Lda has not paid taxes to the state of Timor-Leste in breach of the above mentioned terms.

In addition, the contract for supply of rice entered into by the government with the companies Belun Feto, Atramor Success Supply, Star King Unipessoal Lda, and Maubara Fitun Unipessoal Lda, whereby each company was awarded a contract valued at US$3,842,5000 to buy 7,250 tons at a price of US$530 per ton, breached article 32 of the Decree Law on the Legal Regime for Public Contracts regarding Contractual Warranties, and clause 21 of the Contract’s General Conditions of Contracts for Supply of Goods and Related Services regarding the payment of Taxes and Charges, especially clause 21.1 that states “The Supplier shall be entirely responsible for taxes and charges levied by the state and its duly constituted authorities.”

Regarding the contract the government signed with the company Serba Jaya Makmur, which was signed by the Prime Minister Kay Rala Xanana Gusmao with the director of PT Serba Jaya Makmur, Mr. Sudarmado on 27/10/2008 for a total contract price of US$1,615,000 for 1,900 tons of rice at US$850 per ton, the PCI concluded that it did not comply with the government Decree Law on Procurement number 20/2005 because at the time it entered into the contract with PT Serba Jaya Makmur for the supply of rice at a price of US$850 per ton, it had entered into contracts with 6 other companies for the supply of rice at US$530 per ton.

The PCI concluded that there was a loss of US$608,000 to the state of Timor-Leste as a result of the contract the government entered with PT Serba Jaya Makmur in the amount of US$1,615,000 to purchase 1,900 tons at a price of US$850 per ton.

The PCI acknowledged that the government was acting to secure rice supplies for the state of Timor-Leste at a time when the people of Timor-Leste we in need of it.

Due the above the PCI recommended that:

1.        An investigation and audit be held into the entering of the contracts by the government for the period of the 2007 Transitional General Budget of the State with the companies Star King Lda, People Food, Oriental Food and Nabilan Food.

2.        That an investigation and audit be carried out to ascertain whether anyone should be held accountable for the additional payment on the contract entered into through the Ministry of Social Solidarity State General Budget with the company Maubara Fitun Lda for the total amount of US$899,360 to buy 1,168 tons of rice at a price of US$770 per ton.

3.        The PCI recommended an audit of the payment made on the contract the government entered into with the company Timor Food from the Ministry of Solidarity’s General Budget of the State to buy a total of 2,500 tons of rice at a price of US$350 per ton in the total amount of US$874,398, but then which by an invoice from Timor Food dated 28/4/2008, requested to the government that it pay US$874,398.36 for only 2,082 tons of rice based on a price per ton of rice of US$419.98.

4.        The PCI recommended that an audit be carried out to ascertain the principal reason for the difference in the price of US$350 per ton of rice in the contract the government entered into with the company Oriental Food for a total of US$899,360, with the prices of US$770 per ton in the contract with the company Timor Food.

5.        In respect of the contract the government entered into with the company Tres Amigos prior to the approval by the National Parliament of the 2008 General Budget of the State, the PCI recommends that the State Justice institutions investigate the legality and responsibility by the government in allowing an amendment to the contract with Tres Amigos in May 2008 increasing the contract amount from an initial amount of US$4,080,000 to US$14,400,000, which amount was never provided for in the 2008 General Budget of the State.

6.        The PCI recommended that State Justice institutions investigate the contract entered into between the government and the company Timor Food to determine the legality and whether anyone should be held accountable for the agreement which was signed by James Jong  Fu Kong and Epifanio da Silva da Costa Faculto, Director of the National Directorate of Tourism, Commerce and Industry on 14/5/2008 committing the State to a debt of State funds in the amount of US$5,100,000 for rice at US$1,000 per ton.

7.        The PCI requested that the State Justice institutions undertake an investigation to ascertain the legality and whether anyone should be held legally responsible for the tax exemption granted to the export company Kien Giang by the government on 18/8/2008 before the contract was signed with the company Serba Jaya Makmur on 29/8/2008.

8.        With respect to the contract the government entered into with the company United Food, the PCI determined there was a conflict of interest involving Ms. Fon Ha Tchong, Director of United Food and wife of the Minister for Development Mr. Joao Goncalves. The PCIU recommended that the State Justice institutions to undertake an investigation to determine whether anyone should be held legally responsible for the non compliance with article 3, sub articles 1 and 2 of the National Parliament’s Law Number 7/2007 regarding the Rights and Obligations of Officeholders of State Constitutional Bodies.

9.        The PCI recommended that the State Justice Institutions investigate the companies Juxibel Lda, Veterans General Store, Ran Aitana II, Lunarsol Unip Lda, Taci Tolu Holding and Monte Veado to determine whether there any taxes are owing by these companies to the State of Timor-Leste.

10.        The PCI recommended that the State Justice Institutions investigate the company Prima Food to establish whether there was a breach of the National Parliament’s Law Number 7/2007 on the Rights and Obligations of Officeholders of Constitutional Bodies given that Ms. Herguilina F. Alves, the daughter of Ms. Maria Domingas Fernandes Alves, the Minister for Social Solidarity held 11.18% of the shareholding in the company.

11.        The final recommendation from the PCI to the State Justice institutions was for it to investigate the company Hercio International Lda to ascertain with certainty whether the sale by this company on 20/6/2009 to the company Olifante of 777 tons of rice for US$2,999,146, was rice that had already been acquired by Hercio International for the state of Timor-Leste.

12.        Paragraph 10 of the PCI report states that the PCI recommended a thorough investigation as well as an audit be undertaken to establish the exact amount of rice that was sold by the government or how much was lost so that in 2009 it made an estimate of US$21,500,000 as receipts from the sale of rice.  (Ends)