SAO audited funds earmarked for rehabilitation of old environmental burdens
Press Release – June 28, 2010
From June 2009 to March 2010, auditors from the Supreme Audit Office (SAO) performed an audit of funds earmarked for rehabilitation of old environmental burdens (OEB) within the period 2006–2009. Among the audited bodies were Ministry of Finance, Ministry of Environment, United Chemical and Metallurgical Works, Ústí nad Labem; South Bohemian Saw Mills, Corp.; PARAMO, Inc., Pardubice; Aircraft Industries, Inc., Kunivice; OKD, OKK, Inc., Ostrava-Přívoz (as of December 1, 2009, the company’s name changed to OKK Koksovny, Inc.).
From 1991 onwards, the National Property Fund of the Czech Republic was approved by the Government to enter into ecological agreements with new owners of the previously privatised property, and to sign to liquidate the pre-privatisation expenditures of the elimination of the old ecological burdens. The eliminating process has not been regularized by law; it only abides by the code approved by the Government decrees or internal regulations. Since 2000, supply contracts have been concluded on the basis of the Act on public tenders. After the National Property Fund ceased its operations in 2005, the elimination processes have been managed and funded by Ministry of Finance in co-operation with Ministry of Environment and the Czech Environmental Inspectorate.
“During the previous auditing operation No. 05/11 – National Property Fund resources provided for Disposal of the old ecological burdens, which was performed by SAO auditors in 2005, auditors found several complex insufficiencies, which have not yet been dealt with. Ecological agreements set state guarantees, which do not reflect the actual costs of the old ecological burdens’ elimination. With the exception of three of the agreements, the height of guarantee only relates to the values of the privatised properties. Ministry of Environment created a database of OEB, which is incomplete and cannot be put to a proper use within the process of rehabilitation. The Ministry’s existing list of the elimination process’ priorities is not useful either“, said president of the SAO František Dohnal.
The Czech Republic lacks a sufficient source for covering of the expenses that arise from the ecological agreements. Available (privatisation) assets made up only CZK 14.9 milliard on the date of December 31, 2009. In case of deficiency, it will be necessary to cover the expenses with the state budget funds.
Rehabilitation of OEB is a long-term process that in some cases takes over a decade. In 2008, the Ministry of Finance advertised a public tender in order to shorten the rehabilitation period. The Ministry aimed at entering a contract with a contractor (Partner), who would undertake some economic risks. The economical expediency of such projects was not assessed according to professional views of the rehabilitation costs or according to risk assessment of the various applicable methods. The application terms have been repeatedly postponed and that is why the exact deadline of the contractual proceedings cannot be determined.
“Proper cost analyses have not been elaborated. The involved ministries have produced different estimates of the rehabilitation costs: according to the Ministry of Finance, the rehabilitation of OEB would cost CZK 90 milliard, while the Ministry of Environment said the costs would not exceed CZK 33 milliard“, said Dohnal.
Only three competitors met the qualification criterion and received the project documentation. Auditors warned that such a competitive environment could not suffice for a proper verdict on the bid price. The Office for the Protection of Competition has also repeatedly informed that with such a small number of applicants there is a significant risk of so called “bid ridding”.
Auditors call attention to risks involved in large public tenders as there is little experience with such generated tenders. Rehabilitation of OEB is guaranteed by the state that has to ensure effective control of the sanitation in progress as well as the finished decontaminations. Only the Czech Environmental Inspectorate can provide binding directives that the contractual Partner would abide. The Partner shall not be bound to opinions of Ministry of Finance, Ministry of Environment, or the supervisor.
The auditing operation was included into 2009 Audit Plan of the SAO under No. 09/18. Jiří Kalivoda, Member of the SAO Board, controlled the operation and prepared the audit conclusion as well.
Bc. Radka Burketová
Press Speaker
Supreme Audit Office