[WATCH] Public Accounts Committee grills Auditor General on fuel procurement report

Welcome to MaltaToday's live blog of the PAC hearing into the Auditor General's audit of Enemalta's fuel procurement policy

EXPLAINER | Auditor General's report on Enemalta fuel procurement

19:08 Meeting adjourned to Wednesday 9am. Thank you for following us. A detailed report incorporating the salient points of today's sessions will be up tomorrow morning on www.maltatoday.com.mt

19:07 We're back... Auditor General will be back on Wednesday morning to continue with his testimny before the PAC.

18:59 Meeting suspended as members consult between them how they will continue. Members of the media asked to retire.

18:53 In short, the Opposition members are trying to exonerate Austin Gatt from any wrongdoing as government members push the line that decisions taken during this period may have resulted in higher Enemalta fuel procurement costs leading to higher utility bills.

18:47 Ten more minutes to go until PAC adjourns to Wednesday. Currently, Beppe Fenech Adami is asking further clarifications on the now infamous email sent by Austin Gatt to then Enemalta chairman Alex Tranter.

An NAO official explains that Austin Gatt's instruction "tied Enemalta's hands" in its hedging formula. "Because of this, Enemalta might have failed to capitalise on favourable conditions," he said.

He however said it would be "incorrect" to attribute the €3 million loss to Austin Gatt's decision because their report did not state so. "We did not delve into that point."

18:39 Point is, the NAO says, Enemalta insists that recording the calls would be "uncomfortable" because there was an element "of bluff" adopted during negotiations by the fuel procurement committee. "But like we said, transparency comes at a cost," the deputy general adds.

Telephone calls are in actual fact "a conference", meaning that more than one FPC member would be present for such a call.

18:33 Beppe Fenech Adami's turn and focuses on a recommendation to record telephone conversations on oil dealings.

"Our advice is that, in general, it's a used practice that calls are recorded. If we want better transparency there is a cost. In this case we recommend recordings of telephone conversations," the NAO said. This recommendation has been shot down by Enemalta during the so-called "exit meeting" in July.

18:26 PN MP Kristy Debono directs her questions to the parts of the report which commend the improvements registered during the same years, which the NAO highlighted in its report.

18:17 As questions keep pouring in on the choice of bidders, the NAO officials repeat ad nauseum that the NAO was not in a position to answer such questions as their task was an audit: an audit of strategies adopted and not an investigation.

18:13 The Auditor General is currently replying to questions on why they hadn't felt the need to delve further in their audit when the Enemalta oil scandal erupted. Mifsud explained that the case was the sub judice and it was not their remit to investigate.

18:04 Auditor General says it didn't result there existed a powerful oil lobby behind Enemalta's fuel procurement. "We can only comment on the documentation we saw and this point goes beyond what we looked at," the NAO says.

Bonnici points out that an oil trader boasted of his connections with politicians. "Given the context of what you found and what we have learned along the years... companies like TOTSA, represented by George Farrugia, who received the majority of tenders during 2008 and 2011, can these facts be separated from the shortcomings noted in the report?"

Here intervenes Jason Azzopardi. "Let us not forget that we are covering the period between 2008 and 2011. Let's be fair with the Auditor General because what you have asked goes beyond the audit period."

Bonnici: "All I'm saying is that all this happened in a context. But the administrative mistakes occurred amid a worrying background."

The Auditor General replies: "Everything you're saying is relevant but beyond our audit scope. Moreover, when we started the audit the case had not yet started in court."

17:56 If you want a small break from the PAC, click here to read what Mediatoday managing editor Saviour Balzan had to say about today's committee meeting.

17:25 Owen Bonnici takes the floor and refers to the correspondence between Austin Gatt and Alex Tranter which led NAO to criticised the "undue ministerial intervention".

Referring to the minister's right to give direction to the corporation, the Auditor General said it was the NAO's belief that Austin Gatt shouldn't have "exercised that right at that point" - leaving Beppe Fenech Adami bewildered.

Bonnici asks whether following Gatt's direction, the country spent more or less in fuel procurement. While the NAO refused to give a direct answer, insisting that their focus was "good governance", the NAO official said that with the hedging, Enemalta saved €14 million. However, when eliminating the exchange rate, Malta spent €3 million more in the purchasing of crude oil during the same year.

17:22 The question that keeps popping up: "Why didn't you feel the need to question Austin Gatt on this email?"

Auditor General replies: "Our audit was about strategy not policy." The NAO is arguing that policy was a ministerial matter, whereas strategy was a committee's remit.

17:14 Jason Azzopardi asks whether the NAO had sought to confirm that Austin Gatt's email was the result of a Cabinet decision, to which the deputy auditor general said no.

Auditor General Mifsud reiterates that the experts in hedging were the RMC and therefore it should have been their decision. Azzopardi is pressing the point whether the minister had the 'right' to provide policy direction.

"If anything, the minister should have said 'go for price stability' and then it would be up to the RMC to decide which hedging strategy to adopt," the NAO official explained.

16:58 Fenech Adami says the law gave the minister "the obligation" to give direction to Enemalta Corporation.

"So how did NAO decide to limit the power given to the minister by the Enemalta Corporation ACT? The law specifically prohibits the NAO from interfering in ministerial policies. Yet, the Auditor General here has censored a minister who exercised a right given to him by law," the MP said.

The NAO explained it was not about policy but about strategy. "We are saying that at strategy level, and in the context of good governance, there is a committee responsible of this and that committee should be the one to decide," the official, Keith Merceica said.

With Beppe Fenech Adami insisting that the law gave the minister the right to give direction, the Auditor General said "let's agree to disagree" as the NAO continued insisting this was a strategy issue and the strategy should have been left in the committee's hands.

The MP, who said the law did not distinguish between what was policy and what was strategy, then asked why it was a "negative" that the minister gave parameters. The official replies that this decision "could have not been to the maximum advantage of Enemalta".

16:46 Floor back to the Opposition. Azzopardi: "Am I correct to say that despite the abysmal record keeping and all the shortcomings, the outcome was still favourable?" To which the NAO officials say "yes". Azzopardi goes on to ask whether "despite what you described as undue ministerial intervention, the bottom line is that the outcome was positive and that it made good business sense. Correct?"

Replying in the positive, NAO official Keith Mercieca however said that, despite the end result, they still did not agree with the approach used.

Following up, Beppe Fenech Adami asked whether "whoever in the media reports that Austin Gatt interfered in oil procurement was correct or incorrect to do so". The NAO officials replied that "the report doesn't say so" and the "undue ministerial interference" referred to an email which Gatt sent to the Risk Management Committee "communicating a Cabinet decision on the parameters of negotiations".

16:40 The parliamentary secretary for justice is now asking the NAO whether they feel concerned over their findings: "You prepared a hard-hitting summary which taken into the context of the Enemalta oil scandal and the decision taken by the previous administration to go for heavy fuel oil despite an agreed policy to go for gas is cause for concern."

But the Auditor General reiterated that their role "was not to look fire" but to carry out an audit. "At this point in time I think you have to listen to what the other witnesses have to say," Mifsud said. Asked whether the right decision was taken when the police was asked to investigate the NAO report findings, the Auditor General said it was not up to him to comment "as this was a ministerial decision".

16:18 Bonnici makes it clear: "Do you think the abysmal level of record-keeping was intentional?"; Justyne Caruana adds "does this have anything to the doubts raised on the integrity of the contracts awarded?"

No clear answer was given, as the NAO officials explained they used the documents submitted by Enemalta and its Chief Financial Officer.

Bonnici refers to the BWSC report, in which the Auditor General had said "there was smoke without fire". Asked whether he could say the same for this report, Mifsud replies "no, I cannot say the same".

"All I can say is that record-keeping was inexistent and this has now changed," Mifsud insisted.

Intervening, the deputy auditor general added that their job was to report "state of facts". "It is now up to the Police to decide whether the shortcomings were intentional or not," he adds.

16:17 Owen Bonnici refers to the "abysmal level of record-keeping" as described in the report. "Did you check why?" Bonnici asks, to which Mifsud replies the NAO was satisfied that this had been addressed to. An NAO official adds that the audit focused on "good governance".

Focus turns onto NAO comments which cast doubts on the "integrity" of contracts awarded. Deputy auditor general Charles Deguara explains that NAO remit was to put forward recommendations, not force them in. "We are now informed that Enemalta has appointed a board to implement our recommendations. But as NAO, the law doesn't give us the executive power to force our recommendations into implementation," he says.

16:12 Labour MP Justyne Caruana asks the auditor whether the poor record keeping worried him. "Yes it does and we highlighted it a number of times in our report," Mifsud said. As the MP presses to see why the minutes were not kept well and whether there could have been a motive, the Auditor General insisted that the NAO was "carrying out an audit and not an inquiry".

16:00 Welcome back to our live-blog as the second session of the PAC resumes. Government side starts off with the first round questions: "what should the parliament learn from this report?"

The Auditor General says the most important things is to keep records. "IT can help us with this. Good record-keeping is necessary for continuity," Mifsud says.

Asked why he thinks the records were not kept, Mifsud said that "with today's rat race, I may think that they would have hurried through the minutes to get things done".

13:00 Morning session over. PAC meeting adjourned to 4pm.

12:52 NAO official confirms that information provided by the risk management committee improved considerably in 2011.

Jason Azzopardi is making a number of questions on the strategy adopted by Enemalta, such as the number of consultants employed, how it purchases and so on.

12:38 Replying to Debono's questions, an NAO official said Austin Gatt's interference was "academic".

"According to our analysis, the risk management committee is the one which focuses on hedging and it should be this committee which decides the strategy," the official said.

He explained that over hedging was a strategic and administrative decision. "Hedging policy should be a ministerial decision, but the strategy adopted should the RMC's decision," he added.

12:31 Fenech Adami asks whether the NAO found illegal actions which warranted police action. The NAO says that wasn't its role as what they had was to audit the performance.

"You have opened a Pandora's Box. Energy Minister Konrad Mizzi has asked for a police investigation. Did you find criminal actions during your audit?" Fenech Adami said.

The Auditor General confirmed that during the compilation and, subsequently, after the publication of the report, the NAO did not pass on any information to the police which might have shown breach of law and criminal law.

12:24 Floor back to the Opposition. MP Kristy Debono asks why no feedback was obtained from the fuel procurement committee.

"We felt that the answers we had satisfied our questions and we followed performance audit methodology," Deguara said, sounding increasingly irritated at the repeated question.

Azzopardi at one point interrupted to say that the report was "manipulated by the media".

"Yes certain sectors of the media manipulated the report," he reiterated. Fenech Adami went on to add that Labour media ONE TV had manipulated the report.

"Nowhere in the report results that Austin Gatt interfered with oil procurement... switch on Super One today and that is all you hear. That is the spin," he said.

12:18 Luciano Busttil asks what socio-ecnomic impact did the hedging have? "If different hedging was carried out, would utility bills have been lower?" Busuttil asks.

No clear answer was given to this question.

12:10 Owen Bonnici points out that it was "significant" that the audit report did not delve into how Enemalta costs reflected in consumer prices. But the Auditor General explains that procurement ends once Enemalta becomes "the oil's owner" and therefore their audit, which in this case focused on procurement policy, stopped there.

12:06 The deputy auditor confirms that when the NAO started its audit in 2011, changes were being carried out at Enemalta during the same year to improve the situation.

11:52 Technical questions still ongoing - when were the Fuel Procurement Committee and the Risk Management Committee set up and how they operated.

Beppe Fenech Adami says "it is a state of fact that the oil advisory and risk management committees were set up by Austin Gatt".

11:45 Questions continue on how questions by NAO to Enemalta were made, how many meetings were held, where were these meetings held, who provided the information, structure of meetings and so on.

11:28 Government's turn to make its questions. NAO official explaining methodology used. Difference between audit and investigation is that investigation is carried out on orders by either the Public Accounts Committee or the Minister for Finance. In this case, since the call was not made by either, the task was an audit. In case of an investigation, the terms and conditions of an NAO investigation would be set by the PAC, if it were the PAC to request it.

11:25 Jason Azzopardi questions again the conflict of interest which Prof Ghirlando's involvement might have constituted: "Wasn't Tarcisio Mifsud chief financial officer at Enemalta during Ghirlando's chairmanship?"

The Auditor General replied that when the audit started, Mifsud hadn't yet been charged in court.

11:17 Deputy auditor general Charles Deguara said the NAO staff made sure that all conclusions were corroborated by document evidence.

"You made a clear reference to interference by Austin Gatt. You have implied a shortcoming. But yet, the person responsible of this shortcoming was not questioned. Why?" Fenech Adami said. "This report placed individuals under accusations. The consequences are huge. Didn't it occur to you to question them?"

"We followed the procedure usually adopted during an audit," Deguara replied.

11:07 Fenech Adami's million dollar question - based on criticism made by Opposition leader Simon Busuttil who questioned why persons like Austin Gatt were not interviewed during the compilation - "Who decided who should be questioned?"

He questions why, for example, the person responsible of taking the minutes was not questioned. An NAO official says they were given the minutes and what they reported was a state of fact.

Fenech Adami also points out that, together with the Enemalta report, "other persons outside Enemalta have been implicated".

"Unwarranted ministerial interefence is a clear reference to a person who has now been implicated in the report," Fenech Adami said. "Didn't it occur to the NAO to at least hear what they had to say? It is not fair that individuals were implicated, mud thrown at them because this was simply an 'analysis'."

The Auditor General reiterated that their work was an audit and not an investigation.

10:55 Questions continue: Expert advice was sought from Prof. Robert Ghirlando, a former Enemalta chairman between 1998 and 2003. Ghirlando also provided his services to the NAO during the BWSC investigation. Fenech Adami is now claiming that this constituted a conflict of interest, given that the consultant worked under the same policies which are at the heart of the report.

Intervening the deputy auditor general said Ghirlando was not involved in the compiling of the report or the research but simply to confirm certain technacilities on the quality of oil.

"His input was extremely marginal," he said, adding that it was extremely difficult to find consultants with high expertise on this issue. Mifsud added that it was extremely hard to find experts who would then be prepared to appear before the PAC.

Kristy Debono has also asked whether using PWC as a consultant, who also carries out external audit at Enemalta, constituted a conflict of interest.

"That's what you believe," Mifsud said, adding that PWC had more than one branch and the one used by NAO was different from that used by Enemalta.

10:51 Finally, the Auditor General was given the chance to reply: "I don't feel it's in the public interest to divulge the names. I feel that certain questions are unacceptable as they are a ferocious attack on the independence of my office."

He also explained that the NAO was finding a problem recruiting audit firms to carry out certain audit work as firms feared their staff would become the target of the PAC for carrying out their work.

10:43 To summarise, Beppe Fenech Adami wants to know who compiled the NAO report, their names and their qualifications. The government side is objecting, given that last time the Auditor General said he didn't want his staff to end up being the target of the inquiry.

Jason Azzopardi said Fenech Adami was "not putting into question" the staff's competence.

10:36 Government whip Carmela Abela is insisting that their side was objecting for the names of the NAO staff to be revealed. "If we were to know their names we would understand who worked on it," Fenech Adami reiterated. "It's in the committee's interest to know who worked on the report and who compiled it."

He was replying to Abela's question why Fenech Adami was turning the canons on the staff, when their names were not relevant to the report.

There was a decision that NAO staff would only appear before the PAC if there was real need. Last time, it was agreed that the Auditor General would be the one to field questions as he was responsible for the report. "But we never agreed that their names wouldn't be revealed," Fenech Adami retorted.

Owen Bonnici is trying to explain that exposing the NAO staff would hinder future investigations carried out by the office in the future "as they would be afraid" of becoming the target of an investigation.

10:21 Replying to Fenech Adami's questions, the Auditor said after Leo Brincat made his speech in parliament requesting an audit he also called him. The NAO agreed to undertake a performance audit. Mifsud denied during Brincat's phone call, further information was passed on. The performance audit team was made of 10 people, divided in two teams. Fenech Adami is also asking about the qualifications of the audit team and how were the leaders of the two teams chosen.

Deputy Auditor General Charles Deguara intervenes to clarify that all NAO staff were qualified persons as Fenech Adami continues to press on the qualifications and criteria of those who worked on the NAO report.

Fenech Adami also asked whether those who sat on the performance audit team had been involved in the report on the BWSC. "The BWSC report was carried out by an investigative team... this was a performance audit. So no, none were involved," Deguara said as Fenech Adami requested the names of both teams who worked on the Enemalta and BWSC reports.

"I am not convinced that the Auditor General can truly answer the questions we are asking," Fenech Adami claimed at one point. He also said that given he didn't know who were the persons involved, he couldn't say whether "the staff were competent or not".

Intervening, Owen Bonnici said one shouldn't turn the guns on the NAO staff. "Now that the Auditor General confirmed they were qualified, why should you also ask for their names?" Bonnici asked.

10:17 Each side will be taking 30 minutes to make its questions... although there is some bickering going on whether questions should be made by topic or MPs ask whatever they like. Parliamentary secretary Owen Bonnici proposes it would be better to have structured questions, going topic by topic instead of jumping from one subject to another. On his part, Oppoisition MP Beppe Fenech Adami says the government cannot force them on what to ask.

10:14 Brief interruption as committee secretary brings in cross to be used for taking oaths.

Transpires that Jason Azzopardi studied hedging in the past.

10:10 The Auditor General has concluded his brief but detailed presentation. Time for the questions.

10:01 As widely reported, Mifsud is currently explaining that until a fuel procurement policy came into force in 2011, standards and test methods used were different from those requested in contracts. Test methods quoted on quality certificates did not correspond to specifications. He also said that until 2011, no proper meeting minutes were kept and were mostly scribbled.

The Auditor General is also going through hedging methods used by Enemalta in its procurement (see Explainer for further details).

9:46 The audit did not delve into how Enemalta costs reflect in energy bills and did not cover the company's fuel stock control and management once oil consignments are delivered. He also explained that during the audit, NAO staff had to undergo hedging courses to understand the workings. The "specialised training" was carried out by PwC. Mifsud also said that NAO had proposed that Enemalta should start recording telephone conversations discussing hedging.

"Enemalta however turned down this recommendation. This was objected to by the Chief Finance Officer," Mifsud said. This occurred during an "exit meeting" in July 2013.

While insisting that Enemalta had its own reasons to see that the calls are not recorded, due to price negotiations, Mifsud said recording a telephone conversations would increase transparency.

9:40 Auditor General Anthony C. Mifsud sits before the PAC. He will be carrying out a presentation of the report, starting off with an explanation of how the National Audit Office works. As a preamble, Mifsud said that Enemalta was the "heart" of the country. "If Enemalta were to stop operating, the whole country would come to a standstill," he said, while lauding the work carried out by engineers at Enemalta.

He is now in the process of explaining that the audit was carried out following a request made by Environment Minister Leo Brincat, then Opposition MP.

9:36 PAC meeting starts now, with the approval of minutes. Committee chairman Jason Azzopardi carrying out a number of technical amendments.

9:30 Good morning and welcome to our live-blog from the Public Accounts Committee. Committee members - Labour MPs Justyne Caruana, Chris Agius, Owen Bonnici, Luciano Busuttil and Carmelo Abela and Nationalist MPs Beppe Fenech Adami, Kristy Debono and David Agius - are all present and waiting for the committee to start.