Performance auditing in the oil and gas industry
At a formal Kick-Off Meeting in South Africa’s Pretoria Member of the Board of the Netherlands Court of Audit Mr Ewout Irrgang opened Monday 4 February 2019 a conference with the national Supreme Audit Institutions of Tanzania, Mozambique and Kenya with a speech.
Welcome to Pretoria, South Africa.
I’d like to extend a very big thank you to AFROSAI-E for hosting this meeting this week.
We are honoured that the National Audit Office of Tanzania, the Administrative Tribunal of Mozambique and the Office of the Auditor General of Kenya have accepted our support in their endeavour to strengthen oversight within the oil and gas sector.
Let me also give a special welcome, as a former resident of Dar es Salaam, to my colleagues from East Africa.
Mabibi na Mabawana, Mdhibitina Mkaguzi Mkuu wa Hesabu za Serikali Mtanzania, na Mdhibitina Mkaguzi Mkuu wa Hesabu za Serikali Mkenya, wafanyakazi Officini ya Hesabu Watanzania na wafanyakazi Officini ya Hesabu Wakenya,
Habari za asubuhi?
Nimeendela kuzumgumza katika kingereza.
Ladies and gentleman,
Long before my current job at the Netherlands Court of Audit, I served as a Member of Parliament, to which the NCA reports, as you report to your national parliaments. For three years in between these two jobs, I was director of an organisation in Tanzania called PharmAcccess and worked on improving access to health insurance for the urban and rural poor. In those three years, I saw what all of you already know. The potential to improve the standard of living for the people of Tanzania, Kenya and Mozambique is huge but the available resources are limited.
Gas revenues have the potential to ease those limits. But from historical experience in our countries we also know that when new resources become available there is a risk they will be wasted. This holds true especially when the amounts involved are very big. As they are in the oil and gas industry. In the Masai Mara, or in the Serengeti, or even here in the Kruger Park in South Africa you can see for yourselves: when a big prey is taken down, it is not long before the vultures are seen circling above.
As Supreme Audit Institutions, we already know this, we know we have to check that public money is not used for private purposes. We must ensure that public money is spent both correctly and wisely. Public resources can be spent correctly but still be wasted. There is a saying in Kiswahili, Haraka haraka, haina baraka: less haste, less waste! As supreme audit institutions, we have a mandate to check that public money is spent correctly and wisely. In fact, we have a duty to do so in the interests of the citizens of our countries and the parliaments to which we report. This is why we exist. And it is why we are here today.
The emerging oil and gas sector is an opportunity. As we are all aware, it is an opportunity that comes with a number of challenges relating to good governance and economics. In the Netherlands the fist commercial gas was extracted in the 1950s. My parents were 19 and 14 years old and were going to school or had just started working.
Today, the Netherlands is almost at the end of the gas extraction life cycle. One of our audit teams is accordingly dedicated to the exit strategy and the decommissioning of gas production platforms. My children are 7 and 5 years old right now, which means gas revenues in the Netherlands have lasted about two generations.
I will give you a very brief overview of what the gas industry has done for the economy of the Netherlands:
Firstly a negative: it brought us the Dutch disease, a term coined by The Economist. Due to the high demand for Dutch gas, the national currency appreciated in the 1970s so much that it reduced the competitiveness of our export sector and increased unemployment and in consequence welfare expenditure.
Secondly a positive: Total revenues between 1960 and 2017 amounted to roughly €285 billion according to our own audit in 2014. That is a significant amount: at their peak, gas revenues financed a big chunk of our annual government expenditure. At the moment, it is very small and less than 1 percent.
Gas revenues have been spent on, among other things: infrastructure, social welfare, and debt reduction. The gas revenues enabled spending that benefited my parents’ generation, my own generation, and also my children’s. The infrastructure we built, and our low level of national debt, will benefit future generations as well.
I would like to turn from our experience in the Netherlands and look at the gas sector in your countries.
The oil and gas industry is emerging. Expectations of what it can mean for economic and social development may be high. Expectations perhaps in terms of job creation, improvements in healthcare, education and infrastructure.
As significant revenues are on the horizon, l personally hope that the expectations come true. But having lived in Tanzania for three years, I fear they might be too optimistic. Many years from now, when the oil and gas platforms in your countries are being dismantled, I hope your grandchildren will also be able to say that oil and gas truly helped your countries to develop. As it did ours.
As supreme audit institutions, it is my belief that we can play a positive role. We definitely have a role to play when it comes to making sure that our countries get a fair share of the revenues. This is a valid concern when governments work with private oil and gas companies.
It is my ambition that the six performance audits we carry out together contribute to well managed oil and gas sectors in Kenya, Mozambique and Tanzania.
Let me now turn to our partnership as SAI representatives and auditors
I am extremely pleased to continue and upscale our earlier work with the National Audit Office of Tanzania and to welcome the Administrative Tribunal of Mozambique and the Office of the Auditor General of Kenya to this regional project to carry out performance audits in the oil and gas industry.
The partnership with AFROSAI-E gives us ample opportunities to share our experiences beyond this collaborative project. An e-learning module on performance auditing in the oil and gas industry will be developed as part of the project. It will be accessible to SAIs throughout the world.
Our support is being provided in the form of technical assistance. We are a sister organisation, not a donor. Our support activities must be based on your needs as partners. Similarly, in our experience, a key to success is that the leadership is fully committed and that the partner organisations are willing and able to prioritise sectoral audits as part of their core business.
We are grateful to the Netherlands Ministry of Foreign Affairs for the financial support it is providing for this project.
The objective of this kick-off meeting is twofold: (i) to discuss recommended areas of focus from the perspective of specialists in the extractive industry; and (ii) to identify and agree on the audit topics and audit questions for this regional project.
Your priorities in the oil and gas sector are obviously decisive in the identification of the audit topics and audit questions for this project.
Our ambition for today is that each SAI identifies two topics for a performance audit in the oil and gas sector.
We might also agree to carry out a parallel audit and select a topic to audit in two or three countries. Our aim for tomorrow is to agree on the main question for each audit.
We realise that this is very ambitious. To this end we have invited specialists from the extractive industry to help us translate your priorities in the oil and gas sector into meaningful performance audit questions.
The audit teams will start working on their audit designs following this kick-off meeting. The NCA’s support will include mentoring the performance audit teams between February 2019 and March 2020 by means of bilateral missions and regional workshops.
Let me conclude.
Although we are officially starting this cooperation today, I prefer to look at it as continued mutual support of members of the SAI community.
Today and tomorrow it is up to us to agree on the audit topics and the main audit questions. If we succeed, we can carry out audits that make a real difference and a positive contribution to the management of the sector and to the development of our countries.
Maybe 50 years from now, when the oil and gas reserves in your country have been depleted. I hope your grandchildren will be able to say that oil and gas helped your countries to develop.
As SAIs, we can help bring this about, and I am personally committed to doing my upmost to assist us in this endeavor. Because this is our duty, it is why we exist.
Thank your very much for your attention, or as we say in Tanzania, asanteni sana.
 Source: €265 billion in 1960-2013 (Netherlands Court of Audit, 2014), revenues reported by Statistics Netherlands for 2014-2016 of €18.1 billion and in Central Government Annual Report for 2017 of €2.5 billion. In total € 285 billion.
 In 2017, expenditure amounted to €264.6 billion and natural gas revenues to €2.4 billion