INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships

INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships Tuesday 17-Thursday 19 March 2009

Auditing the regulation of the universal postal service Wilfred Aquilina Audit Manager, Performance Audits National Audit Office - Malta

Outline of Presentation • Background • Objectives of the NAO Review • Key areas of regulatory performance that are being • examined • Expected Results Auditing the regulation of the universal postal service

The Maltese Archipelago National Audit Office, Malta Auditing the regulation of the universal postal service

The importance of the postal service To society and the economy, providing vital infrastructural support and communications between individuals, business and public entities. Consists of different market segments including the collection, sorting, transport and delivery of letter and parcel mail, as well as the provision of express and courier services. Postal outlets and mailboxes ensure that users have easy access to a diverse choice of services. Auditing the regulation of the universal postal service

The Regulatory Authority In 2003, Malta Communications Authority (MCA) was designated as the competent National Regulatory Authority (NRA) for postal sector. • The MCA has a key statutory obligation to: • Safeguard the availability of a universal postal service at an affordable price for the benefit of all users. • Protect the interests of users in areas where there is little or no competition. • Maintain an environment that is conducive to the onset of competition. Auditing the regulation of the universal postal service

‘Universal service’: the permanent and obligatory provision of a range of postal services, at sufficient points within a national boundary, so they are easily accessible to users. Such services must also meet quality standards and be available at affordable prices. Universal access to postal service is a primary objective of the World Postal Strategy of the Universal Postal Union (UPU) - the specialised agency of the United Nations on postal issues. Auditing the regulation of the universal postal service

EU Policy Malta’s accession to the EU in 2004 led to the adoption of EU Postal Services Directives.The Directives indicate minimum basic obligations on Member States for the provision of universal service. Since 2003, fundamental changes were introduced in the manner in which the postal service is regulated: • Introduction of regulatory conditions for different classes of postal services. • Requirements for the granting of licences and authorisations to operators. • Annual fees to be paid by postal operators. • Public tariffs to be charged for postal services in the reserved area. • Universal service obligations. • Minimum quality of service standards. • Standards to ensure the integrity and security of mail. Auditing the regulation of the universal postal service

Three-tier postal authorisation framework • Three classes of postal services: • Universal Service – Reserved area. For postal items that weigh less than or are equal to 50 grams. Services falling within this category may only be provided by the Universal Service Provider (USP) – Maltapost p.l.c. The reserved area is to be liberalised by the end of 2012 (EU Postal Directive 2008/6/EC), thus ending MaltaPost’s legal monopoly in this area of the postal sector. (b) Universal Service – Non-reserved area. This is a semi-liberalised sector: services must be provided by the USP and can be provided by any other licensed operator. Area includes: (i) articles that weigh over 50 grams and up to 20 kilograms and packages that weigh up to 2 kilograms; (ii) services of registered articles; (iii) services for insured articles; and (iv) a basic counter service. (c)Competitive area – fully liberalised. Auditing the regulation of the universal postal service

In January 2008 MaltaPost was fully privatised. The Company • registered a profit of €2.9 million before tax in the same year, an • increase of 74 per cent over 2007 and its cost-to-income ratio was • reported to have raised to 92 per cent from 87 per cent. • MaltaPost, given its current statutory monopoly in the reserved • area, has a dominant presence in the Maltese postal market and is • by far the largest postal operator in the country. • MaltaPost is required to comply with all the conditions laid out in • the Postal Regulations. The Company must also adopt the • directives and decisions issued by the MCA and is subject to • regulatory reviews for the purposes of establishing fees and tariffs. Auditing the regulation of the universal postal service

Key areas of the universal service regulated by the MCA • Minimum service to be provided by the USP, including basic services to be • provided at counters. • Protection of the integrity of mail by operators of the universal service. • Manner and times in which post is to be collected and delivered. • Hours during which postal offices must be open to public, the manner in which post • offices are to be managed, and conditions under which these services are provided. • Exceptional circumstances allowing the suspension of the universal service. • A sufficient density of access points. • Availability of a sufficient stock of postage stamps in each locality. • Tariffs to be charged for the reserved area, ensuring affordable pricing. Auditing the regulation of the universal postal service

Key areas of the universal service regulated by the MCA (cont.d) • Instances where no payment of postage shall be due. • Establishment and amendment of specific schemes by the USP. • The quality of the postal service to be maintained, especially with regards to • routing times and the regularity and reliability of services. • Suitable customer compensation and complaint handling schemes. • Corrective action to be taken by the USP in order to improve its performance • levels and quality standards. • Exemption of people from complying with post box regulations in special • circumstances. • Criteria to be met for the establishment of postal users’ groups. • The right of access to all operators to the USP’s public postal network. Auditing the regulation of the universal postal service

OBJECTIVES OF THE PERFORMANCE AUDIT The performance audit is examining how the Authority is monitoring the performance of the USP and ensuring that obligations and minimum quality of service standards are attained. The study is also assessing how the Regulatory Authority is proactively safeguarding the interests of users, in particular in those areas of the market where the USP has a statutory monopoly Auditing the regulation of the universal postal service

THE FOLLOWING AREAS OF REGULATORY ACTIVITY ARE BEING EXAMINED: • Monitoring and enforcement of established standards of service and • performance levels by the Regulatory Authority: • USP’s License requirements • Universal Service Obligations • Minimum Quality of Service Standards • Integrity and Security of Mail • Other measures used by the Regulatory Authority to safeguard the interests of • users: • Postal Schemes • Surveys with individual and business users • User complaints • Educating the public on their rights and obligations Auditing the regulation of the universal postal service

UNIVERSAL SERVICE OBLIGATIONS • How the regulator is monitoring and enforcing standards related to: • Access to the Universal Postal Service • Guarantee of daily delivery • Publication of information Auditing the regulation of the universal postal service

MINIMUM QUALITY OF SERVICE STANDARDS • Issues related to the measurement, monitoring and enforcement of minimum QoS standards: • End-to-End Measurement • Complaints Handling • Compensation Auditing the regulation of the universal postal service

INTEGRITY AND SECURITY OF MAIL RECRUITMENT TRAINING SECURITY OF MAIL DISCIPLINARY PROCEDURES AGENT AND SUBCONTRACTORS Auditing the regulation of the universal postal service

USER COMPLAINTS • The role of the Regulator to address user concerns • Areas of concern and the response by the Regulatory Authority to these issues • Effectiveness of action taken by the Regulatory Authority to achieve improvements in the service • Use of national surveys to track performance of the USP Role of the Regulatory Authority to ensure sufficient information to users on their rights and obligations Postal Schemes Auditing the regulation of the universal postal service

Expected Results • Areas where the Regulatory Authority can: • Better safeguard the interests of users, • Maximise customer choice, and • Drive improvements in the quality of service delivered • by the USP. Auditing the regulation of the universal postal service

Auditing the regulation of the universal postal service Wilfred Aquilina Audit Manager, Performance Audits National Audit Office - Malta

The Australian Government’s Response to the Global Financial Crisis: Fiscal Stimulus and Financial Stability Measures Issues for Performance Audit

The Global Financial Crisis in Australia Australian economic growth expected to slow to one per cent in 2008-09 and ¾ of a percent in 2009-10 Government focus on fiscal stimulus packages Emphasis on ‘nation building’ investment programs

Bringing forward infrastructure spending $10. 4 billion Economic Security Strategy (includes accelerated implementation of nation building funds) $300 million program to build local community infrastructure $4.7 billion Nation Building Plan

Bringing forward infrastructure spending • $42 billion Nation Building and Jobs Plan • Increase in cap on issuing of Commonwealth Government Securities • Opposition opposed $42 billion Nation Building and Jobs Plan

Institutional arrangements to support infrastructure spending • Establishment of Infrastructure Australia, an independent statutory body • Provides advice to Governments and investors and owners of infrastructure • Conducts Infrastructure Audits • Develops Infrastructure Priority Lists

Institutional arrangements to support infrastructure spending • Public Private Partnerships • Common PPP Policy and Guidelines adopted for all State and Territory Governments and the Commonwealth Government • Australian Commonwealth Government has only directly entered into one PPP

Performance Audits of Infrastructure Expenditure Audit of the Conduct by Infrastructure Australia of the First National Infrastructure Audit and Development of the Infrastructure Priority List Series of performance audits examining nation building funds

Measures to maintain stability and confidence in the financial sector • The Australian Business Investment Partnership • $4 billion measure • Purpose is to provide liquidity support to viable major commercial property projects, such as shopping centres and office towers

Measures to maintain stability and confidence in the financial sector • Guarantee on deposits • Guarantees all deposits (with no cap) held by Australian owned banks, Australian subsidiaries of foreign owned banks, building societies and credit unions • Only applies to institutions authorised to accept deposits by the Australian Prudential Regulation Authority and subject to prudential regulation

Measures to maintain stability and confidence in the financial sector • Guarantee on eligible wholesale borrowing • Aims were to allow Australian institutions to raise funds overseas and restore confidence in credit markets • Fee charged by the Australian government • Only offered to entities subject to Australia’s prudential regulation regime

Other measures to stabilise Australia’s financial sector Purchase of residential mortgage backed securities Additional funding for regulators

Future performance audits relating to Australia’s financial sector Possible audits on recent stability measures

Conclusion • ANAO will provide assurance to the Parliament: • that infrastructure spending was on worthwhile projects and was managed appropriately; • as to the extent that infrastructure spending stimulated economic activity and generated employment; and • whether the schemes to protect the Australian financial sector are developed, implemented and administered in a way that achieves their policy goals and effectively manages risk.

Questions • Is your National Audit Office planning audits on financial stability measures related to the global financial crisis? • A. Yes • B. No • C. Don’t know • Is your National Audit Office planning audits on fiscal stimulus packages related to the global financial crisis (including infrastructure spending)? • A. Yes • B. No • C. Don’t know

Test of NAO’s matrix approach for PPPs of students’ hostel construction in Hungary Prof. Dr.Gusztáv Báger Senior Advisor to the President Working Group on Privatisation Moscow, 17-18 March 2009

Main subjects • PPPs in Hungary • NAO’s matrix approach for PPPs • Experience ofaudit of student’ hostel constructions

(Expected) launch Ministry Project Short descri p tion Expected Estimated pr e sent Budgetary expend i tures length of pr o- value of project (HUF m) (HUF b) Total ject (yrs) 2007 2008 2009 2010 Ministry of Eco n omy M5 1st se c tion Operation and maint e- March 2004 27 242 . 8 33 , 977 34 , 503 34 , 800 35 , 080 and Tran s port nance M5 2nd se c tion Design, build, finance, July 2004 27 ope r ate (DBFO) M5 3rd se c tion February 2005 26 M6 1st se c tion October 2004 22 111 . 9 15 , 000 15 , 362 15 , 981 16 , 455 Create 2 penal institu- Ministry of Ju s tice Prisons From N o vember 2005 18 71 . 7 1 , 551 3 , 136 3 , 442 3 , 746 to January 2006 tions in DBFO format National Sports "Sport 21st Facility Design, build, finance, From 2006 15 - 17 30 . 1 486 1 , 700 1 , 756 1 , 809 O f fice Development Pr o gram" operate (DBFO); lear n ers’ swimming pool, gymn a- sium Student hostel Ministry of Ed u cation Design, build, finance, From 2004 constru c tion+ 154 . 6 3 , 527 9 , 904 9 , 904 9 , 904 and Cu l ture ope r ate (DBFO) 20 years of oper a tion Garage of The National 0 . 5 52 91 91 92 M u seum Total 611 . 6 54 , 593 64 , 696 65 , 974 67 , 086 as a percen t age of GDP 2 . 4 0 . 2 0.2 0.2 0 . 2 as a percentage of the revenue total of the 2007 annual ce n tral budget 9,1 0 .8 0. 9 0. 9 0 . 8 as a percentage of the expenditure total of the 200 7 annual ce n tral budget 7 . 3 0 . 7 0.8 0.8 0 . 8 • PPPs in Hungary 1.1 Main data of PPP-projects 2007-2010

1.2 Rules of budgetary expenditures for PPP projects • Old rule: yearly expenditures connected to long-term commitments cannot exceed 2% of the total expenditure of the annual budget • New rule from 2007: yearly expenditures connected tolong-term commitments cannot exceed 3% of the total revenue of the annual budget • Q 1: Do you think that this type of rule is efficient? • Q 2: Is the new rule more efficient than the old?

2. A brief of NAO’s matrix approach for PPPs: 2.1 Six key performance themes: • Suitability to business needs • Appropriateness of PPP • Support of the project by partners • Quality of delivery of project • Optional balance between cost and quality • Effective risk allocation

2.2 Six stages in the life cycle of the PPP project • Strategic analysis • Tendering • Contract completion • Pre-operational implementation • Early operation • Mature operation • Q: Do you think that this approach might be efficient for evaluation and audit ?

3. Experience of audit of students’ hostel PPPs • 3.1 Objections of the programs • Construction of the new hostels • For places of 10 455 • Net costs of Eur 120 Million • Reconstruction of hostels • For places of 20 000 • Net costs of Eur 100 Million • Period: 2004-2007

3.2 Places, numbers and forms of the audited PPPs

3.3 Meeting the performance themes in the stage of STRATEGIC ANALYSIS • Suitability to needs: • numbers of students increased by 2.5 times in 1990s against increase of places by 12% only • needs were based on institutional indications and not on long-term development strategy • Appropriateness of PPP: • PSC-comparators justified the PPPs (excepted for 2 projects) • Stakeholder support: • Identify and consult with key stakeholders

3.3 Meeting the performance themes in the stage of STRATEGIC ANALYSIS(Cont.’d) • Quality of project management: • Instead of PPP Unit the staff of Ministry of Education was charged • Design was made with great reliance on external advisors • Preparatory courses for institutions by the Ministry of Education • Balance of cost and quality: Costs in national currency and EUR • Effective risk allocation: • PPPs meet the Eurostat criteria for off balance sheet treatment • Private partner takes: • Construction risk, availability risk • Authority takes: • Demand risk, exchange rate risk

3.3 Meeting the performance themes in the stage of STRATEGIC ANALYSIS (Cont.’d)

3.4. Meeting the performance themes in the stage of TENDERING • Suitability to needs: YES, in line with regulations • Appropriateness of PPP: YES, three alternatives per projects • Stakeholder support: YES • Quality of management: PARTLY, needs for external advisors • Balance of cost and quality: PARTLY, selection according to the best offer • Effective risk allocation: YES

3.5. Meeting the performance themes in the stage of CONTRACT COMPLETION • Suitability to needs: YES, the most needs of Authority were managed in contracts • Appropriateness of PPP: YES, model contract was used • Stakeholder support: YES, it was maintained • Quality of management: YES, the needed time was in accordance with regulation • Balance of cost and quality: PARTLY, selection again was not according to the best price • Effective risk allocation: YES, there was no discussion

3.6. Meeting the performance themes in the stage of PRE-OPERATIONAL IMPLEMENTATION • Suitability to needs: YES, no deviations from financial plan • Appropriateness of PPP: YES, the implementation of investment plan was under continuous control • Stakeholder support: YES, there was active authority’s monitoring and mutual information about progress • Quality of management: YES, the contracts functioned well • Balance of cost and quality: YES, there were no discussions about quality • Effective risk allocation: YES, not debated at this stage

INTOSAI Working Group for the audit of Privatisation, Economic Regulation and Public Private Partnerships