How much is enough? Practical experiences and insights of an audited company

Transcription

1 How much is enough? Practical experiences and insights of an audited company 29 October 2014, Vilnius Gabija Kuncytė, Head of Legal Division Rytis Valūnas, Head of LNGT Legal Affairs SC Klaipėdos Nafta 1

2 Klaipėdos Nafta Profile Founded in 1994 Oil Terminal (in operation since 1959 in Klaipeda Seaport) 72,32% of shares belong to the State Publicly Listed (NASDAQ Vilnius SE) Also in charge of strategic national project (Government Decree of 2010 June 21) 2

3 Klaipeda Seaport / Lithuania 2014 October 27 3

4 Lithuania s gas transmission system Dependency on a single supplier 4

5 LNG Terminal Project Visualization of the project Features Technology: FSRU Location: Klaipeda Seaport / Lithuania Volume: m 3 Annual capability: up to 4 bcm 3 Commercial model: FSRU rented on 10 year basis with purchase option 5

6 LNG Terminal Project Aims and benefits Ensures security of energy supply Will help to diversify energy sources Third party access will spur competition Import prices will reflect the global market price level 6

7 LNG Terminal Project Key features implying the need for auditing Set deadline for completion in the Law on the LNG Terminal 3 rd of December 2014 to implement N-1 (EU) standard Potential for the future (2015 / 2016) Regional Terminal State owned and supervised; Enshired in the laws of Lithuania as a strategic and national project; Fully regulated activity by the National Regulator (costs are socialized onto consumers via gas transmission tariff); Subject to Public Procurement regulations; Part of financing comes from institutional banks; Encompasses EU element (compliance with EU law); Value: ~0,7 bln. EUR (for the operation of 10 years); International contractors; Extremely tight execution timeline. Additional commercial activities Fueling ships LNG auto-trailer reloading Subject to auditing 7

8 LNG Terminal Project Challenges for execution Finished tasks Ongoing tasks Independence Jetty Technical specification Public procurement FEED Construction and delivery to Klaipėda Public procurement EPC Deadline set in the LNG Terminal Law: 3 December 2014 to implement N-1 (EU) standard Pipeline FEED Public procurement EPC Environmental procedures and permits EIA, SEIA Territory planning State guarantee NIB financing Financing and state aid LNG law EIB financing Creation and implementation of financing plan Regulatory environment Development of legislation Amendment of LNG law Terminal operator development People, training, org. structure, procedures Third party infrastructure Port infrastructure Gas transmission grid 8

9 LNG Terminal Project What is important when considering a project s audit? Acting environment is the first thing to consider in doing audit of the company or particular project 9

10 Klaipėdos Nafta Every day's Acting Environment for company s activities For Klaipėdos Nafta Normally up to 10 audits a year is a regular thing; Independent financial audit (including interim financial audits) is obligatory under the International Accounting Standards and International Financial Reporting Standards; Various case-by-case target or more profound regular audits by Public Procurement office (at least 5 different audits since 2011); Audits by the National Regulator (LNG Terminal activities regulated under the law with fixed margin of income possible from the Project) profound fullscope audit is planed after the project is completed; Regular state audits under the laws by National Audit Office of Lithuania; 10

11 Klaipėdos Nafta Every day's Acting Environment for company s activities For Klaipėdos Nafta Acting Supervisory Board and Audit Committee quarterly reviews under the request of the main shareholder the State; Various other both obligatory and regular check-ups by official state institutions inspections, offices, others; Contractual audits under the agreements with financial institutions and major contractors; Un-obligatory (but in truth necessary) environmental, risk management, insurance and so on and so on audits... Resume: In total more than 40 audits in the period of time since 2011 on casual day-to-day activities basis 11

12 Klaipėdos Nafta Basic questions How much is really enough? Who? Who should be entitled to audit these kind of major projects? Why? When? Why are such audits performed? Should projects like LNG Terminal Project be audited during execution phase or afterwards? 12

13 LNG Terminal Project Some basic facts on LNG Terminal Project audits The first key circumstance the Project is not yet completed and should be completed by 3 December Today s score at least 12 various Project audits, that makes it the most audited national project before end-up-date. The Project yet subject to various audits in the future (i.e. the Government initiated international audit). AUDIT SCORE

14 LNG Terminal Project Foundings at EU level The FSRU should be the most economical and fastest solution to implement, granting the lowest regasification tariff and requiring the lowest capital expenditures. < > A 4 Bcm LNG terminal would be the optimal size to meet Baltic current limited gas demand and to exploit the likely increase in future demand through scalability of the investment. - EC Report Analysis of costs and benefits of regional LNG solution in the East-Baltic Area, 20 November The Commission welcomes the forthcoming commissioning of the Klaipeda LNG terminal in Lithuania. The existence of such infrastructure enabling supply diversification is vital both in order to diversify supply but also to ensure a more flexible gas network. - EC Communication Preparedness for a possible disruption of supplies from the East during the fall and winter of 2014/2015, 16 October

15 LNG Terminal Project European Commission review of state aid case <... complies with EU state aid rules; No undue distortions of competition due to openess to third parties. <...the development of the LNG terminal will integrate Lithuania into the EU gas market and will stimulate competition on the Lithuanian gas markets. <...the investment contributes to the security of supply and that the aid is necessary and proportionate to realise the investment. <...compensation for maintenance costs is in line with the EU Framework on services of general economic interest. - EC Decision of 20 November

16 LNG Terminal Project Example of one Project s auditing periods During the time period from 11 July 2013 to 17 October 2013: 73 questions received (most of them complex, encompassing, from 3 to 5, or more questions) 3564 pages of materials provided in replies 52 days that the Company spent answering the questions 208 human work hours spent (oral replies and participation in various oral proceedings not included) 4 company s employees involved on average 16

17 Practical recommendations 1. Save time of the audited company Data room; Initial questionnaires (the more detailed, the better); Check documents in electronic versions (minimizes human recourses from the company's side during audit); Make a list of company s specialists needed for interviews (leave top management for the last instance to ask only essential questions); Make most efforts to make use of company s adopted form of information and do not ask unnecessarily to prepare everything in a special form if the content is suitable for audit purposes; The audit pace should be taking into account the phase of the project. 2. Avoid duplication Decide on the scope of the audit beforehand; Ask the company on the audits already performed (if possible, get their conclusions or at least identify the scope of the audit); Avoid duplication of auditing the same time period or the same scope (smart audit periods). 17

18 Klaipėdos Nafta Practical recommendations 3. Be a realist Decide on the amount of documentation and information realistic to check during the allocated audit time involving the audited subject; Include top audit specialist on most important questions to be answered during audit; Ask the audited company in advance (as much as possible) to start preparing necessary documentation for audit; Identify particular number of topics you want to check. 4. Let the audited company help you Always let the company make comments on the project or at least main conclusions to avoid biased or even wrong findings. 18

19 Klaipėdos Nafta Conclusions 1. Project audit as well as any activity performed shall not be an end in itself, that is it shall not be made for the sole purpose of an audit; 2. It shall not be centered on finding only negative aspects or shortcomings of a project; 3. What most audits still lack is the purposeful view, that is to find best practices and good performance examples in a project, and highlight them in order to make life-long useful for other projects (of similar nature and projects in different areas); 4. A company-based view not to be an obstacle for the project stealing precious time and human recourses but a soft and flexible interactive measure. The Main Conclusion:! Positive attitude towards the project being audited, working on cooperation and partnership basis with the audited company. 19

20 Thank you for your attention Your questions are kindly welcome Gabija Kuncytė, Head of Legal Division, Rytis Valunas, Head of LNGT Legal Affairs,