Klaipedos nafta

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
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)
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Klaipeda Seaport / Lithuania
2014 October 27
3
Lithuania’s gas transmission system
Dependency on a single supplier
4
LNG Terminal Project
Visualization of the project
Features
• Technology: FSRU
• Location: Klaipeda Seaport / Lithuania
• Volume: 170 000 m3
• Annual capability: up to 4 bcm3
• Commercial model: FSRU rented on
10 year basis with purchase option
5
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
LNG Terminal Project
Key features implying the need for auditing
Set deadline for completion in the Law on the LNG Terminal
3rd 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
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LNG Terminal Project
Challenges for execution
Finished tasks
Ongoing tasks
2011
„Independence“
Technical
specification
Jetty
Public
procurement
Pipeline
2012
2013
2014
Construction and delivery to Klaipėda
Public
procurement
FEED
Public
procurement
FEED
Deadline set in the LNG
Terminal Law: 3 December
2014 to implement N-1
(EU) standard
EPC
EPC
EIA, SEIA
Environmental procedures and
permits
Territory planning
State
guarantee
NIB financing
EIB financing
Financing and state aid
LNG law
Creation and implementation of financing plan
Amendment of LNG
law
Regulatory environment
Development of legislation
Terminal operator development
People, training, org. structure, procedures
Port infrastructure
Third party infrastructure
Gas transmission grid
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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
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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;
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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
basis
audits
in the period of time since 2011 on casual day-to-day activities
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Klaipėdos Nafta
Basic questions
How much is really enough?
Who should be entitled to audit
these kind of major projects?
Who?
Why?
When?
Why are such audits
performed?
Should projects like LNG Terminal
Project be audited during execution
phase or afterwards?
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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 2014.
• 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
0 1 2
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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 2013.
• “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 2014.
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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 2013.
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LNG Terminal Project
Example of one Project‘s auditing periods
During the time period from 11 July 2013 to 17 October 2013:
73
3564
questions
received (most of
them complex,
encompassing,
from 3 to 5, or
more questions)
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
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Practical recommendations
• Data room;
• Initial questionnaires (the more detailed, the better);
1.
• Check documents in electronic versions (minimizes human recourses
from the company's side during audit);
Save time of the
audited company
• 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).
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Klaipėdos Nafta
Practical recommendations
• Decide on the amount of documentation and information realistic to
check during the allocated audit time involving the audited subject;
3.
Be a realist
• 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.
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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.
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Thank you for your attention
Your questions are kindly welcome
Gabija Kuncytė, Head of Legal Division, g.kuncyte@oil.lt
Rytis Valunas, Head of LNGT Legal Affairs, r.valunas@oil.lt
www.oil.lt, www.sgd.lt
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