27/07/2020
At a parliamentary seminar on the morning of November 14, 2016, Tunisia’s Finance Minister announced a budget deficit of over 3.9%. The Minister, Lamia Zribi, attributed the deficit to a variety of reasons, one of which was the failure of the Tunisian Enterprise of Petroleum Activities to pay the accrued revenues owed to the state.
In that same period, oil revenue in Tunisia amounted to less than 2% of the country’s GDP, according to World Bank data.
This investigation documents the lack of transparency and clarity in the data released by the Tunisian government, as found through a comparison of its revenues from the taxes and fees on foreign companies, with the amounts that those companies stated they had paid to the Tunisian authorities. The investigation also demonstrates that there is a defect in the way taxes are calculated, collected and declared, in addition to legal imbalances in the contracts held between the Tunisian Enterprise of Petroleum Activities and foreign oil companies.
The obtained data shows the discrepancy between what oil companies declared they had paid the Tunisian government, and what the Tunisian government claimed to have received. The total payments announced by the oil companies amounted to $1,034,000,000, (2,036,000,000 Tunisian Dinar) in the form of “taxes”, “operating fees” and “drilling fees” to the Tunisian government. While comparatively, the Tunisian government announced that, in those same years, it received a total of just over 1,799,000,000 TND from these same companies.
The difference between oil companies’ declarations and that of the Tunisian government amounts to around 406 million TND ($164 million). Meanwhile, data from the five companies indicate that they paid 2204.4 billion TND ($1022.8 million).
Annual reports published by Tunisia’s Finance Ministry detail the total amount collected in taxes from all entities towards the state treasury. In the case of oil companies, the Ministry only publishes the total amount of operating fees and royalties instead of listing amounts from individual companies. Additionally, it does not specify the value of in-kind contributions from oil.
Importantly, oil revenues consist of the royalties the state receives from the production of crude oil and natural gas and through supplementary performances. As of 2012, it was included within the income derived from the taxes on petroleum companies. Moreover, the supplementary Finance Law of 2015 adopted the principle of separating fuel marketing operations.
For his part, Professor Sharaf al-Din Yaqoubi, the national coordinator of the Tunisian Coalition for Transparency in Energy and Mines faults this system and confirms that the numbers provided by the Ministry of Finance are gross figures that are not detailed, nor based on each company independently.
“The Tunisian state should publish its revenues from the oil companies in detail, based on each company. It should also state the types of royalties, taxes and fees so that we can compare the information from both sides accurately,” Yaqoubi said.
He added that several issues make us wonder where the money goes. These include the complete lack of transparency from the Ministry of Finance and its tax system, in addition to the numerical discrepancy between what these companies publish in London and in major stock markets, and the numbers that come out of the Ministry.
In 2016, the Finance Ministry’s financial bulletin stated that its fuel revenues for that year amounted to 418 million TND ($179 million). This amount contradicts with what the oil companies announced in their reports from the same year, which amounted to over 544 million TND ($316 million) – 126 million TND ($53 million) more than what the Tunisian government claimed.
Hussam Al-Din Khalifa, a lawyer who specialises in economic issues, confirms that the Tunisian state does not exercise any real control over the process of oil companies’ fuel extraction, and that it does not have accurate statistics that reflect the extracted quantity. He explains that taxes are calculated based on oil companies’ statements.
The lack of transparency is not only evident when in the analysis of data from petroleum companies’ taxes, but also in the final figures of total payments published by the Ministry. Based on the 2016 Finance Law, the Ministry of Finance estimated its revenues from taxes paid by petroleum companies to be 1,048 million TND.
This amount later fell by less than half, as at the end of 2016, 418.9 million TND were collected in taxes. This figure does not at all match the gross amount paid by the oil companies. The same discrepancy occurred in 2017.
Dr. Yassin Bin Ismail asserts that there is a grave defect in the approved method for collecting taxes. This is clear in the gap between what the Ministry of Finance expects in its general budget and supplementary budget law on the one hand and the tax income from petroleum companies it collects on the other.
This is also an indicator that the calculation process does not meet international accounting standards as evidenced by the fact that the predictive figures that were approved in the state's general budget projects do not match with the final revenues registered as the state's tax resources from oil companies.
Bin Ismail notes that the Tunisian government’s approach is obscure and far from transparent or demonstrative of good governance. This is clear in both the state and the Ministry of Finance’s refusal to publish detailed tax statements aggregated by company name. They also fail to specify the dates and beginnings of the fiscal years of these taxes, casting doubt on the credibility of the total numbers published by the state and even by the companies themselves. Additionally, it raises questions about the fate of those funds, considering the difficulty of determining the authenticity of the information on both sides - neither of which are regulated.
Bin Ismail says: “The Ministry of Finance and its specialised structures fail to practice in-depth oversight of companies including the Tunisian Enterprise of Petroleum Activities for taxes. This shows deep imbalances and violations in the Tunisian administration's relationship with the aforementioned companies.”
In addition to local experts, international entities also criticise the approach of the Tunisian government and the Ministry of Finance. This criticism is mostly directed towards the Tunisian government’s blackout policy in the announcement of their public budgets as well as their failure to respect the public’s right to access information.
In 2019, the International Budget Partnership (IBP) published a report on the transparency index in Tunisia regarding the “open budget.” The “Open Budget Survey” is a global program for research and advocacy to enhance the public’s access to budget information and the adoption of budget systems.
According to the report, that scores sufficient transparency from 61-100 and insufficient from 0-60, Tunisia scored 35; ranking in 82nd place from 117 countries.
The report also scored public participation in preparing the budget in Tunisia as 17, while their oversight score was 45.
The report called for ensuring that the High Committee for Administrative and Financial Control (HCCAF) in Tunisia has sufficient funding to perform its tasks, as would be specified by any independent body. It should also ensure that audits are reviewed by an independent agency. Perhaps the most important item recommended by the report was directed to the Tunisian Ministry of Finance specifically stating the need to implement important reforms in transparency and in the process of preparing the budget and following-up on it. The report also called for the speedy publication of financial audit reports.
“Secrets of Hydrocarbon Contracts in Tunisia” reveals clear imbalances and profound violations in how the former Ministry of Energy and some official authorities always deal with the same oil companies over others. Namely, 17 cases of discrimination among investors were revealed, in addition to five cases of extending privileges to the same companies in an illegal or unjustified way. An analysis of the contracts published by the Ministry of Industry on June 14, 2016, reveals that there are three cases of serious violations to the terms of agreements of digging permits that require investigation.
The Miskar and Asdrubal gas fields are among the most important in Tunisia under the Amilcar license. Miskar’s production of crude oil and liquefied gas decreased during 2018 to 77 kilotonnes, compared to 98 kilotonnes produced in 2015.
The Tunisian government granted British Gas a permit to use Miskar, the largest crude and liquefied gas fields in Tunisia, during 2015 for only $54 million, and the permit could not be renewed. One year later, it granted the Royal Shell Company use of the field, for tax payments with a value much less than that paid by British Gas; amounting to $16 million.
On June 18 our investigator was informed by Mr. Rafiq Bin Abdullah, member of the Access to Information Association, of the issuance of a final decision in favour of the plaintiff.
The Commission’s board forced the Ministry of Finance to provide the plaintiff with copies of all the information. To date, however, the reporter has not received any such material from the Ministry of Finance.
Numerous forms of legislation govern the fuel sector in Tunisia, including laws and decrees of the hydrocarbon code. These include very old laws - some of which were written over a century ago - that the Tunisian state struggles to cancel in its talks with investors. Examples include the special agreements system, Decree No. 9 of 1985 and even the hydrocarbon code itself, which requires urgent review.
Sharaf Al-Din Al-Yaqoubi explains, “We need to revisit the hydrocarbon code in order to embed new ideas of governance and transparency. For example, publishing contracts is not binding because there are no laws that obligate the state to publish them. This is in addition to the importance of publishing environmental impact assessments on the areas surrounding the wells in the medium- and long-term.”
Tax adviser and member of the National Tax Council, Muhammad Saleh Al-Ayari, believes that the necessary reforms in this area are essentially related to the compatibility of tax legislation with international standards in the item on conversion prices. Several procedures have been included in the Finance Law of 2019; these are mainly related to controlling the taxes liable to be paid by residing institutions or by those settled in Tunisia. These have a dependency relationship with other institutions that monitor other organisations belonging to the same complex.
Al-Ayari asserts that the execution of these procedures, however, did not take place on the ground. He adds that this process is pending the hiring of employees, the formation of the tax department in this area and the issuance of some texts that would require their application.
These measures would have contributed in general to limiting the phenomenon of tax evasion among institutions operating in Tunisia and among institutions operating in the fuel sector in particular.
It is thus more effective to update Law No. 93 of 1999 set on August 17, 1999 on the issuance of the hydrocarbon code. Nearly 20 years have passed since its issuance, and some necessary improvements could be introduced regarding the conditions for granting licenses for using, digging and monitoring, as well as follow-up processes, especially in relation to controlling the loads and expenses in a transparent manner.
Such practices would limit the phenomenon of tax evasion as much as possible in a key sector that does not contribute sufficiently to the development of the state’s budget resources when it comes to tax liability.
Despite the importance of the hydrocarbon code and all the talk about corruption in endorsing oil-digging licenses for petroleum companies, the former Tunisian government led by Youssef Al-Shahed decided to eliminate the Ministry of Energy in August 2018. This came after the dismissal of a number of officials including the former state clerk of the hydrocarbon code Hashim Al-Hamidi. Other officials include the two general managers of legal and fuel affairs and the President and General Manager of the Tunisian Enterprise of Petroleum Activities. These eliminations and dismissals were carried out without reform, justifications or even accountability.
Last February, the Ministry of Energy, Mines, and Energy Transition was re-established under the current government of Elias Al-Fakhfakh, but Minister Manji Marzouk is up against a set of urgent reforms that he must pursue, according to Sharaf Al-Din Yaqoubi.
He stresses the necessity of restructuring the Ministry, highlighting that its elimination in the past was a wrong decision that greatly damaged the fuel sector and exposed its problems without finding solutions.
Yaqoubi stresses the necessity of clearly defining responsibilities in order to facilitate the process of accountability. He believes that it is necessary to establish real authority over the fuel sector and those interfering in it, as the leniency shown by the state will only increase its financial and material losses; aggravate corruption; and open the door for impunity.