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

   Tuesday 17-Thursday 19 March 2009
    INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                             15th Annual Meeting, Moscow 17-19 March 2009




         Auditing
     the regulation of
the universal postal service


                     Wilfred Aquilina

    Audit Manager, Performance Audits
       National Audit Office - Malta
               INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                        15th Annual Meeting, Moscow 17-19 March 2009




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
                 INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                          15th Annual Meeting, Moscow 17-19 March 2009




                                                       The Maltese Archipelago




National Audit
Office, Malta




                  Auditing the regulation of the universal postal service
      INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                               15th Annual Meeting, Moscow 17-19 March 2009




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
                  INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                           15th Annual Meeting, Moscow 17-19 March 2009




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
         INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                  15th Annual Meeting, Moscow 17-19 March 2009




‘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
                    INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                             15th Annual Meeting, Moscow 17-19 March 2009




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
                      INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                               15th Annual Meeting, Moscow 17-19 March 2009




 Three-tier postal authorisation framework
Three classes of postal services:

(a) 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
                 INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                          15th Annual Meeting, Moscow 17-19 March 2009




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
                      INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                               15th Annual Meeting, Moscow 17-19 March 2009




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
                    INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                             15th Annual Meeting, Moscow 17-19 March 2009




  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
             INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                      15th Annual Meeting, Moscow 17-19 March 2009




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
                      INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                               15th Annual Meeting, Moscow 17-19 March 2009




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
             INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                      15th Annual Meeting, Moscow 17-19 March 2009




    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
             INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                      15th Annual Meeting, Moscow 17-19 March 2009




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
    INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                             15th Annual Meeting, Moscow 17-19 March 2009




INTEGRITY AND SECURITY OF MAIL

RECRUITMENT
TRAINING
SECURITY OF MAIL
DISCIPLINARY PROCEDURES
AGENT AND SUBCONTRACTORS




     Auditing the regulation of the universal postal service
                      INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                               15th Annual Meeting, Moscow 17-19 March 2009




                           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
               INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                                        15th Annual Meeting, Moscow 17-19 March 2009




                       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
    INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnership
                                                             15th Annual Meeting, Moscow 17-19 March 2009




         Auditing
     the regulation of
the universal postal service


                     Wilfred Aquilina

    Audit Manager, Performance Audits
       National Audit Office - Malta
INTOSAI Working Group for the audit
of Privatisation, Economic Regulation
   and Public Private Partnerships

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

   Tuesday 17-Thursday 19 March 2009
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

1. PPPs in Hungary
2. NAO’s matrix approach for PPPs
3. Experience of audit of student’ hostel
   constructions
                                                                         1. PPPs in Hungary
                                               1.1 Main data of PPP-projects 2007-2010
Ministry              Project                  Short description         (Expected) launch    Expected          Estimated pr esent        Budgetary expend itures
                                                                                              length of pr o-   value of project                (HUF m)
                                                                                              ject (yrs)        (HUF b) Total
                                                                                                                                      2007     2008     2009        2010
Ministry of Eco nomy M5 1st section            Operation and mainte-     March 2004                       27               242.8     33,977   34,503   34,800   35,080
and Tran sport                                 nance
                      M5 2nd section           Design, build, finance,   July 2004                        27
                      M5 3rd section           operate (DBFO)            February 2005                    26
                      M6 1st section                                     October 2004                     22               111.9     15,000   15,362   15,981   16,455
Ministry of Justice   Prisons                  Create 2 penal institu-   From November 2005               18                71.7      1,551    3,136    3,442       3,746
                                               tions in DBFO format      to January 2006


National Sports        "Sport 21st Facility  Design, build, finance,     From 2006                     15-17                30.1       486     1,700    1,756       1,809
Office                 Development Pr ogram" operate (DBFO); learners’
                                             swimming pool, gymna-
                                             sium
Ministry of Ed ucation Student hostel        Design, build, finance,     From 2004            construction+                154.6      3,527    9,904    9,904       9,904
and Cu lture                                 operate (DBFO)                                   20 years of
                                                                                              operation

                      Garage of The National                                                                                  0 .5      52       91       91          92
                      Museum
Total                                                                                                                      611.6     54,593   64,696   65,974   67,086
   as a percentage of GDP                                                                                                     2 .4      0.2      0.2      0.2         0.2
   as a percentage of the revenue total of the 2007 annual central budget                                                     9,1       0.8      0.9      0.9         0.8
   as a percentage of the expenditure total of the 2007 annual central budget                                                 7 .3      0.7      0.8      0.8         0.8
     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
  to long-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
     o   For places of 10 455
     o   Net costs of Eur 120 Million
   • Reconstruction of hostels
     o   For places of 20 000
     o   Net costs of Eur 100 Million
   • Period: 2004-2007
                         3.2 Places, numbers and forms
                               of the audited PPPs

Places (Towns)         New constructions            Reconstructions
                 Completed Work in progress   Completed Work in progress
Budapest 1           1                                           1
Budapest 2                                        1              1
Budapest 3                                                       2
Debrecen             1                            2              1
Eger                                1             1
Gyöngyös             1
Miskolc              1                            5
Nyíregyháza          1                            4
Veszprém             1
                     6              1             13             5
                 3.3 Meeting the performance
                     themes in the stage of
                     STRATEGIC ANALYSIS
• Suitability to needs:
    o numbers of students increased by 2.5 times in 1990s
      against increase of places by 12% only
    o needs were based on institutional indications and
      not on long-term development strategy
• Appropriateness of PPP:
    o PSC-comparators justified the PPPs (excepted for 2
      projects)
• Stakeholder support:
    o Identify and consult with key stakeholders
                      3.3 Meeting the performance
                          themes in the stage of
                     STRATEGIC ANALYSIS (Cont.’d)
• Quality of project management:
    o Instead of PPP Unit the staff of Ministry of Education was
      charged
    o Design was made with great reliance on external advisors
    o Preparatory courses for institutions by the Ministry of
      Education
• Balance of cost and quality: Costs in national currency and EUR
• Effective risk allocation:
    o PPPs meet the Eurostat criteria for off balance sheet treatment
    o Private partner takes:
       – Construction risk, availability risk
    o Authority takes:
       –Demand risk, exchange rate risk
                3.3 Meeting the performance
                    themes in the stage of
              STRATEGIC ANALYSIS (Cont.’d)


• Suitability to needs        Partly
• Appropriateness of PPP       Yes
• Support of the project       Yes
• Management                  Partly
• Optimal balance              Yes
• Risk allocation              Yes
                   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
                      3.7. Meeting the performance
                      themes in the stage of EARLY
                            OPERATIONAL
• Suitability to needs: YES, the Authority did not act to align
                        services
• Appropriateness of PPP: YES, modification of contracts for
                          two projects only
• Stakeholder support: YES, it changed positively
• Quality of management: YES, the monitoring system was
                         improved
• Balance of cost and quality: YES, no penalty fine applied
• Effective risk allocation: YES, no discussion appeared
                      3.8. Meeting the performance
                     themes in the stage of MATURE
                            OPERATIONAL
• Suitability to needs: YES, capacity of high quality and its full
                        utilization
• Appropriateness of PPP: YES, it is proved
• Stakeholder support: YES, the Authority continues to be an
                       active partner
• Quality of management: YES, the stakeholders established
                         forums for exchange of information
• Balance of cost and quality: YES, no discussion of
                               implementation
• Effective risk allocation: YES, except for exchange rate risk
                             Conclusions
1. This set of PPPs is the best-elaborated in Hungary, so far.
2. Meeting the performance themes in most cases. Identified
   main problems:
   •   Suitability to needs: uncertainty for future needs, open
       ownership after the end of the contract
   •   Appropriateness of PPP: no unified methodology for PSC-
       comparator
   •   Quality of management: lack of adequate professional
       knowledge of Authority
   •   Balance of cost and quality: lower efficiency, due to the
       less weight given to the prices in selection
                      Conclusions (Cont.’d)
     •   Risk allocation: treatment of exchange rate risk
         o   Eurostat and Central Statistical Office’s view:
             private partner must take it
         o   Authority’s view: it would be more costly
3.   Practical experience: NAO’s matrix approach appears to
     be efficient:
     •   to help monitoring regularly as used by the
         Interministerial PPP Committee
     •   to help establishing a comprehensive database
        Test of key performance themes in
       cases of students’ hostel constructions
   • Suitability to needs               In short period: Yes
                                        In long period: ???
   • Appropriateness of PPP                    Yes

   • Support of the project                    Yes
   • Management                                Yes
   • Optimal balance                          Partly

   • Risk allocation                           Yes

Q: Are the answers for meeting key performance themes right?
INTOSAI Working Group for the audit
of Privatisation, Economic Regulation
   and Public Private Partnerships

   Tuesday 17-Thursday 19 March 2009

				
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