The Attorney General’s Office released a few minutes ago the summary of the report of undeclared debts pointing out management failures, conflicting information and recommendations for the future. Read the PGR statement in full.
Press Release No. ll / PGRIGC / 012.3 / 2017
1. In the context of the preparatory Intrusion Reports No. 1 / PGR / 20 15, the General Prosecutor’s Office requested an independent international audit of the companies Proindicus, SA, EMATUM Empanama de Atum, SA, MAM-Mozambique Asset Management , SA.
2. In accordance with the respective Terms of Reference, the audit, carried out by Kroll Associates UK, had the following objectives:
• the analysis of financing agreements and other documents related to loans contracted, as in the case of guarantees issued by the Government, including the use of loan funds;
• the analysis of the processes of acquisition of goods and services financed by the loan funds;
• assessment of the performance of fiduciary duties by the management of the audited companies, as well as assessment of the possibility of misappropriation of funds, harmful management, or illicit activity in companies and / or any intervening parties.
3. Upon receiving the report, on May 12, 2017, the Attorney General’s Office carried out the verification and conference with kroll, in accordance with the Terms of Reference.
4. Aware of the interest of the Mozambican society in this matter, the Attorney General’s Office had undertaken to share with the public the results of the audit, without prejudice to observance of the principle of fairness, since it was an audit requested in the scope Of a preparatory inquiry procedure;
5. Accordingly, the results of the audit are contained in the report, whose executive summary, in English and Portuguese, is on the Attorney General’s website at www. Pgr.eov.mz.
6. In summary, the report focuses on:
• The structure of the loan agreements between the credit banks Credit Suisse / VTB Capital and the audited companies Proindicus, SA, EMATUM, SA, and MAM, SA, •
• The intended and actual scope of each supply contract, including the current stage of delivery of goods and services to be supplied;
• The operational and financial position of the audited companies;
• The level of involvement of the Privinvest group in the project, particularly with regard to the provision of funds to Proindicus, SA, EMATUM, SA, and MAM, SA, to cover operating expenses, restructuring of loans and the assumption of responsibility of Generate future revenues; and
• The gaps in the regulation of the process of issuing guarantees by the State, in the context of loans contracted.
7. The main findings are as follows:
A) Fees paid to banks
Of the total USD 2,007 billion of loan agreements, USD 199.7 million of fees were paid, USD 58.8 million to Credit Suisse and VTB Capital and USD 140.9 million to Favor of the contracted Privinvest Group. According to the report, the fees charged by the banks were intended to allow the return, at an interest rate that more accurately reflected the risk profile of Mozambique.
B) Inconsistencies in the stated purpose for USD 500 million of the EMATUM loan funds
The Independent Audit found divergences between the explanations of company managers and those provided by the Ministry of Defense and the Contractor regarding the actual use of the USD 500 million amount of the EMATUM loan funds. Company managers note that the value was used for the purchase of military equipment, the Ministry of Defense does not confirm this and the supplier companies claim that they did not provide military equipment.
C) Discrepancies in prices of assets and services delivered
The Independent Audit allowed to obtain an understanding of the main assets and services to be terminated by the Contracted companies audited, including the overall value of each contract. However, gaps remain in the understanding as to exactly $ 2 billion has been spent, despite considerable efforts to close this gap.
This is due to the fact that the invoices are globalized, not allowing the disaggregation of the assets and services acquired. Kroll conducted the evaluation using a number of criteria, including the comparison of estimated prices, with the support of an independent expert.
Therefore, Kroll was not able to conduct a full assessment of the assets and services to be terminated by the Contractor under the three supply contracts with Mozambican Companies, with the support of an independent expert, seeking to estimate the fair market price of Assets and services provided for each supply contract.
D) Inoperability of Audited Companies
Kroll’s analysis of the business plans and feasibility studies of the audited companies indicates that they expected to jointly generate operating income of USD 2.3 billion by December 2016.
As of the date of the report, insignificant revenues had been generated and Mozambican companies were only able to meet their debt obligations and operating expenses with a new financial injection.
E) Evidence of failures in the management of audited companies
The Audit has identified considerable weaknesses in business management, influencing the fulfillment of contractual obligations and establishing the necessary local infrastructure to enable the Contractor to deliver the goods and services intended, as well as to carry out the necessary actions to ensure that the projects Could operate as planned.
F) Levels of involvement of the Privinvest Group;
The Privinvest Group, particularly through Palomar, played a key role in the project, namely:
• structuring projects; In presenting Credit Suisse as creditor;
• in the Contractor’s Rate Agreement (to discount the interest rates to be paid by the Mozambican Companies in relation to the loans);
• in the provision of funds to Mozambican Companies to cover operating expenses and share capital; In the financing of repayment of loans;
• Intermediation of the MAM loan agreement with the VTB; Contracting with Mozambican Companies and the Ministry of Finance to restructure loan agreements (and receiving portal fees); and,
• in the case of Proindicus, in taking responsibility for generating revenues and contracting to receive a proportion of future revenues.
G) Gaps in the process of issuing guarantees by the State.
The Audit found that the process for the issuance of guarantees by the State appears to be inadequate, especially in relation to the evaluation studies that must be conducted before issuance. It should be noted that in three of the five guarantees issued, in the amount of USD 1 billion, there is no evidence of having been made any valuation was conducted prior to issuance.
Additionally, potential conflicts of interest were identified in relation to some persons involved in the process of authorizing government guarantees for audited companies.
8. Among the main recommendations of the audit, it is important to highlight:
(A) the need for a comprehensive review of legislation, as to how State enterprises are effectively treated, irrespective of their legal form, by regulatory bodies, including the Bank of Mozambique, the Ministry of Economy and Finance and Others, focusing on:
• processes of contracting goods and services (procurement);
• insertion of guaranteed debts in the State Budget; and
• monitoring the activities and operations of companies that benefit from State guarantees.
B) The need for the Mozambican Government to establish the obligation for companies that are part of the State Business Sector to adopt the corporate governance guidelines of the Organization for Economic Cooperation and Development;
C) The need to institutionalize formal procedures in the process of requesting, evaluating and approving requests for State guarantees, in order to ensure consistent criteria in determining the merits of each request and subsequent to the decision;
(D) the need for a review of the business plans and feasibility studies of the audited companies to be conducted by a duly qualified specialist for the relevant evaluation.
The report also contains recommendations of specific interest for strengthening the research strategy within the preparatory inquiry process.
In the light of these findings and conclusions of the audit, the Office of the Attorney General of the Republic continues with the preparatory preliminary investigations, conducting investigations at home and abroad, using international cooperation mechanisms already in place, namely in the United Arab Emirates, United States, France, Great Britain, the Netherlands and Switzerland.
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