Following the publicly disclosed information on the non-compliance of certain co-generation power plants with the requirements of the Cabinet of Ministers, by the order of the Minister of Economic Affairs Arvils Ašeradens, the Ministry of Economics (EM) started implementing a series of measures to improve the operation of the mandatory procurement component (MPC) system in October 2017, including increased control of MCP stations and making amendments to the binding regulatory enactments, AS Enerģijas publiskais tirgotājs (JSC) launched on-the-spot inspections of MPC stations, and a high-level working group was set up for abolishing the system of mandatory procurement of electricity.
Within the framework of these measures, SIA PricewaterhouseCoopers (LLC) conducted an independent audit assessing the compliance of the MoE decision to grant the rights to sell electricity produced from renewable and fossil energy sources under the mandatory procurement system, as well as to assess the adequacy and effectiveness of the monitoring of the implementation process of these decisions.
The main findings of the audit reveal systemic weaknesses, such as lack of good governance practices in separating functions, the allocation of insufficient human resources for the MP administration and monitoring process, a lack of an internal control system, difficulties tracking document accounting and storage systems, lack of cooperation between involved institutions; and weaknesses in the supervisory process of the decisions granted, including the lack of monitoring of the decisions granted, various weaknesses in the regulation and actual review of the annual report, as well as the inadequate control provided by the control group. At the same time, the auditors have made a number of recommendations regarding both improvements to the current system and the improvement of the implemented functions and monitoring process.
"Today, a large part of the deficiencies identified has already been eliminated by the ministry - in March 2018, a major reform of the energy sector was launched in the ministry's structure to clarify the division of functions by separating the policy development, implementation and monitoring functions. Amendments to the regulatory enactments have streamlined the regulatory framework for monitoring the stations that have received MP, and increased inspections of power plants have already been launched this year resulting in cancellation of a number of permits,” emphasizes Ēriks Eglītis, State Secretary of the Ministry of Economics.
The Ministry of Economics has developed a precise action plan for implementation of the auditors' recommendations, improving internal processes and strengthening of control aimed at establishing an effective and transparent monitoring system for MP-eligible merchants:
By the end of 2018, making structural changes in the ministry will continue, separating decision-granting, policy-making and monitoring functions. Meanwhile, in order to ensure independent operation of the policy implementation function in compliance with the highest standards, the supervisory function will be transferred to the State Construction Control Bureau by the end of 2019; the number of specialists involved in the monitoring process will be increased in order to ensure a high-quality and full implementation of the monitoring process. To this end, the ministry will request additional funding in the next year's state budget; by the end of 2018, the organization of the internal control system will be finalized by developing precise instructions and process descriptions for the MP rights monitoring process; considering that amendments to the current legislation are required for the implementation of individual auditors' recommendations, the Ministry will prepare and submit draft amendments to the Cabinet of Ministers for approval.
In the course of the assessment, the auditor company PricewaterhouseCoopers examined the actual conduct of MoE employees during the period between August 28, 2012 and November 14, 2017, when making decisions to sell electricity from renewable and fossil energy sources under the mandatory procurement.