SUPREME AUDIT OFFICE
CZECH REPUBLIC
Audit no. 05/15
Management of state assets by Railway
Infrastructure Administration, the state
organization
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Audit no. 05/15
• Audit was carried out by SAO, Czech
Republic from May to November 2005
• Auditees: Ministry of Transport (MT) and
Railway Infrastructure Administration, the state
organization (RIA)
• Other entities: Czech Railways, the state
organization; Czech Railways, the joint company
and National Property Fund (NPF)
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Aim of audit no. 05/15
• This audit was focused on the management
of the state excessive assets determined for
privatisation
• It encompassed an audit of the privatisation
procedure for excessive assets of MT and
RIA later
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Excessive and useless state property
• Privatisation and sale of excessive and useless
state assets is an interesting area of privatisation in
the Czech Republic
• This property can be divided into two different
groups:
– lucrative and readily marketable assets, consisting
mainly of buildings and properties in cities or
recreation centres
– assets that are difficult to sell, neglected and
environmentally polluted
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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The law
• In January 1999, the Government of the Czech
Republic decided on transformation of the Czech
Railways
• On February 5, 2002, the Chamber of Deputies
approved Act No. 77/2002 Coll. (Transformation
Act) for implementation of the transformation; this
Act came into effect on the date of promulgation,
March 1, 2002
• Subsequently MT was responsible for preparation
and control of the progress of the transformation
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Successor organizations
• Pursuant to the new Act, the Czech
Railways ceased to exist on December 31,
2002
• On January 1, 2003, MT founded two
successor organizations :
– Czech Railways, joint stock company
– the state organization Railway Infrastructure
Administration
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Discretions and duties
• Czech Railways joint-stock company operates
railway transport
• RIA manages state assets constituting the railway
routes and technical facilities
– The rights and obligations following from the liabilities
and claims of the former Czech Railways passed to RIA
• MT is a founder of the successor organizations
– The competence to manage the excessive assets of the
Czech Railways passed to MT
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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The excessive and useless state assets
of the Czech Railways
• The excessive and useless assets of the Czech
Railways were specifically defined in an annex to
the Act no. 77/2002 Coll.
• 79 asset units were listed there, with a total
acquisition price of CZK 2 993 million (approx.
€95 million)
• These consisted of properties and buildings
(including apartment units) in Prague and other
large cities, hospitals and health centres in Prague
and regional cities and recreation centres
throughout the Czech Republic
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Objectives of the audit
• transparency and definiteness of the transfer of
assets pursuant to the annex to the Act 77/2002
Coll.:
if the methodology of the transfer of assets was
exactly specified by MT, what were the means of
verification of the actual conditions of these assets
how MT ensured the proper transfer of assets
creation of preconditions for proper documentary
and physical delivery and acceptance of the assets,
including verification of their actual condition at the
time of the transfer
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Objectives of the audit
• compliance with basic obligations in
administration of assets; these duties are specified
in the Act on the Property of the Czech Republic:
 how MT and later RIA secured the property from
destruction
 how MT and later RIA repaired, maintained and used
the property
 how MT and later RIA ensured the economic use of the
property
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Objectives of the audit
• preparation and implementation of property
sale:
– how MT and later RIA evaluated assets prior to
sale (methods used for price setting)
– the right timing of the sale (analysis of
uncompleted sale)
– the sales methods
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Results
1.Transfer of assets from the Czech Railways
to MT as of January 1, 2003 was not
adequately prepared or performed :
• In the first phase, the transfer was performed only
formally on the basis of a list of assets that had not been
verified by an inventory
• The assets were not accepted physically, but only by
transfer to the accounts of MT on the basis of a delivery
protocol
• Subsequent inventory was not performed independently
and objectively
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Results
2. For 2003, MT had already planned income of
CZK 2 billion from useless assets :
• Because of obscurities in the Act no. 77/2002 Coll., MT
did not sell any property, it only enforced an amendment to
the Transformation Act
• MT had no incomes from the sale in the period January 1,
2003 – July 1, 2004
• MT only commenced preparation of the terms of reference
for commercial tender procedures for sale of selected items
of the assets
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Results
• The first financial means were obtained in May of
2004 (i.e. almost 17 months after the
transformation). These consisted of income from
lease of residential and non-residential space. MT
obtained a total of CZK 222 million
• On the other hand, MT spent CZK 24 million on
repair, maintenance and security of these assets
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Results
3. 20 asset units (with an acquisition price of approx. CZK
304.2 million) of the 79 assets units constituted assets that
had not been maintained, had been destroyed and or had
not been used for a long time.
• Maintenance have not been carried out on these assets for a
long time and necessary repairs to prevent deterioration
were not carried out on these assets even at the time when
they were managed by the Czech Railways.
• Their conditions also did not improve when they were
managed by MT and then by RIA.
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Results
4. Privatisation of two asset items had been
completed prior to the legal force of the
Transformation Act and the buildings were
included in the annex erroneously
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Results
5. National Property Fund (NPF) completed
privatisation with the value of CZK 227 mil. after
the Act 77/2002 Coll. came into force
• RIA repeatedly requested so that NPF transferred
the revenue from the completed privatisation in its
favour
• CZK 227 mil. could not be used for the settlement
of the Czech Railways liabilities
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Results
6.Sales through commercial tender procedures
do not bring expected revenue
• Assets are still for sale, sales prices are not
commercially interesting
• Only four sales were completed for a total
price of CZK 15 million
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Summary
• Management of the assets was negatively affected by legislative
inadequacies (enforced amendment to the Transformation Act) and
inadequate preparation of its transfer.
• A number of buildings represents a property that has not been
maintained, has been destroyed and has not been used for a long time.
• Retardation of the process of transfer and sale of the assets and the
delayed sale resulted in further devaluation and reduction of the market
price.
• There is no great interest in the property;
– of 14 commercial tender procedures announced by RIA for the
sale of these assets, 8 had to be terminated without announcement
of a winner
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Conclusion
The determined state of affairs demonstrated that
revenues from the sale of excessive assets of the
Czech Railways included in the annex of the
Transformation Act were greatly overestimated
and cannot be
• a significant source for payment of liabilities left by the
Czech Railways and transferred to RIA or
• a resource for addressing the negative impact of
transformation of the Czech Railways on the state
budget
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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Thank you for your attention
Hana Hykšová
[email protected]
www.nku.cz
13th Annual Meeting of the INTOSAI Working Group on the Audit of Privatisation, London, 26 – 28 September 2006
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