In October 2004, the World Bank informed the Commission that the Yerevan Water & Sewerage Company financial statement for 2003 could be collected from the Municipal Development Project Management Unit. The statement had not been released until after September, the end of the original term of the Parliamentary Commission, because it needed to be assessed by the Project Management Unit, the Ministry of Finance & Economy and by the World Bank, following claims of financial irregularities which the Commission had submitted to the Bank’s Country Manager.
However, when the Commission eventually received the statement, a number of additional irregularities were seen, including interesting values for Company Assets, which had been Re-Valued by the local auditing firm ‘Aucon’, in accordance with a Government Decree.
The re-valuation increased the Company’s assets from about Five Million Dollars to about One Hundred and Forty Million Dollars. That was subject to an accumulated depreciation of Ninety-Five Million Dollars, which resulted in a net increase in asset value of about Forty-Five Million Dollars.
The graph below shows the water company Re-Valuation figures, and whereas the company Re-Values the ‘Infrastructure Assets’ from about Four Million Dollars to about Ten Million Dollars, it Re-Values the Machines and Equipment from about Five Hundred and Seventy Thousand Dollars, to about Twenty Five Million Dollars, after having been depreciated by Seventy-Five Million Dollars, from an initial Re-Valuation of about One Hundred Million Dollars!
The Re-Valuation recorded in the YWSC financial statement for 2003 is vastly different to the Re-Valuation provided to the Company by the auditing firm Aucon, who carried out the audit. The Aucon data shows much higher Re-Valuation figures for the structures and much lower Re-Valuation figures for the Machines and Equipment.
The artificially inflated Re-Valuation of the Machines and Equipment enabled the Company to fraudulently claim depreciation to the value of about Eleven Million Dollars, which is shown as a loss for the Company and for the state budget. That is in accordance with Armenian law, which permits 20% annual devaluation for non-fixed assets, compared to only 5% for fixed assets.
More importantly, the water company financial statement for 2003 indicates that the Company’s ‘Machines, Equipment and Motor Vehicles’ are pledged against the World Bank loan for the Municipal Development Project. The Company is actually obliged to commit “All of the Group’s Assets” against the loan, and that is correctly defined in the Company’s 1999 financial statement, at the time prior to the International Operator’s involvement in the Company.
The misrepresentation contravenes the requirements of the Municipal Development Project and threatens the security of the Word Bank loan. Moreover, it is an obvious ploy to embezzle valuable Armenian state assets, which is a serious violation of Armenian law.
Also, the importance of this irregularity was that it apparently happened with the acquiescence of the World Bank
The implications of that violation are elucidated in “Who Owns the Yerevan Water Utility”