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The Terra affair: Inadequate handling and follow-up of the Vik letter - Document no. 3:11 (2007-2008)

The Ministry of Local Government and Regional Development’s handling and follow-up of the case concerning the financial sale of concessionary power rights in Vik municipality was unsatisfactory. The case was a matter of principle, and it was dealt with at too low a level in the Ministry. The Ministry was not thorough enough in its examination of the case documents, and follow-up of the case was not prioritised for five years. ‘We are critical of the manner in which the Ministry has handled this matter,’ says Auditor General Jørgen Kosmo.
Published 6/23/2008 1:18 PM

The Office of the Auditor General’s investigation into the handling and follow-up of the Vik letter by the Ministry of Local Government and Regional Development (‘the Terra affair’), Document no. 3:11 (2007-2008) was submitted to the Storting on 10 June 2008.

A central aspect of the case is a letter from the Ministry of Local Government and Regional Development in reply to the County Governor of Sogn og Fjordane (referred to as the Vik letter). The letter states that the agreement in connection with the financial sale of concessionary power rights in Vik municipality was not in contravention of the Local Government Act. The Vik letter was processed by the Ministry in 2002. The Office of the Auditor General’s investigation shows that the quality assurance of the Vik letter was inadequate. The case was a matter of principle and it should have been dealt with at a higher level in the Ministry.

The investigation also shows that the Ministry was not thorough enough in its review of the case documents in 2002. The result of this was that the assessments presented by the Ministry in the Vik letter were made on an incorrect basis. When the Ministry discovered this in autumn 2006, Vik municipality was not informed. The Office of the Auditor General is highly critical of such administrative practice.

The Vik letter and the questions received by the Ministry after the letter was sent indicated that it was necessary to clarify whether a tightening up the regulations in this area was called for. When the Terra affair was reported by the press in autumn 2007, five years had elapsed without the leadership of the Ministry having taken a stance on the case. In the meantime, the Vik letter had been used by other municipalities and commercial interests to legitimate financial agreements of the same type that Vik municipality entered into with Terra.

‘The lack of follow-up gives grounds for asking whether the Ministry’s top administrative leadership had a good enough overview of activities and questions relating to cases of this kind,’ says Mr Kosmo.

In the Office of the Auditor General's view, the Ministry of Local Government and Regional Development has a general responsibility for providing guidance about how the Local Government Act should be interpreted.
Great weight is attached to the Ministry’s interpretations of the law and they are used as sources of law. This means that stringent requirements must apply to the Ministry’s handling of cases involving interpretation of the law. The Office of the Auditor General agrees, however, with the Ministry that the municipalities have an independent responsibility to interpret and comply with the law. They are also responsible for their own financial transactions.

The Ministry agrees that the Vik case was a matter of principle, that it was handled at too low a level in the Ministry and that follow-up of the Vik letter should have been initiated earlier. Moreover, the Ministry states that it has now reviewed its procedures and internal systems to see whether any improvements can be made in connection with the handling and follow-up of this type of case.

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