Gasta la Sustentavel sei Hamamuk Fundu Petroleu

Dokumentu Governu nian ne’ebe propoin Orsamentu Jeral Estadu 2011 ilustra frakeza fundamental iha planeamentu finanseiru — failansu ne’e atu fanun ita katak, karik estadu gastu osan barak husi Fundu Petroleu iha tempu badak nia laran, iha futuru osan sei menus.

Livru Orsamentu 1 inklui kapitulu sira kona-ba Rendimentu no Gastus. Iha kapitulu Rendimentu, balansu iha Fundu Petroleu no Rendimentu Sustentavel Estimativa (RSE) iha futuru bele projetadu ona ho asumsaun katak Governu sei bele foti deit montante RSE kada tinan-tinan. Ida ne’e hatudu iha grafiku iha leten, ho linha kor mean kot-kotu (eixu da direita) indika montante ne’ebe foti husi Fundu Petroleu kada tinan-tinan, no linha kor mean tomak hatudu katak balansu iha Fundu Petroleu. (Hanesan linha hotu iha grafiku ida ne’e, buat sira ne’e refleta katak asumsaun governu nian ne’e optimistiku liu katak investimentu Fundu Petroleu sei hetan retornu 4% as liu inflasaun, boot liu duke sira hetan dadaun.)

Maibe, kapitulu gastu nian esplika katak Governu iha planu atu foti tokon $418-$526 as liu RSE husi Fundu kada tinan-tinan hahu iha tinan 2012 (linha kor matak kot-kotu iha eixu da direita), estabelese ba kresimentu annual 3.5% iha gastu estadu nian hafoin eleisaun 2012. Iha kazu ne’e, balansu iha Fundu (linha kor matak tomak) hahu atu tun iha 2024, no Fundu sei uza hotu iha tinan 2035 karik laiha ona projeitu gas ka mina-rai atu mai tan.

Ba orsamentu 2011, Governu asumi katak futuru presu mina-rai nian sei sai 50% as liu duke asumsaun ne’ebe sira halo tiha ona ba Orsamentu Estadu 2010, ne’ebe La’o Hamutuk hare katak viola tiha rekizitu Lei Fundu Petroleu nian katak “asumsaun tomak ne’ebe halo tenke prudente.” Asumsaun ba presu as nian uza hela iha senariu rua ne’ebe diskute iha leten. Karik senariu ida kalkula fila fali dadus bazeia ba asumsaun presu mina-rai nian ba orsamentu 2010, ho nivel gastus nian iha orsamentu 2011, balansu Fundu Petroleu nian (linha tolu ho kor roxo) sei hotu tomak iha 2030.

Liga iha ne’e atu hetan dokumentu no informasaun tan kona-ba OGE 2011, inklui Kalendariu audensia Parlamentar no diskusaun plenaria nian.

Spending unsustainably will empty the Petroleum Fund

The Government’s documents proposing the 2011 State Budget illustrate a fundamental flaw in financial planning -- a failure to realize that if the state spends more money from the Petroleum Fund in the short term, less will be available for the future.

Budget Book 1 includes chapters on Revenues and Expenditure. In the Revenue chapter, future balances in the Petroleum Fund and the Estimated Sustainable Income are projected assuming that the Government will only withdraw the ESI amount every year. This is shown in the graph above, with the dashed single red line (right-hand axis) indicating the amount withdrawn from the Fund every year, and the solid single red line showing the balance in the Petroleum Fund. (Like every line in this graph, these reflect the Government’s very optimistic assumption that Petroleum Fund investments will earn 4% higher than inflation, much more than they have to date.)

However, the Expenditure chapter explains that the Government plans to withdraw $418-$526 million more than ESI from the Fund every year starting in 2012 (dashed double green line, right axis), settling down to a 3.5% annual increase in expenditures after the 2012 election. In this case, the balance in the Fund (solid double green line) starts to decline in 2024, and the Fund will be used up by 2035 if no new oil or gas projects come on-line.

For the 2011 budget, the Government has assumed that future oil prices well be about 50% higher than were assumed for the 2010 budget, which La’o Hamutuk believes violates the Petroleum Fund Law’s requirement that "all assumptions made shall be prudent.” The higher price assumptions are used in the two scenarios discussed above. If one re-calculates the data based on the oil prices assumed for the 2010 budget, with the level of expenditures in the 2011 budget, the balance in the Petroleum Fund (triple purple line) will be entirely exhausted by 2030.

Click here for more documents and information about the 2011 State Budget, including the calendar of Parliamentary hearings and plenary discussions.

National Oil Company draft law is dangerous and premature

Timor-Leste's State Secretariat for Natural Resources recently opened a brief public consultation on a decree-law to create PETRONATIL, a state-owned petroleum company.  They hope that the Council of Ministers will approve it on 30 November, and the proposed 2011 General State Budget allocates two million dollars to get it started.  La'o Hamutuk has many serious concerns about this proposed legislation, which we described in our submission, available for download here.
Our submission discusses the following:

• National oil companies are dangerous, and we should learn from failures as well as successes.
• The public consultation process is inadequate.
• PETRONATIL should be established by Parliamentary law, not decree-law.
• PETRONATIL should serve the people of Timor-Leste.
• This Decree-Law must be written clearly.
• PETRONATIL should follow the rules for state agencies.
• PETRONATIL needs to be transparent and accountable.
• PETRONATIL should be designed to prevent corruption.
• PETRONATIL should not be given more power than it needs.
• PETRONATIL’s profits must be paid into the Petroleum Fund, not reinvested in the company.
• PETRONATIL should not be empowered to borrow or issue bonds.

We also made a submission on the Institute for Petroleum and Geology (IPG) draft law, recommending that it be established as a department of the State Secretariat for Natural Resources, rather than an autonomous agency with wide-ranging powers and little accountability.

Click here for the draft laws and background information.

2011 Budget Documents available on-line

On 15 November, the Government presented copies of a six-volume set of budget books to Parliament, some in Portuguese and some in English. Although the Ministry of Finance refuses to make electronic copies of the $985 million budget available, La'o Hamutuk has scanned the budget law, its annexes and the Explanatory Note, translated them to English and posted them on our website, which includes analysis and related documents.
Download all of Book 1 and the Law, with annexes, as a 1.3 MB PDF file.

2011 Budget, Petroleum Fund Law, PETRONATIL - Oh my!

Timor-Leste's Government -- especially the sister and brother who head the Ministry of Finance and the State Secretariat for Natural Resources -- has been busy. This week alone will see:

• Compilation of inputs on the proposed revision of the Petroleum Fund Law (also Tetum)
• Submission of the $985 million General State Budget for 2011 (also Tetum) to Parliament (15 Nov.)
• Public consultations on the creation of a new National Oil Company (PETRONATIL) and the Institute of Petroleum and Geology (IPG) (18 Nov.).

LH Submission on Petroleum Fund revision

As we wrote a few weeks ago, the Ministry of Finance circulated draft revisions to the Petroleum Fund Law and asked for comments by 5 November.  La'o Hamutuk made a 7-page submission (also available as PDF) advocating against many of the proposed changes. Our main points are:

• The Petroleum Fund Law has served Timor-Leste well over the last five years, and there is no pressing need to revise it. It should provide policy continuity and protect our oil and gas wealth for future generations, and not only support current activities.
• It's too soon to put half the Fund in the stock market. The proposal is to increase the amount allowed in equities from 10% to 50%, even though the Ministry plans only 25% equities and the Investment Advisory Board (IAB) recommended a 40% maximum. Since Timor-Leste's experience with equities began only last month, we suggest that the current 10% limit continue for at least two years, while our managers, leaders and people gain experience and familiarity with the ups and downs of stock prices.
• Diversification can be helpful, but it is not gospel. It can include bad as well as good investments, and must be managed carefully. Diversification also applies to advice (getting more inputs and consultation) and productive sectors (not depending only on petroleum for revenues).
• Alternative instruments are dangerous. The proposal is to allow up to 5% of the Fund ($330 million) to be invested in real estate, private equities or other items not traded on regulated markets.  This could include scams like Asian Champ Investments, or the kind of speculation that brought Nauru from the richest country in the world (per capita) to one of the poorest.
• Can leaders elected for five years successfully implement the long-term investment strategy necessary to maximize the return on equities investments? This is how Warren Buffet became rich, but political and short-term pressures from a country with tremendous needs may make it impossible.
• The Investment Policy defined in these revisions should be a public document, with legal force and approval above the Minister of Finance.
• Don't weaken the sustainable income rule. The proposal is to change the "detailed explanation" to a "justification" when the Government wants to spend more than 3% of Timor-Leste's petroleum wealth in one year. This could be a single sentence of political intention. Although the current guideline has not worked well in recent years, we do not believe it should be made easier to violate, and have proposed changes which will make it more effective in protecting the nation's nonrenewable wealth.
• Keep the Banking and Payments Authority as Operational Manager. The BPA has worked well as a professional, nonpartisan, independent state institution and has built its capacity and experience during the last five years of managing the Petroleum Fund. We believe that the proposal to replace it with an undefined agency "accountable to the Government" will reduce checks and balances and professionalism, endangering the security of the Fund.
• Maintain the independence of the Investment Advisory Board. The proposal is  to remove voting powers from the BPA and Treasury representatives, to have all IAB members appointed by the Prime Minister (instead of the Minister of Finance), and to reduce the protection against conflict of interests. These are dangerous steps which will make the board more subject to political pressures.

The Ministry of Finance will propose their revisions to the Council of Ministers soon, which will send them to Parliament for enactment. We hope that their long-term consequences are considered carefully.  Click for more information on the Petroleum Fund and on the revision process, with links to many documents.