RDTL establishes Petroleum Fund

Prime Minister, Government of Timor-Leste

Media Release      23 September 2005

Timor-Leste establishes Petroleum Fund

See Background Notes below on Design and Management of the fund.

A fund for the prudent, transparent and long-term management of Timor-Leste’s (East Timor’s) petroleum revenues has now become fully operational with an initial balance of nearly US$250 million.

Prime Minister Mari Alkatiri, who pioneered the establishment of the Timor-Leste Petroleum Fund three years ago, said: “This is an historic moment for Timor-Leste because there is nothing more important to the future of our new nation than sound and fully-accountable management of our petroleum wealth.

“Good management of petroleum revenues is absolutely critical for ensuring sustained economic growth, the alleviation of poverty and a stable political future for the people of Timor-Leste. This policy will enable us to increase spending considerably while saving for the future. Equity between this generation and those in the future is the central principle underpinning the creation of the Fund.”

The Prime Minister said creation of the Petroleum Fund followed broad consultations with civil society and other interested parties, including meetings with village chiefs and other community leaders in all 13 districts.

After the Government submitted the draft Petroleum Fund law to Parliament, all political parties and members of Parliament carefully considered the Government’s proposal and came to the conclusion that it is the best model for managing the nation’s petroleum receipts for the benefit of this generation and those in the future.

“The National Parliament voted unanimously to approve the Petroleum Fund law. Achieving community consensus on the management of our petroleum revenue is critically important to the future of our nation.

“The Petroleum Fund builds on international best-practice, but our model has additional transparency and accountability safeguards. It is crucial that we avoid the experiences from many other countries, where petroleum has been a curse instead of a blessing.”

By contributing to a sound budgetary policy, the Petroleum Fund will help deliver on a sustainable basis strong economic growth and improved public services. The Government’s policy of spending only the sustainable income from petroleum means that Timor-Leste will both save for the future and be able to afford a large increase in public expenditure. Current estimates based on conservative oil price assumptions show that the fund could grow to more than US$5 billion over the next 20 years, thereby generating a significant permanent income stream for the nation.

Prime Minister Alkatiri said: “Increased spending must be used wisely to invest in key government services and infrastructure, which can deliver stronger economic growth and contribute to poverty reduction. This policy will at the same time ensure that sufficient financial savings are deposited in the Petroleum Fund, so that in later years we are able to maintain the same level of expenditure.”

The Petroleum Fund’s assets are invested by the Timor-Leste Banking and Payments Authority in low-risk US Government Bonds. In time the Government will look at a more diversified investment policy.

The initial balance includes petroleum revenue accumulated since 2000 that was invested and managed under an interim policy. This revenue was transferred into the fund by the Government this month. The balance also reflects revenue paid monthly by companies into the fund since July 1 this year.

Background Note 1
The design and operation of the Petroleum Fund

The Petroleum Fund’s formation follows the approval by Parliament and promulgation by the President of the Petroleum Fund Act. The Act is the result of a broad process of preparations and consultations, including a discussion paper on key policy issues that was released by the Government in October 2004, submissions received during the ensuing period of public consultations, the draft Petroleum Fund Act that was released by the Government for public comments in March 2005, subsequent comments that were received on that text, and the draft Petroleum Fund Act that the Government submitted to Parliament in April 2005.

In addition to the Petroleum Fund Act, the other important regulatory framework for the Fund is the Operational Management Agreement between the Minister for Planning and Finance and the Banking & Payments Authority.

Information about the Petroleum Fund can be found on a new website dedicated to petroleum transparency, www.transparency.gov.tl and on www.mopf.gov.tl.

The design of the Petroleum Fund is based on the following key principles:

Based on the principles described above, the Petroleum Fund Act has the following key features:

Background Note 2
The Petroleum Fund and Timor-Leste’s Economic Management

Timor-Leste’s commitment to prudent and transparent management of its petroleum wealth has already won accolades around the world.

In March 2005 the UK Minister for International Development, Hilary Benn, told the EITI conference in London: “Timor Leste which, as the youngest country in the world, is demonstrating a foresight that we can all learn from. May I say, Prime Minister [Alkatiri], that I commend you for your effort, your determination and that of your government to avoid the pitfalls of resource wealth that  have afflicted many of your neighbours, and to harness your vast mineral wealth for the benefit of this and future generations is an inspiration to the rest of the world.”

Timor-Leste achieved independence in May 2002, but is already being recognized as one of the best-managed economies in the Asia-Pacific.

Recent highlights include:

23 September 2005

Media enquiries:

Paul Cleary:  Timor Sea Office, Office of the Prime Minister.
Ph +670 723 4151. Email: pcleary_tso@yahoo.co.uk