The case for revenue transparency in the oil and gas ... - La'o Hamutuk

Original framework for ensuring good governance of Timor Leste’s oil
revenues
Despite the political difficulty of setting aside savings in the face of Timor-Leste’s many development
needs, Timor-Leste’s first leaders demonstrated commitment to ensuring the sustainability of revenue
use for future generations and took several important steps to promote prudent management of the
country’s natural resource revenues.
In 2005 the Parliament passed the Petroleum Act, the Petroleum Taxation Act, and, unanimously, the
Petroleum Fund Act. These laws provide the essential framework for petroleum production and the
management of revenues consistent with international good practice:
a) All petroleum revenues and returns on investment will be deposited in the Petroleum Fund and
saved for future generations, keeping with the principle of intergenerational equity. The Petroleum
Fund was established in September 2005, with USD 204.6 million of royalties accumulated since
2000, and has since grown to $9.3 billion. Government planned to use only sustainable income in
order to preserve the real value of petroleum wealth by spreading expenditures over an infinite
time horizon, safeguarding a sustainable budget in perpetuity. However since the new government
in 2008, budgets have been overspent.
b) Expenditures from the Fund will be integrated into the budget process. Transfers from the Fund
can only be made to a designated Government account, and total transfers in a fiscal year cannot
exceed a ceiling set by Parliament as part of the approval of the regular budget. Expenditures are
executed through the Treasury and recorded as part of the Government’s consolidated reporting.
Revenue and expenditure figures are publicly available, and the Budget Law and regular external
audits are intended to guard against the misappropriation of funds.
c) Assets are managed prudently in safe, offshore investments sheltered from domestic economic
risks. While the Ministry of Planning and Finance has overall responsibility, operational management
falls under the Banking and Payments Authority (BPA). Professional investment managers oversee
investments made by the Fund. An Investment Advisory Board was set up in late 2005 to advise the
Government on Fund investments.
d) Governance mechanisms have been put in place to ensure transparency and accountability,
including the timely publication of quarterly reports and annual financial statements. An
independent Consultative Council is nominated by the Parliament to advise it on matters related to
the Fund, although there is no requirement for Parliament to follow the Council’s recommendations.
Independent external audits are carried out by an internationally recognized accounting firm, and
audit reports are adapted into a format accessible to the public. The Government launched a
website to publicize the legal regime, transparency arrangements, and financial reports; keeping
these information portals updated and maintained is essential.
e) Recognizing the importance of citizen understanding of the savings regime and governance
measures, Government undertook a series of public consultations throughout the country on the
Petroleum Fund. Parliament also held a number of seminars for its members on the legal regime and
the transparent and sustainable management of the country’s petroleum resources.
f) Timor Leste became an EITI compliant country in 2010.
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