Natural Resource Fund bill gravely deficient

Tomorrow’s sitting of the National Assembly has listed for second reading the Natural Resource Fund (NRF) Bill 2021. Given the grave deficiencies of this bill it should not be proceeded with at this sitting. The PPP/C government must consign this bill to the Natural Resource Committee of Parliament – surely this is the type of major undertaking these sectoral committees have been created for – to enable critical examination, the mobilising of expert opinion, the holding of public hearings and major revisions. The PPP/C must not attempt to railroad this bill through Parliament as it has with similar pieces of legislation in its earlier incarnations. Any such attempt will irreparably damage the claim that President Ali’s government is seeking some type of `One Guyana’ where all of the constituencies of this country – not only the PPPP/C’s base – are fully invested and involved in steering the future of Guyana on the wings of the oil revenues that have begun to accrue.

The Natural Resource Fund, its management and oversight collectively represent the best prospect in more than 55 years of independence to propel the development of the country along a path that unshackles it from primary production, lift thousands of people out of daily grinding poverty, educate the workforce for higher paying high-tech jobs and create a comfortable existence for future generations. Should the decisions connected to these tasks be yoked to legislation generated only by the PPP/C government? Its Attorney-General’s Chambers? Or perhaps from somewhere else? Absolutely not. Nothing short of bipartisan approval of the NRF legislation will be acceptable.

Despite its claims that the bill removes the political control that had been embedded in the APNU+AFC version, the PPP/C government’s rendering is no different and is deeply flawed. First, President Ali will be entrusted with not only appointing the members of the proposed oversight board but deciding who its chairman will be. Burnham’s Presidency model has removed the options of having such tasks undertaken by a ceremonial president possibly with some reserve and veto powers.

To make matters worse, the bill is completely silent on the process for selecting directors of this all-powerful board. It merely says at Clause 5(2) in Part III “The Directors shall be selected from among persons who have wide experience and ability in legal, financial, business, or administrative matters, one of whom shall be nominated by the National Assembly and one of whom shall be a representative of the private sector”.

Selected by who? This provision would immediately offend the Santiago Principles for Sovereign Wealth Funds where it states at #7 “The owner should set the objectives of the SWF, appoint the members of its governing body(ies) in accordance with clearly defined

procedures, and exercise oversight over the SWF’s operation”. Given this lacuna, it isn’t difficult to conceive that the PPP/C government will stack the board with its adherents and those it has influence over. Since the private sector will be one of the key beneficiaries of allocations from the NRF it should have no place on the oversight board.

To underline why this oversight board should have bipartisan approval, these are some of its functions listed in the bill: the overall management of the NRF, reviewing and approving the policies of the Fund, monitoring the performance of the Fund, ensuring compliance with the approved policies of the Fund, exercising general oversight of all aspects of the operations of the Fund and ensuring that the Fund is managed in compliance with the Act and all other applicable laws.

There are also troubling provisions in the bill entrusting the Minister of Finance with more authority and responsibility than he should have. Clause 8 of Part III states “The Minister may give to the Board of Directors such general policy directives in accordance with this Act with respect to their functions as the Minister considers necessary and the Board of Directors shall give effect to such directives“. Here the minister can give whatever policy directions he wants and the board must comply.

The other committees to be appointed also reflect the flaws pertaining to the board. The Investment Committee is to comprise a nominee of the Minister of Finance who shall be the chairperson, a nominee of the minister responsible for the administration of the petroleum sector, a nominee of the Attorney General, a nominee of the Leader of the Opposition and a nominee of the private sector. Again, a hopelessly unbalanced selection and one that the government will be in full control of.

There is to be a Public Accountability and Oversight Committee which appears to be a mere sinecure. It will have a nominee from the National Assembly, three representatives of the religious community, two from the private sector, two from organised labour and one from the professions. It is unclear again who is doing the selection but it is also worth making the point that in a secular state there is no need for a special dispensation for the religions.

There are other problems in this bill that require careful examination. The ceiling on annual withdrawals hews towards excessive depletion. In the first year, the fund will be completely emptied – more than US$600m. This would be a poor decision and a sign that this government does not accept the principles that financial prudence and intergenerational equity must be applied in relation to all of the earnings from petroleum.

After draining the account in the first year, in the following year, 100% of the first US$500m will be extracted plus 75% of the second US$500m and in sliding scale towards the figure of over US$2.5b in any given year. If this formula was to be followed, in the second or third year of operation, if Guyana was to receive only US$1b in oil revenues, it would mean that the Fund would release US$875m and leave only US$125m. That level of expenditure appears to be too high and could have seriously monetary and other implications.

The Bank of Guyana is to be responsible for the operational management of the Fund in accordance with the Investment Mandate and the operational agreement to be signed. Clause 7 (2) b of Part III says that the operational agreement shall state “the liability for paying damages to the Government for losses that occur due to negligence or intent on the part of the Bank or private managers in managing the Fund”.

According to Clause 7 (3) the Bank also has to establish risk management arrangements and all necessary internal management systems for the operational management of the fund. These provisions would create risk to the Central Bank and conflict with its statutory responsibilities and must be carefully reviewed.

It is understandable that the Integrity Commission Act will be amended to cover the Board of Directors and other committees to be established under the NRF Act. However, until the government names credible commissioners to the Integrity Commission and provides it with sufficient resources to discharge its functions what we have is a pappyshow.

Norway’s Sovereign Wealth Fund (SWF) with a stupendous US$1.35 trillion in assets remains the gold standard. It would be a capital idea to approach the Norwegian Government for assistance and advice in establishing Guyana’s NRF and for the seconding, perhaps, of retired directors from its SWF. This would provide a measure of really independent advice and oversight and prevent domination of the Fund by the PPP/C government.