Parliament must take its role seriously in monitoring Natural Resource Fund – Economist

Nov 01, 2018 News

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By Kiana Wilburg

Independent oversight for a nation’s Natural Resource Fund (NRF) can take different forms. But one of the most critical ones is a country’s Parliament.

This is according to Andrew Bauer, an economist and international expert on Natural Resource Funds.

Bauer is also a consultant with the Natural Resource Governance Institute (NRGI) which is an independent nonprofit organization dedicated to improving countries’ governance over their natural resources.

During an exclusive interview with Kaieteur News, Bauer said he examined the Government’s Green Paper on the establishment of the NRF. He said that there were a number of notable points regarding plans for oversight.

The economist said, “I noticed that the Auditor General has been assigned the External Auditor and he will be able to provide his reports on the use of the NRF by the government. And that is a great start. But I think it needs to be stated that Parliament will have one of the greatest roles to play.  In most democratic settings, Parliament has a specific committee for overlooking the NRF and then in some places, you have a NRF committee. This format, for example, takes place in Alberta, Canada.”

Bauer added, “But Parliament has a role to play and I hope they (Parliamentarians) take it seriously and become independent overseers.”

Further to this, Bauer said that there are other models of oversight. He referenced Ghana which has a model that allows a NRF oversight committee to be made up of civil society members, media persons and religious individuals. Bauer said that this committee ensures that there is adequate reporting to the people on how the oil money from the fund is spent.

He said, “So the point with that is for readers to understand that independent oversight means Parliament, the media, the judiciary, civil society, and all groups playing a role in this process. Even the private sector needs to be part of this oversight…How independent these committees will be is a different story, and this goes for the rules that will govern them too.”

The NRGI Consultant said that the minimum check and balance for NRFs is having an external auditor, and in Guyana’s case, it is the Auditor General. He stressed, however, that there are cases where there are way more mechanisms in place to prevent risky investment and mismanagement of the NRF funds.

CLEAR RULES & ETHICAL POLICIES

The Natural Resource Governance Institute has also encouraged emerging oil producers like Guyana to set clear fund objective(s) (e.g., saving for future generations; stabilizing the budget; earmarking natural resource revenue for development priorities). It said that the government must establish fiscal rules—for deposit and withdrawal—that align with the objective(s); establish investment rules (e.g., a maximum of 20 percent can be invested in equities) that align with the objective(s); clarify a division of responsibilities between the ultimate authority over the fund, the fund manager, the day-to-day operational manager, and the different offices within the operational manager, and set and enforce strict ethical and conflict of interest standards.

Further to this, it said that the oversight bodies for the Fund must require regular and extensive disclosures of key information (e.g., a list of specific investments; names of fund managers) and audits. It said, too, that oversight bodies must be allowed to do their work without a shred of political interference.

The Institute said, “We wish to stress that the government should establish these and other rules and institutions governing natural resource funds through a process that generates broad political consensus. Governments may not comply with even the best rules, unless key stakeholders and the broader citizenry have bought into the need for government savings and constantly apply pressure to follow the rules.”

It continued, “This has become apparent not just in natural resource-rich economies, but also in places like Europe where, from time to time, most member states breached the fiscal rules outlined in the EU’s Stability and Growth Pact even prior to the 2007-08 global financial crisis. We would also call on international institutions and advisors to carefully consider the implications of recommending the establishment of funds where public financial management systems are opaque and poorly functioning.”

In this regard, the Institute said that international advisors should recognize that the establishment of a Fund by itself will not improve resource governance. It was stressed that Natural Resource Funds ought to be products of fiscal rules or macroeconomic frameworks that call for savings of oil, gas or mineral revenues.

The Institute also said that the minimum conditions, such as clear objectives, operational rules, investment risk limitations, effective oversight, and transparency, must be present in order to improve natural resource governance.

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