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Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Petroleum Funds and the Experience in Chad
Silvana Tordo, Sr. Energy Economist, COCPO
Washington, D.C.
May 16-17, 2007
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Introduction
– Characteristics of oil revenue
– Fiscal policy implications
NRF:
–
–
–
–
Objectives
Some well established oil funds
Important features
Maturity of the HC sector: why does it matter?
Chad:
– Is Chad is so special?
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Characteristics of Oil Revenue
Uncertainty
Volatility
Mostly beyond the control of HG/Oil
Companies
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Fiscal Policy Implications
To mitigate the effects of uncertain and volatile revenue
countries could:
• “Stabilize” expenditure, use revenue to ensure against
volatility/uncertainty
•Promote investment friendly environment
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Fiscal Policy Rules
• Level of public expenditure to be consistent with
sustainable rate/capacity growth
• Use conservative price and production forecast
• Use appropriate risk mitigation tools (fiscal systems, oil
funds, contracts, hedging ..)
• Save excess revenue abroad
…but fiscal discipline is the “key”
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Objectives of NRFs
• Stabilization
To protect the economy from
resource revenue volatility
• Savings
To set aside revenue for future
generations
• Precautionary
To hedge against extraordinary
events
• Other
Lack of absorptive capacity
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Indicators of the Relation of the Oil Sector to the Economy, 2004
Alaska
Alberta
Azerbaijan
Chad
Kazakhstan
Kuwait
Norway
Oman
RB
of
Venezuela
Russia
São
Tomé
and Príncipe
Timor-Leste
Production
(1,000
barrels a
day)
Proved
reserves
(billion
barrels)
R/P
(years)
GDP per
capita
(current
US$)
1,086
1,720
318
168
1,295
2,424
3,188
785
2,980
4.45
175.6
7.0
0.60
39.6
99.0
9.7
5.6
77.2
11
280
60
10
83
112
8
19
71
9,285
0
72.3
NA
NA
NA
Oil
exports/total
exports (%)
Government
oil revenues/
total
revenue
51,685
44,128
1,029
486
2,724
16,974a
54,598
8,160a
4,184
Oil
production/
GDP per
capita
(000 barrels
per day/$)
0.02
0.04
0.31
0.35
0.48
0.14
0.06
0.10
0.71
NA
56
77
NA
55
86
39
76
83
42
33
56
58
42
77
23
73
46
21
NA
4,078
388
2.28
NA
41
NA
NA
NA
NA
366
NA
NA
NA
Source: Experiences with oil funds. ESMAP 2006
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Some well established oil funds:
Size
Alaska
Alberta
Azerbaijan
Norway
US$32 Billion
C$41.6 Billion
US$1.4 Billion
US$300 Billion
Primary objective
Citizens’ dividend
Paying down the debt
Savings and stabilization
Savings and stabilization
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Important Features of NRFs:
• Integration with the budget process:
- Virtual
- Real
• Other practical issues:
- Legal foundation
- Rules for flows in and out of the NRF
- Financial management (clear investment strategy,
performance benchmark)
- Oversight (accountability, independent audit, transparency)
-
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
New producers, especially developing countries, face a
number of issues which make the use of NRFs both
attractive and problematic
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Maturity of the HC sector: why does it matter?
Cash Flow
+
-
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Is Chad so special?
• New hydrocarbon province: geological risk, quality,
development cost
• Relatively high country risk
• Large immediate expenditure needs
• Low absorptive capacity
• Public expenditure management issues
• Governance challenges
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Initial arrangement
Gross Revenues To Chad: Royalties, Taxes, Dividends
Direct Revenues to Chad (Royalties and Dividends)
Indirect
Revenues
IBRD/EIB Debt Service and Debt Service Reserves
Net Direct Revenues to Chad
10% of Direct Revenues
Future Generations
Fund (BEAC)
90% of Direct Revenues
Special Oil Revenue Account (Commercial Bank)
Revenue Allocation Account (BEAC)
80% Royalties/85% Dividends and
95% Royalties/ 100% Dividends after December 31, 2007
Stabilization Account (BEAC)
5% of Royalties
Account for Oil Producing
Region (BEAC)
15% of Royalties/ Dividends up
to December 31, 2007
Treasury Account (BEAC)
Quarterly transfer based on planned expenditures in priority sectors
Special Oil Revenue Account
(Commercial Bank)
Decentralized
Authorities Accounts
Govt. Expenditures
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Production Profile, All Concessions
70.00
60.00
40.00
30.00
20.00
10.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Oil Revenue Forecast
Years
Three Fields
Nya and Moundouli
Doba Basin
Million US Dollars
Production MBO
50.00
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
Brent Low Case
2021
Planning Price
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
Years
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Temporary mechanism
Workshop on Extractive Industry: Legal & Fiscal Regimes,
Revenue Management, & Good Governance
Thank you!