Santiago Principles Self-Assessment

Timor-Leste Petroleum Fund

Fund Details Fund Website Search Assessments PDF version
  • Pillar 1: Legal
  • Pillar 2: Institutional
  • Pillar 3: Investment
Principle 1

1. The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).

1.1. The legal framework for the SWF should ensure legal soundness of the SWF and its transactions.

1.2. The key features of the SWF’s legal basis and structure, as well as the legal relationship between the SWF and other state bodies, should be publicly disclosed.

Timor-Leste Petroleum Fund was established to fulfil the requirement of the Constitution that mandates the establishment of mandatory financial reserves from the exploitation of natural resources.

The legal framework for the Petroleum Fund is detailed in the Petroleum Fund Law No. 9/2005, of 3rd of August as amended by the Law No. 12/2011, of 28th of September.

The Fund is formed as an account of the Ministry of Finance held in the Central Bank of Timor-Leste (Banco Central de Timor-Leste, BCTL), rather than as a separate legal entity.

The Petroleum Fund Law specifically -

  • provides mechanisms that assist Timor-Leste to sustainably manage its petroleum revenue,
  • details the parameters for operating and managing the Petroleum Fund,
  • defines the asset allocation guidelines and risk limits,
  • governs the collection and management of the receipts,
  • regulates transfers to the State Budget,
  • defines clear roles and responsibilities of entities involved in the management of the Fund and,
  • provides for government accountability and oversight of these activities.

The Operational Management Agreement signed between the Ministry of Finance and the Operational Manager (BCTL) on 12 October 2005 with later amendments goes further to account the key functions and competencies of the Ministry of Finance, with the responsibility of the overall management of the Fund, and the BCTL, which has the responsibility for the operational management of the Fund.

The legal framework and other supporting documentation on the Petroleum Fund are publicly available at the Ministry of Finance and BCTL websites.

Principle 6

6. The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.

The Petroleum Fund Law clearly defines the roles and responsibilities of all entities involved in the management of the Fund. No single institution or individual is responsible for making and implementing the investment decisions, because each one of them is accountable to one another for their role in the decision-making process.

Parliament has established the Petroleum Fund Law. The Law limits the broad asset allocation and risk tolerance.

The Ministry of Finance sets the investment policy and monitors the Fund’s performance. The Investment Advisory Board (IAB) provides advice for Minister on investment policy and sets the investment benchmarks for the Fund. BCTL, the Operational Manager, is responsible for the Fund’s operations including implementing the investment mandates set by the Minister of Finance. The BCTL appoints external managers and monitors their performance.

Principle 18

18. The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.

18.1. The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.

18.2. The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.

18.3. A description of the investment policy of the SWF should be publicly disclosed.

The Ministry of Finance, on behalf of the government, sets out the investment policy, pursuant to the IAB’s advice, reflecting the risk preference of the Timor-Leste people. The investment policy is publicly disclosed. The Petroleum Fund Law defines the broad asset allocation guidelines as the risk profile, the investment universe, investment principles, and other issues related to the overall investment policy.

The advice of the IAB is based on its publicly disclosed Investment Beliefs and Principles.

The selection of external investment managers is based on professional and commercial criteria. The external managers are given and are measured by clearly defined mandates, where the goal is to achieve the highest possible risk-adjusted return.

The investment policy is summarized into the investment mandate, which is annexed to the Management Agreement and discussed at length in the Petroleum Fund Annual Report. These documents are publicly available.