Santiago Principles Self-Assessment

Timor-Leste Petroleum Fund

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  • 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 constitutional requirement of creating a mandatory financial reserve from the exploitation of the natural resources. 

Timor-Leste’s National Parliament through the enactment of the Petroleum Fund Law established the legal framework for the Petroleum Fund. This was supplemented by recent amendments made to the Petroleum Activities Law. 

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

The Petroleum Fund Law:

  • provides mechanisms that assist Timor-Leste to sustainably manage its petroleum revenues, 
  • 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 the roles and responsibilities of the entities involved in the management of the Fund, and
  • provides for accountability and oversight of these activities. 

The Petroleum Fund Law requires the Ministry of Finance to enter into an agreement with the Operational Manager. The Operational Management Agreement (OMA) was signed between the Ministry of Finance and BCTL, the Operational Manager, on 12 October 2005 with the subsequent amendments to account for key changes made to the Fund’s investment strategies. The agreement specifies key functions and competencies of the Ministry of Finance, the government’s entity that is responsible for the overall management of the Fund and the BCTL, which is responsible for the operational management of the Fund. 


Petroleum Fund Law

Petroleum Activities Law

Operational Management Agreement

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 National Parliament of Timor-Leste established the Petroleum Fund Law, which defines the roles and responsibilities of the entities involved in the management of the Fund.

The Minister of Finance is responsible for the overall management of the Petroleum Fund. The Ministry of Finance sets the investment policy, enters into a management agreement with the Operational Manager, and monitors the Fund’s performance. The Investment Advisory Board (IAB) provides independent advice to the Minister of Finance on the Fund’s investment policy and management, including the investment mandates for the Fund. 

The BCTL, as Operational Manager, is responsible for the Fund’s operations, including implementing the investment mandates set by the Ministry of Finance. The BCTL manages some of the portfolio internally and also contracts with external managers to manage and invest the Fund’s assets and monitors their performance.


Petroleum Fund Law, Operational Management Agreement.

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 Fund’s investment policy is directed by the provisions in the Petroleum Fund Law that define the asset allocation guidelines, eligible investments, concentration limits and investment principles, which include diversification and maximizing the risk-adjusted financial return. 

The Ministry of Finance, on behalf of the Government, determines the investment policy, which is designed to meet the investment objectives of the Fund after taking into account the risk preference of the Timor-Leste people and any constraints under which the Fund operates. The IAB advises the Minister of Finance on the investment strategy. The advice of the IAB is guided by its publicly disclosed Investment Beliefs and Principles. 

The investment policy is described in the Petroleum Fund Annual Report. Annex 1 of the Operational Management Agreement specifies the Fund’s strategic asset allocation and benchmark portfolio, the parameters for each of the investment mandates and where derivatives are permissible. 

The Minister of Finance, with advice from the IAB, determines whether a mandate will be internally or externally managed. The Ministry of Finance monitors the internally managed mandates. The selection process for external investment managers is undertaken by the BCTL as operational manager and is based on professional and commercial criteria. The external managers are given clearly defined mandates, including expected performance, risk and fees. Their performance is monitored by the BCTL.


Petroleum Fund Law

Operational Management Agreement

Petroleum Fund Quarterly and Annual Reports