Accounting firm Ram and McRae yesterday raised concerns about the legal status of the Natural Resource Fund Act.
In its review of the 2022 budget in today’s Stabroek News, Ram and McRae said that “There is nothing in the Act that makes the NRF a body corporate … which raises questions about the Directors’ fiduciary duty to what Chief Justice Ian Chang referred to as a none-entity”.
It was the latest in a string of criticisms of the legislation that the PPP/C government rushed through Parliament on December 29 with just days of notice and no consultation.
Ram and McRae raised other concerns about the NRF.
“While the new Act provides for a Board of Directors, those persons will have modest functions and little power. Furthermore, they must submit to the withdrawal rules in the First Schedule and the imposition of Floors and Ceilings for investments in the Second Schedule. In any case, it is unclear who the directors report to…”, the accounting firm said.
The proposed board of directors for the NRF has been pilloried as President Irfaan Ali can choose as many as three of the five directors in his own deliberate judgement. He has not said how he proposes to do this. The other two members of the board are also likely to be PPP/C friendly as one will be nominated by Parliament where the ruling party has a majority and the other will come from the private sector some of whose senior members have close ties to the PPP/C.
Noting that the PPP/C government had criticised the NRF Act produced by the former APNU+AFC government for having an opaque and unnecessarily complicated formula for determining the ceiling on withdrawals from the Fund, Ram and McRae expressed disagreement.
“A Natural Resource Fund, better known as a sovereign wealth fund, has myriad variables and several purposes with considerable uncertainties and changing circumstances. It is not something that can and should be reduced to simplicity. Oil prices are relatively high at this time but are likely to fall in the medium to long term. The formula used in the current Act allows for the automatic withdrawal of $1,250 million, or 62.5%, of the first US$2 bn. earned in any year. …such huge injections of foreign currency into a small economy can have significant consequences. It is also worth noting that that amount is not an absolute ceiling: further withdrawals in the same year are permitted for emergency financing, leaving the balance, if any, to serve as a stabilisation fund, a source of revenue and intergenerational savings”, the review noted.
Importantly, Ram & McRae said it is concerned whether the injection of the money in the Fund is properly represented in the Financial Plan. It said that Section 16 of the Act clearly states that withdrawal from the Fund can only be used for national development priorities and essential projects related to the effect of major natural disaster.
“As it is shown in the Estimates, the drawdown is purely Budget Support which we doubt is permitted under the Act. It would seem that the most appropriate thing to do would be to include in the Estimates a separate Natural Resource Fund Statement”, Ram and McRae added.
Additionally, it said that the 2019 Act allowed for the income from other non-renewable resources to be placed into the Fund. The 2021 Act does not. It is therefore not a Natural Resource Fund Act but a Petroleum Resource Fund Act, the accounting firm stated.
