1. Petroleum Funds and the Experience in Chad
Silvana Tordo, Sr. Energy Economist, COCPO
Washington, D.C.
May 16-17, 2007

2. Introduction NRF: Chad: 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?

3. Characteristics of Oil Revenue
Uncertainty
Volatility
Mostly beyond the control of HG/Oil Companies

4. 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

5. …but fiscal discipline is the “key”
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”

6. Objectives of NRFs Stabilization
To protect the economy from resource revenue volatility
Stabilization
Savings
Precautionary
Other
To set aside revenue for future generations
To hedge against extraordinary events
Lack of absorptive capacity

7. Indicators of the Relation of the Oil Sector to the Economy, 2004
Source: Experiences with oil funds. ESMAP 2006

8. Some well established oil funds:

9. 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)

10. New producers, especially developing countries, face a number of issues which make the use of NRFs both attractive and problematic

11. Maturity of the HC sector: why does it matter?

12. 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

13. Initial arrangement

15. Temporary mechanism

16. Thank you!