Letter to Parliament regarding the Timor-Leste Petroleum Fund Law

from Joseph B. Bell, Attorney, USA

to Parliament Commission C

Joseph C. Bell
Hogan & Hartson L.L.P.
555 13th Street NW Washington, DC 20004
(202) 637-5780 (Direct)
(202) 637-5910 (Fax)

May 31, 2005

I have quickly reviewed the new draft. The law is very well drafted in certain respects, particularly with respect to the standards for investment and the selection of investment managers, but it remains very deficient in other respects. I am limiting my comments to just a few issues:

1. Transparency/Public Disclosure.

Apart from the annual report on the fund and its activities, there is practically no meaningful provision of information to the public. The revised Article 32.2 introduces a wide range of exceptions, many of which are highly subjective, allowing the government to withhold information. Thus the Article on Transparency has really become an article authorizing the government to withhold information. But the listed categories go far beyond that. As set out they would permit a determined government to withhold virtually all meaningful information outside of the annual report.

Unlike the prior draft there is no presumption in favor of disclosure, and there is no procedure permitting private parties to seek review of any governmental decisions to withhold information. Such review -- and on a timely basis -- is particularly critical given the subjective nature of the exceptions currently included in Article 32.

The Annual Report on the activities of the Fund does provide for much useful detail about the Fund's performance, but there is no public reporting on either an aggregate or individual basis of petroleum payments, and there certainly is no public reporting regarding contracts. Unless such reporting is addressed in other legislation, the lack of even aggregate data means that East Timor will fall short of meeting the standard of the Extractive Industries Transparency Initiative.

2. Calculation of Estimated Sustainable Income.

Critical variables in this central calculation remain highly subjective, again allowing a determined government to produce widely varying estimates of the amount. The draft puts certain qualifiers on the calculations, but the calculation of net revenues in future years remains highly subjective, dependent upon the choice of oil prices and production levels. The openness of this calculation makes the ceiling on expenditures even softer.

3. Review of Governmental Decisions

Although criminal penalties are put in place, there is nothing in this act that permits review of various governmental decisions relating to the implementation of the law. Perhaps, they exist elsewhere.

I am attaching the comments I made on the earlier draft, most of which, unfortunately, still remain relevant.

Joe Bell