April 2013|Alastair McKechnie|Research reports,

This note describes the Timor-Leste Petroleum Fund and issues that have arisen in its implementation. This petroleum fund (PF) is considered by commentators and international financial institutions to be a good example of a sovereign wealth fund to manage petroleum resources in a fragile or post-conflict setting.

The note contains analysis intended to brief governments in similar settings looking at how to manage revenues from natural resources such as petroleum, minerals, hydroelectricity and forests. Such resources are depletable in the sense that they cannot be easily replaced, or alternatively face a rising cost curve so that developing the current project means its successors will produce more expensive unit output, for example in the case of large-scale hydroelectricity.

Exploiting these resources is equivalent to exporting the national wealth – ‘selling the family silver’ – which can either be consumed, for example in expanding civil service employment, or transformed into other assets that generate a stream of income for current and future generations.

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