HSF deposits

The Hon. Minister of Finance, Mr Winston Dookeran, has reportedly claimed that no deposits were made into T&T's Heritage and Stabilisation Fund (HSF) in 2009/2010.  The ex-Finance Minister, Mrs Karen Nunez-Tesheira, has responded that Mr Dookeran's allegation was wholly inaccurate, and made some other claims regarding the HSF during her tenure as Minister.  Both statements contain inaccuracies.

As I wrote before the General Election on 24 May 2010, based on publicly available documents on the Ministry of Finance's website, the ex-Finance Minister made no deposits into the HSF from Oct 2008 to Mar 2010 inclusive. However, there were press reports during the election campaign publicising the ex-Finance Minister's approval of a deposit into the HSF.  This was confirmed by the Central Bank T&T Governor Ewart Williams on 15 Jun 2010.  So, as the ex-Finance Minister said, Mr Dookeran's allegation is false.

However, Mrs Nunez-Tesheira's statement also contains inaccuracies.  I couldn't find the unedited statement in any of the daily newspaper websites, so I've copied it from Mrs Nunez-Tesheira's Note published on facebook.  Here are the issues I've got with her response.

Firstly, she said the deposit warrant that she signed on 28 Apr 2010 'represents surplus revenues generated from oil and gas up to Quarter 2 of fiscal 2009/2010.'

This may give the impression that the surplus revenues in this warrant were generated over more than one quarter. The Act, however, stipulates that deposits must be made each quarter based on the surplus generated in the immediately preceding quarter. So this warrant could only be based on surplus revenue generated in 2009/10 Q2. Since our financial year runs from Oct to Sep, that means Q2 is from Jan-Mar each year. So the warrant of 28 Apr 2010 represents the surplus generated from Jan to Mar 2010 inclusive.

Secondly, she incorrectly quotes the conditions for deposits to the HSF. She said: '... the legislation provides in effect that where the estimated revenues from oil and gas for any quarter of a financial year are more than 10%, 60% of such surplus revenues are to be deposited in the HSF.'

Actually, according to the HSF Act No. 6 2007, where petroleum revenues collected in each quarter of any fiscal year exceed the estimated petroleum revenues for that quarter by more than 10%, the US dollar equivalent of the excess revenue shall be withdrawn from the Consolidated Fund and deposited to the HSF (all of the excess - not 60% as she wrote above; the 60% condition only applies to making withdrawals if the actual petroleum revenue is less than the expected amount by at least 10%). If the collected revenues exceed the estimated revenues for that quarter by 10% or less, the Finance Minister may direct that all or part of the excess revenue deposited to the HSF (she didn't refer to this condition at all in her response). The Act, and quarterly/annual reports from the HSF board, may be found at: http://www.finance.gov.tt/legislation.php?mid=20

Thirdly, she writes: 'As a consequence the fund has grown almost exponentially from approximately TT$1.01 billion to almost TT$19 billion by the end of 2009 with an additional deposit in April this year of TT$659,770,446.00.'

That's not entirely correct. According to the HSF Annual Report for year ending 30 Sep 2007, the HSF was started 'on March 15, 2007 with a balance of US$1,402,148,155. The government made further quarterly contributions amounting to US$321.6 million during the fiscal year. Over the period under review, the portfolio returned 2.93% (5.41% annualized) versus a benchmark return of 2.91%. The value of the Fund at September 30, 2007 amounted to US$1,766,093,509.48.'

So the HSF started with over TT$8.8 billion (not TT$1.01 billion) and the government was actually depositing as required in the first year. They stopped for some reason in the second year and no deposits were made at all from Oct 2008 to Mar 2010 inclusive. So if Mr Dookeran was actually referring to a financial year, then he should've said no funds were deposited in 2008-2009.

Fourthly, the ex-Finance Minister may be due congratulations for not withdrawing from the fund, but we can only know for sure when there is an explanation to show that for any quarter the actual petroleum revenues were less than the expected/budgeted amount by at least 10%.

The fact is, the ex-Finance Minister has some explaining to do as to why no deposits were made from Oct 2008 to Mar 2010 inclusive.

Here is Mrs Nunez-Tesheira's statement:

In an article appearing in the Trinidad Guardian of June 10, 2010 headlined “Finance Minister Dookeran No Funds Put into the HSF”, the following statement is attributed to Minister Dookeran: In respect to the Stabilisation Fund, no funds were put into the Stabilisation Fund during 2009-2010.

In response, I wish to place on record that the allegation, (carried in other print and electronic media) that no funds were deposited into the Heritage and Stabilisation Fund (HSF) in fiscal 2009/2010, is wholly inaccurate.

Indeed as I have stated on previous occasions, a warrant dated April 28 2010 was issued under my hand in my capacity as the then Finance Minister for the withdrawal from the Consolidated Fund and deposit into the HSF, the sum of TT$659,770,446.00. This sum represents surplus revenues generated from oil and gas up to Quarter 2 of fiscal 2009/2010.

As Minister Dookeran is aware, the HSF (the only Sovereign Wealth Fund in the Caribbean), was established by Act no 6 of 2007 with two primary objectives:
1. A Stabilisation Objective-to cushion the impact on public expenditure capacity as a result of revenue downturn caused by a drop in oil and gas prices and to thereby generate an alternative stream of revenue to support such expenditure during periods of downturn; and
2. A Heritage Objective-to provide a heritage for future generations from savings and investment derived from surplus oil and gas revenues.

Consistent with these two main objectives, the HSF Act prescribes the conditions for deposit (the heritage component) and for withdrawal (the stabilisation component) as follows:
1. Withdrawal - where petroleum revenues collected in any financial year falls below the estimated revenues for that year by at least 10%, withdrawals may be made.( In fiscal 2008/2009 the world was hit by a financial crisis unprecedented in scope and impact since the 1930s Great Depression. Trinidad and Tobago was not spared as we witnessed the collapse of oil prices from a high of US $147 in June 2008 to a low of US$35 by December 2008. Mindful of the impact on the country’s credit rating and the fiscal space that had been created, no withdrawals were made from the Fund); and
2. Deposit - the legislation provides in effect that where the estimated revenues from oil and gas for any quarter of a financial year are more than 10%, 60% of such surplus revenues are to be deposited in the HSF. As a consequence the fund has grown almost exponentially from approximately TT$1.01 billion to almost TT$19 billion by the end of 2009 with an additional deposit in April this year of TT$659,770,446.00.

Consistent again with the objectives of the HSF, the performance of the Fund has been particularly commendable given the challenging financial environment which has seen the vast majority of similar funds experience significant losses. As the Quarterly Reports 2008/2009 and 2009/2010, which have been tabled in Parliament clearly demonstrate, the HSF is one of the few Sovereign Wealth Funds in the world to experience growth.

In closing I wish to reiterate that over TT$659 million was deposited into the HSF for fiscal 2009/2010, contrary to published statements attributed to the Honourable Minister. I am confident that the Honorable Minister will have no difficulty correcting this misinformation particularly given its potentially negative implications for the Trinidad and Tobago economy.

Yours respectfully,
Karen Tesheira