http://business.theage.com.au/busin...that-keeps-growing-20090422-afhe.html?page=-1
Struggling on a $6bn pot that keeps growing
Eric Ellis
April 23, 2009
East Timor's oil fund is thriving thanks to boring investment.
IN THE East Timorese capital's joke of a "financial district", roosters scratch in the dust as a family of goats bleat at vendors selling porn CDs, "jiggy-jig" as they sleazily hiss at passers-by.
It's a sad and unlikely place to spawn a master of the global financial universe, inasmuch as any still exist after the economic conflagration. But in his makeshift office by the bank building, Timorese civil servant Venancio Alves Maria is doing something the storied Temaseks, the Warren Buffets and Citigroups in more sophisticated time zones away can't boast. He's making money.
Alves Maria is the executive director of the Petroleum Fund of Timor-Leste, the Government authority entrusted to invest the oil and gas royalties deriving from the Timor Sea fields between East Timor and the Northern Territory. After barely four years, the fund has about $6 billion invested, about eight times East Timor's non-resources GDP. The fund gets about $250-300 million added to it every month, and has returned 3 to 5 per cent annually since its inception in mid-2005. In a world where the trillions of investments lost by crooks, frauds and desk-jockey cowboys require responding trillions in taxpayer-funded government bail-outs, Venancio and his fund stand out as stellar performers.
So what's his secret? The short answer is bad politicians. Such is the chaos East Timor has descended to in the decade since it broke free from its Indonesian military colonisers, its warring political clans can't agree on how to diversify their petrodollar bounty. So Indonesia-educated Venancio and his board take the only legally required default option open to them, plunging it all in the most boring investment around — US Treasury bonds.
The Timor fund is a minnow in the world's sovereign fund ocean, but its returns make it one of the world's best-performing sovereign wealth fund in the past year.
Its performance has shamed whale SWFs like the Norway pension fund, Singapore's Temasek and the Government Investment Corporation, and the Abu Dhabi Investment Authority, all hammered after huge, ill-fated punts in US and European banks and property.
Temasek lost 31 per cent of its $350 billion-plus portfolio last year, a loss that claimed its executive officer, a member of Singapore's long-ruling Lee family, while Norway took a $140 billion hit on its $440 billion fund, wiping out most of the gains it made since it started investing North Sea oil royalties in the 1990s.
Ironically, the Timorese fund has Norwegian advisers on its board. Some fund watchers believe it should be the other way round.
"We are the Steven Bradbury of sovereign wealth funds," says fund director Kevin Bailey, East Timor's honorary consul in Melbourne, where he runs a financial planning company.
"If only Singapore had put its hard-earned in T-bills and not Merrill Lynch."
Alves Maria monitors the royalties that roll into the fund from US resources major ConocoPhillips' Bayu Undan gas fields, and executes the Treasury bond purchases in New York. It's all transparent, East Timor's unreliable power and internet access permitting, and any Timorese can view what's going on by logging on, or making an appointment to visit the fund's office. That's another area where the East Timorese could teach Wall Street's big shots a thing or two — transparency.
An economics graduate of a university in East Java when East Timor was still Indonesia's 27th province, Alves Maria is part of Dili's "postconflict generation", young technocrats schooled abroad who've returned to take key posts in an administration short on skills. It hasn't always been easy. He reconciled the fund's 2006 accounts while living in a refugee camp after rioters tore through the capital. He proudly tells how his wife gave birth to their first child in a makeshift camp hospital on June 30, 2006, the last day of the fiscal year. Every quarter Alves Maria compiles a report in East Timor's official Tetum and Portuguese, as well as English, and publishes it to the fund's website. And every quarter he uses the same template. "The only things I change are the date of the report and whatever the financial data is for that quarter."
The Timorese experience, so far, contrasts to that of a tiny Australian island neighbour that squandered its natural bounty: Nauru, and its excess of seafowl guano. When Nauru became the "Kuwait of the Pacific" in the 1970s, it belatedly set up a fund to preserve the wealth that had made Nauru one of the world's richest nations.
Soon Nauru had a huge international real estate portfolio, led by Nauru House (or Birdshit Tower, as Melburnians prosaically called it) at the top of Collins Street, one of Australia's tallest buildings when it was finished in 1977. But misgovernance allowed Nauruans to insert their collective noses in their fund's trough — frivolous foreign travel and a fatal susceptibility to carpetbaggers, such as its infamous investment in an ill-fated West End musical about an affair between Leonardo da Vinci and his muse Mona Lisa.
Possibly apocryphal stories have Nauruans flying jets to Sydney for pizza delivery, Hawaii and Singapore for shopping and to Melbourne for footy weekends. By the mid-'90s, the money was gone and Nauru ranked close to the bottom of global GDP rankings.
The East Timorese say they are very much aware of the curse of oil. The country's Finance Minister, Emilia Pires, educated at Moreland High and a former Victorian public servant, says East Timor has the choice of becoming Norway or Abu Dhabi, or Nauru and Equatorial Guinea, the West African basket case wasting its oil bounty. "With proper and smart use of the fund," Pires says, "my hope and intention is to be better than Norway."
Still, with unique wealth comes unique problems. No company dominates a national economy's income as much as ConocoPhillips does in East Timor, which the World Bank ranks as the ninth-poorest nation. The country's dependence on oil and gas is near total, and Pires wants to diversify from resources, using more of the fund to improve infrastructure and develop a land-based economy to try to raise incomes above the current $1 a day most of East Timor's 1.1 million people survive on.
But former prime minister Mari Alkatari, on whose watch the fund was created, and who feels a certain proprietorship towards it, is having none of it. He heads the Fretilin party, which though in opposition, remains a powerhouse in Parliament. He says the fund should not be touched "for a very long time". He says it is generally well managed but frets about the encroaching cronyism; cushy advisory gigs and procurement backhanders. Says a Western diplomat in Dili: "Do you think after a few centuries of Portuguese rule and a few decades under Suharto they didn't learn anything about corruption?"
Bailey says the investment strategy, while proven to have been prudent in this economic climate, is effectively another dependency — on the US dollar. He said the debate is about how best to safely diversify and hedge the fund, while preserving and enhancing its reserves. A big part of Alves Maria's job is devouring enough financial literature for the day when East Timor does decide to diversify the fund, while keeping carpetbaggers at bay.
His job for the moment is more as a bookkeeper. He has no discretionary power to invest the fund and any decision to spend the money — other than for routine government expenses — requires layers of approval. East Timorese recently protested vocally about Parliament's decision to gift itself a fleet of new vehicles. As the fund grows, so too its status as a political football. But consensus is unlikely, given the near-constant political turmoil in East Timor.
But with up to $50 billion in oil and gas royalties expected to be collected in the decades ahead, East Timor could, on paper, become one of Asia's richest nations. It's a bounty that Pires says was "paid for by the lives of 200,000 of our people, and we must use it wisely".
-------------------------------
Latest updates at Singapore News Alternative:
1. East Timor's SWF puts Temasek and GIC to shame
2. Crisis of global capitalism hits Singapore hard
3. The issues involving the separation of conjoined twins
4. In Singapore, a More Progressive Islamic Education
5. Further restrictions on rights in Singapore
6. S'pore to gun for the arms industry as head of US-based defense company invited to EDB's international advisory board
7. S'pore investors shunned S'pore-listed China stocks
8. PSA CEO says container shipping trade has hit bottom
.
Struggling on a $6bn pot that keeps growing
Eric Ellis
April 23, 2009
East Timor's oil fund is thriving thanks to boring investment.
IN THE East Timorese capital's joke of a "financial district", roosters scratch in the dust as a family of goats bleat at vendors selling porn CDs, "jiggy-jig" as they sleazily hiss at passers-by.
It's a sad and unlikely place to spawn a master of the global financial universe, inasmuch as any still exist after the economic conflagration. But in his makeshift office by the bank building, Timorese civil servant Venancio Alves Maria is doing something the storied Temaseks, the Warren Buffets and Citigroups in more sophisticated time zones away can't boast. He's making money.
Alves Maria is the executive director of the Petroleum Fund of Timor-Leste, the Government authority entrusted to invest the oil and gas royalties deriving from the Timor Sea fields between East Timor and the Northern Territory. After barely four years, the fund has about $6 billion invested, about eight times East Timor's non-resources GDP. The fund gets about $250-300 million added to it every month, and has returned 3 to 5 per cent annually since its inception in mid-2005. In a world where the trillions of investments lost by crooks, frauds and desk-jockey cowboys require responding trillions in taxpayer-funded government bail-outs, Venancio and his fund stand out as stellar performers.
So what's his secret? The short answer is bad politicians. Such is the chaos East Timor has descended to in the decade since it broke free from its Indonesian military colonisers, its warring political clans can't agree on how to diversify their petrodollar bounty. So Indonesia-educated Venancio and his board take the only legally required default option open to them, plunging it all in the most boring investment around — US Treasury bonds.
The Timor fund is a minnow in the world's sovereign fund ocean, but its returns make it one of the world's best-performing sovereign wealth fund in the past year.
Its performance has shamed whale SWFs like the Norway pension fund, Singapore's Temasek and the Government Investment Corporation, and the Abu Dhabi Investment Authority, all hammered after huge, ill-fated punts in US and European banks and property.
Temasek lost 31 per cent of its $350 billion-plus portfolio last year, a loss that claimed its executive officer, a member of Singapore's long-ruling Lee family, while Norway took a $140 billion hit on its $440 billion fund, wiping out most of the gains it made since it started investing North Sea oil royalties in the 1990s.
Ironically, the Timorese fund has Norwegian advisers on its board. Some fund watchers believe it should be the other way round.
"We are the Steven Bradbury of sovereign wealth funds," says fund director Kevin Bailey, East Timor's honorary consul in Melbourne, where he runs a financial planning company.
"If only Singapore had put its hard-earned in T-bills and not Merrill Lynch."
Alves Maria monitors the royalties that roll into the fund from US resources major ConocoPhillips' Bayu Undan gas fields, and executes the Treasury bond purchases in New York. It's all transparent, East Timor's unreliable power and internet access permitting, and any Timorese can view what's going on by logging on, or making an appointment to visit the fund's office. That's another area where the East Timorese could teach Wall Street's big shots a thing or two — transparency.
An economics graduate of a university in East Java when East Timor was still Indonesia's 27th province, Alves Maria is part of Dili's "postconflict generation", young technocrats schooled abroad who've returned to take key posts in an administration short on skills. It hasn't always been easy. He reconciled the fund's 2006 accounts while living in a refugee camp after rioters tore through the capital. He proudly tells how his wife gave birth to their first child in a makeshift camp hospital on June 30, 2006, the last day of the fiscal year. Every quarter Alves Maria compiles a report in East Timor's official Tetum and Portuguese, as well as English, and publishes it to the fund's website. And every quarter he uses the same template. "The only things I change are the date of the report and whatever the financial data is for that quarter."
The Timorese experience, so far, contrasts to that of a tiny Australian island neighbour that squandered its natural bounty: Nauru, and its excess of seafowl guano. When Nauru became the "Kuwait of the Pacific" in the 1970s, it belatedly set up a fund to preserve the wealth that had made Nauru one of the world's richest nations.
Soon Nauru had a huge international real estate portfolio, led by Nauru House (or Birdshit Tower, as Melburnians prosaically called it) at the top of Collins Street, one of Australia's tallest buildings when it was finished in 1977. But misgovernance allowed Nauruans to insert their collective noses in their fund's trough — frivolous foreign travel and a fatal susceptibility to carpetbaggers, such as its infamous investment in an ill-fated West End musical about an affair between Leonardo da Vinci and his muse Mona Lisa.
Possibly apocryphal stories have Nauruans flying jets to Sydney for pizza delivery, Hawaii and Singapore for shopping and to Melbourne for footy weekends. By the mid-'90s, the money was gone and Nauru ranked close to the bottom of global GDP rankings.
The East Timorese say they are very much aware of the curse of oil. The country's Finance Minister, Emilia Pires, educated at Moreland High and a former Victorian public servant, says East Timor has the choice of becoming Norway or Abu Dhabi, or Nauru and Equatorial Guinea, the West African basket case wasting its oil bounty. "With proper and smart use of the fund," Pires says, "my hope and intention is to be better than Norway."
Still, with unique wealth comes unique problems. No company dominates a national economy's income as much as ConocoPhillips does in East Timor, which the World Bank ranks as the ninth-poorest nation. The country's dependence on oil and gas is near total, and Pires wants to diversify from resources, using more of the fund to improve infrastructure and develop a land-based economy to try to raise incomes above the current $1 a day most of East Timor's 1.1 million people survive on.
But former prime minister Mari Alkatari, on whose watch the fund was created, and who feels a certain proprietorship towards it, is having none of it. He heads the Fretilin party, which though in opposition, remains a powerhouse in Parliament. He says the fund should not be touched "for a very long time". He says it is generally well managed but frets about the encroaching cronyism; cushy advisory gigs and procurement backhanders. Says a Western diplomat in Dili: "Do you think after a few centuries of Portuguese rule and a few decades under Suharto they didn't learn anything about corruption?"
Bailey says the investment strategy, while proven to have been prudent in this economic climate, is effectively another dependency — on the US dollar. He said the debate is about how best to safely diversify and hedge the fund, while preserving and enhancing its reserves. A big part of Alves Maria's job is devouring enough financial literature for the day when East Timor does decide to diversify the fund, while keeping carpetbaggers at bay.
His job for the moment is more as a bookkeeper. He has no discretionary power to invest the fund and any decision to spend the money — other than for routine government expenses — requires layers of approval. East Timorese recently protested vocally about Parliament's decision to gift itself a fleet of new vehicles. As the fund grows, so too its status as a political football. But consensus is unlikely, given the near-constant political turmoil in East Timor.
But with up to $50 billion in oil and gas royalties expected to be collected in the decades ahead, East Timor could, on paper, become one of Asia's richest nations. It's a bounty that Pires says was "paid for by the lives of 200,000 of our people, and we must use it wisely".
-------------------------------
Latest updates at Singapore News Alternative:
1. East Timor's SWF puts Temasek and GIC to shame
2. Crisis of global capitalism hits Singapore hard
3. The issues involving the separation of conjoined twins
4. In Singapore, a More Progressive Islamic Education
5. Further restrictions on rights in Singapore
6. S'pore to gun for the arms industry as head of US-based defense company invited to EDB's international advisory board
7. S'pore investors shunned S'pore-listed China stocks
8. PSA CEO says container shipping trade has hit bottom
.
