TWO environmental NGOs — World Wildlife Fund (WWF) and Conservation International (CI) — are urging that important legislative steps be taken to convert the reserve fund operated by the Guyana Geology and Mines Commission (GMC) into a Sovereign Wealth Fund (SWF), based on identified best practices.

SWFs are pools of money derived from a country’s reserves and set aside for investment purposes that would benefit the country’s economy and citizens. The funding for an SWF often comes from central bank reserves that accumulate from revenue generated from the exports of natural resources.

Royalties
In a report issued this month, the environmental NGOs, citing the Mining Act, note that “miners are required to pay royalties to GGMC on any mineral extracted.’ But although the GGMC holds the funds for transfer to the Consolidated Fund, in accordance with the GGMC Act, the Commission has the legislative power to operate a reserve fund, and can be mandated to “transfer to that fund a sum equal to no less than such sum as may be fixed by the Minister”. The report adds that “out of any funds or reserves it holds”, the GGMC can make loans, or invest in securities.
“Thus, the GGMC has the power to hold royalties, invest them, and disburse them to government,” the report asserts.
The GGMC falls under the purview of the Minister of Natural Resources and the Environment, Mr. Robert Persaud.

Differences
While the legal provisions of the GGMC bear some semblance to those of a sovereign wealth fund, the groups posit that there are significant deviations from the best practices prescribed for an SWF.
“Firstly, governance of the funds falls solely within the realm of the government, with limited public information on the investment, management and rules for investment and/or disbursement from the funds,” the report points out, adding: “Transparent objectives and mechanisms can help reduce incentives for the funds to be used for short-term political objectives and provide for sound long-term investment decision-making.”
Secondly, it subtly indicates that the Executive arm of government has carte blanche to appropriate the proceeds from mineral royalties, saying: “It is not clear that there is separation of powers between those determining what is disbursed to those determining what is disbursed from.”
In a thinly veiled call for greater Parliamentary oversight of funds administered by the GGMC, the NGOs advise: “Wealth funds should follow the key constitutional doctrine of separation of powers. That is, separating the authority to determine what is spent from that to determine what to spend on.”
The report also posits that rules should be established to govern the magnitude and composition of spending from funds, as rules help to remove incentive to use funds for short-term gain, and can help set out long-term investment incentives.

Purpose
“The rationale for establishing such funds is as much political as economic,” the report states, adding: “They can help reduce the incentives for utilization of revenues for short-term gain rather than for long-term development.”
The report notes that some common objectives of SWFs are to:  protect and stabilise the economy from excess volatility in revenues or exports; diversify the economy from the export of non-renewable natural resources; increase intergenerational equity through savings for future generations; and fund social and economic development – development of intangible capital.

Examples
According to the report, SWFs date back to the 1950s, with the first of them emerging in Kuwait, an oil-producing country in the Middle East; and Kiribati, a Pacific Ocean island nation which one produced phosphates.
Norway’s Government Pension Fund is one of the more well known sovereign wealth funds.
“Within the Caribbean, Trinidad has established, and Suriname is establishing, similar funds,” the report adds.
The report, titled “Guyana’s Extractive Industry Sector (EIS): A Synopsis of Issues and Recommendations for the mining sector as a Sustainable Element of Guyana’s Low Carbon Development Strategy (LCDS)” is available on Conservation International Guyana’s website at http://www.conservation.org.gy/publications/Extractive_Industries_Sector_Final_Report.pdf.