Wednesday, February 05, 2014

Part 4: Mauritania National Fund for Hydrocarbon Reserves--Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Funds as Regulator and Participant in Global Markets

(Pix (C) Larry Catá Backer 2014)

This Blog Essay site devotes every February to a series of integrated but short essays on a single theme. For 2014 this site introduces a new theme:  Reimaging the State in the Global Sphere: An Inventory of Sovereign Wealth Fund as Regulator and Participant in Global Markets.

There have been a number of studies that have sought to provide an overarching structure for understanding SWFs. The easiest way to to this is tp find the largest and most influential funds and then extrapolate universal behaviors or characteristics from them.  This is a useful enterprise, it may erase substantial nuance that itself might provide the basis for a deeper understanding of SWFs within globalization and in the context of a state system in which not all states are created equal.  In this sense, while the large SWFs are better known, they do not define the entire field of emerging SWF activity. This study provides a brief critical inventory of the emerging communities of sovereign wealth funds. Each post will consider a different and less well known SWF.  Taken together, these brief studies might suggest the character and nature of the emerging universe of SWFs, and their possible rationalization.

This Post considers the the Mauritania National Fund for Hydrocarbon Reserves.

The Islamic Republic of Mauritania's National Fund for Hydrocarbon Reserves (Fond Nacional des Revenus des Hydrocarbures (FNRH)) was established in 2006 (Sovereign Wealth Fund Institute Mauritania).  It is said to have been designed as both a stabilization fund and a fund to amass savings for future generations.  It falls, then, as do many smaller funds of developing states, into the category of macroeconomic disciplinary technique to remove temptation from current governmental leaders. As the name implies it is funded form revenues received form royalties and other payments connected with the extraction of hydrocarbons from Mauritania (Ibid). 
It was recently reported that the fund had deposited about $90 million (US) for the 2013 fiscal year:
Le solde du Fonds national de revenus des hydrocarbures (FNRH) de la Mauritanie au 30 novembre 2013 dépassait les 90 millions de dollars américains, selon un document du Trésor public consulté lundi par la PANA.

Les revenus encaissés par l’Etat mauritanien à partir de la production de pétrole pendant la période du 22 novembre et 22 décembre 2013 s'élèvent à 2,5 millions de dollars américains.

La production totale du champ offshore "Chinguiti", 70 kilomètres au sud de Nouakchott, au cours de la même période s’élevait à 192.261barils, soit une production journalière constante de 6.409 barils, en légère baisse par rapport au mois précédent.

Les intervenants au niveau du champ Chinguiti, le seul actuellement exploité en Mauritanie, sont regroupés en un seul pool depuis juillet 2007.

La production est partagée entre l’Etat et une dizaine de sociétés pétrolières étrangères.

Les recettes du FNRH sont constituées par l’ensemble des revenus de l’Etat provenant directement ou indirectement des activités dans le secteur en amont des hydrocarbures, en particulier dans les domaines de l’exploration, du développement, de l’exploitation et de la commercialisation. (Fonds national de revenus des hydrocarbures mauritaniens : Plus de 90 millions $ encaissés, Noorinfo, Jan. 21, 2014)

 On transparency, it has been noted:
The Mauritanian government, considering the major role that mining and oil industries play in the economic and social development of the country and concerned to guarantee total transparency in the investment and utilization of financial resources generated by these sectors, acceded on September 25, 2005 to the Extractive Industries Transparency Initiative (EITI), launched at the World Summit on Sustainable Development in Johannesburg in September 2002. The application of these principles of this initiative fosters transparency in the use of revenues from the mining and oil industries.
Mauritania joined this initiative in a global context of government measures taken in recent years to institute transparent regulations in the management of mining and hydrocarbons and to help those sectors better contribute to securing economic growth, distributing the revenues, and reducing poverty, which still affects approximately 42
percent of Mauritanians. In so doing, the government authorities are seeking to forestall the missed opportunities that other countries have experienced in making effective use of their natural resources.
With a view to transparency and effectiveness, government revenues from hydrocarbons are therefore deposited into an open account held with a reputable banking establishment. A National Council on Extractive Industry Transparency (CNTIE) was established, by Decree 2006-001of January 13, 2006. With a membership comprising
representatives of government agencies and civil society, under the decree it has been entrusted with the task of:
 Ensuring the regular publication in a form accessible to the public, information on the tax revenues collected from oil, gas, and mining operations.
 Recruiting, invitations to bid in compliance with international standards, an independent expert to reconcile payment statements issued by extractive corporations and those issue by the central government.
 Drafting an action plan with measurable objectives and an implementation schedule.
 Ensuring that civil society participates actively throughout the entire process and that it contributes to the public debate.
By publishing the annual reports, the CNTIE provides Mauritanians with essential information on the revenues accruing to government from the exploitation of the mining and industrial sectors. This information, which is reconciled by an internationally renowned consulting firm recruited through a bidding procedure, is testimony to the strategic importance of these sectors, especially in terms of their contribution to the government’s budget.
The first National Report, drafted by the International firm Ernst and Young and published in March 2007, covers the data from 2005: the report is devoted primarily
to the National Mining Industries Corporation (SNIM), given that oil production in the Chinguetti oilfield did not begin until February 2006 and that for the other mining operators M.C.M (AKJOUJT) and T.M.L (TASIAST), their production was not scheduled to begin before 2006 and 2007, respectively. The second report, in 2006, drafted by the same international firm and published in July 2007 included data from both subsectors of mining and hydrocarbons, thus affording a more balanced view of these two strategic sectors in Mauritania’s economy. It emerged from the report that mining and oil contributed over 80 percent of the country’s export revenues and over 38 percent of non-grant fiscal revenue. (Islamic Republic of Mauritania: Poverty Reduction Strategy Paper, June 7, 2011 World Bank Resources); Box: 2.1: The Extractive Industries Transparency Initiative (EITI), p. 37)
 The ability of Mauritania to adhere to the disciplinary structures of its SWF may have already been tested.  A recent study noted;
Available information suggests that African SWFs have been subject to regular capital withdrawals to balance governments’ budgets and repay external debt. For instance, the balance of Nigeria Excess Crude Account (ECA) decreased from USD 20 billion in 2008 to less than USD 3 billion in 2010 while Sudan almost wiped out its Oil Revenue Stabilization Fund (ORSF) (Medani, 2010). Similarly, Algeria has been using its Fonds de Regularisation des Recettes (FRR) to repay public debt and fund fiscal deficits while Mauritania withdrew USD 45 million from its Fonds National des Revenus des Hydrocarburesleaving a balance of USD 34.25 million as of march 2009. (Thouraya Triki and Issa Faye, Africa’s Quest for Development: Can Sovereign Wealth Funds help?, African Development Bank Working Paper Series, No. 142-December 2011, p. 9).

Mauritania is neither a signatory of the Santiago principles nor does its transparency rating appear high (LM of 1) (Ibid, 11).  It is not a member of the International Forum of Sovereign Wealth Funds.It is not clear whether this fund will succeed in its objectives. It is not clear how its investments are directed; it is not appear that the Mauritanian state plans to use this as anything other than a rainy day fund, at least for the short term. Much more work is necessary to get a better sense of the operation of this SWF.  It is likely that those who might have information--international lenders like the World Bank and International Monetary Fund (for IMF interaction SEE HERE), will both keep that information more or less guarded and use the SWF for its own purposes as it crafts macro-policies for Mauritania.  For example, in its 2013 Report, the IMF noted in part: "In case net international assistance or the contribution of the FNRH to the budget falls short of the amounts projected in Table 1, the floor for NIR will be adjusted downward and the ceiling on NDA will be adjusted upward by an amount equivalent to the difference between the actual levels and the projected levels. In the case of the NDA ceiling, this amount will be converted into ouguiya at the program exchange rates." (Islamic Republic of Mauritania: Sixth Review Under the Three Year Extended Credit Facility Arrangement and Request of Nonobservance of Performance Criterion—Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Islamic Republic of Mauritania, IMF Country Report No. 13/188 (July 2013), p. 56, § 15 (Program Adjustors Technical Memorandum of Understanding).

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