EITI captures critical Heritage and Stabilisation Fund data

Trinidad and Tobago’s move to create a Heritage and Stabilisation Fund was driven by the need to provide a cushion to stabilise the economy in times of low energy commodity prices and to provide a vehicle to ensure future generations benefitted from present day energy resource wealth. Government’s recent decision to withdraw $2.5 billion from the Heritage and Stabilisation Fund (HSF), and the subsequent debate in the Parliament and in the public domain over the merits or demerits of the move, has underscored the value of having detailed information on the fund readily available. In the latest Trinidad and Tobago Extractive Industries Transparency Initiative (EITI) Report, a snapshot on the rules of withdrawal and deposits, the fund’s balance and its history is provided and hopefully this information can be used to dispel some of the inaccuracies making the rounds.

History of Fund

The HSF was established in 2007 as an instrument to save and invest any surplus of petroleum revenues that exceeded budgeted projections. Before the HSF, there was the Interim Revenue Stabilization Fund (IRSF) which was similar to the HSF in that they both share the objective of stabilizing government revenue in the event of crude or natural gas price deviations from the budgeted amounts. However, the HSF has an added objective which is to save in the long run for future generations. When the HSF was created, the $US 1.4 billion in the IRSF was transferred to the HSF. The HSF Act also includes rules which detail how the funds should be used, drawn down and the governance arrangements of the fund. The Ministry of Finance is charged with the responsibility of depositing revenues earned from the energy sector into the Fund. The HSF Act clearly details the rules which govern the deposit and withdrawal of energy funds from the HSF (See Table 1).

Table 1

Rules Governing the Heritage and Stabilization Fund
Rules of Withdrawal Rules of Deposit
1. Government can withdraw only if actual petroleum revenues are less than what the government projected it to be by at least 10%. 1. If the quarterly actual petroleum revenue exceeds the amount estimated by the government by more than 10%, the amount equivalent to the excess (in $US) must be deposited to the HSF.
2. The amount to be withdrawn must be lesser of the two options below:

a. either 60% of the amount of the shortfall of petroleum revenues, or

b. 25% of the Fund’s credit balance at the beginning of the year.

2. If actual quarterly revenue exceeds the estimated petroleum revenue for that quarter by less than 10%, then the amount equivalent to all or part of the excess revenue may be deposited to the HSF (in US$) from the Consolidated Fund. The decision on whether any of the excess revenue should be deposited resides with the Ministry of Finance.


The HSF has been consistently increasing and has grown by more than 100 times its value in 2000. In fact, since its inception and up until the end of fiscal year 2015, no withdrawals have been made from the HSF, or its predecessor, the IRSF. Due to higher than expected crude prices, the Government was able to increase the value of the fund by almost 10% from its value at the end of fiscal 2012. At the end of September 2013, the Government contributed US$42.5 million to the fund, which led to a net asset value of US$5.1 billion, up from its value of US$4.7 billion in 2012. Currently the fund has US $5.7 billion.

Our Fund’s Global Ranking

Despite the fund being hailed as the world’s best performing sovereign wealth fund in 2011, with a 9% investment return, there are several critical issues we must address when analysing the HSF. Bench-marking our fund’s performance against that of other sovereign wealth funds (SWF’s) in competing energy provinces is therefore a useful exercise.

The Sovereign Wealth Institute’s Linaburg-Maduell index is a method of rating transparency in respect to sovereign wealth funds. The index rates whether sovereign wealth funds provide information on government ownership structures, independently audited annual reports, portfolio market value and returns. Other important variables such as providing guidelines on ethical standards, investment policies, enforcing of guidelines, strategies and objectives and identification of external mangers are also rated.

HSF Governance Principles

The governance structure of our HSF Act is well in accordance with international best practices as outlined by the Santiago Principles (also known as the Generally Accepted Principles and Practices). The Santiago Principles were developed by the International Working Group on Sovereign Wealth Funds and consist of 24 principles which require the Fund’s accountability framework, ethical standards and a governance framework to be clearly defined among other things.

A June 2012 IMF Report on Trinidad and Tobago, recognized the strong record of T&T’s HSF, however it outlined a number of recommendations to improve the performance of the Fund. One of the key recommendations coming out of the report was to transfer energy savings to the HSF only when public finances are in surplus. Even when public finances are in a balance or in a deficit, transfers to the Fund are typically financed via borrowing (or by drawing down on Government deposits at the Central Bank). This is not sustainable as it does not improve the net asset position of the Government. Also, losses are likely to be incurred if the cost of borrowing is greater than the investment return.

Secondly, although the HSF performs the dual role of heritage and stabilization, there is a preference to maintain the heritage function over stabilization. This is clearly seen by the lack of withdrawals from the HSF when energy revenues have fallen sharply together with conservative budget assumptions about energy prices. For example, in 2008/2009 when oil and gas prices fell drastically, the Government adjusted the budget and drew down on its deposits in the Central Bank rather than from the fund. Interestingly, a withdrawal equivalent to 2.5% of GDP would have been allowed at the time (which puts the current withdrawal in context). The IMF recommends that the HSF Act be amended to not only clarify the savings objective, but also to preserve the stabilization objective in order to cushion public finances from the impact of high fluctuations of energy prices.

Another interesting recommendation coming out of the report was the need for the Government to give the details of the data and approach used to calculate the energy price announced in the annual budget. Because the price used in the budget determines the revenue threshold for contributions into the HSF, there is a need to specify the details of the calculations of energy price assumptions for clarity. Also, it allows for greater transparency and a more meaningful assessment of the energy revenue position at year’s end.

Certain key questions will generally arise as it relates to the budgeted crude and gas price. For example, is the budgeted oil price the average of T&T export crude? Is the budgeted figure more or less than the benchmark crude price?  As it relates to gas, is the price quoted the average of the well-head prices for the different streams of gas or is it the average of the netback prices?

During the budget debate, the Minister of Energy and Energy Industries addressed these issues and provided data on well head gas prices and benchmark prices. However, this information needs to be also filtered to the general public coherently, possibly by media commentators and/or University think-tanks.

In the end, although our HSF adheres well to the Santiago Principles for transparency and governance, the IMF Report recommended that a private sector auditor be engaged to audit the HSF.  The Auditor General currently audits the HSF accounts but, with the move toward a more diversified energy portfolio, engaging an external auditor experienced in auditing foreign investments and asset management would allow for greater transparency and efficiency of the Fund.


This country’s energy resources are finite and, while this current generation benefits from our energy largesse, putting aside savings for future generations should be a moral obligation and a national imperative. Being vigilant and constantly analysing how our HSF’s governance framework is administered will influence how the country uses today’s energy wealth to aid sustainable development by both bracing us against shocks and also ensuring a transparent handover of inter-generational assets to unborn Trinbagonians. EITI implementation in Trinidad and Tobago is complementary to this objective.

Sherwin Long, Head, TTEITI Secretariat.