Investment mandate for NRF updated; oil money to stay put in Federal Reserve Bank

…following meetings between Board of Directors, BoG

Based on the updated investment mandate for the Natural Resources Fund (NRF), a decision has been made to maintain the oil money in the United States (US) Federal Reserve Fund, where it continues to earn favourable interest rates.
The recently released NRF Annual Report of 2022 had stated that discussions were held last year by the Board of Directors of the fund and the Bank of Guyana on the establishment of an investment mandate. While there was no formal investment mandate as at 2022-year end, the fund managers nevertheless took guidance from the principal NRF Act.
“There was no formal investment mandate of the fund as at the end of the financial year. However, the Act stipulates the investment guidelines for when the balance of the fund is less than US$500 Million, or more than US$500 Million but less than three times the amount approved by the National Assembly for withdrawal.
“Notwithstanding, the Board of Directors and the Bank of Guyana were engaged in discussions regarding the formulation of an investment mandate. In the interim, funds were maintained in the deposit account held at the Federal Reserve Bank of New York, earning overnight deposit interest at the prevailing federal funds rate.”
It had been decided at the time that the fund would be focused for the first few years on as safe investments as possible, currently overnight deposits and treasury bills in the Federal Reserve Bank of New York.
“The board’s decisions on investment of the fund are compliant with the guidance given in the Act and in accordance with the schedules of withdrawals and balances that are reflected in the schedules appended to the Act.
“The investment mandate will be implemented by the Bank of Guyana in a manner that ensures compliance with the safe investments prescribed in the Act, with the adoption of a laddered approach to maximize on interest accruing on the overnight deposits and treasury bills,” the annual report says.
A formal investment mandate has since been established that reinforces the discussions of 2022. Additionally, the Bank of Guyana’s quarterly report states that following a meeting in June, the updated investment mandate was approved, which requires the oil funds to be kept in its deposit account.
“The Board of Directors of the Natural Resource Fund, at its meeting held on June 26, 2023, approved the updated investment mandate for the Fund. It was mandated that the funds be maintained in the deposit account held at the Federal Reserve Bank of New York, earning overnight deposit interest at the prevailing federal funds rate of 5.05 per cent.
“It was also agreed that the Bank of Guyana will continue to monitor the overnight interest rate and inform the Chairman of any changes by the Federal Reserve Bank to consider redeploying cash,” the report states.
The NRF Fund board consists of five members, while the Public Accountability and Oversight Committee (PAOC) is comprised of nine members, and the Investment Committee is comprised of seven members.
Since passage of the NRF Act in 2021, Government has gone on to establish the Natural Resource Fund Board. Following parliamentary approval, the Government has made several withdrawals from the fund, amounting to tens of billions of dollars, which were transferred to the Consolidated Fund to finance national development priorities.
The funds from the NRF have their origins in the Stabroek Block – Guyana’s only block currently producing oil. The Block is 6.6 million acres (26,800 square kilometres). Exxon, through its local affiliate Esso Exploration and Production Guyana Ltd (EEPGL), is the operator and holds 45 per cent interest in the Block. Hess Guyana Exploration Ltd holds 30 per cent interest, and CNOOC Petroleum Guyana Limited, a wholly-owned subsidiary of CNOOC Limited, holds the remaining 25 per cent interest.
Section 3 (1) of the NRF Act 2021, Act No 19 of 2021, which was assented to by President Dr Irfaan Ali on December 30, 2021, establishes the NRF to manage the natural resource wealth of Guyana for the present and future benefit of the people in an effective and efficient manner, and in accordance with the principles of good governance, transparency, accountability, and international best practices, including the Santiago Principles.
When it comes to the NRF Board, it is Chaired by retired Major General Joseph Singh. Other members of the Board are Guyana’s Permanent Representative to the United Nations, Carolyn Rodrigues-Birkett; Private Sector Executive Ramesh Dookhoo; former People’s National Congress (PNC) parliamentarian Dunstan Barrow; and former Chancellor of the University of Guyana, Professor Compton Bourne.