The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Government’s draft oil exploration legislation contains provisions for the creation of a Bahamian sovereign wealth fund, which would receive all due multi-million dollar royalty payments on any ‘black gold’ under this nation’s water.

Kenred Dorsett, minister of the environment and housing, said yesterday that a draft of the legislation/regulations that will ultimately govern oil exploration in the Bahamas could be released by summer’s end.

He confirmed that provisions to create a Bahamian sovereign wealth fund, which would be owned and managed by the Government on the Bahamian people’s behalf, were among the legislation being drafted.

Sovereign wealth funds, such as Singapore’s Temasek, have been established by many Middle East and Asian nations as vehicles to hold multi-billion dollars worth of assets and revenues, which are generated from sectors such as oil. These funds are then invested in productive areas of the global economy.

Commercial quantities of oil have yet to be confirmed in the Bahamas, so whether it is worth establishing a sovereign wealth fund - let alone how much money it might receive - might be seen as premature to many.

This nation should have a much better idea come 2015, given that the Bahamas Petroleum Company (BPC) has a licence obligation to spud its first exploratory well in April some 80 miles south-west of Andros, near the maritime boundary with Cuba.

BPC’s original agreement with the Government effectively gives this nation a 50/50 profit split if it discovers commercial quantities of oil, with the company paying a sliding scale of royalties between 12.5-25 per cent, depending on how much volume is recovered daily.

In previous presentations to numerous Bahamian society groups, BPC has shown, using an $80 per barrel oil price as an example, that 50 per cent of that revenue – some $40 – would go to cover costs.

That would leave $40, or 50 per cent, left, which would be split 50/50 between the Government and BPC. Over a 20-40 year timeline, if commercial quantities of oil are discovered in the Bahamas, BPC has projected that itself and the Government would each earn $20 billion in revenues, with development costs totalling $40 billion.

Speaking with Tribune Business outside the House of Assembly, Mr Dorsett said draft regulations to govern the nation’s petroleum sector were “progressing”.

“We just made some changes to the drafts over the last 30 days,” he said. “We’re waiting to have another meeting with our advisors, including the Commonwealth Secretariat and the office of the Attorney General.

“Once we have completed that I think we will then be in a position to advance it to Cabinet. We’re getting there and the good thing about this process is because of the engagement of the Commonwealth Secretariat, a lot of in-depth research is going into this process. Coming out of this we will really have a legislative regime we could be proud of.”    

Mr Dorsett announced last March that the Government would allow exploratory drilling to determine whether there are commercial quantities of oil in the Bahamas prior to any referendum, noting at the time that the latter was unlikely to occur prior to the 2015 second half.

Mr Dorsett said he hoped that legislation would come to Cabinet before year’s end. “I’m certainly hoping that it will. I had hoped it would have been something we would have been able to conclude last year,” he added.

“After our engagement of the Commonwealth Secretariat and really benchmarking other jurisdictions and seeing what others have done, it’s now been extended from just a review of our Petroleum Act and the regulations to the evolution of two environmental pieces of legislation, as well as a sovereign wealth fund. There are a number of things we are adding to the compendium of Bills we hope to advance.”

Mr Dorsett added: “I think it has been well worth it from my perspective to hold off the process. It’s not a rushed process, and it’s something I think the Bahamian people will be very pleased with.

“I’m hoping at the end of the summer we will get to a point where the drafts can be made available to the public and people can start reviewing and commenting so that I can take it to the House.”