Presented at December 2003 Timor Leste Development Partners Meeting (Donors' Conference) by the RDTL Ministry of Planning and Finance
Part 2: Overview Medium-Term CFET Position and Fiscal Options
[discussion of options for closing the financing gap]
The Government will wait before it decides on the last two options:
Decisions on the Government's savings policy will be taken in the context of the establishment of a Petroleum Fund and a long term savings policy. The International Monetary Fund (IMF) is assisting in finding and employing an international advisor to:
If an international advisor is appointed early next year then the Petroleum Fund may not be established by June 2004, given the extensive consultations that are desirable on this important long term issue.
Decisions on whether to borrow will only be made once the Government has available to it a feasibility study on concessional loans.
Therefore, it is likely that decisions on these two options will only be made once the Government has more information, including on the extent to which other options will make their contribution to filling the fiscal gap.
Part 4: Revenue Outlook
There has been a significant downward revision to revenue estimates. Table 4.1 shows the revised revenue estimates and compares them with the 2003-04 Budget.
Table 4.1 Revised Estimates of Total Timor-Leste Revenues ($m)
The outcome for domestic revenue for 2002/03 was 10 per cent higher than anticipated the 2003-04 budget. Domestic revenue in the first quarter of 2003-04 is stronger than previously expected. This improved outcome has resulted in an improvement in the estimate of domestic revenue in the budget and forward years.
The revenue outcomes for 2002-03 and the revenue estimates for 2003-04 have increased as a result of several factors:
A good example is Customs opening of offices in the districts of Bobonaro, Oecussi e Covalima. The ETRS has improved its administration by strengthening its auditing functions.
The revised estimates of domestic revenues are shown in Table 4.2.
Table 4.2 Revised Estimates of domestic Timor-Leste Revenues ($m)
The reductions in total revenue will largely arise from lower Timor Sea revenues. Table 4.3 shows the revised estimates of Timor Sea revenues after applying a 15 per cent discount from 2003-04.
Table 4.3 Revised Estimates of Timor Sea Revenues ($m)
The downward revision in Timor Sea revenue is largely as a result of the delays in full commercial production from the Bayu Undan project. Full production from the Bayu Undan is expected to be delayed from April 2004 to November 2004. This delay is primarily due to:
Due to the delay in the start of production, Conoco Phillip's production profile for the year 2004 now shows a decrease in liquids production from 22 to 12 million barrels. (At the time of the 2001 Bayu‑Undan understandings, the expected production for 2004 was 33 million barrels.) This will cause a significant decrease in first tranche petroleum (FTP) from Bayu Undan in 2003-2004 and 2004-2005 from previous estimates. The lower production will also reduce incomes and lead to larger reductions in income tax payable in 2004-05 and beyond.
Revenue for 2003-04 will be reduced because of the higher than expected prepayments of revenues from 2002-03 under the Taxation of Bayu Undan Contractors Act. For the Elang Kakatua Kakatua North (EKKN) project, 2003-04 will see the (word missing in document) of relatively high once off income tax payments.
A 15 per cent discount has been applied to these estimates as significant risks still surrounding the revenue forecasts, including risks to Bayu Undan resulting from further technical difficulties in start up, reductions in oil prices and reduced gas sales in 2006 and 2007.
Whilst there have been very significant reductions in estimates of Timor Sea revenue for 2005-06 and 2006-07, the estimates for years thereafter are broadly unchanged.
Figure 4.1 shows the undiscounted estimates of total Timor Sea revenue before and after the most recent revisions, including taxes and FTP. It shows that the reductions in revenue are mostly in the years to 2007 and are generally followed by revenue increases in later years.
Figure 4.1 Recent Revisions to Total Timor Sea revenues ($ m, undiscounted)
These revenue estimates are based on information supplied by the Contractors and the Designated Authority, modelling by the Government and revenue collections by the ETRS. The near-term estimates are most influenced by the ETRS revenue collections while the modelling is most important for the medium-term estimates.
All estimates are based on assumptions and the appropriate assumptions to use for forecasting change as new information becomes available and as conditions change. For example, changes in the following assumptions are made as required and used to revise the estimated revenue for the Bayu Undan project:
FTP Revenue and Savings
The delays in construction and production will also reduce FTP revenues. Interest received from Timor Sea FTP savings will also be lower because of lower US interest rates. Revised estimates of FTP, interest and FTP savings are shown in Table 4.4.
Table 4.4 Revised Estimates of FTP, Interest on FTP and FTP Savings ($m)
Accumulated FTP Savings at the end of 2006-07 are now estimated to be $91.6 million compared to $111.2 million in the 2003-04 Budget.
The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)