La’o Hamutuk

Bulletin  |  Surat Popular  |  Topic index  |  Reports & Announcements  |  Updates
Reference  |   Presentations  |  Mission Statement  |  LH Blog  |  Search  |  Home

See excerpt from East Timor National Development Plan.
See updated information presented at June 2003 Donor's Conference.

Excerpts from
East Timor's Combined Sources Budget

2002-2003

Presented at May 2002 Donors' Conference

Part 3:  FISCAL POLICES

At Oslo, the Government outlined its commitment to the development of policies to promote sustainable public finances in three main areas:

  1. new revenue measures;

  2. savings and investment principles for Timor Sea revenue; and

  3. implementation of a Medium Term Fiscal Framework (MTFF).

The Government has made significant progress in delivering on these commitments. The  new revenue measures are discussed in Part 5.

Savings and Investment Strategy

East Timor needs a sound saving and investment strategy to maximise the benefits to the East Timorese people of the significant Timor Sea revenue expected over the next twenty years.

Current policy is to save part of the revenue from the Timor Sea. All First Tranche of Petroleum (FTP) revenue that is expected to amount $42.2m in the next three years ($1.1m in 2002-03, $8.8m in 2003-04 and $32.3m in 2004-05) will be saved. This demonstrates the commitment of the Government to strong saving and investment policies.

In accordance with this objective, the Government is committed to the creation of an oil fund, to encourage the wise investment of oil savings. Such a fund will also serve as a vehicle to save revenue for future generations, to insulate the non-oil  economy from the adverse effects associated with natural resources windfalls, and smooth the Government expenditure.

To establish the fund the Government has approved the following principles to be adhered to:

bullet

the fund should be integrated within the budget process, with inflows and outflows subject to Parliament approval;

bullet

the fund should not have separate spending, borrowing, or lending authority;

bullet

the fund should be administered transparently and be kept free of political interference, with regular and frequent disclosure and reporting of the principles governing the fund, as well as its finances;

bullet

the fund’s assets management strategy should be well defined, with guidelines governing the allocation of the fund’s resources;

bullet

a separate institution or agency should not be established for the purpose of operational management of the fund’s assets; and

bullet

the Ministry of Finance, under the Government’s direction, and along with the Monetary Authority, will be responsible for the operational management of the fund’s assets.

A Government fund’s assets management strategy and the legislation for creation of the fund will be developed by the Ministry of Finance with technical assistance from the International Monetary Fund.

horizontal rule

Timor Sea Revenue

The original Timor Sea revenue forecast presented in the 2001-02 Mid-Year Update has been revised to reflect the change to a number of factors that have a material impact on the project, namely:

bullet

conclusion of the "Bayu-Undan Understandings" that, subject to important conditions, permit the gas phase of the project to go ahead while varying tax and production-sharing terms solely for Bayu-Undan;

bullet

improved knowledge of the economics of the Bayu-Undan project, including accurate cost and production information together with revised price forecasts; and

bullet

deterioration in the outlook for oil production from Elang Kakatua Kakatua North (EKKN).  (This field is now expected to cease operations at the end of 2002.)

The Bayu-Undan Understandings have greatly improved East Timor's revenue prospects in the medium and long term by enabling the production of gas (and not only liquids) and installation of infrastructure that may trigger other Timor Sea developments.  In the early years of production, however, the Understandings will cause a reduction in the amount of revenue compared with the revenue from the liquids alone without taking into consideration the changes to tax and production-sharing.  This is a good outcome for the long-term benefit of the people of East Timor.  The revised oil revenue forecasts are presented in Table 5.3.

The significant downward revision of $137.6m of Timor Sea revenue in 2005-06 is based on the assumption that the "full" gas project will go ahead. The reduction is to some extent offset by better than previously forecast revenue from an earlier commencement of the Bayu-Undan production and higher tax revenue during the construction phase. 

The Ministry of Finance has prepared a “central” forecast using a consensus level oil price based on the forecasts from the companies, IMF and the World Bank.  “Central” means that there is an approximately equal chance that the out-turn could be better or worse.  The forecast uses a long-term price equivalent to about US$ 18.70 per barrel (Brent).

Following the careful consideration of the downside risk factors and upside potential, the Government has adopted a prudent approach to revenue projections and endorsed a 4-year revenue forecast based upon a 25% reduction from the central forecast developed by the Ministry of Finance.

Table 5.3:           Oil Revenue Central Forecast

Revenues

01 02
$‘m

02-03
$‘m

03-04
$‘m

04-05
$‘m

Total
02-05
$‘m

05-06
$‘m

Bud

Proj

Proj

Proj

Proj

Proj

Proj

FTP

6.0

6.0

1.1

8.8

32.3

42.2

29.7

   Elang-Kakatua

6.0

6.0

1.1

-

-

1.1

-

   Bayu-Undan

-

-

-

8.8

32.3

41.1

29.7

 

 

 

 

 

 

 

 

Other

6.0

6.0

27.3

34.8

69.6

131.7

72.2

   Elang-Kakatua

6.0

6.0

1.5

-

-

1.5

-

   Bayu-Undan

-

-

25.8

34.8

69.6

130.2

72.2

Total

12.0

12.0

28.4

43.6

101.9

173.9

101.9

Mid-Year Update 2001-02

12.0

12.0

17

33

82

132

214

Variation

-

-

4.3

- 0.3

-5.6

-1.6

-137.6

Table 5.4 represents the total estimate budget revenue comprising both domestic and Timor Sea revenue estimates for the period 2002-05. The revenue estimates (excluding FTP) for the next three years of $161m exceed the 2002-03 Mid-Year Update estimates by $5m.  This largely reflects the impact of the Governments’ revenue measures as the revision to Timor Sea revenue forecasts mainly impacts on the profile of the revenue stream over the three years.

Table 5.4:           Total Budget Revenue Forecasts

Revenues

01-02
$‘m

02-03
$‘m

03-04
$‘m

04-05
$‘m

Total
02-05
$‘m

05-06
$‘m

 

Bud

Proj

Proj

Proj

Proj

Proj

Proj

Domestic Revenue

19.0

19.3

20.8

20.1

21.3

62.2

22.9

   Taxes

17.0

17.0

18.6

18.0

19.1

55.7

20.3

       Direct

4.0

4.6

4.3

4.3

4.6

13.2

5.0

       Indirect

13.0

12.4

14.3

13.7

14.5

42.5

15.3

   Non taxed Revenue

2.0

2.3

2.2

2.1

2.2

6.5

2.6

 

Oil Revenue (1)

12.0

12.0

21.3

32.7

76.4

130.4

76.4

   FTP

6.0

6.0

0.8

6.6

24.2

31.6

22.3

   Other Revenues

6.0

6.0

20.5

26.1

52.2

98.8

54.1

 

Total Revenues

31.0

31.3

42.1

52.8

97.7

192.6

99.3

Total Revenues (less FTP)

25.0

25.3

41.3

46.2

73.5

161.0

77.0

Mid-Year Update 2001-02

25.0

25.0

34.0

51.0

71.0

156.0

185.0

Variation

-

0.3

7.3

- 4.8

2.5

5.0

-108.0

 Appendix 4:  Proposed CFET Appropriations by Program

 

2001-02

2002-03

2003-04

2004-05

2005-06

4 year

$'000

$'000

$'000

$'000

$'000

TOTAL

6.2.1Mining, Oil and Gas Sector Management and Regulation42

103

89  91106389
   Salaries & Wages 3  3737  3737148
  Goods & Services9 5252252208
  Capital

 30

14- 21733

The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu Timor-Leste ba Analiza no Monitor ba Dezenvolvimentu
Rua D. Alberto Ricardo, Bebora, Dili, Timor-Leste
P.O. Box 340, Dili, Timor-Leste
Tel: +670-3321040 or +670-77234330
email: 
info@laohamutuk.org    Web: http://www.laohamutuk.org    Blog: laohamutuk.blogspot.com