revenue generation vs. expenditure by gervase -

9/10/13 1

2014 Post-budget panel discussion

CONFIDENTIAL AND PROPRIETARY

(Revenue Generation vs. Expenditure) Presentation delivered by Gervase Warner President and Group CEO Neal & Massy Holdings Ltd. Capital Plaza, September 10th 2013

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Key topics for today

Value for Money

Review of GORTT Revenue & Expenditures

2

Suggestions

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Trinidad and Tobago has had six consecutive years of deficits

3 Source: Ministry of Finance, Budget Statement, Oct 2013; Draft Estimates of Revenue and Draft Estimates of Expenditure 2010-2014

2012

-6.7

2011

-4.0

2010

-2.8

2009

-6.7

2013P

-6.5

2014B

-5.3

39.0

+7% 56.0 53.0 49.3 47.5 43.9

45.7

+6% 61.3 59.5 52.8 51.5 46.7

Revenue TT, Billions

Expenditure TT, Billions

Surplus / Deficit TT, Billions

xx Percent of GDP

5.5 2.2 2.7 4.3 4.6 3.6

xx CAGR

| 4

Overall revenues growing by 7% CAGR – slightly faster in oil vs. non-oil

Source: CBTT, Ministry of Finance

19.8 20.1 20.1 17.8 15.8

+8%

23.3

32.9 27.4 26.0 23.3

+7%

32.7 29.5

2010

43.9

2009

39.0

+7%

2014B

56.0

2013P

53.0

2012

49.3

2011

47.5

Revenue (Oil) TT $ billions

Other TT $ billions

Total Revenue TT $ billions

• 2013 provisional revenues exceeded 2013 budget of $50.7 bn

• Additional future revenue from: -  Exploration

incentives for oil and gas

-  BIR reform and strengthening of capabilities

-  Land and building tax reform

-  Unitization agreement with Venezuela for Loran / Manatee field

xx CAGR

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GORTT expenditure growth has been moderate over the last 5 years but this is following an explosive increase in expenses the prior 5 years

5

2009

45.7

20.5

2012

9.0

2008

53.9

28.8

14.9

10.1

2007

39.8

17.9

13.2

8.7

2006

37.1

2013P

59.5

29.8

20.6

16.1

9.0 52.8

27.8

17.3

7.7

2011

51.5

20.5

11.8

4.9

2005

27.2

13.3

11.0

2.9

2004

20.7

9.2

9.7 27.4

2003

16.6

6.4

9.2

1.0

2002

14.2

5.1

8.4

0.8

2001

14.0

16.6

7.6

2010

46.7

23.9

1.7

16.4

6.4

5.3

7.7

1.0

2000

12.5

4.4

6.9

1.2

+7%

+27%

+13%

2014B

61.3

29.7

23.6

8.0

Transfers & Subsidies Recurrent Expenses Capital Expenditure

14.5

9.2

14.7

xx CAGR (2000-2014), Percent

SOURCE: Central bank of Trinidad & Tobago - Annual Economic Survey 2000-2011; Ministry of Finance of Trinidad & Tobago – Review of Economy 2001- 2013

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Transfers & subsidies account for ~ 50% of overall expenditure

6

Transfers to Households

Transfers to IDF, HSF, GATE and CARICOM

Petroleum Fund 10.808

Additional Transfers 3.043

Transfers to Educational Institutions

2.384 Transfers to State Enterprises

1.744

11.836

Total Transfers & Subsidies (2013P) 29.815

Note: IDF = Infrastructure Development Fund Note: HSF = Heritage Stabilization Fund Additional Transfers includes Transfers Abroad, Transfers to Non Profits, Transfers to Green Fund and Loans to Govt, Other Source: Review of the Economy 2013, IMF Energy Subsidy Reform - Lessons & Implications 2013

T&T Transfers & Subsidies breakdown TT, billion (2013P) • Transfers and

subsidies have continued to grow since 2009

• Transparency into this line item is not as good as in some of the other expense buckets

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T&T’s subsidy for petroleum products relative to GDP is much higher than world average

7

Pre-tax subsidies for petroleum products % of GDP by region

0.3

2.8

1.4

1.2

0.0

0.0

0.1

0.1

0.0

Barbados

New Zealand

Colombia

Nigeria

Qatar

Trinidad & Tobago

World Avg.

USA

Singapore

Note: IDF = Infrastructure Development Fund Note: HSF = Heritage Stabilization Fund Source: Review of the Economy 2013, IMF Energy Subsidy Reform - Lessons & Implications 2013

• Plans for CNG filling stations and incentives for CNG conversions will hopefully help with the shift toward alternative sources of fuel

• Longer-term DME will also likely become an alternative at the pumps

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The largest portions of recurrent expenses are the Ministries of Education, and National Security

8 2014 Budget Speech

2.9

2.5

2.2

1.8

3.5

0.7

1.1Ministry of Health

Local Government

Trinidad & Tobago Police Service

Ministry of Nat. Security

Ministry of Finance

Ministry of Education

8.9 Other Total 2014 Recurrent

Budget Est. 23.6

Ministry of Works & Infra.

Breakdown of Recurrent Expenditures TT, billions (2014 Budget)

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There are currently 89 companies either wholly or partially, directly or indirectly owned by GORTT

9

Minority Owned

4

Corp- Statutory

7 Majority Owned 7

Indirect 26

Wholly Owned 45

Note: Corp-Statutory includes Airports Authority of TT, Port Authority of TT, PTSC, T&TEC, TTHDC, T&T Postal Corporation, WASA Indirects have all or part ownership by other GORTT entities, e.g. NGC, PETROTRIN, NEL, UDECOTT, etc Source: State Enterprise Investment Program 2013, GORTT

•  The 89 state enterprises have a total profit after tax of $6,787 million

•  4 companies Petrotrin, NGC, NEL and NP contribute profits of $5,598 million or 82.5% of the total profit

State Enterprises, 2013 (100% = 89)

| 10

5 medium term priorities have been identified by Ministry of Planning

Key result areas

Source: National Performance Framework 2012-2015, Ministry of Planning & Sustainable Development

Agriculture & Food Security

Crime & Law and Order

• A Food-Secure Nation

• A Safe and Secure Society

Healthcare Services & Hospitals

• First-class healthcare • A fit & healthy nation

Economic Growth, Job Creation, Competitiveness & Innovation

• A Resilient, Competitive, Stable and Sustainable Economy

1

2

3

4

Poverty Reduction & Human Capital Development

• A Society Free from Poverty • A Quality Education System that Caters to the Diverse Needs of 21st Century Learners

• A Knowledge-Driven and Skilled Population

5

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Overall budget allocations in 2014 Budget Speech from Minister of Finance

11 Minister of Finance 2014 Budget speech

Breakdown of Overall Expenditures TT, billions (2014 Budget)

1.3

2.32.42.42.7

3.8

5.1

6.5

9.8

Education

25.0

Trans-port

Agri- culture

Other Works & Infra.

Local Gov’t

Housing Public Utilities

Health National Security

Largest allocations are to Education and Ministry of National Security

1 23 45 5 5 4

| 12

Crime and Law & Order: $728MM or 9.7% of PSIP

Top 5 Spend Projects in PSIP, TT, mil 2014 Min of Finance Budget Speech

Other 231

Equipping National Security Divisions 40

Improvements in Coast Guard 40

Improvements in Police Stations 45

Helicopter Acquisition 117

Police Station Construction & Upgrades

256

Source: Ministry of Planning and Sustainable Development PSIP 2013, 2014 Budget Speech from Minister of Finance

1

•  Increased police presence – generally and in targeted areas

•  Reintroduction of dedicated police highway patrols

•  Building capacity within law enforcement / CSI training (recruit additional 1000 police offers and 5000 SRPs (1500 in fiscal 2014)

•  Border strengthening (helicopters, 2 launches, harbour patrol)

•  Community outreach •  Implementation of National Security

Operations Center •  Enhanced E911 services •  Unmanned aerial vehicles •  CCTV rollouts in T&T •  Construction of 8 police stations

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Additional reflections on Crime and Law & Order

13

•  Increased focus on detection and solving of crimes to complement significant spend on vehicles and infrastructure

•  Higher level of sophistication, training and capabilities in our police force and protective services needed – some CSI training planned, but more leadership required

•  DNA regulation / testing capabilities, use of IT / technology

•  Using civillians / administrators in police stations with better IT support; trained police officers on the street

•  More effective highway patrols e.g. dedicated force with technology, training, etc.

•  More capacity in our system to get cases through with speed and accuracy and solve the backlog

1

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Agriculture and Food Security - $423M or 5.6% of PSIP

Top 5 Spend Projects in PSIP, TT, mil 2014 Min of Finance Budget Speech

5

Other 63

Fishing Facilities Tobago

Fishing Facilities Trinidad 15

Water Management 15

Agriculture Fisheries & Forestry

Development 24

Agriculture Land Development 302

2

•  4,111 acres of Caroni land and 100 acres of Tucker Valley divided in 6 small and 8 large farms (3 large in operation)

•  5,800 acres in agricultural lands leased to former Caroni employees through the Green Initiative

•  Food Security Facility with Gov’t of Guyana for up to 100,000 acres through private sector investment

•  Increased the ADB funding -- ~$150 million in approved loans (1400 loans)


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Additional reflections on Agriculture & Food Security

15

•  Partnership with private sector in achieving our plans (e.g. in building and operating the commercial farms)

•  Encourage more local / regional purchases by improving the quality of local / regional production

•  Focus on building capability in our nation on sustainable and organic farming

•  Investment in technology (or incentives to companies that use technology) to improve yields in farming

2

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Health Care Services and Hospitals - $662 or 8.8% of PSIP

Top 5 Spend Projects in PSIP, TT mil 2014 Min of Finance Budget Speech

54

63

70

141 Other

Youth Facilities

Health Sector Upgrade

Oncology Center

Construction of Facilities 159

Health Sector Reform 175

3

•  7 health facilities targeted for construction / expansion

•  Expand / upgrade another 5 health centers / facilities

•  Plans for infrastructural improvements to POS General

•  Commence introduction of health card system (for CDAP)

• Oncology center to be completed by 2016 ($891 million dollars)

•  Kidney / dialysis treatments – funded by GORTT for 2 years by GORTT-screened private facilities


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Additional reflections on Healthcare Services & Hospitals

17

•  Focus on healthcare administration and quality through partnerships with experienced international hospitals and healthcare providers

•  Focus on training, development and retention of skilled professionals in the healthcare space

•  Piloting of privatization of some key hospitals with professional management and measurement of progress

•  More controls around administration of drug programs to manage leakage

•  POS General Hospital needs to be rebuilt

3

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Economic Growth, Job Creation, Competitiveness & Innovation - $2.6 bn or 34.1% of PSIP

PSIP allocations, TT millions 2014 Min of Finance Budget Speech

Other 690

Information Tech &

Infrastructure 187

Drainage 203

Energy & Renewables 427

Roads & Bridges

886

Transportation 169

4

•  Significant developments in the energy sector •  Upsurge in drilling activity •  6 deep water production sharing contracts

(PSCs) •  2 parallel bid rounds ongoing (onshore /

deepwater ) •  Unitization agreement with Gov’t of Venezuela •  Significant improvement in tax incentives

•  Non-oil areas targeted for growth •  Shared Support Service Industry •  Marine – niche market for vessel construction

etc; MOU with China Harbour Engineering for additional dry docking

•  Tourism – more rooms (Radisson), Jet Blue flights to T’dad; Apollo airlines for Euro-Tobago

•  Energy – CNG investments in filling stations and incentives for conversions

•  Music / film / fashion - niche market


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Additional reflections on Economic Growth, Job Creation, Competitiveness and Innovation

19

•  Diversify from strength in energy sector

-  Build up service entities, diversify downstream

-  Develop renewable energy sector

•  Make T&T an easier place to do business – will help attract FDI, and also help with SME growth

•  Instead of lowering capital requirement for SMEs to list on the TTSE, why not help SMEs get credit ratings? Why not setup a private equity fund or create incentives for early stage investing?

•  Region-wide capital markets strategy

4

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Poverty Reduction and Human Capital Development - $ 2.6 bn or 34.1% of PSIP

PSIP allocations, TT millions 2014 Min of Finance Budget Speech

Other 349

Secondary Education 218

Community Development 342

Primary Education 394

Tertiary Education 541

Housing & Shelter 719

5

•  Social Programs including: •  11,421 customers benefit from utilities support

for TTEC and WASA •  Funeral grants from 3k to 6k, Education grant

from 300 to 500 per child, Housing assistance from 10k to 15k,

•  Min pension of 3k per month for all retired public servants (34k public servants) and 82k old age pension at 3000 per month

•  Home construction (2500 homes), squatter regularization, 2% mortgages, etc.

•  Education •  59,400 students in GATE programs •  130 early childhood centers for ages 3-4 •  15 secondary schools, 25 primary schools

(completed or in progress) and 47 planned •  Rapid expansion of tertiary & vocational facilities


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Additional reflections on Poverty Reduction & Human Capital Development

21

•  Focus on quality of education in our schools •  Motivated, well-trained and well-qualified teachers •  Lower teacher absenteeism •  Innovative and diverse curriculum

•  Balance pace of building schools with ability to ensure the capacity to staff all the new schools with high-quality teachers

•  Enhance safety in public schools

•  Partnerships with private sector to ensure graduates have relevant on-the-job training when they graduate

•  Less focus on handouts and more focus on creating more productive members of society

5

Neal & Massy Holdings Limited STRICTLY CONFIDENTIAL |


Value for Money


22

Suggestions

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Trinidad ranked 84th on the Global Competitiveness Report 2012-2013

23

Note: From the list of factors above, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to rankings. Source: The Global Competitiveness Report 2012-2013, World Economic Forum

97

84

69

63

57

44

10

7

2

1

144

Singapore

Switzerland

Japan

Colombia

Barbados

Jamaica

Costa Rica

Rawanda

T & T

Burundi

USA

Global Competitive Index in 2012-2013 (a drop from 81st place in the prior year) Rank out of 144 Countries (1 = best)

In 2011-2012 Trinidad & Tobago ranked 81 out of 144 on the index indicating that our Global competitiveness has fallen

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The Global Competitive Index survey indentified four priority areas where improvements in Trinidad & Tobago are needed

24

3.1

3.7

3.8

6.0

6.7

6.8

12.7

15.2

16.9

17.7

Restrictive labor regulations

Inadequately educated workforce

Political instability

Insufficient capacity to innovate

Inadequate supply of infrastructure

Acess to financing

Corruption

Poor work ethic in national labor force

Crime & theft

Inefficient government bureaucracy

Most problematic factors for doing business in T&T Percent of responses (%)

Note: Other categories surveyed but not shown on chart include Inflation, Tax Rates, Foreign currency regulations, Poor public health, Government instability / coups, Tax regulations (all scored below 2.4 %) Source: The Global Competitiveness Report 2012-2013, World Economic Forum

We should focus spend and outcomes on these critical areas to encourage FDI and also to help stimulate growth in the SME sector

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We ranked 69th on the ease of doing business index in 2013 and issues identified are major hindrances to economic growth and job creation

25 Note: 2011 rank was 76, 2012 rank was 70 Source: Ease of Doing Business Index, 2013

110

90

88

69

52

45

28

24

4

1

Japan

Singapore

United States

Trinidad & Tobago

Rwanda

Colombia

Switzerland

Barbados

Jamaica

Costa Rica

Ease of Doing Business Ranking, 2013 (1 is best, 185 is worst)

11

23

25

71

75

90

Getting Electricity

Getting Credit

Protecting Investors

Trading Across Borders

Paying Taxes

Starting a Business

Dealing with Construction Permits 101

Resolving Insolvency 135

Enforcing Contracts 170

Registering Property 176

Main issues identified for T&T (1 is best, 185 is worst)

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Education statistics not showing value for money ranking dropped on major indicators

26

Education Indicator

Rank Out of 139 Countries 2010/2011

Rank out of 142 Countries 2011/2012


• Tertiary Education Enrolment 104 103 106 • Availability of Scientist and engineers 65 61 56

• University - Industry Collaboration in Research in Development 68 68 76

• Quality of Scientific Research Institution 69 84 98

• Capacity for Innovation 138 120 124 • Quality of Educational System 30 37 40 • Quality of Primary Education 43 38 34 • Internet Access in School 69 61 55 • Quality of Math and Science Education 32 33 35

Global Competitiveness Report 2010/2011 2011/2012 & 2012/2013, SSIP 2013

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Similarly, in crime the statistics show Trinidad and Tobago going the wrong way

27 Global Competitiveness Report 2010/2011 2011/2012 & 2012/2013, SSIP 2013

Crime Indicator


Rank out of 142 Countries 2011/2012


Business Costs of Crime and Violence 131 135 139 Reliability of Police Services 107 119 117 Organized Crime 99 117 121

Neal & Massy Holdings Limited STRICTLY CONFIDENTIAL |


Value for Money


28

Suggestions

| 29

Major gaps in achieving our aspirations seem to be execution

• Leadership (vision, focus, talent)

• Management systems and processes

• Transparency and accountability (e.g., with annual performance reviews)

•  Implementation of procurement best practices

• Closing governance gaps identified by auditor general

• Balance the focus on infrastructure with capability building

Execution themes

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Closing thoughts

30

Task force of State, Private Sector and Labour to collaborate on additional institutions to privatize to improve productivity, service quality and create attractive long-term jobs

Further privatizations

Police station administration

Expenditure review for value

Leadership framework review

Collaboration between Police Service Commission, Police Service Welfare Association, TTPS and private sector to streamline administrative functions in police stations (improve service and increase efficiency)

Task force of Ministry of Finance, Ministry of Planning, private sector and select NGOs to review expenditure allocations to reduce duplication and improve efficacy for desired outcomes

Collaboration between select members of cabinet, private sector and respected thought leaders to recommend improved structures and practices for leadership of ministries, state enterprises and cabinet

CONFIDENTIAL AND PROPRIETARY

Acknowledgements to: •  Nisha Dass •  Zyreene Sarafat •  Matthew George •  Dominique Eustece

revenue generation vs. expenditure by gervase -

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