province of alberta...17% • alberta’s contribution to national gdp and exports in 2016 was...
TRANSCRIPT
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Province of AlbertaInvestor Meetings
EuropeNovember 2018
Lowell Epp, CFAAssistant Deputy Minister, Treasury and Risk Management
Treasury Board and Finance
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• Canada– 10th largest economy and 9th least risky country
in the world (1)
– Federal Government, 10 Provinces and 3 Territories
• Provinces have significant autonomy – Provincial ownership of natural resources– Responsible for health care and education– Direct taxing powers include personal income,
corporate income, mining taxes and royalties, value added/sales, fuel and payroll taxes
Alberta, Canada
(1) Euromoney Country Risk score
No federal guarantee on provincial debt, however federal government provides significant and predictable financial support to Alberta
2
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Alberta's economy at a glance
Share of 2017 of GDP by industry
(1) Statistics Canada(2) Estimated April 1, 2018
3
Mining, quarrying, and
oil and gas extraction
21%
Construction10%
Trade9%
Manufacturing6%
Finance and Real estate16%
Professional, scientific and
technical services
5%
Health care and social assistance
6%
Public administration
5%
Transportation and
warehousing5%
Other17%
• Alberta’s contribution to national GDP and exports in 2016 was around 15.5%
• At 4.3 million people(2), Alberta represents about 12% of the national population
• Young, skilled population with highest employment rate (around 67%) in Canada, despite significant layoffs in 2015 and 2016
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301
266
170158
143102
9880
4835
0 50 100 150 200 250 300 350
VenezuelaSaudi Arabia
CanadaIranIraq
KuwaitUnited Arab…
RussiaLibya
United States
Alberta’s oil reserves ranked 3rd in the world2016 global oil reserves, estimated proven reserves (billions bbl)
Source: U.S. Energy Information Administration, Alberta Energy Regulator
4
Alberta oil sands
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• Rebound surpassing expectations– Real GDP growth in 2017 estimated to be 4.9% following two-
year recession– Driven by rising oil production, broad-based strength across
industries• Growth moderating in 2018 as recovery more entrenched
– Real GDP growth forecast to be 2.7%– Exports and consumer spending to drive growth
• A prolonged recovery– Lingering effects of downturn on corporate profits and investment– Full recovery in real GDP not until 2019, nominal GDP in 2020– Government revenue not forecast to reach pre-recession levels
until 2019-20
Alberta in second year of recovery
5
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Moderate GDP growth
Real GDP (billions of 2007 dollars)
Source: Statistics Canada and Alberta Treasury Board & Finance, f-forecast
6
6.2%
-3.7%
-3.7%
4.5%2.7%
2.5%2.4%
2.6%
270
280
290
300
310
320
330
340
350
360
2014 2015 2016 2017 2018f 2019f 2020f 2021f
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Energy investment stabilizing: Production continues to growAlberta energy investment
Source: Statistics Canada and Alberta Treasury Board and Finance; e-estimate, f-forecast
7
0.0
1.0
2.0
3.0
4.0
5.0
0
10
20
30
40
50
60
70
(milli
on b
arre
ls p
er d
ay)
($bi
llion)
Oil Sands Investment (Left) Conventional Oil and Gas Investment (Left) Production (Right)
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Solid population growth
Change in Alberta's population by component
Source: Statistics Canada and Alberta Treasury Board & Finance, f-forecast
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-40-20
020406080
100120140
(%)(Thousands) Natural Increase (Left) Net International (Left)Net Interprovincial (Left) Population Growth
8
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Alberta remains Canada’s most prosperous provinceNominal GDP per capita
Sources: Statistics Canada, Alberta Treasury Board and Finance and TD Economics, f-forecast
0102030405060708090
100
($thousands)
Rest of Canada Range Rest of Canada Average Alberta
9
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• Climate Leadership Plan– Eliminates coal-fired electricity emissions by 2030– Legislated 30% renewable electricity generation by 2030– Methane reduction of 45% by 2025– Economy-wide carbon pricing– Cap on oil sands emissions
• Oil sands companies reducing emissions aggressively– Significant corporate investment accelerating pace of change
• Consultation with and participation by Indigenous peoples– Oil sands companies purchased $3.2 billion from Indigenous
business in 2015-16 and spent $41 million on consultations• Committed to regulatory oversight and transparency
– Best and most transparent regulatory system in the world
Climate LeadershipNorth America’s most ambitious plan
10
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Alberta's tax advantage 2018-19
11(1) Alberta Treasury Board and Finance
0 4 8 12 16 20 24
Newfoundland & Labrador
Quebec
Prince Edward Island
Nova Scotia
Manitoba
New Brunswick
Ontario
Saskatchewan
British Columbia
($billion)Other Taxes / Carbon Charges Sales / Value Added Tax
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($billions)
Deficit declines over time
Consolidated fiscal surplus (deficit)
Source: Alberta Treasury Board and Finance, e-estimate, f-forecast
12
• Path to Balance – three pillars– Strong and diversified economy– Stable spending and cost containment– Reducing reliance on resource revenue
(10.8)(8.0) (7.8) (7.9) (7.0)
(4.3) (1.4)0.7
-12-10-8-6-4-202
2016-17 2017-18 2018-19f 2019-20f 2020-21f 2021-22f 2022-23f 2023-24f
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0
2,000
4,000
6,000
8,000
10,000
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19e 2019-20t 2020-21t
($millions)Budget Actual
Capital spending to return to normal levelsCapital plan - Consolidated basis
Sources: Budget 2018 and Government of Alberta Annual Reports
f - forecast, t - target
13
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Low debt burden
2018-19 Projected net debt-to-GDP(1)
(1) RBC: Public accounts basis. Numbers are based on reports from individual governments and, due to accounting differences, are notstrictly comparable between provinces. Sources include: Fiscal reference tables (Department of Finance Canada), various provincial budgets, budget updates and public accounts. As of April 10, 2018.
(2) Alberta’s 2021-22 ratio calculated by Alberta Treasury Board and Finance based on forecast Budget 2018 forecasts.
Quebec 43%Ontario 38%
British Columbia 15%Alberta 8.7%
Projected net debt-to-GDP expected to peak at 13.1% in 2021-22; below the current net debt-to-GDP ratio of any other province(2)
14
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2018-19 Total Borrowing(Term debt)
Borrowing platform
$9.6 $4.1
Direct Borrowing
Provincial Corporations
15
Forecasted term debt issuance
$13.7 $17.6 $17.5
0
4
8
12
16
20
2018-19Estimate
2019-20Forecast
2020-21Forecast
($ B
illion
s)
Reduction in borrowing in Q1 from budget of $1.7 billion
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Borrowing strategy
• Ensure domestic liquidity– Maintain larger domestic benchmark
sized issues ($3-$5B)– Limited domestic MTN issuance – Promote secondary market liquidity
• Control domestic supply– Target issuance of 30% - 40% in
foreign currency markets– Frequent US$ benchmarks – Arbitrage driven global currency
issues
16
60% 40%
DomesticInternational
Target issuance
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Borrowing strategy
Foreign currency borrowing• Liquid US$ Global Issues in 3, 5, 7, and 10 years
– SEC Registered, large US$ benchmarks– US$ CP program launched in September 2017
• Inaugural Euro – 7 year benchmark issued in 2018• Sterling benchmarks across curve driven by investor demand • MTN and structured issues in multiple currencies, including GMTN
and AUD programmes driven by arbitrage and investor demand
17
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Credit ratings
Long Term Short Term
S&P A+(Outlook stable)
A-1+
Moody’s Aa1(Outlook negative)
P-1
FitchAA
(Outlook stable)F1+
(Outlook stable)
DBRS AA (Negative trend)
R-1 (high)(Negative trend)
18
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Summary
• Strong economic base; real GDP growth was to 4.9% in 2017 and is forecast to be 2.7% in 2018
• Demonstrated resilience to past commodity price shocks• Continued high level of fiscal capacity• Strong bond ratings• Multi-currency, multi-market borrowing platforms• Strong secondary liquidity
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Appendix
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• The Alberta government has taken a number of steps to promote the growth of a more diversified economy
• These include:– Securing approval of the Line 3 replacement and TMX– Diversifying Alberta’s energy sector and encouraging value-
added production by investing in the Petroleum Diversification Program, petrochemical feedstock infrastructure and partial upgrading
– Introducing three tax incentives – the Alberta Investor Tax Credit, the Capital Investment Tax Credit and the Interactive Digital Media Tax Credit
– Creating 3,000 new post-secondary technology spaces and new scholarship programs to support emerging sectors
Path to balanceA strong and diversified economy
21
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0
1
2
3
4
5
6
7(%)
Inflation + Population GrowthOperating Expense
Path to balance - Stable expense growth below population growth and inflationOperating expense growth
Sources: Government of Alberta Annual Reports and Budget 2018, e-estimate, f-forecast
22
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0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0($billions) Income and Other Taxes
All OtherNon-Renewable Resource Revenue
Path to balance - Revenue surpasses pre-recession level in 2019-20Government of Alberta revenues by source
Source: Treasury Board and Finance
23
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Forecast Estimate Target Target Projection Projection Projection
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24Revenue 46.9 47.9 50.6 53.8 57.8 62.3 66.3
Tax Revenue 21.2 22.9 24.5 26.0 28.0 30.2 31.7Non-Renewable Resource Revenue 4.5 3.8 4.2 5.0 6.8 8.6 10.4
Other Revenue 21.1 21.2 21.9 22.8 23.0 23.5 24.2Operating Expense 46.4 47.8 49.1 50.3 52.0 53.8 55.6
% change 3.8 3.0 2.7 2.5 3.4 3.5 3.4CPI inflation population growth % 3.0 3.5 3.4 3.5 3.6 3.6 3.6
Total Expense 55.9 56.2 57.8 59.8 62.2 63.7 65.5Surplus (Deficit) (9.1) (8.8) (7.9) (7.0) (4.3) (1.4) 0.7Capital Plan 9.2 6.4 5.9 6.0 6.4 5.2 4.8Net Financial Debt 20.3 30.5 39.8 48.2 53.9 56.2 56.0
% GDP 6.0 8.7 10.8 12.4 13.1 12.9 12.3
Path to balance Fiscal metricsEnergy and exchange rate assumptions
24
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Actual Q1 Forecast Target Target Projection Projection Projection
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24WTI Oil (US$/bbl) 53.69 61.00 60.00 63.00 68.00 70.00 73.00Light-Heavy Differential (US$/bbl) 14.40 24.00 21.00 22.30 20.00 19.00 18.40Natural Gas (Cdn$/GJ) 1.82 1.70 2.20 2.40Exchange Rate (US¢/Cdn$) 78.0 78.0 80.0 80.0
Path to balance Assumptions
Actual Forecast2017 Q1 2018 2019* 2020 2021 2022 2023 2024
Real GDP (% change) 4.9 2.7 2.7 2.4 2.6 2.7 2.4 2.6Nominal GDP (% change) 7.1 5.8 5.0 5.6 6.0 5.5 5.0 4.6Employment (% change) 1.0 1.9 1.7 1.8 1.6 1.6 1.5 1.4Unemployment Rate (%) 7.8 6.7 6.1 5.7 5.3 5.1 5.0 4.9
Energy and exchange rate assumptions
Economic assumptions
25Source: Alberta Treasury Board and Finance Budget 2018, *2018-19 First Quarter Fiscal Update and Economic Statement
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Fiscal sensitivities
Fiscal Sensitivities to Key Assumptions in Budget, 2018-19(1)
(1) Sensitivities are based on current assumptions of prices and rates and show the effect for a full 12 month period. Sensitivities can vary significantly at different price and rate levels. The energy price sensitivities do not include the potential impact of price changes on the revenue from land lease sales
(2) Lower natural gas prices increase net royalty revenues due to the positive impact on bitumen royalties (due to lower costs) which more than offsets the decline in natural gas and by-product royalties.
(millions of dollars) Change Net Impact (2018 – 2019)
Oil Price (WTI US$/bbl) -$1.00 -265
Light-Heavy Differential (US$/bbl) +$1.00 -210
Natural Gas Price (Cdn$/GJ) -10 Cents +10(2)
Exchange Rate (US¢/Cdn$) +1 cent -198
Interest Rates +1% -226
Primary Household Income -1 % -150
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Revenue sources(1)
• Non-Renewable Resource Revenue can be large, but variable
• Combined other sources provide stability and support growth
• Transfers from GoC of $8.6B in 2018-19, or 16% of total revenue
(1) A=Actual, F= Forecast, T=Target.
$0
$10
$20
$30
$40
$50
$60
Rev
enue
(billi
ons)
Other own-source revenue Premiums, Fees and Licences
Investment Income GoC Transfers
Income and Other Taxes Non-Renewable Resource Revenue
27
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AppendixBroad-based recoveryContribution to year-over-year change in the Alberta Activity Index (AAX)
Source: Statistics Canada and Alberta Treasury Board and Finance
28
-8-6-4-202468
1012
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
(Percentage Points)
EnergyGeneral Business ActivityHousehold ActivityLabour MarketAlberta Activity Index
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2018 Private sector investment intentions by province
29
Alberta leads provinces in private sector investment
$0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50
AB
NL
SK
MB
BC
QC
ON
Maritimes
(billions)
Source: Statistics Canada
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Labour market re-balancing
Alberta labour market indicators
Source: Statistics Canada and Alberta Treasury Board & Finance, f-forecast
30
0.0
2.0
4.0
6.0
8.0
10.0
2011 2012 2013 2014 2015 2016 2017 2018f 2019f 2020f 2021f1,500
1,700
1,900
2,100
2,300
2,500
(%)
(000
s)
Employment (left) Unemployment Rate (right)
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1,156
National average: $1,001
500
750
1,000
1,250
NL PEI NS NB QC ON MB SK AB BC
($)
Higher wages and higher employment
Average weekly earnings* (August 2018)
Source: Statistics Canada
31
67.1%
40%
50%
60%
70%
NL PEI NS NB QC ON MB SK AB BC
(%)
National average: 61.5%
Employment rate* (September 2018)
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Federal support to provincesMain transfer programs to provinces
• Grows in line with federal annual escalator (3%) and changes to Alberta’s share of the national population
Canada Health Transfer (CHT)
• Grows in line with federal annual escalator and changes to Alberta’s share of the national population
Canada Social Transfer (CST)
• Ensures provinces have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation
• Receiving provinces are free to spend the funds according to their own priorities
• Determined by provinces' fiscal capacity relative to the Canadian Average
Equalization Transfer
Alberta estimates to receive $8.2 billion in federal transfers in 2018-19, including CHT and CST payments but no equalization
32
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Well funded public sector pensions
Fiscal Year Ending Mar 31 2013 2014 2015 2016 2017
Net Pension Assets (billions) $44.4 $52.2 $60.1 $67.1 $73.1
Aggregate Funded Status 81.5% 87.1% 93.8% 99.5% 100.3%
Liability for Province’s employer share (billions)
$1.8 $1.8 $1.7 $1.5 $1.2
Total Government Unfunded Pension Liabilities (billions)
$10.9 $11.6 $11.2 $10.6 $10.0
33
• $7.9B of total unfunded liability from a settlement with teachers to deal with an issue stemming from 1992 pension reform
• Aggregate Funded Status has greatly improved, while unfunded Pension Liability’s absolute value has remained fairly static
Public Sector Pensions
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Pipeline access critical for expanding productionPipeline and refinery capacity and western Canada heavy oil production
Source: Alberta Energy, f-forecast
Rail Commitment
Enbridge Line 3 Expansion +
Clipper
TransMountain Expansion
Keystone XL Expansion
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2014 2015 2016 2017 2018f 2019f 2020f 2021f 2022f 2023f
(Mbpd)
Total Western Canada HeavyOil Production
Current Pipeline
Western Canada Refinery Capacity
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Economic structureMarket access remains key
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(1) Canadian Association of Petroleum Producers; 2017 Crude Oil Forecast, Markets and Transportation - Note picture has been altered from original to remove the proposed Energy East pipeline from the image in CAPP’s 2017 report
Continue to work to improve market access
Proposed Canadian and U.S. crude oil pipelines(1)
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Bitumen Differential
USD per barrel (Crude Oil less Western Canadian Select futures)
Source: Bloomberg
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0
10
20
30
40
50
60
10/3
0/15
12/3
0/15
2/29
/16
4/30
/16
6/30
/16
8/31
/16
10/3
1/16
12/3
1/16
2/28
/17
4/30
/17
6/30
/17
8/31
/17
10/3
1/17
12/3
1/17
2/28
/18
4/30
/18
6/30
/18
8/31
/18
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• Alberta owns the land and the resource rights• As owner, Alberta:
– must approve a project before development can take place– sets environmental regulations that project must adhere to– requires companies to have reclamation plans in place– collects royalties on oil produced from the oil sands
• Oil sands development is entirely funded by the private sector– Alberta does not contribute capital or lend money to oil sands
projects– Proceeds of Alberta debt are used entirely to fund government
services, such as health care and education
Alberta’s relationship to the oil sands
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• Professionally managed at arms-length basis from government– Credit policies and other risk management not unlike those of any
other financial institution– Subject to regulatory oversight by provincial and national regulatory
bodies• An agent of the crown, assets and liabilities belong to the crown
– Potential economic loss relatively small in relation to AB’s balance sheet, budget and borrowing requirement
– Less susceptible to the risk of a run due to provincial guarantee of deposits
– ATB increased deposits during 2008/09 liquidity crisis– Capital requirements set by the Minister of Finance
• Total Assets $53.3B, Total Liabilities $49.9B and Equity $3.4B– Liabilities include: Loans from province $4.5B, Collateralized
Borrowings $8.5B, and Deposits $34.5B
ATB Financial(1)
38(1) As of June 30, 2018. Numbers may not add due to rounding.
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Maturity profile (1)
0
1
2
3
4
5
6
7
8
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
2041
/42
2042
/43
2043
/44
2044
/45
2045
/46
2046
/47
2047
/48
2048
/49
2049
/50
2050
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($billions)
39(1) As at October 30, 2018. Includes debt issued by provincial corporations and guaranteed by the Province of Alberta.
Excludes money market debt.
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Information and contact
Websiteinvestor.alberta.ca
ContactStephen Thompson, CFAExecutive Director, Capital MarketsGovernment of [email protected]
Disclosure StatementThis presentation was compiled by the Alberta Department of Treasury Board and Finance. The information in this presentation is for general information purposes only and does not constitute an offer to sell or a solicitation of offers to purchase securities. Certain forward-looking information or forward-looking statements have been included in this presentation for such general information purposes. These statements are based on the Province of Alberta’s current estimates or projections which the Province believes are reasonable. Such statements are not guarantees of future performance, and accordingly, you should not place undue reliance on them. Forward-looking information or statements involve known and unknown risks, uncertainties and other factors which could cause the state of the Province’s economy to differ materially from the forecasts and economic outlook expressed or implied by any forward-looking information or statements. Forward-looking information or statements speak only as of the date they are made. Alberta undertakes no obligation to update any forward-looking information or statements to reflect new information, future events or otherwise, except as may be required under applicable law. While the information in this presentation, when posted or released, was believed to be reliable as of its date, no warranty is made as to the accuracy or completeness of this document or the information it contains.
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