Dublin Investor Meetings - · PDF fileDublin Investor Meetings March, 2017 Lowell Epp, Assistant Deputy Minister, Treasury and Risk Management . Canada Quick facts • 10th largest

Province of Alberta

Dublin

Investor Meetings

March, 2017

Lowell Epp, Assistant Deputy Minister,

Treasury and Risk Management

Canada

Quick facts • 10th largest economy and 9th least risky country in the world(1)

• Federal Government, 10 Provinces and 3 Territories

– Westminster parliamentary system; direct and indirect taxing powers

• GDP of US$1.6 trillion in 2015

– Major industries include natural resources and manufacturing

– Population of 36M; highest growth rate in G8 during last decade

– Moderate unemployment rate at 6.6%

• Provinces have significant autonomy

– Provincial ownership of natural resources

– Responsible for health care, primary and post-secondary education

– Direct taxing powers include personal income, corporate income, mining

taxes and royalties, value added/sales, fuel and payroll taxes

– No federal guarantee on provincial debt

2

(1) Euromoney Country Risk score

Alberta’s economic strength & solid

fundamentals remain • Alberta’s (AB) economy hit hard by drop in oil prices

• Real GDP recovery expected in 2017

• Economy has softened, but core strengths remain

– Broad-based economic growth

– Massive oil reserves; production growing

– Growing population

– Economy is very capital intensive

– Highest GDP per capita of any province

• Continue to have solid fundamentals

– Demonstrated resiliency to commodity price shocks

– Largest fiscal capacity among provinces

– Skilled workforce, with young population

3

Mining, quarrying, and

oil and gas extraction

19%

Finance and Real estate

15%

Professional, scientific and

technical services

6%

Health care and social assistance

6%

Public administration

5%

Transportation and

warehousing 5%

Other 17%

Construction 11%

Trade 9%

Manufacturing 7%

Economic structure

AB’s economy at a glance

• Between 2000 and 2014, the province

experienced broad-based industry

growth that outpaced the rest of

Canada

• AB’s contribution to national GDP in

2015, declined to 16% and about 20%

to exports

• AB’s share of the national population

is about 12%

• Young, skilled population with

highest employment rate (around

67%) in Canada, despite significant

layoffs in 2015 and 2016

4

Share of nominal GDP by industry, 2015

Share of nominal GDP by industry, 2015

Source: Statistics Canada

Expect modest recovery in 2017; Real GDP forecasted to increase 2.6%

301

266

170

0 50 100 150 200 250 300 350

Venezuela

Saudi Arabia

Canada

Economic structure

3rd Largest reserves & production growing

Despite price declines, production continues to rise(2)

5

AB’s oil reserves are massive and open to private investment(1)

(1) 2016 Global reserves: U.S. Energy Information Administration, Alberta Energy Regulator

(2) Statistics Canada, Alberta Energy and Baytex Energy (March 13, 2017), f-forecast

(Bill

ion

s b

bl)

Oil sands

1.0

2.0

3.0

4.0

0

40

80

120

2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f

(Mill

ion

bp

d)

(US

$/b

bl)

Western Canada Select (Left)

Alberta Oil Production (Right)

Economic structure

AB’s population expected to grow

6

Sources: Statistics Canada and Alberta Treasury Board and Finance, Budget 2017, f-forecast

Population growth is forecast to expand faster than Canadian

average, supporting consumer spending and housing

Change in the Alberta population by component

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-20

0

20

40

60

80

100

120

140

2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f

(%)

(Th

ou

sa

nd

s)

Natural Increase (Left) Net International (Left)

Net Interprovincial (Left) Population Growth (Right)

Economic structure

Long-standing economic prosperity

Nominal GDP per capita

7

AB has proven to be resilient in the face of tough economic times

Sources: Statistics Canada, and TD Economics forecasts (Dec, 2016) . Alberta Treasury Board and Finance numbers updated with Budget 2017.

0

20

40

60

80

100

1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017f

($ T

ho

usa

nd

s)

Alberta Ontario BC Rest of Canada Average

Fiscal policy

AB’s fiscal capacity Alberta has a significant Tax Advantage compared to all provinces(1)

8

0 4 8 12 16 20 24

Newfoundland & Labrador

Quebec

Prince Edward Island

Manitoba

Nova Scotia

New Brunswick

Ontario

Saskatchewan

British Columbia

($ billions)

(1) This graph shows the total additional provincial tax and carbon charges that individuals and businesses would pay if Alberta had the same tax system and carbon charges as other provinces. This information reflects tax rates for other provinces known as of March 3, 2017. A minimum carbon charge of $10/tonne is assumed in 2018 for all provinces according to the federal government’s carbon pricing plan. This comparison includes personal and corporate income tax, sales tax, fuel tax, carbon charges, tobacco tax, health premiums, payroll tax, liquor tax and markups, land transfer tax and other minor taxes.

Fiscal policy

Revenue sources(1)

• Non-Renewable

Resource

Revenue can be

large, but variable

• Combined other

sources provide

stability and

support growth

9

(1) A=Actual, E= Estimate, T=Target.

$0

$10

$20

$30

$40

$50

$60

Re

ve

nu

e (

bill

ion

s)

Non-Renewable Resource Revenue Income and Other Taxes

GoC Transfers Investment Income

Net Income from Gov Business Enterprises Premiums, Fees and Licences

Other

Fiscal policy – Budget 2017

Key metrics Fiscal policy

• Contain rate of growth of government operating expense to the

rate of population growth plus inflation

• Manage province’s fiscal position with a long-term view

– Maintain government services, instead of making drastic cuts

10

2015-16 2016-17 2017-18 2018-19 2019-20

Budget 2017(1) Actuals Forecast Estimate Target Target

Consolidated Revenue 42.5 42.9 45.0 47.6 51.8

Consolidated Expense 48.9 53.7 54.9 56.7 58.0

Surplus / (Deficit) (6.4) (10.8) (9.8) (9.0) (6.2)

Risk Adjustment - - (0.5) (0.7) (1.0)

Surplus / (Deficit) After

Risk Adjustment (6.4) (10.8) (10.3) (9.7) (7.2)

(1) Numbers may not add due to rounding.

Fiscal policy

Capital Plan

• $32.8B over 4 yrs

• Includes, $3.4B for ancillary projects self-financed by Alberta

Health Services, post secondary institutions and school boards

11

(1) E= Estimate, T=Target, P= Projected.

$0

$2

$4

$6

$8

$10

2017-18E 2018-19T 2019-20T 2020-21P

($ b

illio

ns)

Financial management

Borrowing program

12

2017-18 Borrowing

(1) Includes amounts borrowed on behalf of the Balancing Pool; $494 million in 2017-18; $833 million in 2018-19; $699 million in 2019-20.

(2) Includes new and re-financing of maturing term debt

$12.3 $6.8

Direct Borrowing

Provincial Corporations

Borrowing Requirements(1)

($ billions) New Total(2)

2017-18 Estimate $15.5 $19.2

2018-19 Target $15.8 $18.6

2019-20 Target $14.1 $19.1

Fiscal policy

Low debt burden

2016-17 Projected Net Debt to GDP(1)

13

(1) RBC: Public accounts basis. Numbers are based on reports from individual governments and, due to accounting differences, are not strictly comparable between provinces. Sources include: Fiscal reference tables (Department of Finance Canada), various provincial budgets, budget updates and public accounts. As of Feb 21, 2017. Alberta’s ratio calculated by Treasury Board based on Budget 2017 forecasts.

15%

3.1%

12%

34%

38%

48%

42%

37% 35%

50%

0%

10%

20%

30%

40%

50%

60%

British

Co

lum

bia

Alb

ert

a

Sa

ska

tch

ew

an

Ma

nito

ba

On

tario

Quebec

Ne

w B

run

sw

ick

No

va

Sco

tia

Prince

Ed

wa

rdIs

land

New

foundla

nd

& L

abra

dor

Projected Net Debt to GDP(1) for 2017-18 expected to rise to 7.2%


Maturity profile & liquidity(1)

$-

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Bill

ions

14

(1) As of March 16, 2017. Excludes Money Market amounts.


Borrowing platform Domestic market

• Ensure liquidity

– Maintain larger domestic benchmark sized issues ($3-$4B)

– Infrequent domestic MTN issuance

– Monitor secondary market liquidity

• Control domestic supply

– Target issuance of 30%-40% or more to international markets

– More frequent large US$ benchmarks

– Opportunistic multi-currency issues

15

Maintain strength of borrowing platform in domestic market and

build on strength in international markets


Borrowing platform continued Foreign currency borrowing

• US$ Global Issues in 3, 5, 7, and 10 years

– Expect more frequent issuance now province is SEC Registered

– US$ CP program expected to come online in early 2017

• Sterling Benchmarks across curve driven by investor demand

• Continued Euro placements in longer terms with potential for

larger benchmark issues

• MTN and structured issues in other currencies, including under

the new AUD program as opportunities arise

16

Summary

• Strong economic base

• Demonstrated resiliency to past commodity price shocks

• Continued high level of fiscal capacity

• Strong bond ratings

• Multi-currency, multi-market borrowing platforms

• Strong secondary liquidity

17

Budget 2017

Assumptions(1)

18

Fiscal Year (Apr- Mar 31) 2015-16A 2016-17F 2017-18E 2018-19T 2019-20T

WTI Oil (US$/bbl) 45 48 55 59 68

Light-Heavy Differential

(US$/bbl) 13.40 14.20 16.00 18.00 18.60

Natural Gas (CDN$/GJ) 2.21 2.15 2.90 2.90 3.00

Exchange Rate

(US/CDN$) 76.3 76.0 76.0 77.5 78.0

Calendar year 2015A 2016E 2017F 2018F 2019F 2020F

Real GDP Growth (%) -3.6 -2.8 2.6 2.2 2.4 2.5

Employment Growth (%) 1.2 -1.6 0.9 1.4 1.6 1.8

Unemployment Rate (%) 6.0 8.1 8.0 7.6 7.1 6.3

Appendix

(1) A=Actual, B=Budget, T=Target, F= Forecast. Source: Statistics Canada, Alberta Energy, Alberta Treasury Board and Finance

Budget 2017

Sensitivities 19

Appendix

Change

Net Impact

(2017 – 2018)

Oil Price (WTI US$/bbl) -$1.00 -310

Light-Heavy Differential (US$/bbl) +$1.00 -285

Natural Gas Price (Cdn$/GJ) -10 Cents -45

Exchange Rate (US¢/Cdn$) +1 cent -215

Interest Rates +1% -230

Primary Household Income -1 % -160

Fiscal Sensitivities to Key Assumption, 2017-18(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.

Economic structure

Market access remains key

20

Source: Canadian Association of Petroleum Producers

Continue to work to improve market access

Appendix

Approximate breakeven

Conventional oil projects • ~$25-$55 USD/barrel • Enhanced ~$50-$60 USD/barrel

Oil sands projects • Surface mine ~$80 - $85 full cycle • SAGD $45-$65 USD/barrel full cycle

Economic structure

Oil and gas investment to remain lower

21

Sources: Alberta Treasury Board and Finance, e-estimate, f-forecast, Budget 2017.

Appendix

AB oil and gas investment has shifted towards sustaining capital

0

10

20

30

40

50

60

70

($ B

illio

n)

Oil Sands Conventional oil and gas

Economic structure

Costs are coming down

22


Appendix

Year-over-Year change in non-residential construction price index

-6

-4

-2

0

2

4

6

8

(%)

Alberta

Calgary

Edmonton

Economic structure

AB’s economy is very capital intensive 2017 Private Sector Capital Expenditures by Province

23


Appendix

$0 $10 $20 $30 $40 $50 $60

Alberta

NL

Saskatchewan

Manitoba

British Columbia

Quebec

Ontario

Maritimes

(billions)

Economic structure

Highest employment rate and incomes

24

(1) Share of adults (15+) employed as of February 17, 2017. Source: Statistics Canada

(2) Including overtime as of December 2016. Source Statistics Canada

Average Weekly Earnings(2)

Appendix

Employment Rate(1)

66.5

40

50

60

70

NL PEI NS NB QC ON MB SK AB BC

(%)

National Avg. 61.4

$1,130

$500

$750

$1,000

$1,250

NL PEI NS NB QC ON MB SK AB BC

National Avg. $971

Economic structure

Housing activity remains sluggish

25

Sources: Canadian Real Estate Association, Canada Mortgage and Housing Corporation *3-month moving average

Appendix

Annualized AB housing starts, existing home sales and the average resale

home price(1)

Home prices have held up despite lower housing starts

360

370

380

390

400

410

420

20

30

40

50

60

70

80

($ T

ho

usa

nd

s)

(Th

ou

sa

nd

s)

Housing starts Existing home sales Average Resale Price


ATB Financial(1)

• 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 $48.7B, Total Liabilities $45.5B and Equity $3.1B

– Liabilities include: Loans from province $3.6B, Collateralized Borrowings

$6.8B, as well as Deposits and Other totaling $35.2B

26

(1) As of December 31, 2016. Numbers may not add due to rounding.

Appendix


Well funded public sector pensions

Fiscal Year Ending Mar 31 2012 2013 2014 2015 2016

Net Pension Assets (billions) $38.5 $44.4 $52.2 $60.1 $67.1

Aggregate Funded Status 78.4% 81.5% 87.1% 93.8% 99.4%

Liability for Province’s employer share

(billions) $1.5 $1.8 $1.8 $1.7 $1.5

Total Government Unfunded Pension

Liabilities (billions) $10.6 $10.9 $11.6 $11.2 $10.6

27

Unfunded Pension Liability’s absolute value has remained fairly static,

but Aggregate Funded Status has greatly improved

• $8.1B of total unfunded liability from a settlement with teachers to deal

with an issue stemming from 1992 pension reform

Appendix

Public Sector Pensions

Information and contact

Website

http://finance.alberta.ca/investor/

Contact

Steve Thompson Chris Williams

Executive Director, Senior Analyst,

Capital Markets Treasury and Investor Relations

Province of Alberta Province of Alberta

780-644-5011 780-638-3876

[email protected] [email protected]

Disclosure Statement

This 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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Dublin Investor Meetings - · PDF fileDublin Investor Meetings March, 2017 Lowell Epp, Assistant Deputy Minister, Treasury and Risk Management . Canada Quick facts • 10th largest