E Final Final BB1 2016 Rectification 24 6 2016 English

Page 10 then it would need to be carried to the 2017 State Budget. However, given that next year is an election year, it is expected that there will be a moderate budget that would be unable to accommodate these expenditures. By increasing the capital budget in 2016, this will allow for the acceleration of economic benefits to the country and contribute to economic diversification. This is in line with the Government’s frontloading strategy of using loan financing and excess withdrawals from the Petroleum Fund to finance high quality investment in infrastructure and human capital development. A large portion of the proposed increase comes from three main projects: Tibar Bay Port, Suai Supply Base, and Dili Drainage. These projects have been in the pipleline for several years and they are now reaching the stage of implementation, which will require advance payments to be made. These and similar investments will stimulate economic growth, leading to higher domestic revenues and reduced Government spending in the long‐ term, which will allow excess withdrawals to return to levels consistent with the ESI. The frontloading policy has already allowed the Government to significantly upgrade road and electricity coverage throughout Timor‐Leste, which has helped to improve both living standards and the business environment. Tibar Bay Port Tibar Bay Port is a priority project for the social and economic development of Timor‐ Leste. The future port facility will include a 630m‐long quay wall and state‐of‐the‐art cargo ‐handling systems and equipment. This strategic infrastructure will make it possible to overcome the capacity constraints of the current Dili Port and will function as a catalyst for the country’s external trade. It will allow for substantial savings in the cost of shipping goods in and out of the country, which will ultimately benefit consumers. The direct financial benefits for the Government will include a royalty fee per container as well as navigation and dockage fees, in addition to the tax revenue from the operation. Following a rigorous procurement process, a concession agreement was signed on 3 rd June 2016 between the Government of Timor‐Leste and Bolloré Consortium granting the latter a 30‐year right to design, build, operate and maintain the port facility. The project involves an initial investment totalling 278.3m, of which 148.9m will be provided by Bolloré the concessionaire will subsequently invest an additional 211.7m over the life of the concession. The Government’s financial contribution to this project will take the form of Viability Gap Funding, or VGF, in the amount of 129.45m, to be paid to the concessionaire in tranches throughout the construction period. However, the concession agreement provides for the full amount of the VGF to be deposited by the Government in an escrow account before construction commences. The rectified 2016 budget allocation to this project, 131.3 million, is intended to allow the Government to meet this requirement.