Final Report NuStar SEIS December 2011

NuStar Terminals N.V. - S T.
E U S TAT I U S -
CURRENT AND PROJECTED S O C I A L E C O N O M I C I M PA C T S T U DY

O F N U S TA R O I L T E R M I N A L I N S T. E U S TAT I U S
December 2011
AIB ECONOMIC AND FINANCIAL SERVICES

Current and Projected Social Economic Impact Assessment NuStar Terminals N.V. December 2011
CONTENTS
0. Introduction I. Executive Summary II. Extent of the Assessment 1. Constitutional changes St. Eustatius 2. GDP St. Eustatius 2.1 Current GDP St. Eustatius 3. Current and projected impact on public finances 3.1 Current Payments to the Government of St. Eustatius 3.2 Current Impact on GDP 4. Current and projected impact on comsumption 4.1 Current Personnel Spending 4.2 Current Consumption: Spending on goods and services and GDP 4.3 Projected Personnel Spending 4.4 Projected Consumption: Disposable Income and GDP 5. Current and projected impact on investment 5.1 Current annual spending of the Company 5.2 Current actual Spending of the Company: Goods and Services 5.3 The direct impact of the Companys spending on GDP 6. Impact on export and import activities 6.1 Current trade in Goods & Services 6.2 Current Balance of payments 6.3 Current Balance of Payments contribution to GDP 6.4 Projected Balance of payments 7. Summation of GDP components 7.1 Current Summation on GDP components 7.2 Projected Summation on GDP components 8. Current & Projected impact on business activity in general 1 3 8 9 15 15 18 18 19 22 22 23 24 26 27 27 28 30 34 34 36 36 38 41 41 44 46
3.3 Projected Payments by the Company to the Government of St. Eustatius 20
5.4 Projected Spending of the Company over the construction period including G&S 31
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Current and Projected Social Economic Impact Assessment NuStar Terminals N.V. December 2011 8.1 Current and Projected impact on the different Economic Sectors 8.2 Current and Projected number of Businesses affected 8.3 Current and Projected impact on Business Activities 9. Current & Projected impact on labour activities 9.1 Current and Projected Impact labour Activities 9.2 Current and Projected compensation of employees 9.3 Current and Projected indirect effects on the GDP 10. Current and Projected Social Impact 10.1 Current Social Impact 10.2 Projected Social Impact 11. A qualitative approach to the economic and social impact of NuStars intended investment in the coming years on Statia 62 46 46 47 50 50 53 56 58 58 59
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0. INTRODUCTION
The AIB Economic and Financial Services (AIB EFS) was requested to conduct a Social Economic Impact Study (SEIS) of NuStar Terminals N.V. and its affiliates (the Company or NuStar), established in St. Eustatius. NuStar Terminals N.V. is a refined product terminal, which contains 67 tanks with a capacity of 13 million barrels and currently has 139 employees. The affiliates consist of the following companies Bicen Development Corporation N.V., which owns the property land, housing and furnishings of the expatriates on St. Eustatius, Saba Company N.V., owns the land connected with the terminal, Seven Seas Steamship Company (Sint Eustatius) N.V. provides agency services to vessels that call at St. Eustatius, particularly vessels from NuStar, and NuStar Terminals Marine Services N.V. which sells bunkers (marine fuels). In 2009, AIB EFS conducted a social economic impact study for the Company, which measured the direct as well as indirect impacts of NuStar on the economy of St. Eustatius for the end of 2008 through the Gross Domestic Product (expenditure approach) which measured the direct impact of the Company on the economy. It was agreed that another SEIS would be prepared to cover the direct as well as indirect impact of the current situation (year end 2010). In addition, the SEIS would cover the projected direct and indirect impacts of the Company on the island related to a significant planned investment of approximately USD 477 million on the island, with the current situation as point of departure. The projected impact after the expansion when the terminal is operational will be taken into account, with due consideration of the constitutional changes for St. Eustatius. The AIB EFS has approached this assignment with the use of a mix of methodologies to approximate the added value of the Company in St. Eustatius quantitatively as well as qualitatively. The various methodologies used are portrayed in each related section. Verifications were made (direct or indirectly) for these methodologies with other organisations and experts in economic analysis in St. Eustatius and/or the former Netherlands Antilles and
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with the System of National Accounts, including the Central Bureau of Statistics Curacao (CBS), the Central Bank of Curacao and St. Maarten (CBCS) as well as other individuals. The main sources of information studied to complete this assignment included extensive information provided by the Company, various publications of the CBS and CBCS and first hand field work on the island. The extrapolations, assumptions and interrelationships were all determined by the AIB EFS after careful analysis of received information. The AIB EFS conducted this assignment on a best effort basis. Other approaches and methodologies as well as alternative points of departure are possible for the assignment, especially considering the limitations within the available current statistics of St. Eustatius. The selected methodologies are used and chosen based on the information available to AIB EFS, pragmatism in order to make the results comprehensible, as well as its general acceptance amongst the various economists with whom brainstorm sessions were held.
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I. EXECUTIVE SUMMARY
Table a: Projected impact Company on GDP
Estimated Impact Company in USD million 2010 Government Consumption Gross Investment Export - Import Total Estimated Added Value Company 4.8 2.9 3.8 15.8 27.2 2011 5.1 2.1 3.8 16.5 27.5 2012 5.2 2.1 23.8 17.3 48.4 2013 5.2 2.1 26.7 18.2 52.3 2014 10.6 2.9 2.6 33.7 49.7
Estimated Impact Company in terms of GDP (%) 2010 Government Consumption Gross Investment Export - Import Total Estimated Added Value Company 6.7% 4.0% 5.3% 22.1% 38.1% 2011 6.9% 2.8% 5.1% 22.5% 37.3% 2012 5.3% 2.2% 24.6% 17.9% 50.0% 2013 5.1% 2.0% 25.8% 17.5% 50.5% 2014 10.2% 2.7% 2.5% 32.4% 47.8%
Table a includes the expansion activities currently planned for the plant
The Government The added value of the Government component is measured through its expenditure capability on consumption of goods & services, investments, and compensation of its employees. It is assumed that all the revenues received by the Government are used completely for Spending in St. Eustatius. Therefore it can be deduced that the Company contributed an estimated 45.1% to the total expenditures by the Government in 2010. In terms of GDP, this is 6.7% of the total estimated GDP in St. Eustatius for the year 2010.
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The projected taxes to be paid are mainly influenced by the possible adjustments in the Companys Tax Agreement with the Government which ends in 2014 and by increased activities by the Company due to the expansion in the first year of operations 2014. The added value of the Company through the Government component amounts to USD 10.6 million in 2014 or 10.2% of the estimated respective GDP. Consumption The Consumption component of the GDP reflects the total spending by the household sector on all goods and services. The added value of the Company on this component was measured, by calculating the remaining disposable income of the fixed employees available for consumption purposes net of tax payments, social securities contributions and other government related costs, savings component assumed for the employees, and the repayment on loans. The estimated contribution to the Consumption component of the GDP was USD 2.9 million (Nafl. 5.1 million) or 4.0% of the GDP for the year 2010. Due to the BES Fiscal Regime it is estimated that the tax burden increased to 35.5% on average from 27.7% in 2010 influencing the consumption ability of the employees in 2011, 2012 and 2013. In 2014, based on the expected increase in fixed employees due to the expansion taking into consideration same tax burden of 35.5% and the assumption that repayments on loan and savings would remain unchanged in relative terms as compared to 2010 the added value of the Company through the consumption component is estimated at USD 2.9 million or 2.7% of GDP. Investment The Gross Investment component of the GDP is also referred to as Gross Capital Formation or Fixed Capital Formation and changes in inventory. This consists of all the investments and spending of the Company to the business sector after subtracting import values with the aim to
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measure only the added value on the island of the enterprises to the GDP. The total impact of the Company is estimated at USD 3.7 million (Nafl. 6.6 million) or 5.2% of the GDP in 2010. For the projections of the added value of the Company through the Investment component an average import related cost was estimated. The total added value in the economy, when excluding import value, is estimated at USD 3.8 million in 2011, while during the assembling of the expansion this amounts to USD 23.8 million and USD 26.7 in respectively 2012 and 2013, which is respectively 24.6% and 25.8% of the total estimated GDP in the respective years. During the first year of operation after the expansion, in 2014, the added value is projected at USD 2.6 million or 2.5% of the projected GDP. Impact on Export and Import Activities According to the Central Bank of the Netherlands Antilles, the contribution of NuStar to the overall balance of the foreign exchange of St. Eustatius up to the third quarter of 2010 was USD 11.8 million and extrapolated for the entire year assuming an equal trend for the remainder of the year, this would mount to USD 15.8 million (Nafl. 28.2 million), which would contribute to 22.1% of the GDP. In order to be able to assume the Balance of Payments of the following years for the Company, various assumptions needed to be made where among others the average growth over the last 4 years is used to approximate the Balance of Payment for the years 2011 through 2013. For 2014 the Balance of Payments is increased with the increase in capacity of the terminal due to the planned expansion, assuming that the increased capacity would generate proportionally the same inflows and outflows and all other relations within the Balance of Payments remain the same. The estimated added value of the Company on the overall balance of Exports (X) Imports (M) according to the projected Balance of Payments is USD 33.7 million or 32.4% of the estimated GDP for that respective year.
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Noteworthy to mention is though that the composition of the total added value is altered after the expansion. During the execution of the expansion it is estimated that the Investment component will dominate, while during the operations after expansion is completed the projected overall balance of the Export (X) Import (M) is estimated to dominate. The latter results from the increased receipts from services provided due to the expanded terminal capacity. Impact on Business Activities When observing the mere number of companies the Company does business with, as a percentage of the total number of companies in St. Eustatius per business sector, it can be concluded that 66.0% of all establishments in St. Eustatius do business with the Company. In addition to the number of businesses impacted, the impact on the GDP per business sector is analyzed. The business sector which is most dependent on the Company in 2010 is the Construction Sector with a contribution of 19.5% of the total activities in that sector. The projected impact, on the business activities, is not quantifiable during the execution of the expansion or for the first full year of operations, as further details are unknown. However, the expansion during execution phase as well as after would offer an increase in the economic activities in general. The expected additional 300-500 people on the island as construction workers during the execution phase would contribute to an increase in demand, which is assumed to be mostly felt in the rental industry of the island, food & beverage industry as well as in other auxiliary business. The arrangements made with these workers with their respective employers highly influence the level of impact, and is currently unknown.
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Qualitative assessment of FDI in Statia

Possible benefits Consumers Current Company's general FDI on Statia Possible effects
Purchasing power might increase due to higher labor benefits enjoyed in NuStar compared to local companies Technology transfer enhancing productivity Opportunities to become an international
Suppliers
Best connections probably with international companies already in place rather than local
Competitors
supplier Enabling learning from a multi-national company
No space for related competition as economy very
presence small Possibilities for upgrading and innovation related Workers to multinational opportunities offered Employment opportunities enhanced Typically higher labor standards than local firms Training and knowledge transfer to local Government population Tax revenues Economic activity growth and related benefits related to increased tax base Natural environment The multi-national can have higher security and environmental standards than local firms Overall Economy Overall enhanced economic activity due to Company As a country on the global map for MNE's client list. The Company might hamper the natural environment by its large presence in the ocean and on land, potentially affect marine life etc. An economy that depends highly on the Company due to its large presence in the small scale of Statia Opportunity cost due to tax holiday treaties Employees' expertise might be little applicable elsewhere if mobility is desired
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II. EXTENT OF THE ASSESSMENT
The statements made in this Assessment are based on findings arising from the assessment carried out by AIB EFS, on a best effort basis. The AIB EFS cannot guarantee or give any assurance as to the completeness of this document as presented. To this end, AIB EFS does not declare this document to be all-inclusive or contains all information regarding the social economic impact of NuStar Terminals N.V and its affiliates on St. Eustatius in the current state or in the projected state. The Social Economic Impact Study (SEIS) may include certain statements, estimates, and financial projections provided by the Company and compiled or interpreted by AIB EFS. Such statements, estimates, and projections, if provided, are based on various assumptions, which may not prove to be accurate nor comparable with previous assessments. AIB EFS relies on the information provided by the Company as well as the statistics obtained and will not question and/ or verify the information provided. In addition, reliance on received information is augmented due to limited statistics available to extrapolate and benchmark. It is suggested to the Company and/or other intended readers to conduct its own investigation and analysis of the impact should further details or benchmarking be required.
The AIB EFS makes no express or implied representations or warranties as to the accuracy of the information contained herein, and expressly disclaims any and all liabilities which may be based on such information, errors herein, or omissions there from. This report contains confidential and/or sensitive information and may only be photocopied, reproduced, or distributed by the official recipient and owner, NuStar, or by AIB Economic and Financial Services upon request of NuStar.
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1. CONSTITUTIONAL CHANGES ST. EUSTATIUS
Since October 10, 2010 the Kingdom of the Netherlands has a new constitutional structure. The country Netherlands Antilles ceased to exist and the islands Bonaire, Sint Eustatius and Saba (BES Islands) became municipalities of the Netherlands, while the islands Curaao and Sint Maarten have obtained the status of a country within the Dutch Kingdom. The Kingdom of the Netherlands consist accordingly of 4 countries, namely, the Netherlands, Aruba, Curaao and St. Maarten.
As a result of agreed upon task partitioning after the constitutional change between the BES Islands
and the Netherlands, the scope of the local government budgets became substantially smaller.
Since October 10, 2010, the Netherlands became responsible for a considerable part of the tasks for which the former islands were previously responsible, such as public security, health care,
allowance attribution and education. The expenditure for these tasks no longer appears on the budgets of the BES Islands; as a result thereof the budgets have been more than halved. At the same time, a large number of income sources (federal taxes) flow as of 2011 directly in the
treasury of the State, based on the BES Fiscal Regime (BFR).
Table 1: Local Government Budget Overview Bonaire In USD mln Approved budget Allowed shortage Free Benefit Total 69.232 Source: College financieel toezicht (Cft) 2010 66.062 3.17 16.872 49.469 18.199 2011 32.597 St. Eustatius 2010 17.273 0.926 7.430 12.496 20.743 2011 5.066 2010 19.922 0.821 5.251 7.256 Saba 2011 2.005
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Current and Projected Social Economic Impact Assessment NuStar Terminals N.V. December 2011 However, an amount will be supplied annually by the Netherlands in the form of an unengaged
benefit to the BES Islands which can be spent by each concerning island at their own discretion.
Moreover, it is stipulated that the resources for the Social Economic Initiative (SEI) and Institutional Reinforcement Governing board (IVB) will be ended and that the Solidarity Fund is abolished. All in
all, these measures lead to large changes in the island budget. The BES budgets 2011 are the first budgets under the supervision of the Netherlands where no more shortages are allowed. After October 10, 2010 the Netherlands Antilles legislation continues to apply for the BES Islands, unless there is a new law for the BES Islands replacing the Netherlands Antilles law, as the Dutch legislation is made for the Dutch situation and could not be introduced precisely for the BES Islands; however this will be done gradually with due consideration of the situation per island/ municipality. With regards, however, to the tax system a new tax regime was created and introduced following the constitutional changes per January 1, 2011, instead of maintaining the tax system of the Netherlands Antilles or introducing the tax system of the Netherlands. The taxation on the BES islands is a mix of federal as well as local taxation, where though the total proceeds is to remain equal to the former tax revenues on the islands. BES Fiscal Regime (BFR, federal taxation) According to the legislator the characteristics of the BES Fiscal Regime is as follows: 1. Simple 2. Broad basis for taxation and low tariffs 3. Shift from direct to indirect taxation The following is a summary of the main changes in the BES tax system in the BES islands in comparison with the former tax system which might be relevant for the Company. The Income Tax and Social Securities The income tax has been taken over from the Dutch Antillean legislation and has been converted into Dutch (BES) law: the law income tax BES. On the BES islands the Wage Tax is

levied as a withholding tax on the Income Tax. An income tariff of 30.4% is applied for a taxable sum up to and including USD250,000, taking into consideration a tax free amount, child allowance and elderly allowance. A tariff of 35.4% is levied on the excess amount above the USD 250,000 threshold. Noteworthy is that these tariffs include the AOV/AWW and ZV premiums, while the tariffs applied up to 2011, mounted to 12.5%-47.5% progressively, where the social security contributions are charged separately and not included in mentioned progression. The employers contribution for social securities is 18.4%. Noteworthy to mention is that the threshold for the social securities contributions (AOV/ AWW and ZV) has been abolished, which means that these could increase indefinitely in contrast with the former tax system where these are capped to a maximum, increasing herewith the tax burden. General Spending Tax (Algemene Bestedingsbelasting) The turnover tax has been abolished as well in the BES Tax Regime and replaced with the ABB, which is the Algemene Bestedings Belasting, levied over the purchasing price at the moment of delivery of the goods and services and the import of goods. ABB is levied on: 1. The delivery of goods, which refer to the delivery of goods produced locally, in each respective island, where the ABB paid on the imported raw material, aid substance and/ or semi-finished product and ABB paid to other local producers may be deducted to avoid cumulative taxation. 2. The delivery of services, which refers to any service, not being the delivery of goods, performed against payment. In the latter there is no right to deduct paid ABB. 3. The import of goods. This includes among others bringing goods in the free movement on the BES islands and importing from outside the BES islands. Levying at import on the
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goods imported creates the same tax burden as the goods produced on the islands on which ABB is applied. The criterion on which the ABB is levied for the categories 1 and 2 is the compensation, the total amount paid at the delivery of the goods or service. The standard tariff is 8% of respective compensation, while for insurance a higher tariff of 9% applies. On St. Eustatius and Saba the tariffs were however reduced with two percentage points to 6% respectively 7%. In category 3 the ABB is levied over the customs value of the imported goods, which is in general 8%, however St. Eustatius and Saba applies again a lowered tariff, both 6%. Moreover, on all the BES islands a tariff of 25% for private, non-economical, cars is levied, while a 0% tariff applies for very economical private cars. Since January 2011 the turnover tax has been abolished and replaced by this ABB. The tariff for the turnover tax was 3% on the turnover of the entrepreneur, while the ABB is either 6% of the compensation for the service rendered and/ or 6% on the customs value of the imported goods. One could say that the tax burden could have remained practically unchanged as the turnover tax (3%) is levied on a higher amount (turnover includes margin, overhead expenses etc.), while the ABB (6%) is levied on the customs value which is a lower amount (does not include margin nor overhead expenses, includes though transport expenses). An identified issue with the taxation of the ABB is however, that St. Eustatius is a service oriented economy and as the service providers may not deduct the ABB paid i.e. on the imported goods it creates a cumulative taxation which was not desired with the introduction of this tax. Real Estate Tax As a substitute for the abolished Profit Tax, the Real Estate Tax is introduced. The Real Estate Tax is levied on the advantages of the property located on the BES islands, which would be determined for 4 consecutive years. The Real Estate Tax is not applicable on real estate which qualify as own house and main residence, these are taken into consideration in the Income Tax. The advantage from the real estate is determined at a fixed percentage of 4% of the market
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value of the real estate, irrespective of the real advantage. The tariff of the Real Estate Tax amounts to 25% of the fixed advantage in the respective year, which leads to an annual effective tax burden of 1% of the market value of the real estate. Noteworthy to mention is that debts incurred for acquiring the real estate is not taken into consideration. Revenue Distribution Tax (Opbrengstbelasting) In addition, to the Real Estate Tax, the withholding tax on revenue distribution, Revenue Distribution Tax, is a replacement for the Profit Tax on the BES islands. On the main principles the Revenue Distribution Tax is similar to the Dutch Dividend Tax. The Revenue Distribution Tax is levied on distributed revenues of companies established in the BES islands. Under companies is understood, among others, public and private limited liability companies, limited partnership or any other company whose capital is divided in shares. In contrast, however, to the Dutch Dividend Tax, the Revenue Distribution is levied as well on proceeds from cooperations or foundations. The tariff of the Revenue Distribution Tax is 5% of the distribution. The taxes are withheld from the proceeds paid. The following revenue payments are exempted from Revenue Distribution Tax: The revenue is paid to a body established on the BES islands that has a participating interest in the body that pays out the revenue. The revenue originates from a foundation or a special purpose fund and is paid to a religious, ideological, charitable, cultural or scientific institution or charitable cause established or organized within the State which is focused on the general good or social interest. The revenue originates from a foundation or special purpose fund formed for a pension scheme.
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Prerequisite of the Revenue Distribution Tax is that the distributing company must be established in the BES islands. However, for the purpose of the Revenue Distribution Tax all entities established on the BES islands are considered to be established in the European Netherlands (fiction), which will make these subject to Dutch Dividend and Corporate Tax according to the Invoeringswet fiscaal stelsel BES. The following are exemptions for which an entity is established nevertheless on the BES islands for the purpose of the Revenue Distribution Tax and subject to this: 1. The entity has a maximum turnover of USD 80,000 and has assets of generally a maximum of USD 200,000 and does not provide financial services, royalty payments, insurance or reinsurance activities and trust services (trust company). 2. An entity which is sufficiently active. Active entities are characterized by the fact that at the most 50% of by the assets consists of placements, participations, liquidities, available assets and financing. 3. In case of a non-active entity (passive body) that (1) generally provides work to three local (resident) FTEs on the BES islands and (2) for at least a period of two year possess real estate on the BES islands for the value of minimum USD 50,000 used for the companys activities. The island Government is responsible for the taxation of the local (island) tax and introduced a new fee regulation in order to broaden the budget for the island and in order to ensure a balanced budget.
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2. GDP ST. EUSTATIUS
2.1 CURRENT GDP ST. EUSTATIUS To be able to assess the impact of NuStar on the Economy of St. Eustatius, the Economy of St. Eustatius needs to be quantified. The quantification is achieved by approximating the Gross Domestic Product (GDP) of St. Eustatius, which is not readily available since 2004 through the GDP for the Windward Islands. Generally, the GDP of the Windward Islands could be distributed in proportion to the population to Saba, St. Eustatius and St. Maarten; however the results of this exercise were unsatisfactory when compared to available GDP of St. Eustatius over the years 1998 through 2004. Under the assumption that the distribution would not change significantly over the years the distribution of 2004, which is the last available year, was used to approximate the GDP for 2005 through 2010, rather than the average distribution over the years 1998-2004. The latter approach of using the distribution of previous years was used in the previous assessment, while the recent approach is now perceived to be more accurate as the economic situation might resemble the most recent year most, while various approaches have been assessed to approximate the GDP of St. Eustatius. Due to the constitutional changes effective as of October 10, 2010 no GDP is available for the Windward Islands for 2010 and has been approximated based on the GDP of the Netherlands Antilles, Curacao and Bonaire. For consistency purposes, the same approximation method was also used for the previous years and compared with the actual GDP figures available for the Windward Islands and these resulted in a similar trend, therefore this approximation has been selected for the purpose of this report. From the attained GDP for St. Eustatius the distribution over the industries, Government and Enterprises, for 2004 is taken to project the continued distribution for the following years.
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Table 2: Estimated Distribution GDP St. Eustatius by industry
2000 Statia GDP Government Statia GDP Government as % of GDP Statia Statia GDP Enterprises Statia GDP Enterprises as % of GDP Statia Statia GDP GDP Windward Islands Statia GDP as % from GDP Windward Islands Source: CBS NA, projections 2005-2010 estimated by AIB EFS 11.1 14.7% 64.2 85.3% 75.3 1,019.2 7.4% 2001 13.9 17.0% 67.9 83.0% 81.8 1,051.0 7.8% 2002 12.9 15.9% 68.5 84.3% 81.3 1,082.7 7.5% 2003 13.2 14.9% 75.4 85.0% 88.7 1,150.6 7.7% 2004 14.4 14.9% 82.0 85.1% 96.4 1,225.8 7.9% 2005 15.49 14.9% 88.18 85.1% 103.67 1,318.2 7.9% 2006 16.45 14.9% 93.69 85.1% 110.14 1,400.5 7.9% 2007 17.48 14.9% 99.55 85.1% 117.04 1,488.2 7.9% 2008 18.57 14.9% 105.77 85.1% 124.34 1,581.1 7.9% 2009 18.55 14.9% 105.65 85.1% 124.21 1,579.4 7.9% 2010 19.11 14.9% 108.82 85.1% 127.93 1,626.8 7.9%
For the approximation of the GDP of St. Eustatius per sector and industry, the distribution of the GDP of the Windward Islands per sector and industry is taken as basis. According to fieldwork conducted the short-term economic development is positive and going in the right direction therefore a nominal growth of 3% was assumed for the nominal growth of the GDP in 2010, which results are depicted in the following table.
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Table 3: Estimated GDP St. Eustatius by sector and industry
Approximation Gross Domestic Product by sector and industry St. Eustatius (mln Nafl.) 2004 2005 2006 2007 Non-financial corporations Agriculture and fishing 0.33 0.35 0.38 0.39 Manufacturing 1.84 1.95 1.63 1.74 Electricity, gas and water 4.36 3.79 3.76 4.06 Construction 6.36 7.95 6.31 6.93 Trade 14.50 15.42 17.30 18.60 Hotels and restaurants 6.99 6.94 9.58 9.69 Transport,storage and communications 8.71 10.02 9.77 10.31 Real estate, renting and business activities 6.63 7.29 9.54 10.52 Education private 0.68 1.07 0.83 0.89 Health and social work 1.69 1.97 2.38 2.62 Other community, social and personal service act. 4.49 4.23 3.78 4.06 Gross Value Added, market prices 56.59 60.98 65.26 69.81 Financial corporations Financial intermediation Gross Value Added, market prices Government Agriculture and fishing Transport,storage and communications Real estate, renting and business activities Public administration and defence;compulsory social security Education Health and social work Other community, social and personal service act. Gross Value Added, market prices Households & Non-profit institutions serving Agriculture and fishing Manufacturing Construction Trade Hotels and restaurants Transport,storage and communications Real estate, renting and business activities Health and social work Other community, social and personal service act. Private households Gross Value Added, market prices 2008 0.40 1.74 4.41 7.26 19.40 11.24 11.46 10.48 0.97 2.94 4.20 74.49 2009 0.41 1.92 4.50 7.31 19.06 10.65 11.60 10.61 0.93 3.05 4.05 74.08 2010 2010 in USD 0.42 1.98 4.64 7.53 19.63 10.97 11.95 10.93 0.96 3.14 4.17 76.31 0.23 1.10 2.59 4.21 10.96 6.13 6.68 6.11 0.53 1.76 2.33 42.63
8.16 8.16
8.70 8.70
8.90 8.90
9.79 9.79
10.92 10.92
11.54 11.54
11.89 11.89
6.64 6.64
0.00 0.30 0.00 10.22 0.74 0.90 2.24 14.40
0.00 0.32 0.00 10.86 0.80 1.01 2.49 15.49
0.00 0.33 0.00 13.56 0.26 0.79 1.51 16.45
0.00 0.53 0.00 14.12 0.21 1.06 1.55 17.48
0.00 0.28 -0.01 16.03 0.25 0.83 1.20 18.57
0.00 0.29 0.00 15.98 0.25 0.84 1.19 18.55
0.00 0.30 0.00 16.46 0.25 0.87 1.23 19.11
0.00 0.17 0.00 9.20 0.14 0.49 0.69 10.68
0.02 0.00 0.03 0.05 0.05 0.75 10.10 0.04 0.30 0.56 11.90
0.02 0.00 0.03 0.05 0.08 0.75 10.40 0.04 0.33 0.48 12.17
0.02 0.00 0.04 0.07 0.08 0.74 10.69 0.04 0.34 0.48 12.50
0.03 0.00 0.04 0.07 0.07 0.74 10.71 0.04 0.34 0.48 12.52
0.03 0.00 0.05 0.07 0.08 0.77 10.97 0.05 0.35 0.49 12.84
0.03 0.00 0.04 0.07 0.08 0.77 11.10 0.05 0.35 0.50 12.99
0.03 0.00 0.04 0.07 0.09 0.79 11.44 0.05 0.37 0.51 13.38
0.02 0.00 0.02 0.04 0.05 0.44 6.39 0.03 0.20 0.29 7.47 67.42 5.63 1.58 71.47 3.0
Total Gross Value Added, market prices 91.05 97.34 103.12 109.60 116.82 117.17 120.68 plus Taxes less subsidies on products 7.37 8.51 9.15 9.86 10.10 9.79 10.08 minus Fisim 2.02 2.19 2.13 2.43 2.57 2.75 2.83 Gross Domestic Product, market prices 96.40 103.67 110.14 117.04 124.34 124.21 127.93 Nominal GDP Growth 8.7 7.5 6.2 6.3 6.2 -0.1 3.0 Source: CBS NA, projections 2005-2010 estimated by AIB EFS, distribution per sector for 1998-2010 based on distribution GDP Windward Islands
The projected GDP for the following years will be addressed accordingly in chapter 7.2 as the components of the GDP will be addressed previously as reference.
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3. CURRENT AND PROJECTED IMPACT ON PUBLIC FINANCES
According to previous research conducted, St. Eustatius is not self sustainable, meaning that the revenues collected by the Government are not sufficient to cover its total expenditures. The deficit is financed through the Solidariteitsbelasting and grants from the Dutch Government. However, following the constitutional changes, where St. Eustatius became a municipality of the Netherlands, it is the aim that the tax revenues in St. Eustatius under the new tax regime as a municipality of the Netherlands should remain on the same level as prior to the constitutional changes. 3.1 CURRENT PAYMENTS TO THE GOVERNMENT OF ST. EUSTATIUS As is depicted in the following table NuStar contributed via taxes USD 4.8 million to the Government in 2010, which is an increase of 8.4% as compared to the previous year. In 2009, the contribution had decreased with 3.3% as compared to 2008.
Table 4: Company payments to the Government of St. Eustatius
Taxes and other government payments in USD 2008 2009 Profit Tax 561,897.12 561,897.12 Wage Tax 2,015,436.81 1,940,307.46 AOV/ AWW 818,926.55 887,023.78 AVBZ 128,353.31 141,912.50 Concession fee 112,359.60 112,359.60 Vessel fee 458,931.86 408,490.15 Anchorage fee 304,599.85 268,827.25 Turn-Over Tax 19,569.09 15,838.21 Hindrance Fee 28,089.89 28,089.89 Miscellaneous 145,154.94 78,003.84 Total 4,593,319.02 4,442,749.80 Source: NuStar Terminals N.V. 2010 561,897.12 2,034,375.87 873,602.98 146,632.99 112,359.60 363,370.79 198,517.65 24,942.16 28,089.89 471,456.56 4,815,245.61
According to the Vendors List the total taxes and fees paid by the Company to the various Government receivers is depicted in the table below.
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Table 5: Company payments to the Government of St. Eustatius according to Vendors List
NuStar Total spending on Government in USD Federal Receiver Island Receiver SVB Tax Authority Caribisch Nederland Total
Source: NuStar Terminals N.V., Statia Vendors 2008 - June2011
2008 147,796.00 3,626,596.47 818,926.55 4,593,319.02
2009 159,188.33 3,396,537.60 887,023.87 4,442,749.80
2010 126,775.22 2,976,632.52 873,602.98 838,234.89 4,815,245.61
3.2 CURRENT IMPACT ON GDP The Expenditure Approach1 to the calculation of the Gross Domestic Product (GDP) of a country is calculated by the sum of Consumption (C), Gross Investment (I)2, Government spending (G), plus the balance of Export (X) Import (M). The Governments added value to the GDP, component G, is measured through its outlays on the consumption of goods & services, investments, and compensation of employees. The Company does not have a direct impact on the G component of the GDP. It is assumed, however, that all revenues of the Government are used as expenditure of the Government where these are completely spent in St. Eustatius and not partly in the remaining islands of the former Netherlands Antilles. The total Government Expenditure for 2010 was USD 10.68 million (Nafl. 19.11 million) according to the contribution of the Government to the GDP in 2010. With this assumption, it can be deduced that the Company, which paid USD 4.8 million (Nafl. 8.6 million) to the Government in taxes and other payments in 2010 (see Table
The Expenditure Approach is one of three main approaches to calculate GDP, the two others are the Production Approach and the Income Approach. The reason the Expenditure Approach was chosen for this report is that the available information facilitated this Approach as opposed to the other two. It is noteworthy though to mention that all three approaches reach the same level of GDP, and thus in this case the approximation of the total impact of GDP should result similar. The basis of the methodology used is the System of National Accounts 93 (SNA 93), while the approximations, assumptions and subsequent calculations and methodology used to reach these were prepared by AIB EFS, in close consultation with other macro economists familiar with the SNA 93. 2 Gross Investment as component of GDP is also referred to as Gross Capital Formation or Fixed Capital Formation plus change in Inventory.
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5), contributed 45.1% to the total Government expenditures for that year, which represents 6.7% of the GDP3. The above impact is also referred to as the first order effect of the Company on the Government Revenues. Consequent second order and subsequent compounded effects, referred to as the multiplier effect, creates an additional indirect impact on the GDP, where if it is assumed that a number of companies depend on the Company for a significant percentage of their sales, these also contribute to the revenues of the Government through wage tax, profit tax, turn-over tax and others, thereby enhancing the expenditure possibility of the Government. 3.3 PROJECTED PAYMENTS BY THE COMPANY TO THE GOVERNMENT OF ST. EUSTATIUS Based on the new consitutional changes St. Eustatius introduced the BES Fiscal Regime (BFR), which does not have an influence on all tax components for the Company as the Company has a Tax Agreement with the Government which is effective until 2014. It is expected that the profit tax will be abolished in the future arrangements between the Government and the Company and replaced with a property tax which would be in accordance as well with the BFR, which is effective since January 2011 for the remainder of the companies in St. Eustatius, however new arrangements are still under negotiations. The effective rate for the property tax is 1% of the market value of the property. The turnover tax has been abolished as well and replaced with the ABB in the BFR, which is the Algemene Bestedings Belasting, levied over the purchasing price. In addition, a flat tax rate of 30.4% was introduced in the BFR for wage tax and social securities contribution for the employees, while the employers contribution for social securities is 18.4%. The tax burden related herewith is estimated to have increased on average to 35.5%, whereas this was on average 27.7% previously. The following table depicts the projected taxes to be paid by the Company to the Government of St. Eustatius.
3
The GDP of 2010 is estimated at USD 71.47 million or Nafl. 127.93 million as is depicted in Table 3.
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Table 6: Projected company payments to the Government of St. Eustatius
Projected taxes on other government payments 2011 Profit Tax 561,897 Wage Tax 2,500,000 General Health Insurance 1,087,715 ZV/ OV & CS 155,387 Concession fee 112,360 Vessel fee 400,000 Achorage fee 250,000 Turn-Over Tax Hinderance Fee 28,090 Propertry Tax Total 5,095,449
Source: Based on information provided by NuStar Terminals N.V.
2012 561,897 2,550,000 1,109,469 158,495 112,360 400,000 250,000 28,090 5,170,311
2013 561,897 2,601,000 1,131,659 161,665 112,360 400,000 250,000 28,090 5,246,670
2014 3,470,706 1,510,056 215,721 168,360 750,000 450,000 42,090 4,000,000 10,606,932
In 2011, the total estimated taxes and fees paid to the Government increased with 6% as compared to 2010, which is mainly due to an increase of USD 0.7 million in wage tax and social securities contributions (incl. general health insurance). The increase in 2014 of USD 5.4 million as compared to the previous year is mainly due to the introduction of the property tax offset by the profit tax abolishment estimated to sum to USD 3.4 million and due to the expansion which is estimated to contribute with an additional USD 1.9 million as resulting from increases in wage tax, social contributions, concession, anchorage, vessel and hindrance fees.
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4. CURRENT AND PROJECTED IMPACT ON COMSUMPTION
4.1 CURRENT PERSONNEL SPENDING A companys current personnels spending contributes to the Consumption component of the GDP. For this reason, the total fixed spending of the NuStar employees is examined. Through the multiplier effect, the employee compensation of the Company also has an indirect influence on the Public Sector as discussed in the previous chapter, through wage tax and other payments.
Table 7: NuStar Employment Compensation in USD
NuStar Employment Compensation in USD Spending on local payroll employees Spending on temporary employees Total spending on local employees
Source: NuStar Terminals N.V.
2008 8,278,759.11 775,590.00 9,054,349.11
2009 8,671,953.83 604,087.00 9,276,040.83
2010 9,599,653.41 688,206.00 10,287,859.41
The purpose of this chapter is to approximate the amount of the current personnel spending that enters the economy via Consumption. From the previous table, the total spending on employee compensation was USD 10.3 million (Nafl. 18.4 million) in 2010. This is a 10.9% increase as compared to the previous year following an increase of 2.4% in 2009 as compared to the year before. The year 2010 will be taken as the point of departure to determine the contribution of the Company to the Consumption component of the GDP as for the current situation.
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4.2 CURRENT CONSUMPTION: SPENDING ON GOODS AND SERVICES AND GDP Consumption (C) (the expenditure of the household sector) generally is the largest component of the GDP and is calculated by adding durable and non-durable goods & services expenditures. It is unaffected by the estimated value of imported goods. In order to approximate the Companys direct contribution to the C component of the GDP, an estimate needs to be made of the disposable income4 of the Companys employees. The disposable income will then be deducted with the assumed amount set aside for repayment of loans and savings, in order to approximate the amount entering back into Consumption through purchases, payments, etc. Net salaries are calculated by deducting the wage tax payment and the social securities contributions from the salaries by the Company. For the year 2010 a total of USD 10.3 million (Nafl. 18.4 million) was paid out in salaries. On the other hand, USD 2.8 million (Nafl. 5.0 million) was paid in wage tax, AOV/ AWW and ZV/AVBZ employee contributions in 2010, leaving USD 7.5 million (Nafl. 13.4 million) in net salaries for the employees. Additionally, conservatively 40% of the gross salaries are reserved for loan repayments, according with the policy of the former Central Bank with regards to the maximum exposure of an individual, which would add to around USD 4.1 million (Nafl. 7.4 million). Traditionally, the former Netherlands Antilles including St. Eustatius is not a country which saves a lot, thus a mere 5%, or USD 0.5 million (Nafl. 0.9 million), is deducted from the net income as assumed amounts placed in savings by personnel.
income is the amount of an individuals income after deduction of direct taxes, which is available for spending, saving and loans.
4Disposable
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Table 8: Disposable Income for consumption purposes in USD
Disposable Income for Consumption purposes in USD Total spending local employees - Total contribution wage tax, AOV/AWW, ZV/AVBZ Disposable Income (Net Salary) - 40% of gross salaries on loan repayments - 5% of gross salaries on savings Remaining disposable income for consumption purposes 2008 9,054,349.11 2,419,998.59 6,634,350.52 3,621,739.64 452,717.46 2,559,893.42 2009 9,276,040.83 2,719,060.91 6,556,979.92 3,710,416.33 463,802.04 2,382,761.55 2010 10,287,859.41 2,795,869.44 7,491,989.97 4,115,143.76 514,392.97 2,862,453.24
The disposable income minus assumed savings and loan repayments impacting the Consumption component of the GDP is estimated to be USD 2.9 million (Nafl. 5.1 million), which is approximately 4.0% of the GDP. 4.3 PROJECTED PERSONNEL SPENDING To be able to project the portion of personnel spending that reenters the economy via Consumption, the personnel spending over the period 2011 through 2014 needs to be estimated for the local employees directly employed by the Company. It is estimated that the execution of the expansion plans would take two years, which is planned to take place in the years 2012 and 2013. It is expected that in the beginning of 2014 the terminal would be fully operational including the foreseen expansion. It is assumed that in 2011 and during the execution of the expansion the number of local payroll employees would remain unchanged as compared to 2010 counting 125 employees. However, it is expected that in the first full year of operations the Company needs to acquire an additional 41 local payroll employees. The temporary employees are expected to increase in 2011 to 19 from 16 in 2010 and would than remain unchanged until the first full year of operation at 15 temporary employees as depicted in the table below.
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Table 9: Projected number of local employees
Nustar Local Employees Payroll employees Temporary employees Total local employees 2011 125 19 144 2012 125 15 140 2013 125 15 140 2014 166 15 181
Source: Based on information provided by NuStar and assumptions by AIB EFS
Based on the assumption that the amount of local payroll employees would remain unchanged in 2011 and following years of construction as compared to 2010, the spending on local payroll employees would only be adjusted with an average inflation level of 2.0%, based on the 10 year average inflation in St. Maarten, although the inflation levels in the third quarter of 2011 as compared to same quarter of the previous year is 11.0% in Statia due to the increased cost of living caused by the changes in the tax system. In the first full year of operation, in 2014, the spending of local payroll employees is increased in addition with USD 3,491,390.41 which is the expected spending for the additional 41 employees.
Table 10: Projected Compensation local employees
NuStar Employment Compensation in USD Spending on local payroll employees Spending on temporary employees Total spending on local employees Average Compensation per Employee Payroll employees Temporary employees 2011 9,791,646.48 788,848.00 10,580,494.48 2011 78,333.17 41,518.32 2012 9,987,479.41 750,000.00 10,737,479.41 2012 79,899.84 50,000.00 2013 10,187,229.00 750,000.00 10,937,229.00 2013 81,497.83 50,000.00 2014 13,882,363.99 750,000.00 14,632,363.99 2014 83,628.70 50,000.00
Source: Based on information provided by NuStar Terminals N.V. and assumptions AIB EFS
Please note that spending on contractors is accounted for in the spending on goods and services by the Company which is the Investment component of the GDP (chapter 5) and not in personnel.
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4.4 PROJECTED CONSUMPTION: DISPOSABLE INCOME
AND GDP
In order to approximate the Companys direct contribution to the Consumption (C) component of the GDP, an estimate is made of the disposable income (net salary) of the Companys fixed employees through wage tax and social securities deductions. In the BES Fiscal Regime which initiated in January 2011, due to the constitutional changes, a flat tax rate of 30.4% was introduced which includes wage tax and social security contributions for the employees, while the employers contribution for social securities is 18.4%. However, because the threshold for social securities contributions (AOV/AWW and ZV) has been abolished these could increase indefinitely, increasing herewith the tax burden significantly. Over the years 2008 to 2010 27.7% was paid on average on wage tax and social securities contributions, which is estimated to have increased on average to 35.5% based on the changes in tax system, which has been taken into consideration to estimate the projected disposable income. Although there are discussions to make adjustments in the BFR related to the tax burden it is assumed that this tax burden would remain unchanged over the years 2011 to 2014. It is further assumed that repayments on loan and savings would remain unchanged in the projected period at respectively 40% and 5% of the gross salaries as these are considered to be traditional habits which are not easily adjusted, in addition the loans are probably existing commitments, which could not be easily adjusted were there new regulations. Based on these assumptions it can be deduced that the remaining disposable income for consumption purposes in 2014 is USD 2.9 million, a slight decrease (-0.4%) as compared to 2010 before the effects of the tax reform and increased with 34.4% by the effects of the expansion and after the effects of the tax reform.
Table 11: Projected Disposable Income
Disposable Income for Consumption purposes in USD Total spending local employees - Total contribution wage tax, AOV/AWW, ZV/AVBZ Disposable Income (Net Salary) - 40% of gross salaries on loan repayments - 5% of gross salaries on savings Remaining disposable income for consumption purposes 2011 10,580,494.48 3,743,102.00 6,837,392.48 4,232,197.79 529,024.72 2,076,169.96 2012 10,737,479.41 3,817,964.04 6,919,515.37 4,294,991.76 536,873.97 2,087,649.63 2013 10,937,229.00 3,894,323.32 7,042,905.68 4,374,891.60 546,861.45 2,121,152.63 2014 14,632,363.99 5,196,482.38 9,435,881.60 5,852,945.60 731,618.20 2,851,317.81
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5. CURRENT AND PROJECTED IMPACT ON INVESTMENT
5.1 CURRENT ANNUAL SPENDING OF THE COMPANY The annual spending, as received directly from the Company, totaled USD 114.0 million (Nafl. 204.0 million) in 2010. A percentage of that is spent internationally, and a percentage is spent locally. The local spending on Goods & Services by the Company in 2010 was 9.4% of the total annual spending, amounting to USD 10.7 million. Although the local share in the total spending has diminished considerably over the years, the value increased in 2010 with 9.3% as compared to the previous year. The direct added value to the economy can be estimated from this share, while the remaining 90.6% is spent in the Antillean economy (3.4%) and internationally (87.1%). The table below reflects a synopsis of the total annual spending as provided by the Company.
(Please note that the provided table has been adjusted as from the Vendors list obtained it was noted that a few spending was ordered into the category Netherlands Antilles, whereas it seems that these should have been ordered in St. Eustatius (Oranjestad, Goldenrock)) Table 12: NuStar Annual Spending
Distribution spending in Local/ Foreign in USD St. Eustatius Rest of former Netherlands Antilles Rest of Caribbean Europe US & Canada 2008 10,779,962.44 2,639,777.62 2,731,850.03 2,309,926.05 35,961,592.13 2009 9,828,936.17 3,013,138.13 4,412,228.25 4,692,190.03 39,479,620.21 61,426,112.79 2009 16.00% 4.91% 79.09% 100.00% 2010 10,741,546.40 3,921,515.85 3,946,469.25 5,696,861.62 89,654,956.82 113,961,349.94 2010 9.43% 3.44% 87.13% 100.00% 2011 YTD 5,061,666.33 1,703,183.78 6,739,142.70 10,597,759.20 24,130,369.69 48,232,121.70 2011 YTD 10.49% 3.53% 85.97% 100.00%
Total Spending 54,423,108.27 Distribution spending in Local/ Foreign in % 2008 St. Eustatius 19.81% Rest of former Netherlands Antilles 4.85% Foreign 75.34% Total 100.00%
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5.2 CURRENT ACTUAL SPENDING OF THE COMPANY: GOODS AND SERVICES In order to calculate the added value of the Companys spending to enterprises in the economy of St. Eustatius, fixed investment spending and other spending are added together as the Gross Investment (I)5 component of the GDP. The vendors list as received from the Company has been classified by sector according to the CBS business register of 2009. The vendors which were not listed on this register were classified based on the goods or services provided to the Company according to the International Standard Industrial Classification (ISIC), regardless of the fact that these might include unregistered (grey) businesses as well. The total spending on goods and services in St. Eustatius by the Company was USD 10.7 million (Nafl. 19.2 million) including public administration and certain payments to employees, however the latter two have been already taken into consideration in the Government component and the Consumption component respectively. The spending on Goods and Services, excluding the public administration and the employee payments, amounts to USD 5.7 million (Nafl.10.1). These amounts include the spending on fixed investment portion spent locally. For the purpose of calculating the added value to Gross Investment of St. Eustatius, direct costs (import related costs) for the different vendors paid by NuStar is assumed. The cost structure of businesses of Aruba has been used to approach the direct costs of businesses in St. Eustatius, where the direct costs are calculated through the findings of the CBS Aruba per sector6. The direct cost in this case is measured by the composition of expenditure of the Company and the respective import percentage cost per sector, however corrected for import duties, which is neither levied in St. Eustatius nor St. Maarten. Additionally, it is assumed that all products imported to St. Eustatius are imported directly or via St. Maarten. Furthermore, it is assumed that the money paid to the listed local companies is spent completely on St. Eustatius. The following table 13 illustrates the import related cost (adjusted for import duties) next to the spending.
5
Gross Investment component (I) of GDP is also referred to as Gross Capital Formation or Fixed Capital Formation plus change in Inventory. 6 The CBS Aruba publication: Cost structure of Businesses 1996 2004 was used as a basis for calculation of the direct cost per sector, corrected for import duties which is not levied in St. Eustatius. This information is not separately available for St. Eustatius, which is why the Aruban data was used as basis for assumption.
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The total added value in the economy, when excluding import value and payments to the public administration and employees, is estimated at USD 3.7 million (Nafl. 6.6 million) in 2010.
Table 13: NuStar Spending
Vendors List per sector 2008 182,679.57 452,821.24 1,628,088.82 255,024.56 208,122.52 935,931.56 364,835.92 774,726.75 4,593,319.02 5,104.51 87,789.41 44,706.47 1,645.25 1,022,542.38 222,624.46 10,779,962.44 5,964,018.96 2009 172,047.98 315,451.41 1,364,152.66 282,705.47 192,142.49 748,941.26 425,679.94 589,751.47 4,442,749.80 4,424.16 110,339.47 10,496.19 6,170.96 943,957.38 219,925.53 9,828,936.17 5,166,260.84 2010 239,846.37 304,272.86 2,028,520.19 564,161.30 206,601.18 619,024.34 377,906.27 605,349.06 4,815,245.61 2,432.58 219,891.85 107,376.86 7,317.42 378,638.93 264,961.58 10,741,546.40 5,661,339.21
Agriculture Manufacturing, Electricity, Gas and Water Supply Construction Wholesale & Retail Trade Hotels & Restaurants Transport, Storage & Communication Financial Intermediation Real Estate, Renting & Business Activities Public Administration & Defense; Social Securities* Education Health and Social Work Other community, social and personal services activities* N.e.c. Cash Employee Total Total Goods & Services excl. Government and Employees
Source: NuStar Terminals N.V., Statia Vendors 2008 - June2011. Basis of information provided by CBS NA and Chamber of Commerce Distribution by AIB EFS based on CBS NA Business Register 2009 for EUX and ISIC. Direct Costs based on CBS Aruba Cost Structure of Businesses
Please take into account that Investments are usually considered in their totality as component of the GDP, while corrected in the Export (X) Import (M) saldo of the Balance of Payments directly which forms the added value for a country. However, for the purpose of this report where the isolated added value of a company is measured the import related costs need to be taken into consideration in this manner, as the Balance of Payments available for the Company includes only transactions directly attributed to the Company and does not include transactions of third parties.
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Table 14: NuStar Spending excluding direct import related costs
Vendors List per sector in % 2008 Agriculture Manufacturing, Electricity, Gas and Water Supply Construction Wholesale & Retail Trade Hotels & Restaurants Transport, Storage & Communication Financial Intermediation Real Estate, Renting & Business Activities Public Administration & Defense; Social Securities Education Health and Social Work Other community, social and personal services activities N.e.c. Cash Employee Total Total Goods & Services excl. Government and Employees
Source: NuStar Terminals N.V., Statia Vendors 2008 - June2011. Distribution by AIB EFS based on CBS NA Business Register 2009 for EUX and SIC. Direct Costs based on CBS Aruba Cost Structure of Businesses 1996-2004
Direct costs related to import per sector
Added Value NuStar 2008 182,679.57 287,541.49 662,632.15 83,648.06 136,528.37 830,171.29 317,407.25 674,012.27 5,104.51 87,789.41 38,358.15 1,645.25 1,022,542.38 2009 172,047.98 200,311.65 555,210.13 92,727.39 126,045.47 664,310.90 370,341.55 513,083.78 4,424.16 110,339.47 9,005.73 6,170.96 943,957.38 2010 239,846.37 193,213.27 825,607.72 185,044.91 135,530.37 549,074.59 328,778.45 526,653.68 2,432.58 219,891.85 92,129.35 7,317.42 378,638.93
inUSD
2009 115,139.76 808,942.53 189,978.08 66,097.02 84,630.36 55,338.39 76,667.69 1,490.46 2010 111,059.59 1,202,912.47 379,116.39 71,070.81 69,949.75 49,127.82 78,695.38 15,247.51 165,279.75 965,456.67 171,376.50 71,594.15 105,760.27 47,428.67 100,714.48 6,348.32
36.5% 59.3% 67.2% 34.4% 11.3% 13.0% 13.0%
14.2%
4,330,060.15
3,767,976.55
3,684,159.49
5.3 THE DIRECT IMPACT OF THE COMPANYS SPENDING ON GDP The total contribution to the Gross Investment component of the GDP when subtracting direct cost from all related spending in St. Eustatius is estimated at USD 3.7 million (Nafl. 6.6 million) or 5.2% of the total GDP7. When adding this with the Government contribution (6.7%) as well as the Consumption component (4.0%), the total contribution, excluding the GDP Export minus Import component, is 15.9% to the GDP. The GDP Export minus Import component, which still needs to be addressed in chapter 5, will be added to this percentage to attain the complete estimated direct contribution of the Company on the economy (GDP). The Expenditure Approach8, as explained in chapter 2.2, of calculating the GDP is used to approximate the added value to the economy of St. Eustatius.
7 8
The GDP of 2010 is estimated at USD 71.47 million or Nafl. 127.93 million as displayed in chapter 2 Expenditure Approach: Consumption (C) + Gross Investment (I) + Government (G) + (Export (X)- Imports (M))
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5.4 PROJECTED SPENDING

INCLUDING G&S
OF THE
COMPANY
OVER THE CONSTRUCTION PERIOD
Please note that it has been assumed that the total projected spending as provided by the Company is excluding estimated tax payments to the Government of St. Eustatius. This has been concluded as otherwise the remaining local spending for goods & services would not be in line with previous years or would be negative, which is not realistic. Depicted in the table below is the total spending as provided by the Company including the average distribution, over the years 2008 through 2010, used to project the distribution over the years 2011 through 2014.
Table 15: Projected distribution as provided by the Company
Projected distribution spending in Local/ Foreign in USD St. Eustatius Rest of former Netherlands Antilles Foreign Total Investment
in % 15.08% 4.40% 80.52% 100.00%
2011 5,720,465.87 1,668,907.34 30,549,335.80 37,938,709.00
2012 36,203,804.18 10,562,215.69 193,341,276.13 240,107,296.00
2013 40,734,492.23 11,884,013.38 217,536,772.40 270,155,278.00
2014 3,916,183.56 1,142,520.14 20,913,822.30 25,972,526.00
In order to obtain the total spending, the estimated tax payments to be paid to the Government were added to the local spending, while the spending in the rest of the former Netherlands Antilles and foreign investment remained the same. The percentage distribution has been recalculated based on this addition and is depicted in the table below.
Table 16: Projected distribution spending
Projected distribution spending in Local/ Foreign in USD St. Eustatius Rest of former Netherlands Antilles Foreign Total Investment Projected distribution spending in Local/ Foreign in % St. Eustatius Rest of former Netherlands Antilles Foreign Total Investment
2011 10,815,914.48 1,668,907.34 30,549,335.80 43,034,157.61 2011 25.1% 3.9% 71.0% 100.0%
2012 41,374,114.83 10,562,215.69 193,341,276.13 245,277,606.65 2012 16.9% 4.3% 78.8% 100.0%
2013 45,981,162.16 11,884,013.38 217,536,772.40 275,401,947.93 2013 16.7% 4.3% 79.0% 100.0%
2014 14,523,115.94 1,142,520.14 20,913,822.30 36,579,458.38 2014 39.7% 3.1% 57.2% 100.0%
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The exercise is performed to illustrate the total local spending and the effects on the percentage distribution due to the above mentioned assumption, while the impact on the Investment component of the GDP is approximated by the total local spending in Goods & Services exclusive of the tax payments to the Government as the latter has already been accounted for in the Government (G) component of the GDP, which results back into the local spending (assumed exclusive of Government taxes) as provided by the Company and depicted in the following table 17.
Table 17: Projected local spending
Projected local spending on Goods & Services Total local spending - Taxes and fees paid to Government Total spending in Goods & Services (excl. Govt) - Direct import related costs Added Value of the Company
2011 10,815,914.48 5,095,448.61 5,720,420.49 1,965,772.21 3,754,648.28
2012 41,374,114.83 5,170,310.65 36,203,758.78 12,441,103.40 23,762,655.37
2013 45,981,162.16 5,246,669.93 40,734,446.80 13,998,034.51 26,736,412.29
2014 14,523,115.94 10,606,932.38 3,916,138.12 1,345,746.43 2,570,391.68
In addition, the direct costs (import related costs) need to be assumed to calculate the added value to the Gross Investment. The cost structure of businesses of Aruba has been used to approach the direct costs of businesses in St. Eustatius through the same method used in chapter 4.2, where the direct costs are calculated for the years 2008 to 2010. Contrary however to chapter 4.2 the correction for import duties is minimal as the ABB was introduced increasing the import costs. After performing said exercise an average was calculated over the years 2008 to 2010 (34.4%) and used for the projections of 2011 through 2014. Additionally, it is assumed that all products imported to St. Eustatius are imported directly or via St. Maarten. Sint Maarten still does not levy any kind of import duties, what might influence the imports costs when importing via St. Maarten is though the turnover tax levied in St. Maarten, which is not taken into consideration for the purpose of this report as various assumptions need to be considered, making the results less tangible. Furthermore, it is assumed that all local spending, after deduction of the import related costs, is spent completely on St. Eustatius. The below table illustrates the import related cost next to the spending. The total added value in the
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economy, when excluding import value, is estimated at USD 3.8 million in 2011, while during the assembling of the expansion this amounts to USD 23.8 million and USD 26.7 in respectively 2012 and 2013. During the first year of operation after the expansion, in 2014, the added value is projected at USD 2.6 million.
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6. IMPACT ON EXPORT AND IMPORT ACTIVITIES
6.1 CURRENT TRADE IN GOODS & SERVICES The influence of NuStar on Merchandise Trade is displayed in the following table, also in proportion to the Merchandise Trade of the Windward Islands. Noteworthy to mention is that the Windward Islands are import oriented islands, which is also reflected in the merchandise trade deficit as displayed in the Balance of Payments breakdown of the merchandise exports and imports of the Windward Islands from 2003-2008, while no newer detailed statistics is made available on the Balance of Payments of the Windward Islands. In addition, due to the constitutional changes which came to effect in October 2010, the Balance of Payment of the Oil Terminal is obtainable up to the third quarter of 2010, where NuStar imported Nafl. 1.1 million in value on goods, while exporting a value of Nafl. 0.1 million, resulting in a merchandise trade deficit of Nafl. 1.0 million up to the third quarter of 2010.
Table 18: Balance of Payments merchandise exports and imports NuStar
Balance of Payments: Breakdwon merchandise exports and imports for the Windward Islands In millions Nafl. TRADE BALANCE Merchandise Exports -General merchandise -Statia terminal -Oil products -Goods for processing -Repairs on goods -Goods procured in ports Merchandise Imports -General merchandise -Statia terminal -Oil products -Goods for processing -Repairs on goods -Goods procured in ports Statia Terminal Trade Balance
Source: Central Bank of the Netherlands Antilles
2003 -596.3 96.2 86.0 10.1 0.1 692.5 647.0 0.7 45.4 0.1 -0.7
2004 -746.2 159.5 128.5 29.5 1.5 905.7 806.6 3.4 99.1 -3.4
2005 -863.5 180.1 138.2 36.8 5.1 1,043.6 867.2 8.8 176.2 0.1 0.1 -8.8
2006 -992.2 164.2 140.6 21.2 2.4 1,156.4 981.5 12.3 174.7 0.2 -12.3
2007 -1,225.0 197.8 184.8 2.3 6.5 4.2 1,422.8 1,215.5 12.0 206.4 0.9 -9.7
2008 -1,256.8 240.3 217.4 0.8 5.4 16.7 1,497.1 1,241.1 4.1 255.3 0.7 -3.3
2009
2010
0.0
0.1
1.0
1.1
-1.0
-1.0
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The Companys added value in the Balance of Payments, however, is recorded in the Companys export of its services. The payments received for rendered services up to the third quarter of 2010 amounted to Nafl. 49.9 million from transportation services and refining fee, while the payments received in 2009 amount to Nafl. 105.6 for a full year of operation. According to the Central Bank of the former Netherlands Antilles, the refining fee in the services balance of the balance of payments reflects the net foreign exchange receipts for refining activities by the refineries in the Netherlands Antilles. The refining fee is paid by the parent companies abroad and is used by the refineries to cover their operational costs and investments in the Netherlands Antilles. The payments made by NuStar for services imported to the island of St. Eustatius amounted to Nafl. 2.6 million up to the third quarter of 2010, which decreased considerably as compared to 2007. Noteworthy to mention, however, is that the payments made by the Company in 2007 for services imported were substantially higher than the previous years. The overall balance for services in the Balance of Payments results in a surplus of Nafl. 47.3 million (USD 26.4 million) up to the third quarter of 2010.
Table 19: Balance of Payments Services NuStar Oil Terminal
Balance of Payments: Statia Oil Terminal Revenues from oil storage and refining fee In millions Nafl. Services Exports (Receipts) -Transportation (statia terminal) -Refining fee (statia terminal) Services Imports (Payments) Balance Services
* Up to the 3rd quarter Source: Central Bank of Curacao and St. Maarten
2003 48.6 34.3 14.3 42.0 6.6
2004 68.4 46.7 21.7 30.6 37.8
2005 117.8 74.1 43.6 21.8 96.0
2006 124.6 75.6 49.0 23.2 101.4
2007 107.6 69.1 38.5 52.5 55.1
2008 88.1 37.9 50.3 31.2 56.9
2009 105.6
2010* 49.9
22.2 83.4
2.6 47.3
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6.2 CURRENT BALANCE OF PAYMENTS9 According to the Balance of Payments, as provided by the Central Bank of the Netherlands Antilles, the added value (overall balance) to the economy by the Company was Nafl. 21.2 million (USD 11.8 million) up to the third quarter of 2010. However, the year 2010 has been used as point of departure to assess the current contribution to the GDP, therefore the Balance of Payment of NuStar for the entire year has been approximated by assuming that the last quarter of the year had an average development. For this approximation the average over the last 5 years has been used, which projection is displayed in table 13. The Overall balance is the amount of money that stays on St. Eustatius after deduction of all the payments and outflows outside of St. Eustatius and influences the economy. 6.3 CURRENT BALANCE OF PAYMENTS CONTRIBUTION TO GDP As discussed in chapters 2 through 4, the Gross Domestic Product (GDP) is calculated via the Expenditure Approach. The omitted component up to now in the equation was the total overall balance of Exports (X)-Imports (M) with the exception of the correction in Investment for third parties. This is USD 15.8 (Nafl. 28.2 million) or 22.1% of the total GDP bringing the current added value of the Company on the economy of St. Eustatius to an estimated total of 38.0% of the total GDP.
All items of the Balance of Payments are received directly from the Central Bank of the Netherlands Antilles upon special request, the data is not published in any publications.
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Table 20: Balance of Payments NuStar
Statia Oil Terminal 2003 2004 5.9 34.4 5.9 34.4 -0.7 -3.4 0.0 0.0 0.7 3.4 6.6 37.8 48.6 68.4 42.0 30.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (5.9) (34.4) 0.0 0.0 2005 2006 92.6 94.7 87.2 89.1 -8.8 -12.3 0.0 0.0 8.8 12.3 96.0 101.4 117.8 124.6 21.8 23.2 4.3 4.5 4.3 4.5 0.0 0.0 1.1 1.1 1.1 1.1 0.0 0.0 (71.6) (75.3) 0.0 0.0 2007 2008 2009 48.8 60.6 88.8 45.4 53.6 82.4 -9.7 -3.3 -1.0 2.3 0.8 0.0 12.0 4.1 1.0 55.1 56.9 83.4 107.6 88.1 105.6 52.5 31.2 22.2 5.0 10.3 6.2 6.6 10.3 6.2 1.6 0.0 0.0 -1.6 -3.3 0.2 0.4 0.6 0.3 1.9 3.9 0.1 (30.2) (36.2) (59.2) 0.0 0.0 0.0 2010p 64.6 61.7 -1.3 0.1 1.5 63.1 66.5 3.5 0.8 0.8 0.0 2.1 2.1 0.0 (37.7) 0.0
1.Current account (net) A.Goods and services 1. Goods 1.1 Exports f.o.b 1.2 Imports f.o.b 2. Services 2.1 Receipts 2.2 Payments B. Income 1.Receipts 2.Payments C. Current transfers 1. Receipts 2.Payments 2. Capital and financial account (net) A.Capital account 1. Capital transfers 2. Acquisition/disposal of n.p.n.f. assets B. Financial account 1.Direct investment 2.Portfolio investment 3. Financial derivatives 4.Other investment 3.Items not yet classified 4. Overall balance 5. Banking transactions 6. Increase (-) in official reserves A.Monetary gold B. Foreign exchange holding
p projection Source: Central Bank of Curacao and St. Maarten
(5.9) -5.9
(34.4) -34.4
(71.6) -71.6
(75.3) -75.3
(30.2) -30.2
(36.2) -36.2
(59.2) -59.2
(37.7) -37.7
0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0
0.0 21.0 -21.0 0.0 0.0
0.0 19.4 -19.4 0.0 0.0
0.0 18.6 -18.6 0.0 0.0
0.0 24.4 -24.4 0.0 0.0
0.0 29.6 -29.6 0.0 0.0
1.3 28.2 -28.2 0.0 0.0
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6.4 PROJECTED BALANCE OF PAYMENTS10 In order to be able to project the Balance of Payments over the years 2011 to 2014 the following assumptions are made: The expansion plans will be finalized by the end of 2013 and will be fully operational for the entire 2014 The expansion will become fully operational in one shot per 2014 and not gradually in the years of mantling All investments (spending) incurred during 2012 and 2013 related to the expansion will be executed through third parties and not directly via the Company The latter is not applicable for investments falling under the usual operations of the Company It is assumed that the expansion is financed with capital which is already abroad (mother company or by a financial institution abroad, which will have no influence during execution period on the balance of payments as the foreign services are paid directly with foreign money) It is assumed that the local portion of the investments is paid with capital available in Statia and the use of this capital has no influence on potential dividend payment or loan repayments to either the mother company or any other financial institution abroad, meaning that these could remain on the same level, in proportion, as previous years. Taking the above assumptions into consideration the Balance of Payments for the Company is approximated by taking the average growth over from 2005-2010, 4.8%, for the years 2011 to 2013 which might be conservative seen that in 2010 and 2011 already investments were made to increase capacity of the Terminal. For 2014 the Balance of Payments is increased with the increase in capacity of the terminal due to the planned expansion, which is an increase of 85.5%, assuming that the increased capacity
10
All items of the Balance of Payments are received directly from the Central Bank of the Netherlands Antilles upon special request; the data is not published in any publications.
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would generate proportionally the same inflows and outflows and all relations within the Balance of Payments remain the same.
Table 21: Projected Balance of Payments NuStar
Statia Oil Terminal 1.Current account (net) A.Goods and services 1. Goods 1.1 Exports f.o.b 1.2 Imports f.o.b 2. Services 2.1 Receipts 2.2 Payments B. Income 1.Receipts 2.Payments C. Current transfers 1. Receipts 2.Payments 2. Capital and financial account (net) A.Capital account 1. Capital transfers 2. Acquisition/disposal of n.p.n.f. assets B. Financial account 1.Direct investment 2.Portfolio investment 3. Financial derivatives 4.Other investment 3.Items not yet classified 4. Overall balance 5. Banking transactions 6. Increase (-) in official reserves A.Monetary gold B. Foreign exchange holding
Source: Central Bank of Curacao and St. Maarten
2011 67.8 64.7 -1.4 0.1 1.5 66.1 69.7 3.6 0.8 0.8 0.0 2.2 2.2 0.0 (39.5) 0.0
2012 71.0 67.8 -1.5 0.1 1.6 69.3 73.1 3.8 0.9 0.9 0.0 2.3 2.3 0.0 (41.4) 0.0
2013 74.4 71.1 -1.5 0.2 1.7 72.6 76.6 4.0 0.9 0.9 0.0 2.4 2.4 0.0 (43.4) 0.0
2014 138.0 131.8 -2.8 0.3 3.1 134.7 142.1 7.4 1.7 1.7 0.0 4.5 4.5 0.0 (80.6) 0.0
(39.5) -39.5
(41.4) -41.4
(43.4) -43.4
(80.6) -80.6
1.4 29.6 -29.6 0.0 0.0
1.5 31.0 -31.0 0.0 0.0
1.5 32.5 -32.5 0.0 0.0
2.8 60.3 0.0 -60.3 0.0 0.0
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The added value of the Company on the overall balance of Exports (X) Imports (M) according to the projected Balance of Payments is USD 33.7 million, bringing the total added value of the Company to an estimated total of USD 49.7 million in 2014.
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7. SUMMATION OF GDP COMPONENTS
7.1 CURRENT SUMMATION ON GDP COMPONENTS In summation of the impact of the Company on the GDP components, Table 14 portrays each GDP component next to the methodology used to approximate the Companys impact on these.
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Table 22: Summation of Companys direct impact on GDP components 2010
GDP Component based on expenditure approach Government Estimated Impact Company in USD million 4.8 Estimated Impact Company in terms of GDP 6.7% The added value of the
Government component is consumption of goods & services, investments, and It is assumed all the revenues received by the Government directly from Spending, where the Company's direct contribution to revenue is then
Explanation
Methodology approach Approximation of impact
measured through its outlays on Company are used in turn for
compensation of its employees. indirect contribution to spending.
Consumption
2.9
4.0% The Consumption component

of the GDP reflects the total spending by the household sector on durable and nondurable goods as well as services.
All the wages received by employees of the Company, less the tax payments, social securities contributions and other government related costs, the savings component assumed for the employees, and the repayment on loans.
Gross Investment
3.8
5.3% The Gross Investment

component of the GDP is also referred to as Gross Capital Formation or fixed capital formation and changes in inventory.
All the investments and spending of the Company to local vendors after subtracting import payments with the aim to measure the added value in the GDP to enterprises.
Export - Import
15.8
22.1% Export minus import is the

added value of trade to the economy
The contribution to the balance of payment as recorded by the Central Bank Netherlands Antilles up to the third quarter and extrapolated for the remainder of 2010
Approximation to total impact on GDP of St. Eustatius
27.2
38.1% This item excludes further

order of events resulting from multiplier
The Government The added value of the Government component is measured through its outlays on consumption of goods & services, investments, and compensation of its employees. For the sake of this report it is assumed that all the revenues received by the Government are used for Spending completely in St. Eustatius. With this point of departure it is estimated that the

Company contributed 45.1% to the total expenditures by the Government in 2010. In terms of GDP, this is 6.7% of the total estimated GDP in St. Eustatius for the year 2010. Consumption The Consumption component of the GDP reflects the total spending by the household sector on durable and non-durable goods as well as services. The approximation of the impact of the Company on this component was conducted by taking the wages received by employees, less the tax payments, social securities contributions and other government related costs, the savings component assumed for the employees, and the repayment on loans. The estimated contribution to the Consumption component of the GDP was USD 2.9 million (Nafl. 5.1 million) or 4.0% of the GDP for the year 2010. Investment The Gross Investment component of the GDP is also referred to as Gross Capital Formation or Fixed Capital Formation and changes in inventory. This consists of all the investments and spending of the business sector after subtracting import values with the aim to measure only the added value on the island of the enterprises to the GDP. The total impact of the Company is estimated at USD 3.7 million (Nafl. 6.6 million) or 5.2% of the GDP in 2010. Impact on Export and Import Activities According to the Central Bank of the Netherlands Antilles, the contribution of NuStar to the overall balance of the foreign exchange of St. Eustatius up to the third quarter of 2010 was USD 11.8 million and extrapolated for the entire year assuming an equal trend for the remainder of the year, this would mount to USD 15.8 million (Nafl. 28.2 million), which would contribute to 22.1% of the GDP.
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7.2 PROJECTED SUMMATION ON GDP COMPONENTS In the following table the added value of the Company on each GDP components are initially summarized per year. During the execution of the expansion, in the years 2012 and 2013, it can be noted that the total absolute added value of the Company increased significantly, mainly due to the Investment component, to USD 48.4 and USD 52.3 million respectively, directly related to the Project. In the first full year of operation after the expansion is completed the total absolute added value decreased somewhat to USD 49.7 million. Noteworthy to mention is though that the composition of the total added value changed. During the execution of the expansion it is estimated that the Investment component will dominate, while during the operations after expansion is completed the projected overall balance of the Export (X) Import (M) is estimated to dominate. The latter results from the increased receipts from services provided due to the expanded terminal capacity. In addition, the total absolute added value is influenced by the Government component due to the estimated adjustments in the tax agreement with the Government, where it is expected to be subject to the Real Estate Tax.
Table 23a: Summary Projected Absolute GDP components
GDP Component based on expenditure approach 2010 Government Consumption Gross Investment Export - Import Total Estimated Added Value Company 4.8 2.9 3.7 15.8 27.1 2011 5.1 2.1 3.8 16.5 27.5 Estimated Impact Company in USD million 2012 5.2 2.1 23.8 17.3 48.4 2013 5.2 2.1 26.7 18.2 52.3 2014 10.6 2.9 2.6 33.7 49.7
The GDP for the years 2011 to 2014 need to be projected in order to be able to assess the added value of the Company on the GDP. The GDP for 2011 is estimated to have increased with a nominal standard growth of 3%. For the years 2012 through 2014 the same standard nominal growth is taken into consideration, in addition, the excess added value of the Company
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is added as compared to the previous years, resulting in the projected GDP as displayed in the table below.
Table 23b: Projected GDP and estimated impact on GDP
2010 Nominal GDP projection in million USD Total Estimated Added Value Company Estimated Impact Company based on GDP 71.5 2011 73.6 2012 96.7 2013 103.5 2014 104.1
27.1
27.5
48.4
52.3
49.7
38.0%
37.3%
50.0%
50.5%
47.8%
It can be depicted from the table above that the estimated impact on the GDP for the years of execution of the expansion is 50.0% and 50.5% for respectively 2012 and 2013, while for the year 2014 the impact on the GDP is estimated at 47.8%. Noteworthy to mention is that the GDP itself is influenced directly due to the expansion of the terminal, while the indirect effects thereof (spin off) caused by increased business activities is expected to be felt later, where the GDP is expected to further increase, which will though lead to a diminishing of the added value of the Company in terms of GDP. However, due to the increased productivity of the Company and herewith of the island the social well being of its population is enhanced which can be measured i.e. by the estimated GDP per capita.
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8.
C URR EN T & P ROJ ECT ED I M PAC T ON BUS I NES S AC TIV I T Y I N G EN ER AL
8.1 CURRENT AND PROJECTED IMPACT ON THE DIFFERENT ECONOMIC SECTORS In the previous sections the contribution of the Company to the GDP of St. Eustatius was approximated. In addition to impacting the local economy through its macro economic measure, namely the GDP, the Companys impact on a micro level in the different business sectors was analyzed. This way the business sectors which are most and least dependent on the Company could be identified. 8.2 CURRENT AND PROJECTED NUMBER OF BUSINESSES AFFECTED The total number of businesses as received from the CBS in 2009 mount to 131 distributed over the sectors. However, according to the Chamber of Commerce an estimated 250 businesses are registered in their data base which needs to be cleared up though with nonactive businesses. For lack of a better indication we have assumed that 30% of the businesses are non-active, which result in 175 active businesses, these have been redistributed according to the distribution of the CBS register, which is displayed next to the Companys spending per business activity, as classified according to the CBS business register and the ISIC, for the year 2010, including the number of businesses the Company does business with, frequency of different vendors. When observing the mere number of companies the Company does business with, as a percentage of the total number of companies in St. Eustatius per business sector, it can be concluded that a significant number of companies do business with the Company, or rather 66.0% of all establishments in St. Eustatius.
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Table 24: NuStar Vendors List per economic activity

Vendors List per sector 2010 239,846.37 304,272.86 2,028,520.19 564,161.30 206,601.18 619,024.34 377,906.27 605,349.06 4,815,245.61 2,432.58 219,891.85 107,376.86 7,317.42 378,638.93 264,961.58 10,741,546.40 5,661,339.21 Frequency* Establishment per economic center 4 4 6 31 17 12 3 26 1 2 10 12 4 8 11 45 37 9 5 45 5 4 Agriculture Manufacturing, Electricity, Gas and Water Supply Construction Wholesale & Retail Trade Hotels & Restaurants Transport, Storage & Communication Financial Intermediation Real Estate, Renting & Business Activities Public Administration & Defense; Social Securities* Education Health and Social Work Other community, social and personal services activities* N.e.c. Cash Employee Total Total Goods & Services excl. Government and Employees in % of establishment per economic sector 100% 50% 56% 68% 45% 128% 56% 57% 37% 250%
115
175
66%
Source: NuStar Terminals N.V., Statia Vendors 2008 - June2011. Basis of information provided by CBS NA and Chamber of Commerce
* Does not include other community, social and personal services activities and public administration in the total
8.3 CURRENT AND PROJECTED IMPACT ON BUSINESS ACTIVITIES Current Impact Business Activities In addition to the number of businesses impacted, the impact on the GDP per business sector is analyzed. In Table 25, the actual amounts paid per business activity by the Company are displayed next to the total GDP amounts approximated for the respective sectors. The Methodology used to determine the impact of these payments of the Company to the business activity of St. Eustatius is as follows: The vendor data has been aggregated and sorted based on International Standard Industry Codes (ISIC) Data on GDP per business activity of St. Eustatius has been approximated and is depicted in Table 3 of the second chapter.
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NuStar contribution to the GDP per sector could subsequently be estimated

NuStar contribution to 2010 GDP by sector & industry 0.45 1.98 4.64 7.57 19.70 11.05 13.04 22.37 1.21 4.06 5.76 11.89 16.46 0.51 120.68 10.08 2.83 127.93 5.90 4.7% 5.90 4.9% 0.43 0.14 0.21 1.48 0.33 0.24 0.98 0.94 0.00 0.39 0.16 0.59 95.2% 7.0% 4.5% 19.5% 1.7% 2.2% 7.5% 4.2% 0.4% 9.7% 2.9% 5.0%
Table 25: NuStar Contribution to GDP per sector

Contribution to GDP by sector & industry (mln Nafl.) 2004 Agriculture and fishing Manufacturing Electricity, gas and water Construction Trade Hotels and restaurants Transport, storage and communications Real estate, renting and business activities Education private Health and social work Other community, social and personal service act. Financial Intermediation Public administration and defence;compulsory social security Private Households Total Gross Value Added, market prices plus Taxes less subsidies on products minus Fisim Gross Domestic Product, market prices 0.34 1.84 4.36 6.40 14.55 7.05 9.77 16.73 1.43 2.63 7.02 8.16 10.22 0.56 91.05 7.37 2.02 96.40 2005 0.37 1.95 3.79 7.98 15.46 7.02 11.09 17.69 1.87 3.01 7.06 8.70 10.86 0.48 97.34 8.51 2.19 103.67 2006 0.40 1.63 3.76 6.34 17.37 9.66 10.84 20.24 1.09 3.21 5.63 8.90 13.56 0.48 103.12 9.15 2.13 110.14 2007 0.42 1.74 4.06 6.97 18.67 9.76 11.58 21.23 1.10 3.72 5.95 9.79 14.12 0.48 109.60 9.86 2.43 117.04 2008 0.43 1.74 4.41 7.30 19.47 11.32 12.51 21.44 1.22 3.81 5.75 10.92 16.03 0.49 116.82 10.10 2.57 124.34 2009 0.44 1.92 4.50 7.35 19.12 10.73 12.66 21.71 1.18 3.94 5.60 11.54 15.98 0.50 117.17 9.79 2.75 124.21
Source: Calculated based on GDP Netherlands Antilles, Windward Islands and St. Maarten (CBSNA)
The business sectors which are most dependent on the Company in 2010 are displayed in terms of the estimated percentage contribution of the Company to each sectors GDP: NuStar contributed 19.5% to the total activities in the Construction sector NuStar contributed 9.7% to the total GDP in the Health and Social Work, of which the majority is through donations to foundations which contribute to social welfare NuStar contributed 7.5% to the total Transport, Storage and Communications, 7% to Manufacturing and to 5% Financial Intermediation NuStar contributed 95.2% to the total activities in the Agriculture & Fishing Sector. Noteworthy to mention is that the Agriculture & Fishing sector is the smallest sector.
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From these findings, the dependence of the business sectors can provide an indication as to even the employees per business sector that might indirectly depend on the Company, which is further examined in chapter 8. Projected Impact Business Activities The projected impact, on the business activities, is not quantifiable during the execution of the expansion or for the first full year of operations as the frequency of the vendors used is not known neither the distribution of the total investment per sector. However, the expansion would offer an increase in the economic activities in general. Due to the expansion, demand would increase on the rental industry of the island as well as on other auxiliary business. Noteworthy to mention is that it is perceived that besides the Terminal, there are limited economic activities possible with a short to medium term impact on the overall economy. During the construction period of 2012-2013, it can also be assumed that business activities in general would increase greatly due to the presence of contractors engaged for the purpose of the expansion. These are indirectly influenced by the Company but are certainly noteworthy to mention. The contractors are expected to bring temporarily between 300 and 500 more people on the island merely to work on the expansion activities, which would mean a temporarily increase in the population of between 10.4% and 17.3% as compared to 2010. While the terms and conditions of the agreements with the contractors are unknown as of yet it is now quantifiable how much these will influence the business activities in general, however it is expected to impact the food & beverage sector as well as the real estate industry especially.
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9. CURRENT & PROJECTED IMPACT ON LABOUR ACTIVITIES
The impact on labour activities by the Company is considered from a social-economic angle. The direct impact of the Companys employees is seen as a contribution to the Consumption of St. Eustatius, as already discussed in chapter 4, consequently creating purchasing capacity in the usual business activity of St. Eustatius. However, employees of the businesses with which the Company does business on a regular basis are also partly dependent on the Company for their compensation, which is accounted for in the indirect impact but not easily quantifiable in value 9.1 CURRENT AND PROJECTED IMPACT LABOUR ACTIVITIES Current impact Labour Activities For the basis of this study the current employment figures for the year 2010 is required to assess the impact as the current year under review, however no definitive statistics regarding labour force participation and detailed employment levels since 2001 are available, which was based on the latest census which was conducted on the island of St. Eustatius.
In the meanwhile, for the purpose of the SEIS, AIB EFS extrapolated the figures to estimate distribution of employed population for the years 2008 through 2010 based on a variety of sources and growth figures as provided from CBS Netherlands Antilles and the assumption that the relation between the figures are maintained as no newer statistics are available. The result is depicted in the following table.
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Table 26: Population by economically active population
Population by economically active population 2001 2008* 2009* Employed Population 1,038 1,240 1,288 Unemployed Population 96 115 119 Labor Force 1,134 1,355 1,407 Unemployment Rate 8.3 Total Population 2,293 2,739 2,845 Participationrate 75.3 75.3 75.3 Source: Censo 2001, Island Registry and CBS Estimates, *extrapolation by AIB EFS 2010* 1,306 121 1,427 2,886 75.3
In 2010, the Company had 133 employees on the payroll, which directly accounts for 10.2% of the total extrapolated employment in the respective year. The employment by the Company decreased with 4.3% (6 employees) as compared to the 139 employees reported in 2008. Noteworthy to mention is that the foreign employee decreased with 4 employees (33.3%) to a total of 8 foreign employees and the local employees decreased with 2 employees (1.6%) to 125 employees in 2010 as compared to the previous year. In addition, the Company hired temporary workers which accounts for 1.2% of the total extrapolated employment in the year 2010.
Table 27: Employment NuStar
Employment NuStar Locals Expats Total Employees NuStar Local Employees as % of Employed Population Total Employees as % of Employed Population Source: NuStar Terminals St. Eustatius N.V. 2008 127 12 139 10.2% 11.2% 2009 126 11 137 9.8% 10.6% 2010 125 8 133 9.6% 10.2%
Based on previous distribution over the different sectors as received from the Central Bureau of Statistics of the former Netherlands Antilles, the employed population as extrapolated for 2010 has been spread. An important portion of the employees of the business sectors which

are economically the most dependent on the Company, such as the construction sector, are employed due to the impact of the Company on their businesses. As indicated in chapter 7, the Company contributes to the activities of various business sectors. If we assume we can translate the percentage impact11 to employees, we are speaking of 239 employees of St. Eustatius which depend indirectly on the Company for their earnings. Table 19 illustrates the assumptions for number of employees per sector. This total translates to 18.3% of total employed population of St. Eustatius. When the NuStar employees are added to this total, the Company is responsible, either directly or indirectly, for 29.1% of total employment of St. Eustatius for the year 2010.
Table 28: Assumed number of employees indirectly dependent on Company
Employment distribution per industry NuStar contribution 2008 12 32 44 275 91 44 187 13 80 62 400 1,240 2009 12 34 46 285 94 46 194 13 83 65 415 1,288 2010 12 34 46 290 96 46 197 14 85 66 421 1,306 per sector 95.2% 5.2% 19.5% 1.7% 2.2% 7.5% 4.2% 5.0% 0.4% 9.7% 45.1% Assumed employment NuStar 12 2 9 5 2 4 8 1 0 6 190 239
to economy dependent on Agriculture & Fishing Manufacturing, Electricity, gas & water Construction Trade Hotels & Restaurants Transport, storage & communication Real estate, renting & business activities Financial Intermediation Private education Health Government* Total 0.9% 2.6% 3.6% 22.2% 7.3% 3.6% 15.1% 1.0% 6.5% 5.0% 32.3% 100.0%
* As estimated in chapter 1, NuStar's contribution to the Government Expenditures
Source: Based on data from 2009 obtained from the CBS Netherlands Antilles
It can thus be mentioned that the Company not only offers employment but adds to the diversification of employment availability in St. Eustatius. It is probably a more productive industry as well then others considering its added value.
11
This impact is based on an assumption that an equal average production rate per employee in each sector is maintained, independent from total number of employees working in a business or other production factors.
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Projection impact labour activities It is assumed that during the execution of the expansion the fixed local employees would remain unchanged while the temporary employees in 2011 is estimated at 19 and projected to lower to 15 during the execution and in the first full year of operations. After the execution period of the Project, around 41 permanent employees will be created, among others 8 control room operators, 8 field operators, of each operations supervisor and operations superintendent 4, 1 operations manager and 1 director of operations. It is expected that these will be primarily locals, perhaps Statians returning home.
Table 29: Projected Employment NuStar
Nustar Local Employees Payroll employees Temporary employees Total local employees 2011 125 19 144 2012 125 15 140 2013 125 15 140 2014 166 15 181
Source: Based on information provided by NuStar and assumptions by AIB EFS
In addition, it is estimated that during the execution phase of the Project between 300 and 500 workers would be required through the engaged contractors. Although the workers are not directly employed by the Company and have no direct impact other than the amount invested (spent) on these contractors and already accounted for in the projected investments. These workers would though have disposable income for consumption purposes influencing indirectly the economic activities as will the additional employees which are indirectly affected due to increased business activities (spin-off). 9.2 CURRENT AND PROJECTED COMPENSATION OF EMPLOYEES Current compensation employees In addition to the impact on the sheer number of employees directly and indirectly, the Company offers attractive compensation for its employees in comparison to the local labour
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market. The average yearly salary among all NuStar employees excluding expatriates is USD 76,797.23 (Nafl. 137,467.04) as is depicted in Table 19.
Table 30: Average yearly salary NuStar Employees in USD
NuStar Employment Compensation in USD Spending on local payroll employees Spending on temporary employees Total spending on local employees Average Compensation per Employee Payroll employees Temporary employees
2008 8,278,759.11 775,590.00 9,054,349.11 2008 65,187.08 35,254.09
2009 8,671,953.83 604,087.00 9,276,040.83 2009 68,825.03 40,272.47
2010 9,599,653.41 688,206.00 10,287,859.41 2010 76,797.23 43,012.88
In 2010, St. Eustatius has the lowest minimum wage per hour within the Dutch Kingdom followed by Saba and Bonaire.
Table 31: Minimum wages in the Netherlands Antilles
Minimum wages per hour in Nafl.* per September 1, 2008 in all categories Bonaire 7.21 Curacao 7.30 Saba 6.26 St. Eustatius 5.95 St. Maarten 7.96 Source: Directorate of Labour & Social Affairs NA
* Valid for workers of 21 years and older. For the age group of 1620 yrs a youth minimum wage is applicable for each specific age.
Noteworthy to mention is though that, the minimum wages have been aligned for the three new municipalities to Nafl. 7.52 (USD 4.20) since January 1, 2011.
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The average wage of the employed population in St. Eustatius is approximated through data obtainable for the Island of Bonaire, where an average wage is approximated through the amount of employees in each bracket, resulting in an average wage of Nafl. 2,674.16 per month, amounting to Nafl. 32,089.89 per year. In view that the minimum wage of St. Eustatius is approximately 17.5% lower than the one of Bonaire in 2010 we corrected the yearly amount by 17.5% to Nafl. 26,474.16, while the GDP per capita based on the GDP estimates for 2010 is Nafl. 44,329. The NuStar average salary is five times higher than the average wage as approximated above and three times higher than the GDP per capita for St. Eustatius. Noteworthy, however, to mention is the fact that the wages of NuStar are not taken into consideration in the approximation of the average wage, which makes the average presumably lower.
Table 32: Employed population by Gross Monthly Income, Bonaire
Employed Population by Gross Monthly Income, Bonaire 2010 average income Male Female Total per group 250.00 750.50 1,250.50 1,750.50 2,250.50 2,750.50 4,000.50 10,000.00 2,875.38 27 119 146 500 or less 162 466 628 501 - 1,000 521 477 998 1,001 - 1,500 789 619 1,408 1,501 - 2,000 710 442 1,152 2,001 - 2,500 816 566 250 2,501 - 3,000 725 540 1,265 3,001 - 5,000 344 153 497 5,000 plus* 228 67 161 Unknown Total 3,911 3,227 7,138 Source: CBS Nederland, averages approximation AIB EFS weighted average income for total 36,500.00 471,314.00 1,247,999.00 2,464,704.00 2,592,576.00 2,244,408.00 5,060,632.50 4,970,000.00 2,674.16
* assumed maximum wage of Nafl. 15,000 as provided by the Department of Finance St. Eustatius
Besides the high average salaries provided by the Company, the Company offers to the employees on site safety training as well as managerial training and anger management, which
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contributes to the employees opportunities in the labour force. Additionally, the Company provides counselling for employees with regards to family related problems etc.. Projected compensation employees With the assumption in mind that during the execution period of the expansion the amount of fixed local employees would remain unchanged for the years 2011 through 2013 the wages have been only adjusted for inflation (2%), taking 2010 as point of departure, while for 2014 these has been adjusted for inflation and the estimated wages for the additional 41 employees added. Estimated spending on temporary employees has been provided by NuStar and remains at the level of USD 750,000 for 2012 to 2014. The total projected salary is displayed in the table below.
Table 33: Projected average yearly salary NuStar Employees in USD
NuStar Employment Compensation in USD Spending on local payroll employees Spending on temporary employees Total spending on local employees Average Compensation per Employee Payroll employees Temporary employees 2011 9,791,646.48 788,848.00 10,580,494.48 2011 78,333.17 41,518.32 2012 9,987,479.41 750,000.00 10,737,479.41 2012 79,899.84 50,000.00 2013 10,187,229.00 750,000.00 10,937,229.00 2013 81,497.83 50,000.00 2014 13,882,363.99 750,000.00 14,632,363.99 2014 83,628.70 50,000.00
Source: Based on information provided by NuStar Terminals N.V. and assumptions AIB EFS
9.3 CURRENT AND PROJECTED INDIRECT EFFECTS ON THE GDP Current indirect effects on the GDP Based on the two previous paragraphs the indirect impact on the GDP due to the indirect employment can be estimated. As calculated previously 239 employees depend indirectly on the Company for their consumption, which at an average yearly wage of Nafl. 26,474.16 mounts to Nafl. 6.3 million (USD 3.5 million). The total contribution to wage tax and the social contributions is assumed at 27.7%, which was the average over the last 3 years at NuStar. Equal to the approximation of the disposable income in chapter 3, 40% and 5% of gross salaries is subtracted for respectively loan repayments and savings, resulting in a disposable income of
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USD 0.96 million for consumption purposes of the indirect employment or an additional 1.3% of the total GDP.
Table 34: Indirect Disposable Income
Indirect Disposable Income for Consumption purposes 2010 Total Spending local employees - Total contribution wage tax, AOV/AWW, ZV/AVBZ Disposable Income (Net Salary) - 40% of gross salaries on loan repayments - 5% of gross salaries on savings Remaining disposable income for consumption purposes in USD 3,530,905.85 979,433.26 2,551,472.60 1,412,362.34 176,545.29 962,564.96 in Nafl. 6,320,321.48 1,753,185.53 4,567,135.95 2,528,128.59 316,016.07 1,722,991.28
Projected indirect effects on the GDP It is expected that the dependency of the various sectors of the economy on the Company would become even greater especially in the period of execution of the expansion, while in the following years these would level up to a certain level. Although it is expected that the demand on local employment would increase it is foreseeable though that the 300 to 500 workers needed can not be supplied solely by the St. Eustatius labour force, where a significant portion would need to be imported from abroad. Nonetheless these would have indirect effects on the GDP through their consumption. For the purpose of this exercise it is assumed that during the period of execution of the expansion there will be on average 400 foreign workers. Noteworthy to mention is that the GDP per capita based on the GDP projections and a projected population growth based on the average over the last 4 years it can be deduced that the GDP per capita for 2014 increased with 28.9% to Nafl. 57,128. The latter is greatly influenced by the productivity of the company in terms of GDP.
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10. CURRENT AND PROJECTED SOCIAL IMPACT
10.1 CURRENT SOCIAL IMPACT Besides the economic impact on the Island of St. Eustatius, the Company contributes to the social welfare of the island. In this paragraph the identified social impacts are highlighted. The Company is pretty much self sufficient with its own electricity plant, reverse osmosis plant and landfill and as such does not strain the infrastructure of St. Eustatius. Contrariwise, the local electricity company G.E.B.E. has a hook-up with the electricity plant of the Company in case of power losses on the island, which occurs approximately 3 times a year ranging from a few days to even several months at a time. Additionally, supplementary required drinking water is supplied partly from the reverse osmosis plant from the oil terminal and delivered by truck, however this is forbidden since the Government established its own reverse osmosis plant, but it still occurs approximately once a year. NuStars operation also provides the ability to provide gasoline and diesel to local gas stations (2) via a Company owned delivery truck. Moreover, G.E.B.E has utilized the Company frequently to provide diesel for its own power generating generators due to supply issues. Based on a new tax agreement signed with the Government in 2005, the Company contributes to a Restoration Fund, which is an annual fund in which the Government and the Company contribute to, in the event of closure of the terminal and in 2010 the Company contributed USD 64,045 in this fund. Additionally, the Company donates to restore old buildings in St. Eustatius as the Companys commitment to give back to the community. In 2010, USD 189,524 was donated by the Company to amongst others Statia Way Foundation, established by the Company to render financial assistance to charitable organizations, an Auxiliary home and to the Chapel Piece Health and Recreational Center. Over the last three years the Company
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donated more than USD 450,000. Additionally, the hours volunteered by the employees of NuStar amounted to 385 hours in 2010 and 1,389.5 hours over the last three years. Furthermore, the Company gives scholarships, the NuStar Scholarship and the Greehey Scholarschip both in the amount of USD 2,500 per four years, contributing to improve the educational level. The Company offers various services to its employees, including education for the children of expatriates as well as healthcare and training. Currently, a negative social impact could not be detected, while the employment possibilities offered enhance the overall labor markets range. Of course, in comparison to the other economic sectors, the Company pays quite well which could create a social inequality between company workers and workers of other companies. However, this same higher level of benefits is again spent on the island to benefit the other activities. Since the Company employs mostly locals, there is no social impact as a consequence of cultural differences of immigrants on the island as such. It is noteworthy also to mention that the territory used by NuStar for its business activities is approximately 1 square mile, which is 8.4% of St. Eustatius. The current territorial impact can be considered as an impact on property of the island not available for other activities. However, when comparing this to the economic benefit, the property is also contributing to the general social well-being of the island through its employment benefits and added value to other business sectors. 10.2 PROJECTED SOCIAL IMPACT The commitment of the Company towards the community remains and will even improve as the Company is planning to increase its donations from approximately USD 200,000 in 2011 to USD 500,000 in the following years to charitable organizations. The number of hours
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volunteered by the employees of NuStar is expected to increase over the years to 650 estimated volunteered man hours in 2014, 68.8% higher as compared to the committed hours in 2010. The amount applied for the scholarships would remain unchanged. The major concern is the social impact the 300 to 500 temporary workers would have on St. Eustatius during the period of execution of the expansion, considering also that these would increase the population significantly by 10.4% to 17.3% temporarily. While housing facilities will be arranged probably in the form of a man-camp, there might be no additional demand on real estate and F&B as the latter might be arranged for in the man-camp. It is usual as well that; foreign workers would send the majority of their income to their native country, for the living expenses of their family which stayed behind. Additional business activities would be stimulated including, utilities, F&B, transportation, entertainment etc. A more detailed projection of that impact can be portrayed if the organization related to personnel housing is revealed. There might be a social impact as a consequence of cultural differences of immigrants during the period of execution of the expansion on the island as such, however due to the potential man-camp this might be limited as the foreign workers would hang out among themselves. On the other hand as the foreign workers are only temporary on the island there might be no respect for the island and its environment. This however would not be the case for the fixed employees to be hired after the expansion is completed as: 1. It is the aim to hire as many locals as possible 2. The employees will consist of mostly higher paid jobs 3. These would not be housed in a man-camp, but in existing facilities 4. These would not be temporary, even if foreigners are hired, it is expected that these would integrate and create a bond with the island Currently, the territory used by NuStar for its business activities is approximately 1 square mile, which is 8.4% of St. Eustatius. The current territorial impact can be considered as an impact on property of the island not available for other activities which would increase

accordingly with the expansion. Some people seem to have a problem with the general expansion intentions of the Company, as the preferred location for said expansion might be the concerning issue for the population and stakeholders, as the preferred location by the Company is quite obvious to the eye and can be sighted from the main areas of town. This potentially disrupts the more suttle presence the Company enjoyed before on the island.
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11.
A Q UA L I TATI V E APP ROAC H TO T H E E CONOMIC AND S OCI AL IMPAC T OF
N USTAR S I NTE ND ED I NV ES TM ENT IN T HE COMIN G YE A RS O N S TATIA
A qualitative approach is required to enhance the study on the social economic impact of the Company on Statia, due to a range of uncertainties lying ahead of the island and its related economic development. To put the intended investment into proper perspective, a USD 500 million expansion of the Company is a factor of near 7 times of the expected GDP of Statia in 2010. The related impact depends greatly on the forecasted development of various industries of the island which are in their turn dependent on their respective expected investments and received attention. As the economy evolves and develops a forecasted impact has a wide range of margin of error related to assumptions drawn for the development of all these interrelated factors. For this reason, for the qualitative approach, we isolate the intended investment as a foreign direct investment (FDI) in itself and review its impact on various aspects of the community, including macro-economy, social development and business environment in general. NuStars investments as a Foreign Direct Investment in Statia The impact of foreign direct investment (FDI) on a host country is important to measure in order to see if the FDI matches the host country and has an actual positive impact on the country or if it disrupts the general economic model in anyway or the direction of its economic policies. The impact should be seen as the macroeconomic impact of the FDI in the country/island as well as spillovers to various aspects of the country/ island. FDI might increase growth, provided sufficient absorptive capacity is stimulated. FDI in general impacts various aspects positively, including balance of payments, employment, investment and exports, which have already been addressed quantitatively in previous chapters. These however also need to be seen in the overall scope of the host country to assess its overall qualitative impact.
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In the following chart an overview is provided how FDI in general affects performance and integration in a country.
How might FDI affect performance and integration
Parent multinational -Country of origin -Industry -organizational centralization -size & experience FDI Project -subsidiary role -mode of entry -centralization -knowledge management know ledge Linkage effects Competition Loca l firms -intra-industry spillovers -inter-industry spillovers -absorptive capacity -entrepreneurship -clusters
Natural Environment -Polution havens -global standards
Social issues -ethical business practices -labour standards -wages -community participation
Institutions -policy framework -FDI laws -competition laws -edicational systems -health systems
Macro-economy -balance of payment -captial stock -employment -economic grow th
Spillovers There are horizontal as well as vertical spillovers with Multi-National Enterprises (MNEs) in a country such as the Company. The company is a multinational company with relations on a global level and operating in the US, Canada, Mexico, the Netherlands, the United Kingdom and Turkey: Potential positive spillovers: Horizontal spillovers include: Knowledge diffusion by demonstration effects o Local firms observe technology and managerial practices and might adopt it Knowledge diffusion by movement of employees o Employees are trained in the Company, for example, and take up jobs in local firms, or set up their own business based on experience gained Vertical Vertical linkages (as supplier or customer) o Direct knowledge transfer
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o Economies of scale when applicable Potential negative spillovers Horizontal Attraction of the most productive resources o Highly qualified workers might leave other local companies to go to NuStar Vertical Reliance on imported components and displacement of local suppliers Dependency relationships across the board
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Benefits and costs FDI related to NuStar on Statia:

Possible benefits Current Company's general FDI on Statia Possible effects
Consumers
Purchasing power might increase due to higher labor benefits enjoyed in NuStar compared to local companies Technology transfer enhancing productivity Opportunities to become an international
Suppliers
Best connections probably with international companies already in place rather than local
Competitors
supplier Enabling learning from a multi-national company
No space for related competition as economy very
presence small Possibilities for upgrading and innovation related Workers to multinational opportunities offered Employment opportunities enhanced Typically higher labor standards than local firms Training and knowledge transfer to local Government population Tax revenues Economic activity growth and related benefits related to increased tax base Natural environment The multi-national can have higher security and environmental standards than local firms Overall Economy Overall enhanced economic activity due to Company As a country on the global map for MNE's client list. The Company might hamper the natural environment by its large presence in the ocean and on land, potentially affect marine life etc. An economy that depends highly on the Company due to its large presence in the small scale of Statia Opportunity cost due to tax holiday treaties Employees' expertise might be little applicable elsewhere if mobility is desired
Knowledge spillovers are difficult to track or quantify: An indirect measurement would be to relate performance changes of potential recipient firms or country empirically to the presence of the FDI in the same country. Knowledge spillovers are measured by changes in local firms productivity and the influence of FDI to the share of foreign-owned firms in the industry in general. However, due to the small size of Statia, and the long presence of a Storage Terminal (since 1982) on the island, the general productivity created cannot be measured for recent years in an isolated form. However, since the economic
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quantitative impact is currently calculated well around 38% of the total economy (excluding expansion), other economic opportunities can be assessed next to the intended investments, to see if economically there are other alternatives that might be viable within the country that could match up to the expected impact of the new investments envisioned by the Company. Economic opportunities: The countrys economic policies focuses on improving the tourist industry as well as the development of innovative businesses and related sectors. The tourism industry is not currently prominent in Statia and measures directly to around 8.6% of the economy in 2010. The tourism industry is labor intensive in nature and generally therefore has a low productivity per employee. While for the development of innovative businesses the infrastructure need to be in place which is the intention to enhance as well, however this might take its necessary time. Additionally, in order to attain an effect that is anywhere near the expected impacts of a new USD 500 million investment in the country during approximately 24 months as proposed by NuStar in another industry, various surrounding prerequisites would need to be in place. Case study for such an investment in another sector, i.e. Tourism sector A large investment of around USD 500 mln would translate into 3 large five-star hotels totaling around 888 rooms when compared to other such investments in the region. If complying to the basic square meters required for this development (888 rooms), this would require at least 135,000-140,000. square meters for development. This would require a need for searching for financing in a tough financial market prior to being able to start such huge venture. Such an investment would entail a construction of approximately 30 months of labor intensity, (which excludes all the preparatory work), but would require many laborers from abroad to fulfill the construction needs
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After such a development, if the meager equation of 1 employee per room is assumed, this would require an additional 888 employees, which would also need to be imported. If there were 888 rooms added, for example, this would be an addition of 324,120 nights to the current supply, which is 13 times current supply. This would require 42,137 visitors per year or 3,500 per month to ensure occupancy of 65%. The exponential implications of this require far more other investments, like increased number of restaurants to accommodate them, increased tourist activities etc which all take years to develop.
To make these hotels successful, airlift would need to be increased significantly to a degree above currently capable measures of the airport, thereby having massive infrastructural implications
Marketing spending of the island would need to be increased to attract tourist to fill these rooms. This example illustrates, that it would take many more years to plan and position while land would need to be arranged as well as financing, airlift and many other ancillaries that are currently not in place to accommodate such. Thus a larger barrier is visible for another industry to have such an impact as compared to NuStars envisioned investment.
NuStar is a multinational enterprise which is in itself a large economic entity of USD 4.4bln in revenues. The other industries are important industries but are not as a single economic activity rated in these kinds of categories. Statias comparative advantage pertaining to natural resources might lie greatly in its location and deep waters that caters to NuStar Terminal. Compared to the other islands in the Caribbean there are not many other comparative advantages, from an economic diversity perspective. For FDI to choose location or in this case for NuStar to choose Statia: The eclectic paradigm (OLI Model)
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O- Ownership advantages are identified L- Location advantages of host countries are identified I- Internalization firms able to exploit the above through internalization rather than through market
These create net ownership advantages for the Company (NuStar), but how does this affect the island and could you have such a MNE located there which would have more of a stake of the island in it? Not likely. Vulnerability risk rating: Such an industry with an impact so large is not easy to duplicate or replace. by increasing GDP, on average GDP per capita is also increased, which normally can translate to an improved quality of life if distribution is well established. The triple As approach: Adaptation adjusting to differences around the world and undertaking activities locally in each of them Aggregation centralizing parts of operations regionally (via regional hubs) or globally to reap economies of scale and to integrate innovation Arbitration moving goods/services from high to low cost areas, i.e. global sourcing, offshoring etc NuStar Terminal located in Statia is the biggest capacity storage location of the company. This also gives the Statias government leverage as the interests (belangen) are very important internationally as it is estimated that the Statia location assures for 27% of the total international storage capacity of NuStar Terminal.
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Final Report NuStar SEIS December 2011

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NuStar Terminals N.V. - S T.

CURRENT AND PROJECTED S O C I A L E C O N O M I C I M PA C T S T U DY

AIB ECONOMIC AND FINANCIAL SERVICES

AIB ECONOMIC AND FINANCIAL SERVICES

3.3 Projected Payments by the Company to the Government of St. Eustatius 20

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AIB ECONOMIC AND FINANCIAL SERVICES

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Qualitative assessment of FDI in Statia

supplier Enabling learning from a multi-national company

No space for related competition as economy very

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AIB ECONOMIC AND FINANCIAL SERVICES

II. EXTENT OF THE ASSESSMENT

AIB ECONOMIC AND FINANCIAL SERVICES

1. CONSTITUTIONAL CHANGES ST. EUSTATIUS

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AIB ECONOMIC AND FINANCIAL SERVICES

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2. GDP ST. EUSTATIUS

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0.00 0.30 0.00 10.22 0.74 0.90 2.24 14.40

0.00 0.32 0.00 10.86 0.80 1.01 2.49 15.49

0.00 0.33 0.00 13.56 0.26 0.79 1.51 16.45

0.00 0.53 0.00 14.12 0.21 1.06 1.55 17.48

0.00 0.28 -0.01 16.03 0.25 0.83 1.20 18.57

0.00 0.29 0.00 15.98 0.25 0.84 1.19 18.55

0.00 0.30 0.00 16.46 0.25 0.87 1.23 19.11

0.00 0.17 0.00 9.20 0.14 0.49 0.69 10.68

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3. CURRENT AND PROJECTED IMPACT ON PUBLIC FINANCES

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2008 147,796.00 3,626,596.47 818,926.55 4,593,319.02

2009 159,188.33 3,396,537.60 887,023.87 4,442,749.80

2010 126,775.22 2,976,632.52 873,602.98 838,234.89 4,815,245.61

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