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PETROTRIN DE-MERGER: A RECIPE FOR MALFEASANCE by David Walker

posted 30 Nov 2020, 17:48 by Gerry Kangalee   [ updated 30 Nov 2020, 17:57 ]

I'm grateful for all the comments I received for my recent column about the sale of the Petrotrin refinery. I have no idea as to the eventual outcome of the protracted sale. I believe that the govern

David Walker

ment is operating without a plan and reacting to events as they unfold. I showed how this is costing us billions of dollars when an optimum plan was most likely presented by the very expensive consultants that we had hired to conduct two inquiries and to deliver their recommendations. We chose instead to follow the gut instincts of our political rulers. 

If you were appalled, as you should be by that incompetence and waste I unfortunately have more bad news for you concerning the demerger of the company into three new entities. Had there been a considered plan, one would expect certain minimum documents to be prepared and available for the protection of shareholder (taxpayer) interests.

At a minimum we would expect to ensure that the total assets existing at the time of the demerger were accounted for by adding the value of assets in the three new companies. You would expect the same for liabilities (debt). There are some complications that must be accounted for like revaluations and write-off of assets or debt due. By and large though, we would expect to reconcile the total assets and liabilities of the new companies with that of the old.

This is not something that would automatically fall to the auditors. Moreover, I would not rely on any of the companies involved to perform this task of protecting our public assets. I view that as falling at the feet of the line Ministry. The Minister has ultimate responsibility for protecting State owned assets under the management of the Ministry. Even if not done by the Ministry, we should expect the Minister to ensure that such a reconciliation is duly completed to his/her satisfaction.

Accordingly, I applied under the Freedom of Information Act to the line Ministry for the important information that should be contained in such documents. Here then is the series of questions that I asked (second column) and the responses from the Ministry of Energy and Energy Industries (third column).

Let us be very clear. Mergers and demergers present ideal opportunities for malfeasance and corruption. At the most basic level, one would seek to ensure that the total of the assets and liabilities of the demerged companies equalled that of the original company, as described above. 

You see the woeful answer from the Ministry. They claim not to even have a copy of the audited statements of the company being demerged, Petrotrin. This is deeply troubling. I cannot comprehend how the Ministry could be performing its role with any degree of competence while not having ownership of the transfer process between the companies and verification of the integrity of the transfer process. 

It is mind boggling that they readily admit to not even having copies of the audited statements of the company. Not only have they failed to oversee the demerger process but they seem to admit that they exercised no oversight of the company in the periods beforehand. How could it be otherwise when they do not have the annual accounts?

This answer delivers a devastating understanding of how Petrotrin investments were allowed to become a drain on the public purse. Had the Ministry been reviewing the audited statements over the years, surely the monumental losses could not have escalated to over 10 billion dollars. Even worse, it tells us that the political interference of which the Chairman spoke was done without the benefit of the data that is contained in those financial statements.

I'm even more concerned to discover that one of the companies involved owns the responsibility and authority for validating the transfer of tens and possibly hundreds of billions of dollars of State owned assets. Is Cabinet aware that the Ministry has washed its hands of what I believe to be their duty to oversee the complete and valid transfer of large amounts of State assets?

I will follow their suggestions by asking the same questions of Trinidad Petroleum Holdings Limited, but even if they reply in a constructive manner I don't feel we should be happy with the rather lame approach of the Ministry. One party should not be expected to provide oversight of a process in which they have a vested pecuniary interest. The Ministry has set the table for corruption.

The bigger question should now be asked. Is this the standard of care exercised by all Ministries in their oversight of State owned enterprises in their portfolio? I'm inclined to think that we now have a clear explanation as to the reason for their incessant non-performance and wastage of public funds. I would like to think that other Ministries are doing better than the Ministry of Energy and Energy Industries but I don't hold out much hope.

We routinely hear members of Joint Select Committees grilling management of these companies, often on the same issues year after year. Perhaps the time has come to demand more from the Ministries, the Ministers and the senior management at the Ministries. The evidence is clear; State Enterprises are all badly managed becoming a burden on the State or under-performing as against what they should be achieving.

We need to review the demerger of Petrotrin and ensure that all its assets and liabilities are fully reflected in the Balance Sheets of the successor companies. We also have to find a way to ensure that Ministries maintain adequate oversight of each of the State Enterprises. At the very least, each Ministry should be evaluating their performances via annual audited statements and regular performance metrics. Ministries must take responsibility and Parliament needs to ensure that they do through the Joint Select Committee process or some other means.

Bear in mind that this has been a massive transaction in public monies. It should have been undertaken under the aegis of the new Procurement legislation. My abiding question is why no party sees it fit to follow the rules of that legislation even now, prior to its full implementation. There is nothing to stop any administration from doing the right thing simply because it is the right thing to do.

A PETROTRIN RETROSPECTIVE

posted 29 Nov 2020, 06:29 by Gerry Kangalee   [ updated 29 Nov 2020, 07:57 ]


As we patiently await (some eagerly) what is expected to be the final decision of the government on the Oilfield Workers’ Trade Union (OWTU), Patriotic Energies and Technologies Company Limited, proposal for the acquisition of the Petrotrin refinery, we consider it necessary and important to review some of the information, analyses, comments and projections which have been produced from various sour

POINTE-A-PIERRE - THE FACTS

Trinidad and Tobago’s largest crude oil producer, operating the country’s only petroleum refinery ceased refinery operation on November 30th 2018.

The government and some international publications gave the public the false impression that the refinery was 100 years old and in a totally dilapidated state, furthermore, it was communicated that the refinery was a ward of the state plagued by high and rising debt, low productivity levels, escalating manpower costs and the loss of billions of dollars every year.


The oldest plants at Pointe-A-Pierre are:

1. The catalytic cracker established in 1957 the year when Texaco, the US multinational corporation, acquired Trinidad Leaseholds Ltd.

2. The number 8 Topping Unit established in the 1960’s

The government failed to mention that major upgrades of the refinery were undertaken in the early 1970’s and the mid 1990’s.

Most importantly, no mention was made of the gasoline optimization programme (G.O.P) which operated from 2006 to 2014 at a cost of US $1.8 billion. 

This programme produced a number of new plants at Pointe-A- Pierre including:

1. The cat cracker was upgraded and was certified in 2014, by Lloyds, as fit for use. The upgrade increased the unit’s capacity from 26 thousand barrels per bpsd to 35 thousand bpsd; converting a higher percentage of vacuum gasoil to gasoline and enabling the refinery to produce a better quality of gasoline with improved ratings from 81 motor octane number (MON) to 83 (MON).

2. Isomerisation unit-A new isomerisation unit was established to produce the octane for light gasoline, the product is an environmentally-friendly component to enhance the motor gasoline pool enabling the company to compete in premium markets.

3. Continuous Catalytic Regeneration (CCR). This is a 27,800 BPSD platforming unit which provides for a higher yield of superior octane gasoline. This improves octane rating from 86 (M.O.N) to 90 (M.O.N). Additional benefits include reduced operating and maintenance costs; improved product yield and quality and increased hydrogen production.

4. The New Alkylation Unit/ Sulphuric Acid Regeneration Unit. This new 10,000 BPSD alkylation unit replaces the existing 1,800 BPSD Alkylation unit. It is geared to increase gasoline product to accommodate the increased feedstock generated by the upgraded cat cracker plant. The Alkylation product is a premium high octane, environmentally-friendly gasoline blending component which will add to the pool of high octane gasoline; assisting to maintain an increased refined product market share and eliminate the need for better storage and shipping facilities for liquefied petroleum gas (LPG).

5. Ultra-Low Sulphur Diesel Plant. This new plant is designed to process 40,000 BPSD of Diesel boiling-range feedstocks to produce a diesel product that will reduce sulphur content from more than 1,000 PPM to 3 PPM; aromatics from more than 45% to 25% and the cetane number from 41 to 50. The construction of this ULSD plant would enable the company to meet stringent new diesel quality specifications (Sulphur and Aromatics) in the local, regional and international markets.

ces.

The Closure of the Refinery is not a new Issue

In 1993, PNM Prime Minister Patrick Manning made a request that Petrotrin’s management conduct an evaluation of the options for the refining industry. One of the options presented was to shut down both the Pointe-A-Pierre and Point Fortin refineries and completely exit the refining industry.
Positive Financial Features of Petrotrin

In 2015 the refinery was making an operational profit. In April 2016, the then president of Petrotrin told a joint select committee that the refinery was a “Bright Spot”. Between 2010 and 2014 Petrotrin was the largest contributor of foreign exchange to the government of Trinidad and Tobago. 

In 2014 and 2015 Trafigura, one of the world’s leading energy trading companies, paid Petrotrin and T&TLNG ltd. (A subsidiary of NGC) a total of US$507 million for 1,381 barrels of refined products and 2.81 million barrels equivalent of gas respectively. 

Trafigura also disclosed that in 2016 it paid Petrotrin US$506 million for 10,586 thousand barrels of refined products and 1,425 thousand barrels equivalent of gas.

This total exit option was rejected on two (2) main grounds:

1. The negative impact it would have on the economic, social and psychological lives of the people, especially in South, Trinidad.

2. The loss of the security of the supply of petroleum products to the Local and CARICOM markets. Notwithstanding the above, the PNM cabinet under the leadership of Mr. Manning closed the Point Fortin refinery permanently in 1994.

No Recommendation for The Closure of the Petrotrin Refinery

Consultants Solomon and Associates and McKinsey both recommended a restructuring of Petrotrin with the refinery intact. The PNM cabinet, under the leadership of Dr. Keith Rowley, according to minute no. 365 of February 23rd, 2017, agreed to the appointment of a team to conduct a review of the operations of Petrotrin and make recommendations for its restructuring.

The committee was a
ppointed to conduct a review of the operations of Petrotrin; make recommendations for the restructuring of the company and submit its first report on June 1st 2017. It became known as the Lashley Report.

The committee’s report of the June 17th 2017 recommended: “The establishment of three operationally independent business units: Trinmar: Land Exploration and Production; Refining and Marketing.”

On January 22nd 2018 the Minister of Energy, Franklin Khan stated: “The Board (Petrotrin) is currently working on a plan for the restructuring and charting the company back to viability. However, before any decision is taken on these matters there will be widespread consultations with all stakeholders and particularly the employees’ union representative.” (Energy Chamber Annual Conference: January 22nd, 2018)

Some Assets of Pointe-A-Pierre

1. Petrotrin refinery encompasses two thousand acres or 809 hectares of Land which is Prime Industrial Real Estate.

2. The Point-A-Pierre harbour which enjoys an ideal location along the shipping routes connecting South America, West Africa and North America.

The Gulf of Paria provides a sheltered location where massive vessels can be bunkered with minimum delays, resulting in a fast turnaround.

3. The Augustus Long Hospital.
4. The Golf Course.
5. The Residential Bungalows.
6. Guaracara Park and its Facilities.
7. New Marine Building and Jetty.
8. Nitrogen Generation Facility.
9. New 5million gpd Water Treatment Facility.
10. Two (2) new 275,000 pounds per hour (lbs/hr) Steam Boilers.
11. Upgraded Refinery Switch/Gear.
12. New Refinery Laboratory.
13. Upgraded Refinery Bulk Electrical Power System (URBP).
14. The Fleet of Marine Vessels.
15. New Main Fractionator Column. 
(According to Information provided by the Government of Trinidad and Tobago State Enterprises Investment Programme - SEIP).

The Estimated Cost of Item 8 was $22 Million.
Items 9 and 10: the figure was $21 Million.
Item 11: the estimated cost was $177.5 Million.
Item 12: the figure was $190 Million.
Item 13: Estimated to Cost $265 Million.
Item 15: Estimated Cost was $46 million.
In commenting on the two (2) foreign consultants i.e. Solomon and Associates and McKinsey, one source stated: “… neither of the two studies recommended the shutdown of the refinery. Having exhaustively analysed all the potential impacts and risks, neither team came to the conclusion that we should cease refining operations.”

The same source remarked in relation to Petrotrin’s top management: “Furthermore the Board of Directors who had been appointed by Prime Minister Rowley have stated that they also did not recommend the termination of the refinery operations.” (David Walker, Corporate Finance Consultant)

Cost of Two (2) Studies to the Taxpayer

The same source informs us that the two (2) Foreign Consultation studies of Petrotrin were expedited “at a combined cost of almost 100 million dollars.” (David Walker Corporate Finance Consultant)

One source has described the Point-A-Pierre Refinery as the most complex Business in Trinidad and Tobago. In elaborating on the issue of complexity of Refineries, it is stated that: “The complexity of every refinery is expressed in the Nelson Complexity Index. The Nelson Complexity Index for our refinery is 8.8.

The higher the Nelson Complexity Index, the more likely it is a refinery will thrive. It is for this reason the Ultra-low Sulphur Diesel (ULSD) plant is important to the refinery going forward. The ULSD, if completed, would increase the Nelson Complexity Index to 9.8. It is unsure whether Patriotic Energies has a plan to complete the ULSD but if they do it will cost them US$300 million.” (Kevin Ramnarine, ‘Reopening Refinery no Easy Task’.
Express Business: December 4th, 2019)

What is very clear is that the refinery at Point-A-Pierre is not an ancient hundred year old white elephant. but a facility which has potential for growth and development under the right leadership and management.  This whole affair raises the question of lack of clarity on policy; lack of vision and consequent foresighting - features characteristic of political elites of neo-colonial countries  who are a component element of modern imperialism. 
Of course policy has to take into consideration the phasing out over time of the hydrocarbon industry; the ongoing impact on the climate and the environment and the the urgent necessity to move away from the plantation economy model. it is wishful thinking, though, that these elites are willing and able to grasp and implement such a vision and policy. In the final analysis, class interests trump eveything and their interests are tightly bound up with thoseof international capital.

(Economic Analysis unit of the Labour Advisory Bureau)

A RINGBANG STORY by David Walker

posted 24 Nov 2020, 16:50 by Gerry Kangalee   [ updated 24 Nov 2020, 17:34 ]

David Walker
At the turn of the century an event occurred in Tobago that would change the politics on the island for all the years since then. It is truly remarkable to reflect on the impact of that event and compare it with the lack of any discernible reaction to a multitude of similar events since. Here is the warning given by one A. H. Hotep in advance of the event (December 1999).  
You can find the full article at http://www.trinicenter.com/more/Ringbang.htm

"If this issue was not about taxpayer's money, it would be comical. We have another spending extravaganza taking place in Tobago called the Millennium Concert, which is costing taxpayers a whooping forty million dollars. The people are being promised twenty-eight minutes on B.B.C. to place the nation on the international map.

Chief secretary for Tobago affairs Hochoy Charles and Eddy Grant are the main players behind this fiasco. Miss Josanne Lennard, spokes person for this project, treated the people to an hour-long diatribe on the TV6 morning program.

They are presenting the same arguments that the Prime Minister gave for the one hundred million-dollar expenditure on the Miss Universe Beauty Contest, and Carlos John's eight million-dollar World Beat Festival. People have recognized the failure of these two projects to bring any of the benefits promised.  The question is why would they invest taxpayer's money in another extravagant project, especially at a time when we are hearing of workers in Tobago not getting their salaries because of the shortage of funds." 


The Millennium Concert was better known locally as the Ring Bang Concert. The event was a financial disaster, resulting as predicted in significant losses to the THA and pain to the residents of the island. It also led to the rejection of the ruling party led by Hochoy Charles who would never be elected to office again. Thus began the uninterrupted rein of the PNM in Tobago. One might wonder why the Tobagonian aversion to wasteful spending did not then continue in subsequent years. The answer is very, very simple. It is that the incoming regime was about to benefit from the revised arrangement for calculation of funds
allocated from Central Government to Tobago that greatly enriched the island. 

Here is the allocation to Tobago by year for most of the last two decades


During the period of PNM rule there have been many instances of misspent millions. You would be justified in saying that it has become the norm. There is the artiste who was paid to perform at Jazz Festival and never showed up and has not returned the money. No explanation is forthcoming. 

Likewise with the millions of dollars paid by cheque to Virgin Atlantic which never arrived but which was taken from the THA account. And what of the acquisition of Sanctuary Villas and Manta Lodge Hotel for about 30 million which have stood unoccupied for about five years and which cost millions each year since then in security, maintenance and other costs.

The list is a long and troubling one. No explanation or corrective action is ever mentioned. Requests for information under the Freedom of Information Act are ignored and even the Auditor General is unable year after year to force them to produce the accounting documents to support the statements that they claim reflect the transactions undertaken by them. As a result of their brazen refusal to account to us, we don't even know with any certainty how bad the situation is.

The citizens of Tobago are very aware of this. Why then have they not reacted in the same way as they reacted to the Ring Bang fiasco? Why does the ruling party not pay a price at the ballot box for their financial misbehaviour? It seems that we have become insensitive to the wrongs committed against us. Unlike in 2000 we are now so used to the misspending of our money that there is no consequence for further wastage or corruption.

The likely answer to this conundrum lies in the data in the table in the sidebar. The THA is awash with money so that having to pay Virgin Atlantic millions of dollars twice does not impact on anyone's job or other sources of income from the THA. As long as the citizens are personally insulated from the losses then they see no need to punish the incumbents. That has been the story for the best part of two decades.

What citizens don't see is that their lives are in fact impacted negatively by the wastage and corruption. Failed projects and misspent funds make us less productive. They are the reasons why we have not been able to develop agriculture or any other productive sector of the economy. It is the reason why we remain totally dependent on subventions from central government.

Can the Tobago economic landscape ever be transformed for the better? The answer for me is that I don't see human nature changing. As long as citizens' narrow interests are served they will not risk significant change. I don't expect citizens to put real pressure on the leaders of THA, whoever they may be, once food is on the table.

At the same time, Tobago has proven in the past that it is capable ot achieving change. The change has not delivered on the promise of better management of our finances. Are we prepared to change once again in the hope of better management? Can we realistically expect anything better than what is being offered now, given the ability under current financing to deliver a minimum level of comfort to the population despite growing waste and corruption?

More importantly perhaps, how are we the citizens able to influence the behaviour of our leaders? The options are few but they do exist. I will explore that in an upcoming column.

EVERYTHING FOR SALE: PRIVATISATION IN TRINIDAD AND TOBGO: PART VI by Godfrey Vincent

posted 18 Nov 2020, 18:33 by Gerry Kangalee   [ updated 18 Nov 2020, 18:53 ]

In the 2010 General elections the People’s Partnership (PP), a coalition of parties comprising of UNC, COP, NJAC, and TOP, trounced the PNM by winning 29 of the 41 Parliamentary seats. With this victory, the country had its first female Prime Minister.

Promising “Prosperity for all,” PP government’s manifesto seemed very impressive in its policy pronouncements, but as was previously discussed in Parts 1 to V, all previous governments made policies regarding the economy within the framework set by the IMF and the World Bank. Therefore, it is this light that Part V1 examines the PP government policies as they related to State Owned Enterprises (SOEs) and privatization.

In his first budget speech as finance minister delivered on September 8, 2010, Winston Dookeran. noted, “We shall widen ownership through public participation and develop the country’s capital market to expand the sphere of the private sector and involve the people in development. A programme of public offerings will ensure that our people will participate in the fruits of growth and development. It will further reduce the financial burden on the treasury.”

Moreover, he explained “We will search for strategic investors to partner with state enterprises to introduce more effective market conduct and economic efficiency. In addition, we will select enterprises for public offerings with the clear objective of widening ownership to include citizens of this country. The process for this selection is currently in motion.” (See 2011 Budget Speech). Based on what the Minister had outlined, it remained abundantly clear that the PP government was as committed to privatization of SOEs as the previous governments.

Come October 10, 2011, Finance Minister Winston Dookeran delivered the 2012 Budget Speech entitled “From Steady Foundation to Economic Transformation.” On the policy of privatization, the 
Caribbean Elections | Trinidad and Tobago National BudgetsMinister confirmed that, “in order to increase our capacity to develop additional infrastructure, our Government has established a Public Private Partnership Unit in the Ministry of Finance. The general model is that the Government will establish relationships with private sector entities which would introduce resources and expertise into infrastructure projects. This development of Public Private Partnership will be done in collaboration with the Ministry of Trade and Industry.”

In terms of SOEs, he affirmed that, “in our last Budget Statement, we announced plans to rationalise various State-owned assets. This programme has commenced. During the last year, a strategic local private sector investor joined with the Development Finance Limited to float a new capital structure for that company and so encourage financing of Small and Medium Enterprises. In addition, the state owned Vanguard Hotel Limited in Tobago identified an operator for the Hotel, who immediately unveiled a new brand: Magdalena Grand Beach Resort which would reposition the hotel to support development of air links to Tobago and to introduce modern operational and management capacity.”

Furthermore, Mr. Dookeran mentioned that, “the Government will expand these public offerings in its continuing effort to improve the efficiency of the state enterprise sector and enhance the domestic capital market. The first phase of the programme would involve the securing of strategic investors for a numbers of state enterprises. In parallel, further public offerings will be made on the Trinidad and Tobago Stock Exchange. We would offer to the national community further tranches of the shareholding of Government in: 

PLIPDECO chooses Microsoft Dynamics GP - Tech News TT• Point Lisas Industrial Port Development Corporation Limited since this company is already listed on the Trinidad and Tobago Stock Exchange.

• Trinidad and Tobago Mortgage Bank - a merger between Trinidad and Tobago Mortgage Finance Company and the Home Mortgage Bank for which an Initial Public Offer (IPO) by the Government will be made and

• First Citizens Bank, for which an initial public offering will be made, but which offering will not affect Government ownership of the Bank. It will assist the Bank in widening its capital base and so facilitate its expansion programme in which the Bank is currently engaged.” (See 2012 Budget Speech). He also projected that more SOEs will be privatized in the future. 

With the departure of Winston Dookeran, Larry Howai became the new Minister of Finance. In his presentation of the 2013 Budget Statement to Parliament on October 12, 2012, he rolled out the policy of Public-Private partnerships. On this issue, Mr. Howai noted that, “The establishment of public-private-partnerships for rolling-out infrastructure and the associated delivery of services represents the second pillar for stimulating growth. We would now seek to enhance the role of the private sector in economic activities.

These partnerships would establish agreements between the Government and private sector entities which would include contractors, operators and financiers. The private partners would undertake a number of activities associated with public procurement to design-build-finance-operate-and maintain the capital asset to the specifications established by the Government.”


Furthermore, he indicated that the government will sell shares of First Citizen’s Bank and the Trinidad and Tobago Mortgage Bank. More PPP and privatization were revealed in the 2014 Budget Statement.

Addressing Parliament on September 9, 2013 Mr. Howai, on the issue of Public Offerings, said that, “The Initial Public Offer of First Citizens Bank Limited in August 2013 continued the expansionary 
First Citizens records - Trinidad Guardianprocess. Indeed, the offer has been an outstanding success with the entire issue of 19.3 percent of the total issued share capital of the bank or 48.5 million shares being 3.12 times oversubscribed.” 

Additionally, in terms of other public offerings, he elaborated, “First, we will take steps as soon as it is appropriate to make an Initial Public Offer of a newly-established company into which the National Gas Company of Trinidad and Tobago will transfer the 39.0 percent shareholding in Phoenix Park Gas Processors Company Limited which it is purchasing from ConocoPhillips.

Second, as soon as the technical work on the restructuring of the Home Mortgage Bank and the Trinidad and Tobago Mortgage Finance Company Limited is completed, we will make an initial public offering for the Trinidad and Tobago Mortgage Bank.”
Furthermore, he confirmed that “There are a number of State Enterprises whose requirements for expanding trade and for securing specialist skills, technology and finance can be met by the private sector. Those enterprises with scale and technology intensive activities needing capital to expand would be exposed to strategic investors. To that end, Government has identified 4 state enterprises with commercial remits which operate under market conditions, have become mature and can now transition to another stage of development.

During the course of the coming year, we will begin the process of seeking strategic investors for:
 
•the Vehicle Maintenance Company of Trinidad and Tobago; 

•the National Helicopter Services Limited; 

•the National Flour Mills Limited; and 

•the Point Lisas Industrial Port Development Corporation Limited (See Budget Speech 2014)

As time moved on, the PP government announced more privatization to come.

In his 2015 Budget Statement presentation to Parliament, the Minister of Finance, on September 8, 2014, declared, “The role of the private sector as the driver of growth is being consolidated as we continue to build a competitive and efficient economy. Entrepreneurship is being fostered on a number of fronts, including Initial Public offerings, the securing of strategic partners for selective state enterprises, and the utilisation of the public-private-partnership model for delivering infrastructure and public services.”

In terms of IPOs, the Minister affirmed that, “the Government’s Public offering Programme is under way. The Initial Public offering for First Citizens Bank Limited was successful by any standard of measurement. The 48,000,000 shares on offer were 3.12 times oversubscribed by over 12,400 applicants.”

Additionally, he stated that, “As soon as it is appropriate the National Gas Company of Trinidad and Tobago Limited will be offering to the national community 49.0 percent of the shareholding of the Trinidad and Tobago NGL Limited which company holds the 39.0 percent shareholding of the National Gas Company in Phoenix Park Gas Processors Limited.”

With regard to strategic partners for selective state enterprises, he detailed that, “The Airports Authority of Trinidad and Tobago has requested the International Finance Corporation, the private sector arm of the World Bank Group, to submit a proposal which will lead to improved services at our 2 international airports; the Piarco International Airport and the ANR Robinson International Airport. As we build our capacity for identifying and managing Public Private Partnership projects, we will roll-out a range of infrastructure and service-delivery projects which will provide attractive business opportunities to potential investors.” 

From 2010 to 2015, the PP government accelerated the rate of privatization and public private partnerships in Trinidad and Tobago. However, its defeat in the 2015 General elections did not mean an end to the twin policies. These policies were continued under the PNM government led by Dr. Keith Rowley.

ENERGY PRIVATISATION...WHAT HAS IT ACHIEVED?

posted 15 Nov 2020, 22:53 by Gerry Kangalee   [ updated 20 Nov 2020, 12:03 ]

The various privatisation strategies in the local energy sector have all failed miserably to boost crude oil production. We must not forget that crude oil production reached its highest levels in the late 1970s. In 1977 229,041 barrels of oil per day were produced giving an annual output of 83.6 million barrels. In 1978 the daily production was 229,589 barrels giving a production for the year of $83.8 million barrels.

Lease operatorships, farmouts and joint ventures have not succeeded in lifting local oil production anywhere near the peak oil days of the late seventies.

What we are currently faced with is rapidly declining crude oil production, notwithstanding all the rhetoric about the “success” of Heritage Petroleum! In fact local crude oil production declined to 55,945.3 barrels per day (bopd) at the end of the second quarter of 2020 - the lowest crude oil production in Trinidad and Tobago for almost seventy years!

It is against this background we need to evaluate the Minister of Finance’s comments on Heritage’s performance and local crude production as a whole. Hear Imbert: “Heritage raised its average production rate to $34, 900 barrels per day (bopd) during the period October 2019 to September 2020.”

He goes on to say: “I am advised by the Minister of Energy that when production from the oil majors is added to that of Heritage Petroleum, the monthly rate of crude oil and condensate production has been rising steadily and is estimated to reach approximately $60,000 barrels per day in 2020 rising to 80,000 barrels per day in 2022.”

A report on Trinidad oil production 1970 – 2003 gives clear insight into how far we have regressed by 2020. It states: “Trinidad and Tobago’s oil output reached its highest ever – 229, 589 barrels per day in 1978, six years after production began from the prolific teak field (then Amoco’s; now BPTT’s) off the East Coast. This was quickly augmented by the Company’s Samaan and Poui fields. Crude production has since declined precipitously, with an estimated output of 137,187 b/d in 2001.” (ENERGY CARIBBEAN YEARBOOK 2003 PAGE 14).

What needs to be noted is that the lowest figure for oil production in 2001 is approximately 57,000 barrels greater than official actual and estimated figures for local crude production for 2020!

Clearly the Minister of Finance does not seem to understand that T&T has a history of oil production and this context needs to be used in charting any course for the future. Or, is he of the opinion that, we, the citizens, are totally ignorant of our history and, therefore, it is easy to deceive us.

But then how can we expect the Minister to admit that the result of the privatisation of the land-based oilfields has achieved its objective. Through the looting of the publicly-owned assets of a dying industry by the one percent, a clique of multi-multi-millionaires has been created. At the same time workers and citizens are thrown onto the scrap heap of unemployment, poverty and destitution. But that’s what the privatisation policy was meant to achieve, Wasn’t i?

(Economic Analysis unit of the Labour Advisory Bureau)

EVERYTHING FOR SALE: PRIVATIZATION IN TRINIDAD AND TOBAGO: PART V by Godfrey Vincent

posted 15 Nov 2020, 07:11 by Gerry Kangalee   [ updated 15 Nov 2020, 07:18 ]

The PNM won the 2002 General elections by capturing Twenty of the Thirty-six parliamentary seats, thus defeating the UNC. With this mandate, the PNM, under the leadership of Patrick Manning presented the 2003 Budget Speech entitled Vision 2020: People…Our Priority.

The goal of this vision was to make Trinidad into a Developed country (whatever that means) within the shortest possible time by the year 2020. This Vision 2020 was not original but was linked to the United Nations Millennial Development Goals 2015 and beyond.

Some scholars called this a new form of Modernization theory that sought to line up Developing countries with the goals and objectives of the IMF and the World Bank. While touting this new vision, the budget speech did not shy away from a discussion of privatization of State Enterprises. This installment will examine how the Manning administration pursued the sale of State Owned Enterprises during the PNM’s tenure from 2002 to 2010.

An examination of the 2002/2003 Budget Speech has revealed the following concerning the government’s privatization thrust: 

1. The restructuring of First Citizens Bank Limited;

2. The introduction of private sector involvement into the operations of the Port Authority of Trinidad and Tobago;

3. The conclusion of the sale of the assets of Trinidad and Tobago Forest Products Limited;

4. The restructuring of the Trinidad and Tobago Unit Trust Corporation into a public limited liability company;
 

5. The restructuring of and reorganizing of Caroni (1975) Limited. In the 1970s, Patrick Manning’s mentor Eric Williams put together a comprehensive policy of nationalization and state-ownership of resources. These privatization measures were clear indications that that the Manning-led PNM had completely abandoned Eric Williams’ vision. As the government continued in office, it made more pronouncements on privatization. 

In the 2004 Budget Speech, the Minister of Finance announced that the government “will seek to encourage private sector participation in State sector.” More specifically, the Minister focused the government’s intention as it related to the Port Authority. On this note, he stated, “A restructuring of the Port Authority of Trinidad and Tobago will be undertaken in 2004. The program will include the establishment of strategic units to undertake the operations of the Port relating to infrastructure development, real estate management, cargo handling, cruise shipping, the inter-island ferry service, towage operations and the CARICOM wharves.” 

One may recall that the Private sector firms once ran the port, and that the PNM government nationalized it. Because the Manning regime was fully committed to the Washington Consensus policies, it had no problems of policy reversals concerning the Port Authority.

From 2005 to 2010, the PNM government remained silent on its implementation of privatization. The Budget Speeches from that period made very vague calls for the need for State Sector reform but did not spell out the details. However, this did not mean that the government had shelved its plans of privatization. It was well and alive in the Energy sector as laid out in great detail in an article entitled RETREAT OF THE ENERGY SECTOR.

While the PNM may have not been vocal about more privatization, its plans for more were put on hold when it faced a devasting defeat in the 2010 General election that ushered in the People’s Partnership. Part VI will examine the new government’s position on privatization.

THE PETROTRIN SAGA: MAKING IT UP AS THEY GO ALONG by David Walker

posted 13 Nov 2020, 03:14 by Gerry Kangalee   [ updated 13 Nov 2020, 03:18 ]

David Walker is a corporate finance consultant. He also writes regularly on matters of the economy in the local media. 
One of the big stories of the past fortnight has been the confusion over the sale of the Petrotrin refinery to Patriotic. The deadline for agreement came and went and the sale was off according to the Minister. Then, at well past the eleventh hour it was back to the negotiating table on the instructions of the Prime Minister. How have we got to this point, and what does it all mean?

To understand what has happened and hopefully to learn some lessons for the future we need to go back to the earlier decision to shut the refinery and to send all its workers home. A decision to shut down an operation of that importance is surprisingly similar to a decision to invest in the first place.

The decision has far reaching consequences touching areas like employment, profitability, taxation, foreign exchange generation and much more. One would typically consider the impact on all of the above for each of the options under review. Implied in that statement is that there exists more than one possible course of action available. In this case the two extremes are no change and full shut down. Other options might include some type of operating lease to a third party or a reorganization of existing operations such as strategic elimination of some products or change of scale of operations (downsizing).

Such a decision must be data driven requiring a great deal of detailed analysis of what is a complex set of operations and markets. This is very specialist work and is the basis of optimum decision making. We are aware of two such studies having been done at a combined cost of almost 100 million dollars. At that cost I fully expect that the issues that I have raised above would have been exhaustively explored as a key part of the decision making process. It was right that we have the benefit of this very important work in choosing the path forward for Petrotrin.

That is why it was so disturbing to hear that neither of the two studies recommended the shutdown of the refinery. Having exhaustively analyzed all the potential impacts and risks, neither team came to the conclusion that we should cease refining operations. Furthermore, the Board of Directors who had been appointed by Prime Minister Rowley have stated that they also did not recommend the termination of the refining operations.

You should also note that the Chairman of that Board made another very important statement as reported in one of our daily newspapers in May 2018:

“The fact is, the State has become too all-encroaching in a lot of activities and it has crowded out a lot of people.” He said such interference had been “the single most destructive part of the process.”

Having been told by his own appointee that Petrotrin's problems had stemmed from political interference, the Prime Minister evidently decided that the solution lay in even more political interference and a
decision to throw away the two heavily researched reports that had been undertaken. The fiasco that we are now witnessing and many that we don't see all had their genesis, like so many other national problems in governmental interference in decision making. This entire episode is being driven by narrow political considerations.

With that background let us examine the present situation. The first observation of note is that the sticking points according to the Minister appear to revolve around financing. In particular, the financing of the acquisition cost, the financing of restart operations and issues surrounding a lien on assets. This defies belief for two key reasons.

Firstly, I am certain that the two studies would have examined both closure and sale of the refinery as part of their work. They would have estimated the costs and impacts associated with each option. Had those reports formed part of the decision making process for the closure and subsequent sale of the refinery, we would not have permitted this problem to only surface now. This indicates to me that those reports have arrived at the same place as so many other reports commissioned in the past. The government should be embarrassed to admit that these problems are only now being addressed.

The other reason for disbelief that we find ourselves in this position is the nature of all bids for government contracts. A bidder has to submit two packages. One deals with technical aspects designed to show that the bidder can deliver the product or service requested. The other package requires you to show that you have the capacity to finance the project. Was this not done in this case, and if not why not?

They're making it up as they go along. As events unfold today it becomes clear that few if any of the pre requisites for undertaking a transaction of this nature have been adhered to. A proper planning exercise would have anticipated all likely outcomes and projected the financial and other consequences of each. Furthermore, there would have been action plans for each eventuality.

You should recall that at the time of the closure, we were told by the Chairman that the refinery was of no value and that nobody would seek to buy it. Clearly then, that was the basis upon which the decision was made to terminate its operations, resulting in a lack of planning for a sale. The costly fiasco that we witness today was born out of political decision making based not on expert advice but on unjustified assumptions and lack of planning.

The greater tragedy is that what was already a costly failure through political interference has been made much worse by ongoing political interference. We will not be told the cost of this folly. Do not expect it to be accounted for as that is never reported in these government transactions. Perhaps that is a key reason why it is handled this way time and time again.

In this instance there is a way for us to ascertain the true cost of the decisions. It will be there in the two reports written by the experts at great cost to us. As usual the government will seek to bury them far away from our reach. I do not expect them to be released easily but I shall try via all available official channels.

Despite that, I have done my own estimate based on ballpark figures. Perhaps I will publish that work at some time but the result is that I project that the country will be at least 10 billion dollars worse off over the coming ten years as against a decision to improve the existing operations. as suggested by the expert teams. To rub salt into the wound, there will be billions of dollars lost in foreign exchange earnings, thousands of jobs lost and our fuel security decimated.

That is the price of political interference. There is no accountability and it will continue for as long as the public pay the price, and not the politicians.

RETREAT OF THE ENERGY SECTOR

posted 5 Nov 2020, 20:33 by Gerry Kangalee   [ updated 20 Nov 2020, 12:03 ]

This article is an attempt to show that certain statements and measures announced in relation to the energy sector in the 2021 budget are simply a continuation of the structural adjustment of the energy sector in sync with the ideology and polices of the International Monetary Fund, The World Bank, the InterAmerican Development Bank, The World Trade Organization, The Dominant Western Capitalist Transnational Energy Corporations, and the states which protect and support the latter.

The implementation of the ideology and policies has an excellent track record of creating havoc, confusion, destruction and persistent suffering worldwide!

In the second paragraph under the heading energy, the minister of finance remarked:

“Madam Speaker, immediately upon our assumption of office in 2015 and after an assessment of the viability of the oil and gas sectors, we began an energy reform process. A major component of the re-structuring process was our decision to address the difficulties inherent in the domestic sector. We re-structured the Petroleum Company of Trinidad and Tobago (Petrotrin), a loss-making state enterprise with operational expenditure outstripping its revenues and with unsustainable debt obligations. We focused on exploration and production by creating a dedicated company into which we transferred and vested the exploration and production assets of Petrotrin: Heritage Petroleum Company Limited (Heritage).

“We established a terminalling business model by creating Paria Fuel Trading Company Limited (Paria) which became responsible for importing and distributing all categories of fuel required for our domestic and sub-regional markets.”


The Minister of Finance went on later in the budget statement to indicate that the fuel subsidy will be removed, prices will be subject to market forces and the government will sell all gas stations owned by the State Enterprise, the National Petroleum Marketing Company (NP) to the private sector, with first preference going to the existing dealers and concessionaires.

What has been presented by the minister in the budget statement on Monday 5th October, 2020 is simply the Rowley PNM Administration’s firm commitment to the structural adjustment agenda which was officially started during the economic crisis of the 1980s. One of the noticeable trends in terms of official strategy has been the divestment of state enterprises, which is a form of privatisation.

It is an integral part of the structural adjustment package of reforms imposed on member states 
like Trinidad and Tobago by the International Monetary Fund, the World Bank, the InterAmerican Development Bank and the World Trade Organization. This energy reform package started in the late 1980s when the government of Trinidad and Tobago received financial assistance from the International Monetary Fund in 1988 and 1989. It is known as the orthodox liberal approach to development which rejects the approach to development triggered by the February Revolution of 1970 and financed by the Oil Boom of the 1970’s.


Its aim is to reintroduce a system in which resource allocation and income distribution would be dictated primarily by the market. Having strengthened the incorporation of the Trinidad and Tobago economy into the international capitalist economic order, the real objective is to reinstate the rules of the game that Trinidad and Tobago had followed as a primary exporting company — the rules of the colonial economic order. In this case the local economy retains the traditional colonial status in keeping with the international division of labour as an exporter of goods with low value added, and an importer of goods with high value added processed in the international (Core) Economy — a factor which contributes significantly to underdevelopment in the local economy and the majority of those in the Caribbean and the third world.

A belief in the subservient role of the state complements this approach by removing the public sector from any decision making, concerning the allocation of resources or income distribution and also by trying to drastically reduce the state’s role as a producer of goods and services.

This structural adjustment policy has its genesis in 1983 with the adoption of the IMF/World Bank inspired, “Imperative for adjustment draft development plan 1983-1986.” This plan which was the
product of a consultative and collaborative effort of the IMF/World Bank mission and the government-appointed Demas Task Force was a direct result of the rapidly deteriorating economy, occasioned by the declining oil prices and production, with consequent diminished inflows of foreign exchange, decreasing government savings and a colossal decline in the country’s stock of foreign exchange reserves.

The structural adjustment policy foundation had been properly laid. Faced with the exhaustion of foreign exchange reserves in November 1988 and growing levels of external debt, the government sought financial assistance from the IMF in November 1988 and entered into a 14 month standby agreement with the IMF in January 1989.

This development deepened the existing relationship between the fund and the government and placed the multilateral institution in a more commanding position in terms of determining official policy direction. The local energy sector, the key driver of the economy, was a major target of the structural adjustment policy and different strategies were employed to make the sector compliant with official policy guidelines. However, a number of developments preceded the release of government’s official energy policy:

· The creation of a strong lobby of the South Chamber of Industry and Commerce led by petroleum geologist and entrepreneur, Dr. Krishna Persad, in favor of energy state companies handing over idle wells and blocks to drilling and other service companies to pursue their own efforts at low-cost of oil production.

· In July 1989, a programme of leasing blocks and farm out operations of idle wells was introduced to small private independent oil operators.

· In 1989, production from the operatorship programme was initially established from Block CO-1 in the Coora field.

· In January 1991, production from the farm out programme began from the Krishna Persad and associates (KPA) lease in the Barrackpore field.

· These developments were followed by the publishing of a draft energy policy for Trinidad and Tobago in the form of a green paper released in November 1991 which stated as follows: “Farm outs and lease operatorships shall be encouraged as a means of augmenting production and employment as well as mobilizing idle equipment.”

The joint venture strategy has also been employed to facilitate privatization in the local energy sector. Two distinct types of joint venture are used:

1) Industrial Co-operation (contractual)

2) Joint Equity


A contractual joint venture is for a fixed period and the duties and responsibilities of the parties are contractually defined. A good example is the Case of Venture Production (Trinidad) Limited (it was later known as Ten Degrees North Energy Ltd) which was a wholly owned subsidiary of Venture Production of Aberdeen in Scotland, which became involved in marine exploration and production by joining Petrotrin’s contractual joint venture exploration programme.

The extent of Petrotrin’s joint venture programme  in  2008
It consisted of the Brighton Marine/Guapo Bay block joint venture, signed in October 1999 and the Point Ligoure joint venture signed in November 2000. An example of the second type is the Southern Basin Consortium, a joint venture comprising Exxon (20%), Chevron (14.5%), Total (14.5%) and Petrotrin (51.1%) which was involved in the exploration and production of hydrocarbons. The joint equity strategy is usually used by investors to share and, therefore, reduce the cost and risks in the investment projects, especially those which require heavy capital expenditure. The extent of Petrotrin’s joint venture programme is published in PetroConnect no. 76 January 2008, an official corporate news organ of the state energy company.

Privatization in the energy sector also included the state selling its 100% shareholding in Trinidad and Tobago Urea Company Ltd and its 51% stake in Fertilizers of Trinidad and Tobago (FERTRIN) to the US Company Arcadian Partners Ltd on March 26th, 1993 for US$175 million. Of this amount, the government received US$91.7 million.

Moreover, the government sold a 31% interest in the wholly state-owned Trinidad and Tobago Methanol Company (TTMC) to Ferrostal A.G. and Helm on January 31st 1994 for US$47 million. The government also transferred an additional 24% of share capital of TTMC to the two German companies for the sum of US$1.8 million to facilitate major private ownership. In 1994 the state divested 51% of T&TEC. It also divested the oxygen nitrogen plant and the Urea Formaldehyde plant both of which belonged to Petrotrin. Caribbean Ispat acquired the former for US$1.2 million, while the latter was acquired by the foreign firm Arestech for US$2.9 million. In 1995 a further 25% stake in TTMC was sold for US$33 million.

What needs to be noted is that the privatization process in the local energy sector began in 1989 with lease operatorship and farm out arrangements moving to divestment involving contractual and equity arrangements with local and foreign partners and the complete sale or divestment of state enterprises in the 1990s.

The significance of this period is captured in the remarks of a leading local energy economist: “The final period 1992 to the present (2005) may be described as the golden age of gas. It is featured by state divestment of its energy based holdings, the ballooning of foreign capital upstream and downstream and the emergence of domestic private sector capital.”

The new philosophy (privatization) operated seamlessly throughout the period despite the change in government. Capital investment in the energy sector over the period 1993-2004 is estimated at US$6.1 billion with over 90% being foreign private capital. The state sold off its equity in FERTRIN (1994), ISCOTT (1994), TTMC (1996) and divested 51% of T&TEC.

The divestments created the first round of openings for new direct foreign investment firms to enter the Trinidad and Tobago market. But the bulk of new investment went into the upstream business. The new players included EOG Resources which came as Enron in 1992, British Gas, BHP/TALISMAN, the return of BP and REPSOL. New players downstream include Norsk Hydro, FarmLand, Mississippi Chemicals, NUCOR, Methanex, PCS NITROGEN, Kock Industries, INCOGEN and later Trinity Power, ISPAT, Cleveland Cliffs and the Atlantic LNG Consortium.

The 2021 budget which has an especial focus on the privatization of the local fuel market sector is simply another nail in the coffin of state enterprises in the energy sector, just as the 2020 budget buried the Petrotrin refinery in another death blow to our national patrimony.

(Economic Analysis unit of the Labour Advisory Bureau)

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