Where we stand‎ > ‎News & Comment‎ > ‎


posted 4 Nov 2019, 06:23 by Gerry Kangalee   [ updated 6 Dec 2019, 10:13 ]
A clear and proper understanding of recent developments in the local energy sector requires a focus on the structural adjustment agenda of the 
International Monetary Fund (IMF), the World Bank (WB), and the Interamerican Development Bank (IADB) which officially started during the economic crisis of the 1980's.

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 put forward by the IMF, the WB and the IADB for the twin island Republic of Trinidad and Tobago.

This approach is really an imposition of the IMF/WB/IADB on the State of Trinidad and Tobago for the financial assistance it has received since 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 where resource allocation and income distribution would be dictated primarily by the market (read those who control, the big banks, sit in the board rooms of the huge international monopolies and hold top bureaucratic positions in imperialist governments).

Having strengthened the incorporation of the Trinidad and Tobago Economy into the International Capitalist Economic order, in fact the real objective is to reinstate the rules of the game that Trinidad and Tobago had followed as a Primary Exporting Economy - the rules of the Colonial Economic order.

In this case the local Economy retains its 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/WB influenced "IMPERATIVES FOR ADJUSTMENT, DRAFT DEVELOPMENT PLAN 1983 - 1986." This plan which was the product of a consultative and collaborative effort of the IMF/WB Mission and the Government-appointed Demas task force, was a direct result of the rapidly deteriorating economy, occasioned by declining oil prices and production, with consequent diminished inflows of foreign exchange, decreasing government savings and the decline in the country's stock of foreign exchange reserves.

Image result for imf logoThe structural adjustment policy foundation had been properly laid. Faced with falling Gross Domestic Product (GDP), severe balance of payments problems, increasing unemployment, rapidly declining foreign exchange reserves and growing levels of external debt, the Government borrowed US$85 million from the compensatory funding facility of the IMF in Novemebr 1988.
In January 1989 the government entered into a fourteen (14) month standby arrangement with the IMF to the tune of US$99 million.By January 1990, it had accessed a structural adjustment loan from the World Bank worth US$40 million.

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 was a major target of structural adjustment policy and different strategies were employed to make the sector compliant with official policy guidelines.

However, a number of developments preceded Government's official energy policy. Firstly, there was the creation of a strong lobby of the South Chamber of Industry and Commerce, led by Petroleum Geologist and Entrepreneur Dr. Krishna Persad in favour of state companies handing over “idle” wells and blocks to drilling and other service companies to pursue their own efforts at low - cost oil production.

Secondly, in July 1989, a programme of leasing blocks and farm out operations of “idle” wells was introduced to small independent oil operators. Thirdly, in 1989 production from the operatorship programme was initially established from Block CO - 1 in the Coora field. Fourthly, in January 1991, production from the farmout 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 which stated as follows: - " Farmouts and lease operatorships shall be encouraged as a means of augmenting production and employment as well as mobilizing idle equipment."

This policy set the framework for expediting lease operatorship and farmout activity in Trinidad's land based oil fields. An excellent example of this form of privatisation was the case of Venture Production (Trinidad) limited, which is a wholly - owned subsidiary of Venture Production Company of Aberdeen Scotland, which became involved in Oil Production in Trinidad and Tobago by buying into the Petrotrin Lease Operatorship and farmout programmes i.e. the Tabaquite Farm Block and the WD 14 Lease Operatorship Block, both in Forest Reserve.

The joint venture strategy has also been employed to facilitate privatisation in the energy sector. Two distinct types of joint venture are used: (1) Industrial Co - Operation (contractual), (2) Joint - Equity. 
Image result for petrotrin oil fields

A Contractual Joint Venture is for a fixed period and the duties and responsibility of the parties are contractually defined. A Joint - Equity Venture involves investment of no fixed duration and may continually evolve. In fact, Venture Production (Trinidad) Limited extended itself beyond Land Exploration and Production to include the development of Marine areas, by joining Petrotrin's contractual joint venture Exploration Programme.

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%), which was involved in a project exploring for Hydrocarbons. The Joint Equity strategy is usually used by investors to share and therefore reduce the cost and risks involved in Investment Projects, especially those which require Capital Expenditure.

Privatisation in the Energy Sector also included the Government selling its 100% shareholding in Trinidad and Tobago Urea Company Limited and its 51% stake in Fertilisers of Trinidad and Tobago, (Fertrin), to the U.S company Arcadian Partners Limited on March 26 1993, for US$ 175 Million. Of this amount, the Government received US$ 91.7 Million. Additionally, the Government sold a 31% interest in the wholly owned Trinidad and Tobago Methanol Company (TTMC) to Ferrostal A.G. and Helm A.G. on January 31, 1994 for US $ 47.0 Million. The Government also transferred an additional 24% of the Share Capital of TTMC to the two German Companies for the sum of US$ 1.8 Million, to accommodate major private ownership.

In August 1994, the Government divested the Oxygen Nitrogen Plant and the Urea Formaldehyde Plant, both of which belonged to Petrotrin the State owned Oil Company. Caribbean ISPAT acquired the Oxygen-Nitrogen plant for US$ 1.2 Million, while the Urea Formaldehyde Plant was acquired by foreign firm Arestech for US $ 2.9 Million. In 1993 a further 25% stake in the TTMC was sold for US $ 33 Million.

What needs to be noted is that the Privatisation process in the local Energy sector started out in 1989, with lease operatorship and farmout arrangements, moving to divestment involving some equity and contractual arrangements to local and foreign partners and the complete sale or divestment of enterprises in the 1990's.

It is against this background of Structural Adjustment Policy in the local energy sector, that we need to examine recent developments such as the closure of Petrotrin, the establishment of Trinidad Petroleum Holdings Limited (TPHL), and the preferred bidder status for the refinery of the Patriotic Energies and Technologies Company Limited, a private Limited Liability Company, established by, The Oilfields Workers Trade Union (OWTU).

(Economic Analysis unit of the Labour Advisory Bureau)