Home' Trinidad and Tobago Guardian : January 22nd 2015 Contents JANUARY 2015 • WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In her address to the nation two Thursdays ago, Prime
Minister Kamla Persad-Bissessar seemed to indicate
that the continuation of the Government's public
offerings programme would generate $2.9 billion. She
said that repegging the 2015 budget at US$45 a barrel
and the natural gas netback price at US$2.25 a unit
would lead to a revenue shortfall of $7.4 billion.
Of that amount $4.5 billion is expected to be saved in three
• by curtailing unfunded infrastructure projects;
• reducing non-critical purchases of goods and services
and allocations to selected ministries by 15 per cent; and
• a $1.4 billion reduction in the allocation for the fuel sub-
"Any shortfall will be met from revenues generated as a
result of our continued public offering programme," she said,
adding: "This programme will continue with the National Gas
Company (NGC) offering to the national community 49 per
cent of the shareholding of Trinidad and Tobago NGL Ltd,
which holds the 39 per cent shareholding of the NGC in
Phoenix Park Gas Processors.
"This will be the first ever listing of an energy stock on the
local stock market, giving citizens a direct stake in our energy
NGC paid ConocoPhillips US$600 million ($3.8 billion) to
acquire the 39 per cent stake in Phoenix Park in September
If the Government's plan is to divest 49 per cent of the
shareholding in T&T NGL (the company that holds the 39
per cent stake), then if the shares are sold at the price that
NGC paid for them, the result would be an IPO of $1.88 bil-
This would leave the Government with a $1 billion funding
gap ($2.9 billion---$1.88 billion) from the public offering pro-
gramme, which could be extracted from NGC in the form of
a special dividend or by way of the Government's interest in
the T&T Mortgage Bank---the entity to be formed from the
merger of the Home Mortgage Bank and the T&T Mortgage
But the more fundamental issue is whether the sharp reduc-
tion in the price of Phoenix Park's products---most of which
are exported to markets in the Caribbean and Central Amer-
ica---will have an impact on the valuation of the company at
the IPO and the attractiveness of the offer to the national
And there is no doubt that in the last year, there has been
a sharp decline in Phoenix Park's products---which are propane
or cooking gas, butane (mainly used for gasoline blending)
and natural gasoline (also added to gasoline).
In the week of January 20 to 24 last year, the FOB spot
price of propane at Mont Belvieu ranged between US$1.48
and US$1.52 a gallon, according to data on the US Energy
Information Agency Web site. Last week, the price was US$0.45,
which means that the price of propane today is about 70 per
cent lower than it was a year ago.
Natural gasoline traded at US$0.93 a gallon this week at
Mont Belvieu, which is a port in Texas that serves as a major
natural gas liquids (NGLs) storage and fractionation hub and
as the hemispheric benchmark for NGLs. In January 2014,
natural gasoline traded at over US$2 a gallon, which means
there has been a more than 50 per cent reduction in the com-
The cash commodity price for butane trading at Mont
Belvieu was US$1.60 a gallon in the week of January 20, 2014,
according to ICE via WSJ Market Data Center. The commodity
traded at US$0.72 on Tuesday, which means that the benchmark
has suffered a 55 per cent decline since a year ago.
It's estimated that 40 per cent of Phoenix Park's output is
natural gasoline, 35 per cent propane and 25 per cent butane.
So there is little doubt that the export prices of Phoenix
Park's products today are significantly lower than the prices
a year ago. In the absence of a commensurate cut in operating
costs, generally a reduction in a company's selling price means
a decline in revenue, profit margins and after-tax profits.
The investing public has a right to insist that the local Secu-
rities and Exchange Commission ensures that NGC, which is
selling the 49 per cent stake in T&T NGL, provides clear and
independent guidance on the impact of lower product prices
on Phoenix Park's fortunes.
So, will the sharp decline in the prices of propane, butane
and natural gasoline impact the value of the Phoenix Park
shares for the IPO and the amount of money the Government
can raise from the share issue?
That question was put to Finance Minister Larry Howai by
e-mail on Wednesday morning and his response was: "The
decline in prices may have some impact but the valuation is
done on the basis of expected long-term average prices. As
you would know, in the energy markets long term means just
that long (seven to ten years).
"And we need to determine if the current decline in prices
is a permanent/long-term thing.
"Currently an audit is being conducted on Phoenix Park.
This is expected to be completed by the first week in February
after which it will be submitted to the SEC. Then, if and when
the SEC approves, the IPO will be issued."
The same question was put to NGC president Indar Maharaj,
who responded: "At this point I cannot give any details on
the pending IPO for obvious reasons. However, we do not
expect to do the issue at a price lower than what we paid for
"The valuation is based on a 15-year forecast in which it
was anticipated there will be some amount of volatility and
cyclical market behaviour. We did not use 'moment in time'
prices. These market behaviours would have been built into
our valuation model. I must say that we were very conservative
in forecasting the product prices.
"Therefore, I do not see any significant impact on the val-
uation, at this time."
Thankfully, both Mr Howai and Mr Maharaj were crystal
clear in their responses: Given that the valuation was done
based on long-term price forecasts, they do not expect that
the current low product prices will have a significant impact
on the valuation of Phoenix Park at the IPO.
But, notwithstanding the long-term price forecasts, it seems
to me that the local investing public would/should be a tad
cautious making an investment in a company based on forecasts,
even if those forecasts are robust, exhaustive and took into
consideration every possible eventuality.
Is NGC prepared to make those forecasts available to the
investing public before the IPO?
Also, do NGC's forecasts take into consideration the possibility
that what transpired in the global energy market in the fourth
quarter of 2014 represents a structural rather than a cyclical
Caution is advised because forecasts are generally based on
assumptions about the future. And the way even the best
forecaster views the future is sometimes coloured by the past
and the present. In other words, it seems to me that an assump-
tion about Phoenix Park's future made in January 2014, when
the price of butane was US$1.60 a gallon, may be different
to an assumption made in January 2015, when the price of
butane is US$0.72 a gallon.
Also, it is useful to know that the management of NGC,
as reflected by president Maharaj, does "not expect to do the
issue at a price lower than what we paid for the asset."
In the final analysis, one wonders whether the price at which
a company sells a major asset is a decision for the management
of a company...or its board, which in NGC's case, being a 100
per cent state-owned company, would be politically appointed.
And one questions whether the members of the local invest-
ment consortium---that together acquired a ten per cent stake
in Phoenix Park for US$168 million from GE Capital in Novem-
ber---are as bullish about the company's future today as they
were just two months ago.
It is useful to recall that that consortium comprised the
nation's top institutional investors---National Insurance Board
(NIB), National Enterprises Limited (NEL) and the Unit Trust
Corporation (UTC)---in which billions of dollars of the life
savings of the entire population are invested.
It is my responsibility to raise these issues, isn't it?
Will lower product prices
affect Phoenix Park IPO?
Minister of Finance Larry Howai
NGC president Indar Maharaj
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