Home' Trinidad and Tobago Guardian : September 22nd 2016 Contents BG14 COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 22 • 2016
Much as been said
about the need for
diversification of the
T&T economy and
we all lament the
lack of tangible
progress on this front. In our desire to look
around us to see what else we can do, it
seems as though we have taken our eye
off the ball as it relates to the core element
of the T&T economy---that is our energy
To be successful you need to be able to
"walk and chew gum" at the same time
and so it could never be a case of either
a diversification thrust or development of
the energy sector. Worse than that, even
within our energy sector we discovered
natural gas and placed the focus there to
the detriment of the oil sector. Now we
are at a crucial juncture with both oil and
gas and we still have no diversification ini-
tiatives to give us comfort.
The Prime Minister, in his recent address
to the nation, lamented the fall off in oil
and gas production, indicating that we
have underinvested and overharvested our
energy resources to the point where supply
for both oil and gas is a critical issue.
For the upcoming 2017 Budget, I would
therefore expect nothing less than a com-
prehensive and multi-year plan as it relates
to this crucial pillar in our economic for-
It was around 1999 that the decision
was taken to demonopolise the retail fuel
sector. The sign board that you see at gas
stations around the country reflecting the
price of diesel, super and premium is over
16 years old. It was put up as it was envi-
sioned that prices would soon be moving
on a regular basis, just like when you travel
Effecting this would have involved the
removal of the fuel subsidies and a move
towards a variable price for fuel depending
on the underlying price of oil and the quality
of the gasoline product being sold. This
was at a time when oil prices were half
what they are today so it was entirely fea-
sible back then even if you adjust prices
Sixteen years later and after billions of
dollars have been paid out in subsidies and
a significant fraction of that lost to the
underworld in the form of a "diesel racket"
we are now seeking to address this issue.
An adjustment to the subsidy for pre-
mium gasoline by the last administration
became an isolated event as they lacked
the political will to do more leading into
the latter stages of their term in office.
That adjustment, in and of itself, came as
a surprise to many and there was no clear
plan outlined at that time identifying an
approach. Then, as it is now, it is just innu-
endo and sound bites.
Effect on transportation
Action is being taken to remove the fuel
subsidies but it seems to be more out of
necessity than any coherent and consistent
plan for the sector. Adjustments last Sep-
tember have been followed up by another
move in April. The country is now bracing
for more adjustments to fuel prices.
At this stage, we need to signal to the
population a clear pathway for the removal
of subsidies: how much, over what time-
frame and a target date to have the entire
sector demonopolised where fuel prices
can move according to the movement in
oil prices and there is choice of provider.
Market forces are the key driver of
improvements to quality, service and inno-
vation. The longer we continue to stifle
this, the longer we will continue to remain
in a state of economic inertia.
Transport is a key cost for any endeavour
both business and personal. Decisions are
taken every day and a lack of transparency
on the plan for fuel subsidies---and the
overall intention of successive governments
as it relates to the sector---is counterpro-
ductive to say the least.
The cost of fuel for transportation and
how this sector will evolve are key ingre-
dients in any discussion around the road
network in this country. There is the unfin-
ished highway to Point Fortin and two new
road networks are being proposed.
Since the time of the Manning admin-
istration the country has been served with
the innuendo of toll roads. This is another
factor that goes into the cost of transporta-
tion and, once again, there is no clarity on
this issue. The cost of fuel and the cost to
use a road will no doubt impact the demand
and supply equation.
Especially if you are talking public private
partnerships with a "Build Own Operate"
model, those are critical assumptions. The
public has a right to know and understand.
This should be a fundamental part of the
2017 Budget discourse.
Ian Narine can be contacted at ian.nar-
oil and Petrotrin
We recently had a study done on the state enterprise sector. If we are
talking about fuel subsidies, problems at Petrotrin and the redevelopment of
oil production then the role of these three companies are crucial.
Role of Petrotrin
Next up is the role of Petrotrin.
The company has been seriously mismanaged
across the political divide. As a result, there is no
room for finger pointing. Delayed refinery upgrade
programmes and the disastrous gas-to-liquids project
have created a debt burden for Petrotrin that they
are unlikely to service. The Prime Minister has indi-
cated that the State may need to step in.
Once again clarity is needed on this issue. This
is so for a number of reasons not least of which is
the fact that many institutional investors that have
made investments on behalf of the general public
own Petrotrin bonds. Decisions taken here, once
again, impact the general population.
• What is the expectation for State intervention:
how much, over what timeline?
• What are the consequences for the use of tax-
payer funds especially at this critical juncture?
• What are the checks and balances to be put in
place so that the mismanagement will come to an
The removal of the gas subsidy should---I would
even say must---come with an opening of the market.
You cannot say to the population that they have to
pay the full price for fuel and not give them options
in terms of quality and value for money. An open
market for fuel is likely to be one of the main ingre-
dients in positioning Petrotrin to be more competitive
If this were to happen then it speaks directly to
the role of National Petroleum (NP) and Petrotrin
in the value chain. Then, of course, there is Lake
How should these three companies be positioned
What is plan that the administration has in mind?
A long time ago there was discussion around an
amalgamating all three and extracting the resultant
synergies. Is that still under consideration? If, not,
what is the alternative?
We recently had a study done on the state enter-
prise sector. If we are talking about fuel subsidies,
problems at Petrotrin and the redevelopment of oil
production then the role of these three companies
Will the results of discussion and suggestions
related to these companies be made public?
There has been little impetus for the divestment
of state companies possibly due to considerations
given to the trade union movement. Should this
stand in front of the national interest? If one rejects
the call to open the sector to competition then what
is the plan to ensure these state enterprises function
more effectively and provide value to the nation at
large. Once again, this is a critical discussion for the
It is also my understanding---subject to correc-
tion---that Petrotrin is one of the largest consumers
of foreign exchange as they import oil for the refinery.
According to the most recent Central Bank eco-
nomic bulletin: "Petrotrin s Pointe-a-Pierre refinery
output continued to register positive growth after
completing refinery upgrades in April 2015. Refinery
throughput increased by 18.6 per cent year-on-year
in the first six months of 2016, averaging a healthy
148,079.2 b/d (close to 90 per cent of installed capac-
ity). On account of heightened activity at the refinery,
crude oil imports also increased sharply, by 36.0 per
cent, over the six-month period."
Petrotrin is importing more crude which consumes
US dollars. What is unknown is the extent to which
it contributes to the other side of the equation in
terms of generating foreign exchange and if, overall,
we are net positive.
This, however, underscores the point that we need
to better connect the dots across this important
sector and have more details and a better under-
standing of the course that is being charted.
Given the importance of transport, oil production
and Petrotrin to the national landscape, I look forward
to the details of the 2017 Budget.
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