Home' Trinidad and Tobago Guardian : January 5th 2017 Contents JANUARY 5 • 2017 guardian.co.tt BUSINESS GUARDIAN
NEWS | BG5
cannot afford a strike
State-owned Petrotrin has once
again found itself in a stand-
off with the Oilfield's Workers
Trade Union (OWTU). At issue
is a demand by the trade union
for higher salaries and wages for
the period 2013 to 2018.
At time of writing on Tuesday, the parties
were meeting in a last ditch effort to avoid
strike action. The OWTU has been threatening
to shut down the company for three months if
it does not pay what it demands and Petrotrin
has argued it just does not have the money to
meet those demands.
OWTU president Ancel Roget says workers
should not suffer for what he calls Petrotrin's
mismanagement, corruption and spite by the
former UNC government. The management of
the company has argued that it is doing its best
to turnaround its fortune but is facing major
headwinds including low crude prices, reduced
refinery margins and high debt.
The allegations of corruption at Petrotrin
have been clearly documented over the years
and the OWTU is correct in saying its members
were unable to get increases in salaries when
other unions were granted major increases
on the cusp of the last general elections. But
what is also true is that while the demand for
a ten per cent increase is comparable and even
below the percentage demanded and received
by other unions in the public sector, the dollar
value is not comparable.
The reality is that Petrotrin workers are
among the best-paid employees in the country.
At present, Petrotrin spends close to $1.675
billion a year on wages and salaries for its fewer
than 5,000 employees.
In other words, the average salary of a Petro-
trin employee is $30,000 a month.
In a memo to workers distributed at the end
of last year, the company's president Fitzroy
Harewood said for the company to pay a ten
per cent increase in salaries for the first three
years of the collective bargaining process would
result in a net pay out of $444 million and a
recurrent increase in wages of $165 million.
He said, "The cost impact of this is projected
to increase the salary/wage bill by approxi-
mately $165 million at the end of the first pe-
riod, with a pay-out of over $279 million as
retroactive payment. It should be noted that
the example given was purely illustrative and
did not treat with any proposed increases for
the current period 2014-2018."
Harewood also revealed that Petrotrin's rev-
enue has declined by more than 50 per cent
from $37 billion in 2012 to approximately $16
billion in 2016 resulting in two years of net after
tax losses of $819 million for fiscal 2015 and
approximately $600 million for fiscal 2016.
The company is also highly geared, has a
low investment rating and is faced with rising
capital and investment costs.
The Petrotrin president also noted that the
company had to use Government-guaranteed
loans to finance some of its working capital
and trade financing needs.
Indeed, this stark picture does not take into
account Petrotrin's other challenges including
aging infrastructure, high lifting costs, low in-
ternational crude prices, falling refining mar-
gins and lower crude production.
So, how did Petrotrin get here?
The company was incorporated on January
21, 1993 to consolidate and operate the petro-
leum producing, refining and marketing assets
of Trintoc and Trintopec.
In 2000, these assets were further extended
with the acquisition of the Trinmar operations.
Some of Petrotrin's earlier predecessors in-
cluded Trinidad Leaseholds Ltd, BP, Shell,
Texaco and others and the company inherited
some assets that are today over 100 years old.
This history is important because it affects
almost everything that has been a challenge
to the company in the last 20 years.
Petrotrin's aging fields have meant it has
had to work harder and invest more to produce
each barrel of oil. This means that the cost of
bringing each barrel of oil to the surface is more
than many of its competitors and significantly
affects the company's bottom line.
The Business Guardian has learnt that it
cost as much at US$45 a barrel to lift crude
at Petrotrin and when crude prices were be-
low US$45 a barrel the company was paying
more to produce its own crude than it was for
These aging fields have meant lower pro-
duction. Lower production means that the
company has to import even more oil to feed
its 165,000 barrels of oil per day Point a Pierre
refinery. This means a reduction in refinery
margins for the company, which in turns means
less revenue to pay workers' salaries, contrac-
tors, debt and the list goes on.
Lower production has also put more pressure
on Petrotrin's cash flow as it has to spend more
US dollars importing crude for its refinery. This
has meant less money for its working capital
resulting in less money for it to do workovers
and other projects to increase production from
the very fields it needs for the refinery to run
and reduce its cash flow problems.
So the company has taken to borrowing its
working capital (to pay for oil imports). That
has meant greater gearing of the company,
higher risks to investors and therefore higher
costs of debt and lower ratings.
Petrotrin's problem on the exploration and
production (E&P) side of the business does
not end there.
The company has been unable to produce
as much oil as possible from its Trinmar asset
because of infrastructure issues.
This means that thousands of barrels of oil
are remaining in the ground on a daily basis
because the infrastructure is so poor and the
money to upgrade the infrastructure is not
there because the profits are not there due to
low crude production.
On the refining side, there are finally signs
of some green shoots. The company's refinery
is operating at a higher throughput level than
it did some years ago and is now up to 145,000
barrels of oil per day.
Its gasoline optimisation plant is finally up
and running and this has meant that Petro-
trin has reduced its bottom-of-the-barrel
production to 26 per cent from 37 per cent.
This means for each barrel of oil that goes into
the refinery, 74 per cent of it produces high
The company has begun to reduce its costs
and has put forward a strategic plan to deal
with the E&P side of the business.
But Petrotrin still has a long way to go.
Its problems with poor project management
remain and it's now at risk of not being able
to sell diesel into the international market if it
does not complete its long overdue ultra low
sulphur diesel plant by 2020.
Petrotrin also has to pay interest and princi-
pal on its US$750 million bond at approximate-
ly $542 million per year to complete in 2022
and required to continue to pay the interest
payments on its US$850 million bond at ap-
proximately $687 million per year and repay the
principal "bullet payment" of US$850 million
in August 2019. That means it needs to find
$9.2 billion this year and in 2018 in order to
satisfy its bond investors.
All of this has to be done at a time when the
world energy markets have fundamentally
changed because of the shale revolution and
when refining margins in the Americas are
challenged by the issues of discounted crude
in the United States.
Is this a time for Petrotrin to take on even
more costs, or face additional losses due to
OWTU president Ancel Roget displays a copy of the stike notice, outside the Ministry of Labour's south office in San Fernando on Tuesday.
PHOTO: RISHI RAGOONATH
Links Archive January 4th 2017 January 6th 2017 Navigation Previous Page Next Page