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BUSINESS GUARDIAN guardian.co.tt AUGUST 10 • 2017
Petrotrin and privatisation
Despite Petrotrin's improve-
ments in crude oil produc-
tion, refinery throughput
and bunkering, the company
continues to be challenged by
ed debts, man-power issues, refinery ineffi-
ciencies, aged infrastructure and frequent oil
spills. One of the recent efforts to reform the
company is the government appointed Petro-
trin Review Committee.
While the government deliberates on the
committee's recommendations, the idea of
privatising Petrotrin has been discussed in
the industry and in the wider public.
Is placing Petrotrin in the hands of the pri-
vate sector the solution to its woes?
What does the
There is some evidence that privatisation
significantly improves profitability, commer-
cial efficiency, capital investment and output
(see Boukbari et al 2005; D'Souza and Meggin-
son et al, 1994; Dewenter and Malatesta, 2001).
Private oil companies have also been found
to convert reserves into output better than na-
tional oil companies and make more revenue
per unit of output (Victor, 2007). Argentina
(YPF), Bolivia (YFPB), Brazil (Petrobas) and
Russia (State Vertically Integrated Companies)
all provide examples of countries that sought
to improve commercial efficiency by engaging
in some form of privatisation.
This type of research makes it clear that no
model is perfect as studies on privatisation
have frequently been subject to much criticism.
Furthermore, researchers have sought to refo-
cus the discussion by stressing that national
oil companies play other important roles that
private companies do not.
Commercial efficiency is not king. For ex-
ample, Wolf (2008) argues that "less profit
does not imply that state ownership is less
desirable, as national oil companies pursue
other worthy causes other than profit maxi-
misation". These non-commercial functions
spread oil rents to the owners of the resources
(ie the citizens) through fuel subsidies and by
increasing local content.
Under privatisation, governments and citi-
zens have even been found to lose out on large
rents captured by producers and shareholders.
There are also several examples of national
oil companies that have successfully reformed
without selling to the private sector.
The Natural Resource Governance Institute's
2014 study shows how 11 national oil compa-
nies were able to reform their operations, by
defining and financing a commercial mandate,
limiting political interference in technical deci-
sions and ensuring transparency and oversight.
What are we
trying to cure?
Gregory McGuire said high operating costs,
suboptimal refinery configuration and a high
debt burden were identified as the three top
challenges facing the company.
He explained that the company's high oper-
ating costs is due to its aged and inefficient in-
frastructure, as well as high labour overheads.
He recalled a 2004 report that ranked Petrotrin
in the last quartile of refineries by efficiency.
He said, "these are legacy issues (ie plant
inefficiency and overstaffing) meaning that
they have been inherited from the past. Petro-
trin's workforce is represented by one of the
strongest unions in the country.
"They have therefore defended the jobs of
their membership, as indeed it is their right.
It has been difficult to get the staffing levels
down to industry standards."
Ozzi Warwick of the OWTU also acknowl-
edges that Petrotrin has labour force issues,
however, his concern is that some departments
are overstaffed (eg human resources and com-
munications); while there are vacancies in
areas that can directly affect production and
Warwick also attributed high operating costs
to the company's bloated management struc-
ture layer, which also reduces accountability
In 2011, the OWTU proposed an organisa-
tional structure to the government that in-
volves separating land, refinery and offshore
operations into three distinct bodies so that
managers would be accountable for the per-
formance of each body.
On the issue of refinery configuration,
McGuire explained that for several years Petro-
trin has been trying to upgrade its 100-year-old
refinery so that it can extract more value from
a barrel of oil.
Since 1993, there have been several projects
aimed at modernisation that were not fruit-
ful. He believes that poor project management
hindered these efforts. "The refinery remains
a bottom end refinery, with more than 50 per
cent of its output being low valued residual
fuel oil," said McGuire.
Warwick sees all Petrotrin's challenges as a
spinoff of weak governance/poor management.
"Low production, oil spills (etc) occur be-
cause decisions are being taken that do not
build-up the company in the long-term," he
said. Some of the management issues he raised
included a lack of supervision of staff and the
lack of investment in areas that will improve
infrastructure and boost oil production. Nev-
ertheless, he lauded the efforts of the current
Board for its efforts to collaborate and obtain
buy-in from all stakeholders, including the
As it relates to improving the company's
asset integrity, Professor Andrew Jupiter
disclosed that Petrotrin has a strategic plan
to fix its assets. He said that failure to do so
results in "...dollars and cents being wasted
when there are spills. Each barrel should be
used in refining."
He also made it clear that the environmen-
tal impact of Petrotrin's oil spills is of great
concern to the company. While the board has
prioritised assets to be repaired, Jupiter em-
phasised the need for greater capital expend-
iture on improving asset integrity.
Low oil production is another challenge
raised by the interviewees. Petrotrin is the larg-
est crude oil producer in T&T. Since September
2015, the company has arrested its decline in oil
production and there has been an increase since
then. This was achieved even as the company
operated in a low oil price environment in 2016.
Jupiter strongly believes that Petrotrin can
increase its production in excess of 60, 000
barrels per day.
Ramping up production will require Petro-
trin to review the lease operator model to iden-
tify potential areas for improvement, expand
the Incremental Production Service Contracts
programme to develop reserves and engage in
secondary recovery methods in partnership
with local and foreign entrepreneurs to recover
heavy oil reserves.
In relation to the lease operatorship ar-
rangements, Warwick noted that there is a
need to disaggregate the production data of
these companies to ensure that high produc-
tion volumes of a few companies do not mask
lower production levels of the majority. Jupiter
emphasised that assessing the model is also
important to maintain the OWTU's trust and
to maintain industrial peace.
As expected, the company's debt burden
affects its financial standing. The company
is saddled with debt arising from two loans
namely a US$ 750 million loan and a loan of
US$ 850 million. It has, however, made all of its
interest payments on the former and therefore
has never defaulted. Its most pressing chal-
lenge is to reschedule or refinance its US$ 850
million loan due in 2019.
Jupiter recently revealed that the board has
proposed a strategy, in collaboration with the
Finance Ministry, to refinance the debt. War-
wick attributed the company's indebtedness
not to its ownership structure, but rather, due
to the Government's inability to make its sub-
sidy payments on time, which puts a strain on
the company's cash flow.
Data from the Ministry of Energy and Energy
Industries shows that in September 2016 the
government was able to clear its outstanding
Join us next week for Part II of this article,
as we unveil our stakeholders' thoughts on the
' right' solution to the company's woes.
Nazera Abdul-Haqq, policy coordinator, TTEITI
Is this the right question?
The issue of Petrotrin's future is a burning national issue and different inter-
est groups have divergent perspectives on how to reform this company. The T&T
Extractive Industries Transparency Initiative (TTEITI) sought the diverse per-
spectives of three stakeholders in an attempt to answer questions related to the
In Part 1 of this article, we explore the idea of privatisation and present the key
challenges facing the company as outlined by our interviewees.
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