Home' Trinidad and Tobago Guardian : October 3rd 2013 Contents OCTOBER 2013• WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
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Monday's acquisition by NGC of all of the
exploration and production assets owned
by French energy giant Total for the stated
price of US$473 million provides the Gov-
ernment with another opportunity to share
the country's wealth with T&T's individuals and financial
institutions (such as mutual funds, credit unions and NIB).
The purchase of the Total assets follows the August 16
acquisition by NGC of the 39 per cent of Phoenix Park Gas
Processors held by ConocoPhillips, the US energy giant, for
US$600 million. Phoenix Park is a natural gas processing and
natural gas liquids fractionation operator based at Point Lisas.
The transaction this week gives 100 per cent state-owned
NGC a 30 per cent stake in Block 2(c) and an 8.5 per cent
stake in Block 3(a), which translates into 15,000 barrels of oil
equivalent per day.
The acquisition of the assets is effective as of January 1,
2012, which I understand to mean will result in NGC paying
less than US$473 million for the light, sweet crude and natural
gas coming from the blocks.
The acquisitions by NGC mean that in the space of six
weeks, the 100 per cent state-owned company has gone from
being mainly a natural gas distribution entity to being a
company with an upstream presence and 80 per cent of
Phoenix Park (ten per cent of that company is owned by Pan-
West/GE and ten per cent by National Enterprises Ltd). NGC
also owns about 17 per cent of National Enterprises Ltd (NEL)
and ten per cent and 11.1 per cent stakes in Atlantic LNG
Trains I and IV and has assumed responsibility for the marketing
of its LNG.
In presenting the 2014 budget, Finance Minister Larry Howai
said that the Government's capital market policy for generating
high levels of savings and for promoting the efficient allocation
of those savings did not end with the highly successful First
Citizens IPO, but was an ongoing activity.
Howai then said: "We will take steps as soon as it is appro-
priate to make an initial public offer (IPO) of a newly-established
company into which the NGC will transfer the 39 per cent
shareholding in Phoenix Park Gas Processors Company Ltd,
which it is purchasing from ConocoPhillips."
While Mr Howai signalled that the Government was heading
in the direction of setting up an investment holding company
into which the 39 per cent of Phoenix Park would be transferred,
as the owner of NGC, the Government has several strategic
options for the acquisitions made by the company:
It can allow NGC to retain the acquisitions on its balance
sheet and continue to place the resulting annual dividends
into the Treasury;
It can divest a portion of NGC on to the local stock mar-
It can facilitate the transfer of the Total and Phoenix Park
assets to the existing majority state-owned investment holding
It can create a new investment holding company and
transfer 29 per cent of Phoenix Park and 49 per cent of the
offshore oil and gas assets. This would allow NGC to maintain
51 per cent control of both Phoenix Park and the assets acquired
on September 30 from Total; or
It can create a new investment holding company and
transfer 100 per cent of NGC's two recent acquisitions into
what would be a new, specialised energy holding company.
NGC could then divest of a non-controlling stake in the new
company to local individuals and institutions.
Although option 4 would be acceptable, the optimum solu-
tion, in my view, would be the last option: creating a new,
specialised energy holding company that would initially have
two assets with a book value of US$1.073 billion ($6.9 billion),
of which NGC could divest 49 per cent to local individuals
and institutions ($3.45 billion).
The main reason for the preference for option 5 is that there
are likely to be opportunities for further acquisitions and
divestments by NGC in the near future.
The obvious candidate is Methanol Holdings (Trinidad) Ltd
(MHTL), the petrochemical complex at Point Lisas, and its
sister company MHIL, which is based in Oman.
Ernst & Young estimated that the value of MHTL and MHIL
is between $10.5 and $11.6 billion (US$1.6 to US$1.8 billion)
in the analysis that accompanied the controversial July 9
Cabinet Note on the recovery by the Government from CL
Financial of the $19.6 billion pumped into the group.
Without a doubt, MHTL and MHIL are the jewels in the
CL Financial crown.
On Tuesday, MHTL competitor, the Canadian firm of
Methanex announced that the non-discounted reference price
for methanol in the North American region would be US$549
per metric tonne and for the Asia/Pacific region the contract
price would be US$490 per metric tonne. The October price
is 43 per cent higher than Methanex's average realised price
per tonne for 2012.
Given their size and profitability, it is clear that both MHTL
and MHIL have a crucial role to play if the Government is
serious about deepening and broadening the ownership of
T&T's energy sector by local individual and institutional
Obviously, then, the Government's negotiating machinery
needs to ensure that gaining control of these two companies
for the benefit of local investors is at the centre of both the
CL Financial recovery strategy and the Government's divestment
Especially in a context in which it does not appear likely
that the State will be fully repaid from the initial sale of CL
Financial assets, it would be a serious travesty if the methanol
companies ended up in any other hands but those of local
The acquisition of the Phoenix Park and the Total assets
by NGC suggests that the State needs to formulate a carefully
thought out policy to treat with future acquisitions and divesti-
tures in the energy sector---whether local or foreign, planned
The policy document could then be the subject of consul-
The centrepiece of the policy framework would be for the
State to allow local investors to share in the short-term risk
and rewards and the longer-term wealth-creating opportunities
of ownership of shares in profitable state-owned companies
in the energy sector.
Given the large sums of money involved, the framework
should formalise the partnership between the Government
(through the cash-rich NGC) and local investors (both individual
and institutional) with a corporate governance structure that
allows for participation at the board level of the local investors.
The policy should also ensure the company to be established
is sufficiently well capitalised to allow for opportunistic acqui-
sitions, which means the policy must be flexible enough to
allow for the local capital market to be quickly tapped.
One of the issues that the policy needs to address is whether
the State---either directly through Corporation Sole or through
one of the state-owned companies---should be the majority
By only divesting 19.3 per cent of First Citizens, the Gov-
ernment seems to be indicating it wants to retain control of
its large and increasing portfolio of assets.
There may be instances in which it would be more profitable
for the State and for the investors to allow state-owned com-
panies to be transferred completely out of the public sector.
This would have to be decided on a case-by-case basis.
Another issue that is bound to arise is the extent to which
regional investors should be allowed to participate in local
I am personally in favour of opening up the local IPO market
to regional institutional investors as this would mean an inflow
of foreign exchange, it would position Port-of-Spain as the
regional centre of equity trading, and it would allow a rebuilding
of the region's national insurance schemes and pension plans
that took a hit from the fall of Clico and British American.
The success of the First Citizens IPO, which attracted offers
of $3.2 billion from local institutions and investors, indicates
there is a strong appetite for new equities. But it may be that
$3.2 billion is the limit of the interest. If the MHTL and MHIL
are to be acquired for $12 billion and then the 49 per cent
divested on to the local market means local investors would
need to come up with $6 billion.
Would that be too much?
Does T&T need an energy
Larry Howai, Finance
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