US$160.38M debited from HSF

2024, 07/10

On December 18, 2023 the Government withdrew US$160.38 million ($1.09 billion) from the Heritage and Stabilisation Fund, according to the report for the three months ended December 31, 2023.

The HSF quarterly report does not state what the US$160.38 million was used for, except that the withdrawal was done in accordance with section 15 of the HSF Act (2007).

That section states, “… where the petroleum revenues collected in any financial year fall below the estimated petroleum revenues for that financial year by at least ten per cent, withdrawals may be made from the fund as follows, whichever is the lesser amount:

a) either 60 per cent of the amount of the shortfall of petroleum revenues for that year; or
b) Twenty-five per cent of the balance standing to the credit of the Fund at the beginning of that year.”

The HSF quarterly report states that the withdrawal came from the fund’s liquid assets, further clarifying that :

“assets from the US short-duration fixed income mandate were sold to meet this obligation.”

Although US$160.38 million was withdrawn from the HSF, the value of the Fund at December 31, 2023, was approximately US$268.5 million higher than the previous quarter’s closing value of US$5.390 billion.

“The total net asset value of the Fund as at the end of December 31, 2023 was US$5.658 billion, compared to US$5.390 billion as at September 30, 2023. Of this total, the investment portfolio was valued at US$5.656 billion, while the remaining portion was held in operating cash accounts to meet the day-to-day expenses that arise from the management of the Fund.”

During the quarter ended December 31, 2023, the HSF investment portfolio rose by 8.08 per cent.

This positive performance was driven by strong gains within both the equity and fixed income mandates . For the quarter, US core domestic equities rose by 13.03 per cent and its non-US core international equities increased by 11.27 per cent.

The HSF 2023 annual report states that a deposit of US$182.21 million to the HSF was made on December 23, 2022. According to the Auditor General’s report on the HSF’s 2023 annual report, the timing of the deposit of US$182.21 million is in contravention of the requirements of the act.

That report, which was signed by Auditor General Jaiwantie Ramdass on November 29, 2023, cited sections 13 (2) and 13 (4) of the HSF Act. Section 13 (2) of the HSF Act states:

“The deposits referred to in subsection (1) shall be made no later than the end of the month following the quarter in respect of which the deposit was calculated.”
Section 13 (4) states, “For the purposes of this section ‘quarter’ means a three-month period ending December 31, March 31, June 30 and September 30.”
According to the Auditor General’s report, “A deposit to the Fund of US$182,213,278 was made on December 23, 2022. This deposit is related to the quarter July to September 2022, and the date of calculation provided by the Ministry of Finance was October 26, 2022.”

The sovereign wealth fund is a luscious, magnetic temptation for politicians to steal the golden egg for the spending circus in a political exercise, while citizens suffer a multitude of ills which the resources can rectify.

 

 

More HSF transparency

Guardian Media Limited 2024, 07/11

The decision by the Ministry of Finance to access US$160.38 million ($1.09 billion) from the Heritage and Stabilisation Fund (HSF) on December 18, 2023, surprised citizens because, before last month, Finance Minister Colm Imbert had not signalled decline in energy revenues.
The HSF Act is clear that when petroleum (energy) revenue for any financial year is ten per cent less than the estimate, the Government can withdraw 60 per cent of the shortfall or 25 per cent of the balance of the fund, whichever is less.

The contention therefore, is not that the Government withdrew HSF funds but that there was a lag of almost six months before the decision was disclosed. The most recent quarterly report of the HSF available to the public is for the period October 1 to December 31, 2023 and is on Finance Ministry of website, dated June 18, 2024.

The HSF Act provides that the Central Bank is the fund manager and one of its responsibilities in the schedule of the Act, is to ensure “the submission of quarterly reports to the board (of the HSF) on the holdings, performance and risk of the fund no later than one month after the end of each quarter.”

If the HSF Act is scrupulously followed, the fund manager should have submitted the most recent quarterly report to the Central Bank no later than the end of January 2024. The report should then have been submitted immediately to the board of the institution and to the Ministry of Finance.

If the fund managers have maintained the requirement to submit the quarterly report in a timely fashion, there is no reason why quarterly reports cannot be made public within six weeks of the end of each quarter.

The Minister of Finance should establish a well-publicised schedule for the publication of quarterly reports of the HSF so that citizens, the ultimate beneficiaries, are aware of the financial position of the sovereign wealth fund.

The HSF Act does not obligate the Minister of Finance to make public disclosures of deposits or withdrawals but in the interest of transparency and accountability, the authorities should ensure that this information is known as soon as possible.

The difference between the country knowing that a withdrawal of US$160.38 million was made from the HSF in mid-January 2024 as opposed to mid-June 2024 is that the population would have been aware five months earlier that there was a shortfall in petroleum revenues for the 2023 fiscal year.

As it stands, most citizens became aware of declining energy revenues early last month, when segments of an affidavit from Finance Minister Colm Imbert revealed that for the first six months of fiscal 2024, from October 1, 2023, to March 31, 2024, the netback price for natural gas was 36 per cent below the budget price.

He warned if global natural gas prices remain low, the deficit for 2024 could be as high as $9 billion, even with additional one-off asset sales and the Government may well have to tap the HSF again.

Surely this proves it is high time for divestment of all state assets to create wealth in a shareholding democracy and free the authorities to focus on security, curbing criminality and restoring confidence in the beleaguered private sector, engine of the economy.

 

 

Purpose of HSF Withdrawal

2024,  07/11

Watch Dogs raised concerns as to why the Government withdrew US$160.38 million ($1.09 billion) from the Heritage and Stabilisation Fund (HSF) on December 18, 2023.

The HSF quarterly report does not state what the US$160.38 million was used for, except that the withdrawal was made in accordance with section 15 of the HSF Act (2007).

The HSF quarterly report stated that the withdrawal came from the fund’s liquid assets, further clarifying that “assets from the US short-duration fixed income mandate were sold to meet this obligation.”

The HSF was established in 2007 with two objectives: to act as a buffer for when seen things occur such as the pandemic and to accumulate savings for future generations as a result of the depletion of non-renewable resources.

The Finance Minister had indicated during the pandemic that the country was fortunate to have access to the HSF for COVID-19 emergencies, suggesting he would not resist the temptation to raid the Fund and cream off gains.

There is no indication of what the withdrawal in December of 2023 of TT $1.09 billion, approximately US $160.38 million, was for. The government returned to seek supplementary approval for $3 billion to meet expenditure based on the 2024 budget.

Economist Marino Browne said it is no secret that natural gas prices are down by at least 40 per cent and that must be taken into consideration. Clearly, the Government cannot keep running to the HSF.

“Notwithstanding the good news about the final investment decision on Manatee, that field cannot close the gap in terms of the amount of production that we’ve lost. It can’t. So, what will you do in the intervening period, the three years between now and when Manatee starts to produce? And even if it starts to produce in 2027, we have no idea what the prices will be then.”

Chairman of the Confederation of Regional Business Chambers, Vivek Charran, said “If money is drawn from the HSF, then one would have to assume it was because existing US-dollar inflows are insufficient. The money was withdrawn to perhaps cover a shortfall in Government expenses or even to bolster Central Bank forex reserves. Yet it is said we are not in a forex crisis, but money continues to be drawn from the country’s savings.”

With a different outlook, T&T Chamber of industry and Commerce said the Act is very clear about how the funds can be used. The HSF cannot be used to directly finance capital expenditure or as collateral for government borrowing,. There is specific guidance in the Act, so once the Fund is being utilised in the stipulated manner, there is no reason for concern.

“The Fund is designed to ensure the best interests of our people are served. The government is doing what it sees as necessary at this time and is within its rights based on the Act. We believe that this signals the need for ongoing robust discussions among stakeholders, with actions to be taken to catalyze and build other sectors of the economy to enhance and improve economic activity.”

Caricom HoGs can hold virtual discussions on Zoom and create an app for future jamborees to cut travel costs.

 

 

HSF Withdrawal sparks more questions

18 July

Over $1 billion was withdrawn from the Heritage and Stabilisation Fund (HSF), 7 days before Christmas, with no explanation from a public official.

The withdrawal only came to light in a quarterly HSF investment report posted on the Ministry of Finance website on June 18, leading TT Coalition of Services Industries to demand greater accountability.

“The HSF is a critical financial buffer for our nation, established to ensure economic stability and savings for future generations. It is imperative the government maintains transparency regarding the use of these funds to uphold public trust and ensure withdrawals align with the objectives of the HSF Act.”

There is a contradiction in the legislative framework. According to section 16 of the Act, the Sovereign Wealth Fund is a “public account,” subject to oversight by the Auditor General’s Department. At the same time, section 18 imposes a bar on officials at the HSF from disclosing information on the operation or management of the Fund.

The implications of this are far-reaching. It sets a particular tone in HSF affairs, possibly affecting its officials from the top down. It is an open question whether this stipulation has coloured the way HSF information does or does not come to light.

In any event, is this confidentiality requirement appropriate, given the nature of the Fund? Certain information must clearly be subject to disclosure, as demonstrated by the ministerial publication of quarterly investment updates and annual reports, as well as tabling financial statements in Parliament under the law.

The Santiago Principles of Transparency, to which the HSF is also a signatory, further dictate “clear and publicly-disclosed policies, rules, procedures, or arrangements in relation to the Sovereign Wealth Fund’s general approach to funding, withdrawal and spending operations.”

Robust compliance with these principles demands a more expansive approach. The recent withdrawal is the first since September 30, 2021, when $671 million was withdrawn, the last of a series of pandemic-era drawings that began on March 31, 2020. In 2022, two deposits, totalling $2.3 billion, were made.

As at the end of 2023, the total net asset value of the HSF was up, notwithstanding the withdrawal, standing at $37.6 billion, $1.8 billion higher than the previous period.

Still, the failure to take a proactive approach to disclosure follows Auditor General Jaiwantie Ramdass’s recent finding that:

• • • A $1.2 billion deposit was made late, in contravention of the law;
    • years of uncertainty over how the HSF Act should be interpreted;
    • as well as controversy last year after the Fund reported a first loss, from which it later recovered.

In relation to the latter, the Government then said it did not rush to tell the public, as it had been advised to wait it out.

A lawless community is emboldened by such lapses among officials as homicides approach 400, with egregious crime marked by gratuitous violence against the vulnerable , elderly, females, rural citizens and business owners.

 

 

 

U.S. Export-Import Bank
… Signs US$500 million MoU

June 28, 2024
Media Contact
media@exim.gov

Port of Spain- Export-Import Bank of the United States (EXIM) President and Chair, Reta Jo Lewis met government and private sector leaders with U.S. Envoy Candace Bond to highlight the role EXIM financing can play in supporting U.S. exporters doing business in the region.

“It was a pleasure to travel to Trinidad and Tobago to underscore that EXIM is deeply committed to working in a whole of government approach to bolster the strong commercial and economic relationship between our two nations. EXIM’s financing tools can play an important role in not only supporting U.S. exporters as they compete in Trinidad and Tobago, but they can also support efforts to advance our mutual goals in key sectors like renewable energy and maritime security.”

Ambassador Bond and Lewis discussed opportunities for U.S. exporters to compete and win transactions in Trinidad and Tobago. Lewis and Bond met Prime Minister Keith Rowley and cabinet ministers to discuss a whole of government approach to deepen cooperation in key sectors.

Lewis signed a US$500 million Memorandum of Understanding for the Republic of Trinidad and Tobago with Minister of Finance and the Economy Colm Imbert to develop opportunities and support financing in the maritime domain awareness, cybersecurity, renewable energy, and water sanitation sectors.

Minister Imbert received a US$150 million Letter of Interest (LoI) to support procurement in the maritime and cybersecurity sectors. Lewis and Bond told Minister of National Security Fitzgerald Hinds how EXIM financing can reaffirm the strong U.S.-Trinidad and Tobago commercial partnership and discussed financing opportunities in the maritime and cybersecurity sectors.

In Tobago, Lewis and Bond held meetings with House of Assembly Chief Secretary Farley Augustine and President of the Tobago Hotel and Tourism Association Christopher James, where they highlighted how EXIM financing can bolster commercial ties between the U.S. and Tobago. They discussed engaging with Tobago diaspora and supporting companies in the tourism and transportation infrastructure sectors with Secretary of Tourism and Culture, Tashia Burris.

Lewis concluded her visit by joining a roundtable discussion with AmCham Trinidad and Tobago, where she highlighted strong interest in supporting U.S. exporters and their customers in the region

 

 

Demising Debt rose by $4.07B in last 9 months

2024, 07/25

Responding to a report, ‘Government borrows $14B in 9 months’, Finance Minister Colm Imbert, said that between October 2023 and June 2024, the public debt increased by $4.07 billion. Central government and three state enterprises raised over $14 billion in debt between October 2023 and June 2024, according to the Central Bank’s May 2024 Monetary Policy Report and the Ministry of Finance.

The Government and the state enterprises issued bonds totalling $9.17 billion on the domestic capital market money and the central government raised US$750 million ($5.06 billion) on the international capital market. On June 18, the Government issued the 10-year US$750 million bond, at an interest rate of 6.40 per cent.

In its latest Monetary Policy Report, the Central Bank indicated that its provisional data suggested that for the eight months ending May 2024, the primary debt market recorded 14 bond issues, raising $9.17 billion.

“The Government was the primary borrower, issuing 11 bonds at $8.07 billion via private placements, while three state enterprises financed $1.10 billion.”

Imbert said over the period October 2023 to June 2024, the Government made Central government and government-guaranteed principal repayments totalling $9.23 billion, of which central government was $6.8 billion and government guaranteed was $2.43 billion. These repayments had the effect of reducing the net public debt by $9.23 billion.

“Further, over the same period, a total of $2.67 billion in debt involved refinancing of Central Government and Government Guaranteed debt, which did not increase the public debt.” Principal repayments and borrowing for refinancing must always therefore be deducted from the total government debt financing for any period to get the true level of borrowing.

 

 

State borrows $14B in 9 months

2024, 07/24

According to the Central Bank May 2024 Monetary Policy Report and the Ministry of Finance, Central Government and three state enterprises raised over $14 billion in debt between October 2023 and June 2024,

They issued bonds totalling $9.17 billion on the domestic capital market and US$750 million ($5.06 billion) on the international capital market. On June 17, the Government issued the 10-year US$750 million bond, at a high interest rate of 6.40 per cent.

In its latest Monetary Policy Report, the Central Bank indicated that its provisional data suggested that for the eight months ending May 2024, the primary debt market recorded 14 bond issues, raising $9.17 billion. The Government was the primary borrower, issuing 11 bonds at $8.07 billion via private placements, while three state enterprises financed $1.10 billion.

• • The state enterprises, Housing Development Corporation, raised $500 million in February 2024 and
  • the National Investment Fund Holding Company, raised $400 million, in February.
  • First Citizens Investment Services Ltd, a 100-per cent subsidiary of First Citizens Group Financial Holdings, raised US$30 million ($202.5 million in October 2023.

First Citizens Group is owned 60.11 per cent by Corporation Sole, in whose name assets are held.

The Central Bank report states that “over the period (October 2023 to May 2024), the Government accessed the market for budget support and repayment of existing facilities,” but did not provide a breakdown of the two categories. In his June 3, 2024 affidavit on the T&T Revenue Authority matter, Minister of Finance, Colm Imbert signalled that T&T’s deficit for the 2024 fiscal year could rise to $9 billion.

“The fall in oil and gas prices and lower than expected production of oil and gas has had a profound impact on petroleum revenues, leading to a projected shortfall in revenue for 2024 of $5 billion. When this significant shortfall is added to the initially estimated budget of $5 billion, even with additional one-off revenues from asset sales, the deficit for 2024 is now expected to be as high as $9 billion.”

The Monetary Policy Report said that for the comparable period one year earlier, from October 2022 to May 2023, the local capital market “recorded nine bond issues raising a total of $5.84 billion, with the Government accounting for five bonds at $4.73 billion.”

Money raised by the Government in the first eight months of the 2024 fiscal year is 70.6 percent more than was raised in the same period in the 2023 fiscal year.

In a surprise move, the Central Bank announced that it was reducing the primary reserve requirement of commercial banks from 14 percent to 10 percent of prescribed liabilities, with effect from the reserve week beginning July 24.

Asked the reason for the decline in the excess reserves, which led the Bank to cut the reserves requirement, the Bank said: “There does not seem to have been one dominant factor (and the situation varied across banks), but it is related to commercial banks financing of the Government and the expansion of credit to the private sector— both factors have been growing in recent months.”

The Bank also said in principle the decline in excess reserves could have been dealt with by greater reliance on open market operations, “but the change in the reserve requirement gives an immediate large impact and offered the Central Bank the opportunity to move further towards more market-determined instruments.”

 

 

Central Bank cuts reserve requirement from 14% to 10%

2024, 07/20

For the first time since March 2020, the Central Bank, yesterday held a special meeting of its Monetary Policy Committee (MPC), following which, the MPC announced that it was cutting its reserve requirement from 14 percent of prescribed liabilities to 10 percent.

The prescribed liabilities are deposits and short term borrowings that commercial banks are required to hold at the Central Bank, which cannot be used by commercial banks as the basis of loans to customers and earn no interest.

The Bank decided to cut the reserve requirement because of a decline in excess reserves of commercial banks.

“The MPC examined the recent decline in excess reserves of commercial banks—the deposits held by banks at the Central Bank in excess of the required reserve ratio of 14 per cent of prescribed liabilities (deposits and short term borrowings). The daily average of excess reserves measured $2.76 billion from July 1 to July 18, 2024 compared to $3.91 billion in June 2024.”

The prescribed liabilities of the commercial banks as at July 3, 2024 totaled $95.9 billion. At 14 per cent the reserve requirement would be $13.42 billion, while at 10 per cent the commercial banks would be required to hold $9.59 billion in a non-interest earning cash reserve account at the Bank.

The MPC reaffirmed the appropriateness of the overall stance of monetary policy, as articulated most recently in its June 28, 2024 Monetary Policy Announcement.

“At the same time, the Committee considered that, in the current circumstances, a lowering of the reserve requirement, accompanied by greater reliance on open market operations (the purchase and sale of securities by the Central Bank to affect liquidity), would have an immediate impact on liquidity.

This combination is also consistent with the Central Bank’s longstanding objective of progressively moving towards more market-determined instruments of monetary policy. Taking all factors into consideration, the MPC decided to reduce the primary reserve requirement of commercial banks from 14 per cent to 10 per cent of prescribed liabilities with effect from the reserve week beginning July 24, 2024.”

• The next Monetary Policy Announcement is scheduled for September 27, 2024.
• The last time the Central Bank reduced its reserve requirement was on March 17, 2020, when it lowered the monetary policy mechanism from 17 per cent to 14 per cent.

On its website, the Central Bank states its primary or cash reserve requirement “is the principal direct monetary policy instrument used by it to influence monetary conditions. By lowering or increasing this fraction, the bank can increase or reduce liquidity in the banking system.”

 

 

 

The onshore sector

Mary King
24July

The Central Bank, in its latest monetary policy report stated that, despite poor performance of the energy sector, the non-energy sector drove economic activity into positive growth over the fourth quarter of 2023 and the first of 2024.

CSO figures demonstrate that the GDP fell by 2.3% year on year driven by a 10.3% reduction in the energy sector while there was a 1.3% expansion in the non-energy sector.

Data from the Ministry of Energy suggests that these trends will continue into 2024 though crude oil production plunged by 10.4% in the first quarter of 2024 and natural gas production fell by 1.4% compared with the same period in 2023.

LNG fell by 4.7% and methanol and ammonia production fell by 3.8% and 2.4% respectively. This performance in the non-energy sector shows that the wholesale and retail trade (excluding energy) improved by 5.8% while activity in the transportation and storage sectors remained buoyant supported by increased air travel and water transportation.

Indeed the improvement in economic activity in the last quarter of 2023 was attributed to a 4.8% expansion in the retail sales index driven by increases for the supermarkets and groceries (8.2%), textiles and wearing apparel (6.2%), household appliances, furniture and other furnishings- all related to imports.

These figures, increased performance of the non-energy sector, accompanied by the decreased performances of the energy and petrochemical sectors, appear to fly in the face of the traditional relationship between the non-energy sector and the combined energy and petrochemical sectors.

The understanding is that the rents in forex, generated by the latter combination, are the fundamental factor that drives the performance of the onshore economy. So much so that even at the level of the Ministry of Trade there is some acclaim that the non-energy sector is the driving force in the recovery of the economy.

Hence, it is important to re-examine the structure of the model of the T&T economy. The onshore economy’s activity focuses mainly on importing, distribution and retail with a small export sub-sector accompanied by non-tradable sectors; the last also depends on imports.

As a petroleum plantation economy the rents, the forex, required to fund these imports are supplied mainly (some 80%) by the activities in the energy and petrochemical sectors.

Hence it has always been the understanding that onshore economic activity would decline when the rents decline due to a bust in the energy/petrochemical sectors. What took place disrupts this pattern and if sustainable, could be the diversification strategy we have been seeking for decades.

However, what is important to keep in mind is that the availability of forex to the onshore sector is the lifeblood of its economy and given the current economic model the vehicle that drives economic performance. In the onshore foreign exchange market the public sells forex to the brokers and conversely the brokers sell and lend forex to those in the public who engage in the predominant import trade.

Those of the public who sell to the brokers include the energy/petrochemical sector companies that change forex into TT$ to conduct local business activities and the onshore exporters. Those who purchase/borrow forex from the brokers, as said, include the importers and others who need forex for their businesses etc.

The shortfall between that bought by the brokers from the local market and sold/lent by them is usually supplied by the sale of forex to the brokers by the Central Bank from reserves, made up of taxes (in forex) paid to the government by the energy/petrochemical sector, foreign loans the government may enter into and forex drawdown from the HSF.

Hence, for the onshore to maintain or improve its economic performance the amount of forex delivered onshore by the brokers has to be maintained at its previous level or even increased.

If the energy/petrochemical sector is not performing, i.e. their taxes etc. are dropping as is the forex they sell to the local market, one way the onshore economic performance can be maintained or improved is by the sale of additional reserves to brokers by the Central Bank.

In these circumstances and with reduced forex income to the government, there would be a drop in reserves even though some but reduced forex taxes were received. Also, were the government to withdraw forex from the HSF or incur foreign loans, this too could be offered to the brokers.

What is also important is that the government maintains its budgetary spending via loans, which helps to maintain the liquidity in the market. Clearly, if as the economic performance figures show, the onshore is showing some growth, then the supply of forex to the onshore is being maintained or even increased, though this would be at the expense of reducing reserves, increased foreign debt and even drawdown from the HSF, facilitated by sale of forex to the brokers by the Central Bank.

The following records these sales to and from the brokers over the period of concern. The local market for forex has remained tight in 2023. Purchases of forex by the brokers from the public amounted to US$4,614.6million over 2023, a decline of 16.5% relative to a year earlier. This was due also to reduced spending in conversion of 29% by the energy/petrochemical sector relative to 2022.

The Central Bank says that the sales gap of the brokers was US$1.6billion for the same period. To support the forex market the Central Bank sold US$1,342.9million to the brokers. The Central Bank was also instructed by the MoF to make some US$300 million available to the local market.

Also, forex lending continued to expand (12.7%). Together with this were government foreign loans, increasing debt, and a drawdown from the HSF. What these figures show is that despite the reduction in the performance of the energy/petrochemical sector the forex available to the onshore was supported by sales to the brokers by the Central Bank while the government maintained its budgetary spending via loans and HSF drawdowns.

This kept the onshore buoyant in the period- it even grew- but surely how it was done is not sustainable.

The economy is being put into a holding position, offering as little hardship as possible to the population; the political input to the management of the economy given possibly the upcoming general elections.

The downside of this is the rundown of forex reserves and savings and the build up of debt. The government must recognise that this position is not sustainable, even with the hope of a temporary reprieve that is subject to the successful delivery of the Manatee, Dragon and Manakin-Cocuina gas from Venezuela; the uncertainty of which has increased with ConocoPhillips’ request to the local courts for the award to it of any money locally that becomes owing to Venezuela.

The concern though is also the lack of a credible plan for the diversification of the onshore economy into a sustainable model that addresses in particular the creation of globally competitive exports.

 

 

Two loan arrangements clarified

2024, 07/04

The Prime Minister told the House of Representatives that T&T has not signed a loan agreement with the US ExIm Bank and T&T. In Parliament , during the Prime Minister’s question segment, MP for Oropouche West, Davendranath Tancoo asked for the key features of the recent loan agreement between the US Eximbank and T&T valued at US$500 million. Dr. Rowley repeated twice that there is no loan agreement and stated that a Memorandum of Understanding (MOU) was executed which provides the government with the option to access financing to fund equipment projects and programmes. The MOU involves goods and services from suppliers, manufacturers and service providers in the US up to US $500 million.

“At this time, no loans have been accessed under this MOU since access to this facility is in its initial planning stages. The arrival of the chairman and president of the US ExIm Bank arose out of my visit to Washington a few months ago.”

 

 

Focus on exports

July 18, 2024

At the T&T Chamber of Industry and Commerce (TTCIC) Business Economic Outlook forum, John Outridge, chief executive officer of the T&T International Financial Centre (TTIFC) said that access to finance and talent is crucial for establishing a fintech hub and encouraging businesses to adopt cashless transactions. He emphasised that there also needs to be a focus on exports.

“We are where we are; the focus really has to be on exports. When talking about the fintech sector, that is where we see the biggest enabler, particularly for the businesses.”
Outridge noted that the challenges and barriers are significant, attributing them to a reluctance to deal with the complexities of banking, which can create friction.

“These are the sort of things that we’re working on, because there are 25,000 small businesses in T&T and after doing a financial inclusion survey last year, we realised that 88% of MSMEs did not possess the type of information required to open a business bank account.”

When approaching financial institutions as an MSME, having the right documents is essential, and a business bank account becomes fundamental. He also highlighted the lack of cashless transaction options as another challenge arising in the business sector.

“Going into the business sector, 76% of them did not have the means to conduct transactions electronically.”

This issue can further dampen export initiatives. Business owners may participate in trade missions hosted by the Trade and Industry Ministry and ExporTT but concerns about payment methods will inevitably arise. In 2023, a Mastercard study within T&T and Jamaica to evaluate the social cost of cash argued that the T&T economy could grow by an additional 3.5% if the country increases its electronic payments by 30%. To put these figures into perspective, Outridge noted that nearly everyone uses their Linx card, with Linx processing over four million transactions a month.

To achieve the 3.5% growth target, T&T would need to increase this number by 1.2 million transactions monthly. “We have one million Linx cards in T&T, so that would mean we have to do one additional transaction a day. But for all the things that I mentioned, there are significant barriers, challenges, trust and cost.” This is because businesses need to assess the resources they have and can afford to invest in such a transformation.

TTCIC president Kiran Maharaj mentioned that the chamber has intensified its efforts to support the SME sector, with the recent Digimark Conference serving as evidence of this commitment. She announced that the Chamber plans to launch an SME conference next year and looks forward to fulfilling its role through its cooperative agreement with the T&T Stock Exchange’s Small and Medium listing.

“(We will be) facilitating discussions towards the establishment of venture capital initiatives; providing guidance to angel investors; support MSMEs who want to scale up; exploring opportunities for public and private sector partnerships; and leading conversations to accommodate joint ventures with foreign direct investment.”

 

 

TTMA lauds Special Economic Zone Act

2024, 07/25

T&T Manufacturers’ Association (TTMA) commended the Government for successful implementation of the Special Economic Zones law and establishment of the National Illicit Trade Task Force. This new Special Economic Zones regime will create a comprehensive investment framework that aims to attract both local and international investment. It will also boost exports, promote economic diversification, generate new employment opportunities and encourage greater private sector involvement in the economy.

These efforts will be aligned with globally accepted standards and best practices, noting that the new SEZ will also see the establishment of the T&T SEZ Authority (SEZA) and the appointment of a board of directors and staff.

“The TTMA is particularly pleased with the new regulations that enable any organisation, whether public, private, or a public-private partnership, to seek specific licences from the SEZA to operate within the new system.”

The most noteworthy elements of the new regime were the implementation of stringent controls in the application process, as operators will now be obligated to submit a new application with appropriate documentation, following specific criteria and an operational plan.

“If the documentation is deemed insufficient or unsatisfactory, authorities can now request additional information. This requirement also applies to the renewal process. The TTMA is also pleased with the oversight provided by the Minister of Trade and Industry in the review and granting of SEZ licenses.”

The regulations state the Comptroller of Customs will have enhanced authority over documents such as records, receipts and other related paperwork for imported and exported goods and has been given the power to conduct inspections of premises during reasonable hours.

Under the SEZ regulations, it is prohibited for operators to utilise imported materials, articles, or goods within a zone for any purposes other than those explicitly allowed by the licence’s terms and conditions. In case of any deficiencies in goods or materials, charges may be imposed and the operator will be responsible for settling those fees within 30 days of being notified of any discrepancies.

The Special Economic Zones (SEZ) Act, 2022, was fully proclaimed on July 5, 2024 by President Christine Kangaloo. The Act was partially proclaimed on January 31, 2022, to allow for the establishment of the T&T SEZ Authority (SEZA); the appointment of a board for the Authority; and the staffing and setting up of the SEZA.

 

 

 

 

FOREX

25 July

In 2021, the World Bank estimated TT’s total imports at US$5.76 billion. The May 2024 Central Bank Monetary Policy Report said imports were recorded at US$1.72 billion for the fourth quarter of 2023, a year-on-year reduction from the same period in 2022 of one per cent. The World Bank said TT imported over 3,000 products in 2022. For each of these products, businesses require foreign exchange (forex) to trade on international markets. Forex is also required in many cases when paying to import products.

Every aspect of foreign trade requires access to foreign exchange, especially US dollars, the universal currency of this hemisphere. So when business owners complain about not having enough, that claim is by no means trivial. Small and medium enterprises (SMEs) usually depend on banks but are at a particular disadvantage, having limited access to foreign exchange and limited relationships with banks.

Banks have had to manage the flow of foreign exchange to customers, leading to adjustments to credit-card limits, which many SMEs use, in one way or another, to buy products online for import. With new policies in place, small businesses are under added pressure to find forex for imports.

The Central Bank is responsible for the management of the forex market under the Exchange Control Act. It licenses authorised dealers in foreign exchange, which includes commercial banks and non-bank financial institutions such as insurance firms and currency exchanges. The Central Bank acts as one of the suppliers of foreign exchange to commercial banks and other institutions.

Banks also get foreign exchange from customer conversions. For businesses, there are a few ways to gain access to forex- through the banking system and through forex earned for exported products . Examples of this are products manufactured in TT and exported, or forex-denominated loans with banks and financial institutions.

For small and micro businesses, credit-card transactions are one of the major ways to gain access to foreign exchange, as they can buy products directly online, instead of by wire transfer. President of the TT Chamber of Industry and Commerce (TTCIC) Kiran Maharaj said a lot of micro and small businesses use their credit cards to purchase goods, mainly imports and then resell them locally.

Since the loss of jobs and changes in employment in the post-pandemic period, the chamber observed that there has been development in the growth of the informal economy – a diversified set of economic activities, enterprises, jobs and workers that are not regulated or protected by the state. This means additional demand for foreign exchange by micro and small businesses.

The Central Bank Monetary Policy Report said sales of foreign exchange by authorised dealers to the public amounted to US$2.3 billion from January-May this year. Data on transactions over US$20,000 revealed the retail and distribution sector accounted for 15.4 per cent of those sales and credit-card transactions accounted for 44.5 per cent. As a result, the net sales gap reached US$540.3 million for that period. To support the market, the Central Bank sold US$500 million to authorised dealers.

For 2023, authorised sales to the public rose to US$6.8 billion, compared to US$6.5 billion the year before. The estimations for that year are similar – credit-card transactions accounted for an estimated 40 per cent of transactions over US$20,000. Retail and distribution followed with 18.4 per cent, then energy companies with 16.8 per cent. Sales from authorised dealers to the public have declined. The Monetary Policy Report indicated that from January-May this year, sales declined 11.4 per cent .

Coincidentally, revenue from oil and gas output also dived. The mid-year review in Parliament on June 7 reported a $3 billion drop in revenue, from $54 billion projected in Budget 2024 to $51 billion now. Finance Minister Colm Imbert said revenue decline was the result of a dip in natural gas prices but multiple publications, including the International Monetary Fund Country Report, cited additional causes, such as declining hydrocarbon production.

Contraction in the energy sector also affected foreign-exchange supply, as energy supplies three-quarters of forex, according to the IMF. The Central Bank’s monthly report on foreign reserves indicated a reduction of nearly US$1 billion. In May 2023, net official reserves were US$6.75 billion, with an estimated 8.5 months of import cover.

In February 2024, reserves were US$5.6 billion, with 7.9 months’ import cover. As energy companies supplied less foreign exchange, the Central Bank reported higher demand on banks to lend foreign currency to the public, which suppressed foreign currency deposits. The Central Bank said there was an increase of foreign currency credit by 25.4 per cent in April, up from 17.8 per cent in October 2023.

Small business, big problems, RBC cuts credit limits.

Amid reductions in foreign exchange, banks tightened their purses, RBC announced it will cut its monthly foreign-currency spending limit by US$1,500 (TT$10,000), effective September 1, for personal and business banking clients, whose monthly limits will contract from US$7,500 (TT$51,000) to US$6,000 (TT$41,000).

RBC admitted the reduction in the limit was because of constraints in foreign currency access and is not the only bank to reduce its limits. In 2023, Republic Bank cut its spending limits on credit cards from US$10,000 to US$5,000. In 2020, Scotiabank announced its monthly credit card on foreign-currency transactions may not exceed US$3,000 per billing cycle.

Chairman of the Confederation of Regional Businesses and HD Charran and Co Ltd, Vivek Charran, said businesses such as stationery stores, currently in the back-to-school season, will have had to buy items for import months in advance but now that they will have to pay, they may not get access to the necessary foreign exchange for the goods and containers, which may all require US currency.  Payments may be piecemeal, or not at all. A 40-foot, high-cube container, which would give a business the best value for imports, costs over US$50,000.

“When we go into the banks we ask to purchase US dollars to make a wire transfer – so that is based on the invoice of goods that we are purchasing. Some people may actually go abroad and make their orders. But the reality is, reports have come back to me that it has been difficult to buy large sums of US dollars for business purposes.”

Maharaj said it is worse for SMEs that do not have banking relationships. 65 per cent of transactions performed in TT are cash transactions, which happen outside the banking sector. At a panel discussion at the TTCIC’s economic outlook forum, TT Finance Centre (TTIFC) CEO John Outridge said of the 25,000 small businesses in TT, about 88 per cent did not possess the right information to open a business bank account. 76 per cent of SMEs and MSMEs did not have means to transact electronically. A business bank account is one of the key features needed for a successful business.

“We are in 2024. When you are doing business with someone on another island, one of the key things is: how do we pay each other?”

Maharaj said since these businesses do not have formal relationships with a bank, many services provided by the bank will not be accessible to them.

Earn forex

Maharaj said in order for businesses to secure access to foreign exchange, they will have to earn more through exports.

“We need to develop new revenue streams. This is why the chamber has been pushing for investment to support entrepreneurs and start-ups, as well as entities with the potential to scale up. We want to grow local business.”

In January the chamber signed an agreement with the TT Stock Exchange to aid in the development of the small and medium sector, through initial public offerings which will give businesses an opportunity to expand and investors an opportunity to invest. There was also a need to decrease forex usage on food, through developing the agricultural sector.

Charran said it may be time to review which businesses get preferential access to foreign exchange. “Who is it within the commercial banks that determines which customers get the forex to run their businesses?”

During the pandemic emergency, a preferential schedule was in place for importers of essential goods, such as food, toiletries and medicine. Apparently, that is still in play.

“Does it make sense?  We are no longer in a pandemic, there is no shortage of food and there isn’t a situation where more medicine is needed.”

Businesses are using any means necessary to access foreign exchange, whether through multiple credit-card accounts and US loans, while others are revising their business models to use local service providers to provide similar products to imports.

The chamber advised businesses to invest in sectors that will transform the economy to provide import substitution, such as the orange economy, which deals with intellectual property, agriculture and the export of professional and other services. Businesses should also invest globally to secure a stream of returns in foreign currency.

“The matter of forex supplies is a complex issue The country needs to either increase its earnings of forex or reduce the forex demand.”

 

 

 

 

Refinery

2024, 07/19

President General of the Oilfields Workers Trade Union (OWTU), Ancel Roget and OWTU workers gathered at the Pointe-a-Pierre Roundabout, as bidders conducted site visits to the mothballed refinery, which was shut by the government in November 2018.

The OWTU company, Patriotic Energies and Technologies Limited, has been seeking to operate the refinery since 2019 and was named the preferred bidder by the government that year, but talks subsequently collapsed.

Since the refinery closed, the government spent $43 billion importing fuels. The closure robbed the country of a major foreign exchange earner. Roget accused the Prime Minister of repeatedly trying to deceive Patriotic despite being the preferred bidder which beat 72 other competitors in the refinery acquisition process.

Now that the Prime Minister revealed there are nine bidders in the negotiation process, Roget claimed he had information that the government planned to squash all bids soon and award the refinery to Indian industrialist Naveen Jindal. Roget challenged the Prime Minister and the Energy Minister to a public debate on why the refinery was shuttered and how much the country has lost as a result of its closure.

Jindal, who met the Prime Minister at the Diplomatic Centre last month, expressed interest in the refinery, which the OWTU opposed. Jindal is the chairman of Jindal Steel and Power Ltd. OWTU burned photographs of the Prime Minister, Energy Minister and Jindal to show disgust with the Pointe-a-Pierre Refinery acquisition process as the union vowed to ruin the government.

Roget said Patriotic can return several refinery plants to working order within nine months as former Petrotrin workers are familiar with the refinery and are the only ones qualified to have it up and running.

 

 

Roget v Rowley v Ramnarine

2024, 07/26

The Oilfields Workers’ Trade Union (OWTU) told media that Government is spreading misinformation regarding the termination packages for former Petrotrin employees.

President General of the Oilfields Workers Trade Union (OWTU), Ancel Roget said land and stock ownership in Paria Fuel Trading Company and Heritage Petroleum Company was a topic the Prime Minister and Minister of Energy tend to discuss around election time.

“Absolutely no former employee of Petrotrin, from 2018 to present, has ever been offered any proposal or any option for stock ownership in Heritage or Paria,”

Roget said another misinformation peddled was that former Petrotrin workers got land but a Freedom of Information Act response showed that no eligible former employee received a deed and randomly selected beneficiaries were being processed.

“That has not happened, and we liken that agreement to the Caroni agreement in the closure of Caroni. They continue to operate a lottery system and continue to fool the people and tell them it is being processed.”

This has been the case since 2020 and will continue to be an elusive dream for the former employees if the PNM returns to government. Responding to Rowley saying he bankrupted the OWTU, Roget said the Government attempted to financially ruin the union by engaging them in an acquisition process for the refinery and retracting the offer.

The intent was to entice the OWTU to expend significant funds to acquire the refinery. While Rowley failed to destroy the OWTU, his move left people without a livelihood and hope.

“We did not bankrupt the union; he bankrupted the country,” Roget said, holding up a newspaper story on the debacle involving the Auditor General’s office and unverified billions of dollars in revenue.

He attacked the Government, saying the OWTU does not engage its auditors in court for refusing to “cook the books.” Every year the union’s books are audited by internal and Government auditors.

Roget also labelled Minister of National Security Fitzgerald Hinds’ boast that he was proud of his work as obnoxious, insensitive, callous, and disrespectful. Calling Hinds the “minister of national insecurity,” Roget said 17 people were murdered in one weekend as crime dominated news and ministers have armed state security while people cower.

Ramnarine rejects refinery ‘fire sale’

Former energy minister Kevin Ramnarine said the economy and crime will feature heavily in the 2025 general election, when the refinery will be a bigger issue than it was in 2020.

“As it’s not going away, there’s a wound in south and central Trinidad that isn’t felt by the people who closed the refinery, all of whom don’t live there.”
Closure negatively affected communities from Point Fortin to Gasparillo and “Marabella’s dead.”

Ramnarine claimed Trinmar’s office was being given to a ministry and Beach Camp was also being given to a ministry. Rubbishing the Government’s refinery closure statements, Ramnarine defended the PP government’s record, saying Petrotrin paid taxes and was profitable.He blamed Petrotrin’s issues on the US$1.6B borrowing in 2007 and 2009 under the past PNM Government.

He said the PP government “met a house on fire” with other Petrotrin projects and had to “right side the company.”

“Human resources required to restart are right here in T&T. We don’t need foreign consultants to tell us how.” Possibilities abound and the UNC made it clear, “When we resume government in 2025, we’ll restart the refinery.”

 

 

 

 

Ability to fund plant refurbishment

2024, 07/21

Amid optimism about the nine potential bidders for the refinery at Pointe-a-Pierre, the question is whether those interested companies can raise the capital required to pay for the facility and finance its refurbishment.

The new process to find a buyer for the refinery has received nine potential bidders- CRO Consortium, IEM Refinery Company, GN Fenceline, Columbus Refining Trinidad and Tobago, Integritus Group of Companies, Oando PLC, Nautical Partners, Patriotic Energies, and INCA Refining.

The refinery was mothballed at the end of November 2018 and there have been three attempts by the Government to dispose of the assets.

Former Energy Minister Kevin Ramnarine said there will always be companies that will express interest and submit proposals. The important issue is if those bidders can raise the funds to bring the refinery back to production, the cost of which is estimated to be between US$600 million and US$1 billion.

Ramnarine also questioned the condition of the refinery after six years of being mothballed and the reputation of the potential bidder.

“Too often we hear names being bandied about and the next questions are who are they and where do they come from? What we don’t want are suitcase-trader investors. It’s difficult to say what the refinery is worth now but obviously, there has been depreciation in the last six years. The refinery was shut down and there was no plan beyond that action because here we are six years later and it’s still down and depreciating,” he lamented.

The public should not stand by and watch the refinery decay further after spending US$1.6 billion on the upgrade of the refinery between 2006 and 2014.

“There were five new plants and an upgraded Catalytic Cracking Unit. Its closure was based on a misunderstanding of the financials including expenditure on bonds, depreciation, and write-downs of inventory value (2014 to 2016) and the high level of turnarounds that had to be done (2012 to 2014).”

Gregory McGuire was surprised that there were still nine companies interested in the refinery. In 2019, the first refinery process received 77 proposals with 25 of those signing non-disclosure agreements.

“We have to wait and see. I am optimistic. I think the industry knows the details of this asset and if a company, with that knowledge, still indicated interest, I think that is a good reason for optimism.”

In the first request for proposals (RFP) the Oilfields Workers Trade Union’s (OWTU) company, Patriotic Energies and Technologies Ltd, offered an upfront cash payment of US$700 million for the refinery asset.

McGuire did not have a factual basis for commenting on the value of the asset. The Government needs to accept the best proposal to get the refinery operating again.

“That may well mean leasing the refinery to the company that is best placed with the financial capital, technical capability, and access to markets to make this a viable refinery. Once the investment is made, the Government can earn its returns from duties and corporation taxes to be paid by the entity. An upfront payment would be a bonus but to my mind should not be a heavily weighted factor in the determination of the preferred buyer.”

Roget said that since the refinery’s shutdown, the government spent $43 billion importing fuels, robbing the country of a major foreign exchange earner. Patriotic never had the chance to do a full site visit of the refinery before submitting its bid on May 10.

“We were not afforded a full tour of all of the plants in the refinery. Look how they are deceitful and deceptive. They expected us, in three hours, to assess the refinery to put in a proper bid. A refinery that has been shut down since November 2018.”

Greater San Fernando Chamber of Commerce president Kiran Singh said the fact that nine companies have expressed interest in acquiring the refinery is exciting news for South Trinidad. Potential investors see the refinery as a valuable asset that can be monetised in the short to medium term.

“The possibility exists that not all may be serious inquiries but it remains the responsibility of the due diligence team to shortlist those who qualify for the final bid.”
The chamber is of the view that it is extremely important to get the refinery restarted.
“It has the potential to be a net foreign exchange earner. In addition, it will immediately generate hundreds of direct jobs in the plant. There will also be positive benefits to employment creation and investment in the downstream industries.”

Asked whether Patriotic Energies should be given another chance, he said once it can demonstrate its financial strength in being able to purchase the refinery and satisfy the due diligence process, then it should be allowed to reenter the bidding process.

With the closure of the refinery in 2018, Singh disclosed that the surrounding communities were negatively affected, and the reopening of the refinery will breathe new life into the districts that surround it.

MP for Pointe-a-Pierre Dr David Lee said the Opposition has always maintained that the Government’s deceitful games to break its election promise to give Patriotic the refinery has not just jeopardised fuel security, foreign exchange income and the revenue of the country but has reduced the value of the refinery.

“The Opposition’s biggest concerns are the “behind the scenes” games of the Government, which seems to be operating a parallel process in contradiction to procurement legislation and the agreed closed process..”

It is quite concerning that while reports indicate that Patriotic Energies has not been able to tour the refinery due to the deadline being closed, others have.

“Why is an unfair advantage being given to some? Why is data being given to some and not all? Is this part of the agenda to outplay the OWTU? If the Government refuses or declines any upfront payment from any bidder, then this Government never had any intention of selling the refinery to OWTU. If the Government does this, it will show that they have yet again deprived this nation of millions in revenue.”

 

 

 

Atlantic, Arrow Foundation help schools

17 July

25 pupils from Point Fortin ASJA Primary School are benefiting from an interactive literacy intervention made possible by a partnership between Atlantic, the Arrow Foundation and the Ministry of Education. With an intake ranging from standards one to four, assessments were done in January and classes started from February. All pupils will remain in the programme until they sit the Secondary Entrance Assessment (SEA) exam .Principal Jamila Ali-Khan says the programme led to enhanced academic performance and an overall transformation in the outlook and attitudes of the pupils.

“Although only at the halfway stage, we have already seen improvements based on exam results and overall performance. This is especially critical for the pupils writing the SEA exams next year. The Arrow training utilises technology in an interactive way and incorporates their voices, which makes it even more effective and interactive. They are excited and enthusiastic to learn, and we are grateful for this critical intervention by Atlantic and the Arrow Foundation.”

This initiative at Point Fortin ASJA is a continuation of the long-standing relationship between Atlantic and the Arrow Foundation. Atlantic has sponsored Arrow learning interventions at primary schools including Icacos Government, Egypt Village Government, Cap-de-Ville Government, and Salazar Trace Government, the release said.

Apart from the training, Atlantic provided support including supplying new laptops for the learning labs.

During a visit to the school, Atlantic’s sustainability and corporate communications officer, Ian Ochoa said , “Our community-based development initiatives always focus on unlocking the potential of young people through instilling sustainable skills. In fact, sustainability is a key concept in all our investments, which is why we focus heavily on education. Having impacted thousands of students over the years across many initiatives, we believe that we have invested in the sustainability of our nation by empowering its future leaders. This Arrow initiative is just a continuation of that trend and we have seen excellent results. With every successful student, the nation’s future is energised.”

The next phase of the Arrow project at Point Fortin ASJA would add to the sustainability of the programme. Through training teachers to become Arrow-certified tutors, the reach of the remedial literacy training will be expanded and enhanced.

Managing director of the Arrow Foundation, Christopher Bonterre said the programme focuses on remedial work in reading, spelling, dictation, speech and listening skills. The computer-based learning applies the use of the self-voice – a recording of the learner’s own voice while reading – which forms the basis of the multi-sensory learning approach.

“The focus is to assist pupils who experience academic challenges by transforming their entire approach to learning. Over the years, we have made tremendous progress across the southwest peninsula thanks to the partnership with Atlantic and the support of the Ministry of Education. This is an investment in the future – it is enhancing the ability of these pupils and unlocking the immense human resource potential inherent to the region.”

 

 

 

State borrowing drove reserve requirement cut

2024, 07/28

Central Bank reduced reserve requirement from 14 per cent to 10 per cent.

The Central Bank took the decision at a special meeting, because of a recent decline in excess reserves of commercial banks—the deposits held by banks at the Central Bank in excess of the required reserve ratio of 14 per cent of prescribed liabilities (deposits and short term borrowings). The daily average of excess reserves measured $2.76 billion from July 1 to July 18, 2024 compared to $3.91 billion in June 2024.

Senior economist Dr Ronald Ramkissoon explained that the decline in liquidity was caused by an increase in Government borrowing on the domestic market, increased private sector borrowing as well as the sale of foreign exchange by the Central Bank to the commercial banks, which pay for foreign exchange with TT dollars.

On whether he subscribed to the view the decline was mostly as a result of Government borrowing on the local market and the prospect of additional Government borrowing to the end of the fiscal year, Ramkissoon said data provided by the Central Bank supported this position.

The bank’s May Monetary Policy Report, published this month, states Government borrowed $8.1 billion on the domestic market over the eight months to May 2024, compared to $4.7 billion over the same period last year.

On whether this decline in liquidity could have been reversed by open market operations and reliance on the inter-bank lending arrangement (or even on repos), Ramkissoon responded,

“In its May 2024 Policy Report the Central Bank said that it would use both direct (reserve requirement) and indirect (open market operations) instruments of monetary policy in managing commercial banks’ liquidity. I assume that the Monetary Policy Committee of the Central Bank would have considered using open market operations and inter-bank lending but might have considered the costs and feasibility of the former as well as the size of the inter-bank market.

“In any case, the reduction in the reserve requirement is in keeping with the Central Bank’s expressed intention for some time now, of moving towards greater market instruments and less reliance on direct instruments such as the still high (by international standards) reserve requirements.”
Ramkissoon also examined the decline in the reserve requirement and how much money had been “liberated” as a result of the 4 percentage point reduction.
“If at 14 per cent, the reserve requirement was approximately $13.6 billion, then some additional $4.0 billion would now be available to the commercial banks for onlending. The effect of this might be an expansion in lending at existing rates.”

Regarding the impact the Central Bank’s decision would have on lending and deposit rates at commercial banks, the economist said the reduction in reserve requirement normally results in an increase in liquidity, which, in turn, can cause lending and deposit interest rates to fall.

However, whether loan rates fall depends on several factors such as the size and timing of Government borrowing and the effective demand for loans.

“Interestingly, the earlier May 2024 Monetary Policy Announcement says it expects domestic rates to increase and US rates to decline towards the end of 2024, thereby narrowing the US/TT interest rate spread. Also, the Bank has to monitor external conditions, especially any movement in US interest rates. If US rates remain stable in the short run as some analysts expect, the Central Bank would want to be careful in lowering domestic rates thereby widening the spread between US and domestic rates with adverse consequences for capital flows. In any case the Central Bank did not state that lower rates are an objective of its intervention. Central Bank’s emphasis seems to be on better liquidity management in the banking system as sudden and not insubstantial drawdowns in the recent months seem to have raised banks’ concerns about liquidity. Hence its special meeting on July 19.“

Economist Dr Vaalmikki Arjoon, also attributed the decline in excess liquidity largely to Government borrowings, citing that in the first eight months of the fiscal year, the State issued over $8 billion in bonds to meet budgetary obligations and refinance existing debt. The $400 million NIF2 bond issue also contributed to lowering liquidity to a lesser extent.

“Furthermore, the US$750 million debt in June raised in the international market and the US$160 million HSF withdrawal in December 2023 reduced some of the excess liquidity as these US-dollar funds were converted to TT dollars by the Central Bank. To a lesser extent, commercial banks’ forex purchases from the central bank also account for some of the drop in excess liquidity, as they used excess reserves to pay for the US dollars.”

He also noted that lowering the reserve requirement by 4 per cent will instantly and significantly increase excess liquidity by approximately $3.88 billion, but t such a move is usually taken when liquidity has been declining for a prolonged period or there are severe global shocks that require a large injection of liquidity to sustain economic activities. However, Arjoon also agreed it is highly likely that increasing liquidity to such an extent in this manner largely aims to create additional space for Government borrowing.

“With our current dismal revenue earnings due to lower global LNG prices, it is highly probable that the state will seize this opportunity to borrow more from the domestic market for budgetary spending, especially with an election year approaching, to avoid restricting expenditure and sustain economic activities.”

This highlighted an even deeper problem – an unsustainable debt level where additional debt is taken for primarily recurrent expenditure and not necessarily enhancing productive capacity. For the first eight months already, the Government borrowed over $13 billion for budgetary obligations and to make principal payments.

Although the Central Bank maintained the repo rate, the increased liquidity in the banking system could exert downward pressure on interest rates, making loans cheaper for consumers and businesses. This, in turn, can stimulate more borrowing and private sector investment.

“Indeed, in the first half of this fiscal year, non-energy sector revenues have increased by over $4.1 billion compared to the same period last year. Creating more opportunities for private sector borrowing through this excess liquidity can therefore bolster private sector investments, job offerings, and overall profitability, which is crucial given that taxes on income and profits fell by over $6.3 billion in the first half of this fiscal year compared to the same period last year,.”

However, this is contingent on the private sector having adequate access to the liquidity and not being crowded out by Government borrowing. With added Government and private sector spending, there will be a higher demand for forex and potential inflationary effects

 

 

 

Climate /weather

2024, 07/25

CEO of the Office of Disaster Preparedness and Management (ODPM), Major General (retired) Rodney Smart said that climate change is having a negative impact on economies in the region from the labour market to damaged infrastructure to the health of workers.

On July 18, British newspaper, The Guardian reported Caribbean leaders are struggling to raise funds after Hurricane Beryl wiped out entire islands and they asked the UK government to back a “Marshall plan” to rebuild their devastated economies.

The hurricane, which made landfall on 1 July, killed at least 11 people, demolished or damaged over 90 per cent of buildings on Carriacou and Petite Martinique, in the Grenadines and left thousands homeless and without running water, electricity and food.

On July 5, the UK Government announced a £500,000 package for Caribbean countries affected by Beryl and promised to prioritise the climate emergency. However, St. Vincent and the Grenadines Prime Minister, Ralph Gonsalves, and his Grenadian counterpart, Dickon Mitchell, have described the money raised so far from insurance policies and contributions as a “drop in the bucket.”

Smart spoke at a webinar on “The Impact of Climate Change on the Workplace and Employment Relationship” hosted by the Cipriani College of Labour and Co-operative Studies, Valsayn.

Smart, who spoke on the devastating impact of Beryl, gave details of how climate change is hurting the economies of countries regionally and internationally.

“Climate change can impact on the labour market and the workforce. This can result in reduced job security and employment opportunities. It can cause harsher working conditions. It can impact the industry structure and economic shifts. Changes in labour policies and worker rights could result in challenges, social and economic inequality and global and regional migration. That is one of the things that we are seeing. There is this large movement of people from the East to the West because of the climate challenges that many countries have faced.”

He spoke about what businesses and employees must undertake to survive in light of climate change and its accompanying natural disasters.

“These include business continuity, making sure it is at the centre. Flexible work arrangement, financial support and assistance, job security policies,   Employee Assistance Programmes (EAP) and training and skills development. From the ODPM’s perspective, there needs to be a new culture in the workplace,.. collaboration, .. coordination and communication. All parties being prepared for the organisation’s survival.”

He gave statistics which show that Beryl’s adverse effects resulted in over 297 incidents in T&T, 75 per cent in Tobago.

“This is what was gathered throughout the country. Some 127 fallen trees, electricity polls, landslides, damage to houses, 104 blown roofs, blocked roads and flooding events. 40 centres had to be opened and over 160 displaced persons were sheltered. While T&T had its challenges, we were nothing close to what Grenada, Petite Martnique, Carriacou and Jamaica experienced. T&T also assisted Grenada and St. Vincent by sending goods and there were four vessel loads sent very early after the passage of the hurricane.”

Beryl and its impact with money lost in the Caribbean is a clear example of climate change.

“This, by most pundits, has been considered to be the result of a change in our climate. The first time in several decades we have seen a hurricane this early in the season and the track that it took was a bit unusual. It was not the norm and Hurricane Beryl has been classified by most persons as being one of those climate challenges that we face.”

The ODPM was established in 2005 by the Cabinet and the organisation’s main objective is to build national disaster risk management and climate change adaption capabilities with other stakeholders. Its purpose is also to coordinate response and recovery operations when necessary and to protect the people, the environment and the economy. In T&T disaster management is done by a number of agencies in the public sector, private sector as well as civil society organisations.

Inflationary impact
Another pointed to other negative effects of climate change and its accompanying potential impacts, such as hurricanes and referred to climate change as a long-term shift in temperatures and weather patterns. Beryl was an example, with the domino effect on prices in the economy.

Marine life is affected and the domino effect is decreased oxygen content, killing plants and animals , food and water scarcity, inflation and employment relationship, purchasing power, standard of work and cost of doing business.

Environmental laws
In the Senate on July 5, Independent Senator Anthony Vieira, SC, agreed with the Prime Minister’s statement on June 14 that the Environmental Management Act needs to be revisited but not for the same reasons.

“The PM is reported to have said, ‘We need to revisit the Environmental Management Act as it is being used to obstruct rather than help development’ , while reiterating Tobago needs to be a major tourist destination and declaring the proposed construction of a $500,000,000 Marriott Grand Hotel at Rocky Point has his and government’s full support. Next year the Environmental Management Act will be 30 years old. It is therefore time to review how it has worked, where it falls short and where it can do better.”

30 years ago scientists warned about climate change and the dangers, but their voices were drowned by “cover-ups, counter-narrative and distractions by the fossil-fuels sector. Today, the Caribbean is living through the consequences of the dread advance of global warming. We know better. Climate change is no longer a risk of the future…it’s happening as I speak.”

While the desire to bring employment and business to Tobago is “commendable, it ought not to be a case of one or the other. We don’t need to choose between jobs and the environment. With the right policies in place, we can have both.”

Vieira said tourism has evolved and the need for large-brand hotels may not be good for the country.

“There is a noticeable shift toward more diverse and sustainable options in island destinations, while it may not be sensible to build expensive seafront structures with rising sea levels.”

Once-thriving beach resorts and former celebrity hotspots are rotting, crumbling or completely taken over by nature.

The Environmental Management Authority (EMA) was established to regulate environmental laws and not “pick sides.” He added many environmentalists believe the EMA is not doing enough.

“They see the EMA as an inadequate, ineffective and toothless organisation which is failing to protect the environment.”

While threat levels are increasing rapidly, the country’s response level has not been keeping pace.

“At this moment, protecting the environment is the most important thing our leaders can do for our people. We need to upgrade our environmental laws, we should rename the Environmental Commission into ‘environmental court,’ recognising it as a specialised environmental court, we should remove bureaucratic obstacle of direct party actions under the EMA Act, we must provide the EMA with the capital and resources it needs, expand the environmental police unit to 50 members – 11 in Trinidad and two in Tobago currently – and we need to unlock the Green Fund and use the money as intended.”

Minister of Planning and Development Pennelope Beckles, responding to Vieira, said the government prioritises the environment in the Vision 2030 National Development Strategy in Theme 5 – placing the environment at the centre of social and economic development. Beckles explained goals one, three and four of Theme 5.

“Goal one aims to strengthen environmental governance and management system by developing a comprehensive approach to environmental issues.”

The key action of this goal was to review environment policies and legislation, establishing an institutional framework and updating spatial policies and standards.

“Goal three focuses on assessing climate vulnerability and Trinidad and Tobago susceptibility to climate-change impacts – sea-level rise.”

Key actions would be identifying areas of greater climate risk and implementing adaptation actions for vulnerable sectors.

“Goal four aims to create comprehensive waste and pollution management systems by improving solid waste disposals, implementing international commitments for chemicals and waste and enhancing pollution management systems.”

The National Development Strategy 2030 is a “work in progress with a multiplicity of moving parts.” She defended the building of “large-brand hotels” as they offered “economic, environmental and social benefits. There are robust environmental laws ensuring large-brand hotels meet sustainable development standards.”

The Cabinet is looking at strengthening the Environmental Management Act for mandatory greenhouse-gas-emissions reporting.

“In 2020, we became the first English-speaking country to begin transparency reporting. Under the Paris Agreement we regularly report on greenhouse-gas emissions and mitigation progress.”

While progress has been made, reporting remains voluntary and the government will look to make it mandatory. Beckles also outlined a number of additional laws and guidelines that will address climate change.

 

 

NEL

2024, 06/07

At the annual meeting of National Enterprises Ltd (NEL), chair Ingrid Lashley, general manager Charles Maynard and newly appointed members to the board, Rheita Rodriguez, Heather Tardieu, Nigel Ramsahai and Shereece Smith heard concerns over limited returns from subsidiary companies, particularly those within the energy sector.

Maynard said the company recorded an operating profit of $391 Million for the year ended September 30, 2023, an increase of 32 per cent from the prior 18-month period. NEL recorded an operating of $110.7 million for the six-month period ended March 31, 2024, compared to $381.2 million in the same period of 2023.

NEL shareholder Gookool Seemungal raised questions about the status of energy companies and assets under NEL including Phoenix Park Gas Processors Ltd, TTNGL and Atlantic LNG.

“TTNGL is in a bad financial position and, from my estimation dividends, from that company might be a long while in coming, maybe 10 years,” said Seemungal, who also asked if there was any possibility of LNG Train One garnering any returns, following the restructured ownership deal which was signed in December.

He also raised concern about returns from TSTT and its current management, as he estimated that the company may not contribute significant returns in five years.

NEL chair Ingrid Lashley said the investment portfolio was always going to face peaks and valleys:  “More than 60 per cent of our investments are now in the energy sector and for that we are exposed to vagaries of that sector. When it is high. it is high, when it’s low it is very low. But at the same time we all recognise that it is a cycle and when it is high, it will go down and when it is down it will come up. That is why the investment is a long-term investment because we manage the flows over an extended period of time.”

NEL would also attempt to obtain assets to even out these fluctuations:   “It is also NEL’s intention to continue looking for strategic assets that will help us to balance out the dividend income flows that we can expect from the energy sector and that will continue going forward.”

Shareholder activist Peter Pernell said while he agreed with some of the concerns raised by Seemungal, he noted that NEL’s payout to shareholders, which yielded a 16 per cent increase, was a “ creditable” performance.

He suggested that NEL follow through with previously discussed plans to roll out quarterly payments:  “The way forward seems to be fraught with challenges, but the challenges I believe are not too extensive to be overcome. I think you should move beyond intention and make that policy even though we get a smaller dividend. I think the shareholders would be very happy to know they are getting a regular dividend, even though it is smaller.”   This change would be beneficial to shareholders particularly in the current economic climate.

NEL owns 51 per cent of National Flour Mills, Telecommunications Services of Trinidad and Tobago (TSTT) and ammonia producer Tringen.

NEL owns 10 per cent of electricity generator PowerGen, Atlantic LNG and natural gas liquids producer Phoenix Park Gas Processors Ltd. NEL’s largest shareholders are the Government through Corporation Sole with 66 per cent and state-owned National Gas Company, which owns 16.67 per cent.

 

 

 

UNC- Budget forum

2024, 07/25

Animals transported into T&T by sea from Venezuela may carry diseases. Vijay Foster, a farmer, raised the issue about the animals being brought into the country to be sold.   He told the United National Congress’ budget consultation about goats brought into T&T, four of which died and two others were sick. The area also has problems with bats biting goats, and authorities lack money to resolve this.

Fyzabad chamber president Angie Jairam, said business people were scared to reinvest, and if they did, “we don’t know what our returns will be.”  She said if diversification was not done, the forex situation would worsen. She felt the Heritage and Stabilisation Fund was treated like a “petty cash” facility.

Councillor Deryck Bowerin requested the budget deal with local government so corporations can serve people better. People called corporations for everything, but they lack resources to match requests and have to beg for funds and keep trying to catch up.

Tara Lalgee, denouncing a “failed government,” called for attention to be paid to education, including Students Support Services, which she said “operates like ghost gangs.”

Nazim Awani, a former Finance Ministry employee, said people must understand the constraints the Government was operating under. The Finance Minister has the discretion to suppress expenditure in accordance with the exigencies of the financial situation.

Economist Indera Sagewan told the Fyzabad meeting approximately $63 billion of the $450 billion in budgetary expenditures over the last nine years funded national security, but T&T’s crime rate indicates that throwing more money behind the problem is not the solution.

Sagewan expressed similar concerns about agriculture and tourism allocations. She said if the Dragon gas project with Venezuela does not happen, T&T’s energy sector will be in serious jeopardy.

Sagewan questioned why the Government was not aggressively diversifying into non-fossil energy. “We have the human capital in energy that is easily transferable. According to the economist, the system of ticketing drivers currently seems to be the strongest mechanism for generating revenue. “So where are we going? If this pattern continues and we don’t seriously come to terms that the days of oil and gas are over.”

Saying the energy sector is T&T’s bread and butter, Sagewan noted that while it was projected to grow in 2023, it had contracted. T&T was currently producing only half of the amount of natural gas needed to meet current demands and keep LNG and petrochemical plants operating.

“This is why the Dragon (project) and that deal with Venezuela are so important; it’s the lifeline. If that doesn’t happen, our energy sector, which we’re so dependent on for half of government revenues, is going to be in serious jeopardy. That’s why the Government is placing so much emphasis on it.” But there are no guarantees there.”

Sagewan said the Government was currently scrambling for revenue generation, which is why taxation has become so critical and the T&T Revenue Authority has become so important.

 

 

 

PowerGen bows out

20 July

The Port of Spain Power Station, with its four iconic chimney stacks, stood at Flament Street, Port of Spain for 63 years before being decommissioned in January 2016. At its peak, the former energy powerhouse consisted of two 50 MW (megawatt) steam turbines, two 80 MW General Electric steam turbines and two 24MW Rolls Royce gas turbines. This meant a total generation capacity of 308 MW which equates to the amount of electricity consumed by 308,000 homes in a year.

Demolition of the landmark site began in August 2016, with each stack being cut by blowtorches and removed by crane by PowerGen’s technical team employees and AMCOWELD. The top of one stack sits nearby on Stone Street as one of the last remaining pieces of the iconic feature of the city skyline

 

 

 

OWTU pickets home of NP board member

2024, 07/21

The Oilfield Workers Trade Union (OWTU) led by President General Ancel Roget picketed the home of a National Petroleum Marketing Company (NP) board member over alleged nepotism and corruption at the state-owned company,nearly nine months after a whistleblower was allegedly dismissed for raising concerns about a senior manager.

Roget defended the decision stating: “We are exercising our right as workers and as a trade union representing the NP workers, to picketing. “We could have been anywhere else .. but we chose to be here because of the arrogant and disrespectful manner in which (name called) treated the workers of National Petroleum Marketing Company.”

A whistleblower who raised allegations against a high-ranking NP official for interfering with her performance score was dismissed last October.

Despite allegations, the official was reinstated and her contract renewed for two years.
“(Name called), who was accused of interfering with her own performance appraisal, was brought back. We feel that level of disrespect, bringing back that person without her name being cleared, must be brought to the public’s attention. All is not right at NP.”
The union considered the investigation into the allegations to be inconclusive, although there were claims that it had been resolved.

“The union was not part of that investigation. We would have liked to see her performance prior properly examined. Everywhere this person goes, a trail of confusion that follows her. How can she have a score higher than other people in the company?”

The OWTU leader also questioned the motives behind the reinstatement and suggested possible nepotism due to shared surnames between the board official and the manager.

“I am not saying that they are relatives because they carry the same name. Let the media investigate that. But something is radically wrong, amiss, in the minds of the workers and workers are incensed that when the issue was raised .. that whistleblower is out of NP now. They leave these positions vacant and manipulate and bring in their own people to exercise and put in place their agenda.”

Other decisions taken by the board reeked of corruption.

“The board of NP seems to be carrying out questionable instructions and actions that are inimical to the performance of NP. This picketing is the first of a number of actions we are going to take.”

Roget said more protests will follow in the coming months as the union ramps up its efforts against nepotism and mismanagement in state companies.

“We want proper ethics and good accountability. Getting the chairman and board out of NP is not our objective. We want proper and honourable management of state enterprises, including NP.”

Roget called for the NP board and management to resign.

 

 

 

 

The rise and fall of Petrotrin–Part 1

$14.25 billion overruns on three flagship projects

2024, 07/21

Now that nine suitors have formally expressed interest in the mothballed Pointe-a-Pierre (PAP) Refinery, a potential restart moves closer. With a restart nearing a reality, is the return of a political and public debate around Petrotrin’s closure. On Friday, President General of the Oilfields Workers Trade Union (OWTU) Ancel Roget called for a national debate about the refinery’s closure, saying the country was robbed of a major foreign exchange earner.

Throughout almost 6 years since the largest-ever state-owned enterprise closed, there were impassioned debates about the decision and its impact. In May, Minister Young published an op-ed defending the closure, while last December, the OWTU hosted a forum where economists believed the company ought to have been saved.   As both sides of the divide grapple to control the narrative,  a critical analysis of the company reviews what it cost the country and whether it should/could have been salvaged.

In the Beginning
The Petroleum Company of Trinidad and Tobago, Petrotrin was a merger between state-owned oil companies Trintoc and Trintopec on January 21, 1993.

In November 1993, during the parliamentary debate of the Petrotrin Vesting Bill, former Finance Minister Wendell Mottley said Petrotrin was created to form a financially strong company, catering to operational effectiveness. The company would focus on exploration, production, refining and marketing and would, most importantly, satisfy its obligations to shareholders and the state.

“These are two companies which at one time were profitable, got into difficulties and the concept here is to do some financial engineering by putting certain assets and liabilities into a new company, keeping some of the liabilities out of it or converting some of the liabilities, for that matter the tax liabilities, to provide that company with some strength so that it can chart a course forward. The intention is to ensure that there is a company that would concentrate on its core business rather than being disturbed by the non-petroleum business.”

Former UNC opposition MP Trevor Sudama asked if the government understood the significance and potential ramifications of the decision.

“The two merged companies are the largest owners of property throughout the island, throughout the Caribbean and have combined total assets of over $4 billion, a combined workforce of 5,500 with an operating capital of $2 billion. So you understand the extent and the significance of what we are doing today; it is putting under one management this enormous asset potential of the companies.

“When the assets of Texaco were purchased by the Trinidad and Tobago Government . . . in 1985 . . . Were the terms and conditions which were agreed upon in the interest of all the people of Trinidad and Tobago? What we entered into as a transaction, was to purchase a rundown and outdated refinery capable of producing merely low-value fuel oil.

“We had antiquated equipment and plant and we are still asking today whether, in that transaction, a proper inventory was made from 1985 up to now of the assets and liabilities at the time of purchase. When that refinery was purchased, the question is whether we paid the proper value for it, in fact, not only for the refinery but also for all the other assets of Texaco. Refinery losses in 1985 were estimated to be US$100 million and yet, we were purchasing these assets,” Sudama warned.

The bill was passed in December 1993.
Trevor Boopsingh was appointed the company’s first chairman. Petrotrin was launched when natural gas output was overtaking oil production. In 1995, the Point Fortin Refinery was closed and most of its operations transferred to the Pointe-a-Pierre Refinery.

Upgrades to the perennially problematic refinery were commissioned by 1998, improving product quality and raising capacity to 160,000 barrels a day. Upgrades were financed through loan agreements with the Inter-American Development Bank for US$260 million and the European Investment Bank for ECU$38 million. Loans financed secondary oil recovery and refinery modernization projects.

Despite the upgrade, which Petrotrin board insisted was necessary to keep the company afloat, problems with the refinery, built in 1917, persisted. Asset integrity remained a serious and costly issue, affecting operations, production and the company’s bottom line. Finding evidence of Petrotrin’s financial performances in the 1990s and early 2000s is difficult. Attempts to source those financial records were futile. Former Petrotrin and Energy Ministry officials were unable to assist.

The June 2017 Lashley Report on Petrotrin operations found that between 2007 and 2017 the company funded the government with around $43 billion in levies, royalties, supplemental petroleum tax and income taxes but paid no dividends between 2011 and 2015. Prime Minister Dr Keith Rowley in a speech on Petrotrin’s closure in September 2018 said the company owed $3.1 billion in taxes and royalties up to February 2017.

Historic wastage and corruption
Petrotrin incurred overrun costs of $14.25 billion on three flagship projects, key in attempts to reinvent the company and increase its profitability. Instead, the projects’ costs plunged it into demising debt.

• • The Gasoline Optimization Programme had a 314 per cent overrun of TT$10.15 billion.
  • The Gas to Liquid Project, a 174 per cent overrun of TT$2 billion.
  • The Ultra-Low Sulfur Diesel Project, a 265 percent overrun of TT$2.1 billion.

All three projects were conceptualised and/or initiated under the chairmanship of the late former Petrotrin Chairman Malcolm Jones who led a board appointed by the Patrick Manning regime.

To compound matters, Petrotrin only managed to operationalise one of the projects – the Gasoline Optimization Programme. The GOP involved the installation of:

1. 1. 1. an isomerisation complex,
      2. a continuous catalytic reforming platformer complex,
      3. an alkylation unit, and
      4. a sulphuric acid regeneration plant,
      5. the upgrade of the fluid catalytic cracking unit,
      6. the installation of offsite facilities, and
      7. the upgrade of utility systems.

According to the 2017 Lashley Report, while refinery throughput increased, the GOP did not lead to the predicted increase in the gross refinery margin. Former Petrotrin President Khalid Hassanali said he was dissatisfied with the work done by Bechtel, the contractor.

“Penalties in the contract were very heavily qualified, and during the middle of the project Bechtel wanted to change from lump sum to cost reimbursable, which resulted in a doubling of the cost.”

A US$750 million bond was utilized to finance a portion of the GOP with 6 percent interest rate, a final installment was initially due to be paid by May 2022.

The Gas to Liquid Project was abandoned, after incurring $2.9 billion loss and relegated as “scrap iron.” In 2005, Petrotrin partnered with World GTL Limited. Petrotrin went in for 49 per cent but problems arose with the project and GTL. Petrotrin then decided to purchase the entire loan with Credit Suisse.

A receiver was appointed in 2009 for the project’s completion but problems persisted and the receiver mandated disposal of the assets . It was sold to NiQuan Energy. Petrotrin received a cash payment of US$10 million, with the remaining US$25 million in Preference Shares. For its part, NiQuan could not operationalise the plant, incurred over US$400 million in debt and in April terminated 75 staff, with founder and director Ainsley Gill confirming the company was out of money.

In 2013, under the Persad-Bissesar administration, Petrotrin sued Malcolm Jones, alleging he breached his fiduciary duty in approving payment of US$109.4 million in overruns in the failed GTL project.

The Ultra-Low Sulfur Diesel Project is still not operational. It would have allowed Petrotrin to produce improved quality diesel, meeting international quality specifications. It would have also allowed the refinery to process a broader range of crude oils, reducing purchase costs. The ULSD was critical to Petrotrin’s future.

It needed the plant to achieve a margin uplift of US$6 per barrel, leading to increasing earnings of up to $3.5 million per month. The contract awarded to Samsung started in 2009 and had an estimated completion date of 2012. While the project is 98 per cent mechanically completed, it cannot operate because the foundation is faulty due to issues with structural specifications.

The wrong seismic resistance was specified. In 2018, PM Rowley estimated that it would cost TT$2.4 billion to rectify. Petrotrin also sought legal action, under the People’s Partnership government, against Jones for the ULSD.

The state’s case collapsed in 2016 after former Attorney General Faris Al-Rawi said he was advised that the case was unlikely to succeed. The High Court ordered the state to pay Jones over $3 million in legal costs.

A US$850 million bond, including a bullet principal payment payable in August 2019, was used to finance the remaining portion of the GOP as well as the ULSD.

Bad loans

The three flagship projects were not the only examples of wastage and possible corruption at Petrotrin.

In 1993, in a controversial loan deal with Citibank Trinidad, Petrotrin allegedly sought to borrow US$61.5 million but was “pressured” to borrow around US$158 million: US$96.5 million fully cash secured loan to Trintomar; US$49.3 million pre-export financing to Trintoc; and US$12.3 million pre-export financing to the National Gas Company.

Former Petrotrin Chairman Donald Baldeosingh hired a London-based law firm to investigate the deal. David Hudson, a retired British merchant banker, found the contract language incomprehensible and inconsistent with the accepted standards of banking conduct. He discovered that Citibank was paid more than twice as much in interest and fees as it would have received under its initial proposal.

“I conclude, based on the evidence I have seen, that it is probable that the transaction, taken as a whole, was both fraudulent and corrupt,” his report stated.

In 2017, a Petrotrin audit reported that the company paid $100 million to A&V Drilling for oil that was allegedly not supplied. Two reports, one internal and one commissioned by oil and gas consultant Gaffrey Cline, supported the audit’s findings. Petrotrin fired oil transfer specialist and former PNM general election candidate Vidya Deokiesingh following their internal investigation.Petrotrin terminated a contract with A&V, but A&V won a legal case before the Caribbean Court of Justice and stood to benefit from a significant payout – worth $ 1 billion – for Petrotrin’s failure to pay outstanding bills. The parties settled with A&V receiving $18 million in damages and a new exploration license from Heritage Petroleum.

The 2017 Lashley Report recommended that a deeper investigation would identify the specific management and governance issues accountable for the company’s poor performance.

“Poor choices for members of the board and management, a depletion of experience skills and competence and the frequency and magnitude of bad decisions on capital projects have burdened the company with debt and concomitant servicing obligations without an increase in revenues.”

A financial fiasco in numbers 

According to Petrotrin’s financial statements, audited by KPMG:

● Revenues declined by 51 per cent between 2008 and 2018. In 2008, the company recorded revenues of $40.8 billion. It declined to $20 billion in 2018.

● Financial liabilities were US$14.5 billion and $5 billion in 2017.

According to the 2017 Lashley Report:

● There was a debt ratio of approximately 0.70 (significantly higher than industry norms).

● A cash ratio decline of 0.82 between 2007 and 2015 – indicating a high potential for difficulties in servicing current liabilities

● Times Interest earned decreased by 95 per cent from 2007 to 2015

● Oil production decreased by 26 per cent between 2006 and 2016

● Over fiscal years 2007 to 2016, Petrotrin’s Land, North and East Coast, Trinmar and Farm Outs crude oil production decreased, while that of the lease operators increased.

● Offshore oil production between 2007 and 2016 slumped by 15 per cent

● Gross Profit Margins declined by 11 per cent between 2010 and 2015

● TT$3.4 billion is needed over 10 years to upgrade berths, sea lines, port facilities, tanks, pipelines and platforms.

● At the end of 2015, the net working capital position was negative TT$4.6 billion

In addressing the closure of the refinery in September 2018, the Prime Minister said the following about Petrotrin’s finances:

● Averaging $2 billion in losses a year

● Requires $25 billion cash injection to stay alive

● $7 billion was estimated for the required upgrade and maintenance work for the Pointe-a-Pierre plant

● At the end of 2015, short-term loans at the company amounted to TT$5 billion

Energy and Energy Industries Minister Stuart Young in a recent May op-ed said:

● In 2014 and 2015, Petrotrin suffered losses of $1.56 billion

● Domestic oil production declined by 71 per cent between 2005 (144,000 bopd) and 2016 (42,000 bopd)

● Each barrel of refined product resulted in a loss of US$5 to US$7

 

The rise and fall of Petrotrin–Part 2

Refinery, political patronage and union power

2024, 07/22

Analysis of the mothballed Pointe-a-Pierre (PAP) refinery continues as a potential restart looms and the Oilfield Workers Trade Union (OWTU) disagree with the refinery acquisition process. As government and union grapple to gain control of the narrative, a critical analysis of the company shows what it cost the country, and whether it should or could have been salvaged.

While the Manning cabinet in the early nineties saw the formation of Petrotrin as necessary, the findings of reports suggested the merger also exacerbated existing cultural issues. Petrotrin was becoming a typical state albatross, complex and unmanageable, with no comprehensive integration plan. This resulted in deficiencies in its operations, safety and environmental track record. There were longstanding concerns about overstaffing and low productivity.

“The company lacks a clear purpose and identity, which has caused it to at times engage in activities that are not consistent with the professional practices of a commercial enterprise. While staffing is significantly higher than in comparative refineries, this is not a root issue but a symptom of the underlying management problems.”

Industry experts regarded the move to unify assets consolidated OWTU power in the energy sector, making it more difficult to institute necessary changes. Given OWTU’s political power, successive government’s core mandate, as opposed to financial viability, was political patronage.

Flexing its muscles, the OWTU promised to remove two successive Prime Ministers: Patrick Manning and Kamla Persad-Bissessar. The union also sought alliances with Dr Rowley and Persad-Bissessar while their respective parties were in opposition. PM Rowley said in his 2018 address about Petrotrin’s closure,

“In short, the Petrotrin fix was always seen to be bad for politics and even one’s political survival, but we have arrived at a place now where its ongoing failure threatens national survival. Such is my lot. This Government does not have the luxury of not attending to this age-old problem. Time is not on our side.”

The Petrotrin wage bill accounted for around 47 per cent of the recurrent expenditure, employing over 5,000 employees at a cost of around $1.8 billion (TT) a year, over 1,000 suppliers and 2,000 service providers.

Petrotrin and the OWTU have had several standoffs. In November 2011, workers shut down a large section of the refinery, citing management’s failure to address safety concerns. OWTU President- General Ancel Roget claimed operations were adversely affected by political appointments,. there were too many vacancies and an overdependence on contractors.

“The refinery is a ticking time bomb. On the port, there are safety issues. At the marine department and the bond, there are similar concerns. A year ago, we submitted a new management structure for the company, and that has not been implemented.”

In February 2012, the OWTU and Petrotrin agreed to a 9 per cent salary increase for the period 2008–2011. In March 2013, thousands of Petrotrin employees/OWTU members accused the company of failing to honour the terms of the collective agreement signed a year earlier. The company failed to keep its promise to fill 800 vacancies, make casual workers permanent, secure the work environment and settle outstanding payments for the period 2009–2010. The strike lasted a week before Petrotrin won an injunction forcing workers to return to work.

Roget said, “Workers will go back to work feeling demotivated and demoralised. An injunction doesn’t take care of poor management and nepotism.”

In December 2016, OWTU served strike notice to Petrotrin after wage negotiations for the 2015–2018 period collapsed. The union was offered zero for the 2011–2015 and the 2015–2018 periods. The company attempted a six-year wage freeze, citing financial trouble. In January 2017, with a strike looming, the OWTU accepted a five percent wage increase offer for the 2011–2012 and 2012–2013 periods.

Rowley said the company’s current debt was $13.2 billion (TT), and borrowings to meet wage increases would add to the national debt. “With the need to suspend export sales, in the event of a strike, Petrotrin’s gross receipts would have declined by three-quarters and its foreign exchange earnings would have dried up … the planned strike would have caused a net income loss of close to $500 million (TT) during the potential 90-day strike period. It is estimated that this interim increase of 5 per cent will immediately increase Petrotrin’s wage bill by $81 million per year, and the back pay liability arising from the interim offer would be in excess of $300 million.”

Twenty-one months later, all of those employees were retrenched.

Board games

Between January 2007 and its closure in November 2018, there were four different chairmen: Malcolm Jones, Lindsay Gillette, Andrew Jupiter and Wilfred Espinet. 40 different people were appointed to the board—an average of four new annual appointees. Between January 2007 and 2010, when the Manning was in power, 11 different members served. The board averaged eight serving members. Between January 2011 and July 2015, under the Persad-Bissessar administration, 15 different members served. The board averaged nine members during that time.

Between October 2015 and November 2017, under the Rowley regime, 14 different members served. The board had an average of seven serving members. With both changes of government (in 2010 and 2015), the entire incumbent board was replaced. The only board member to serve in two different administrations was Anthony Chan Tack, who served under Manning in 2007 and Dr Rowley in 2017.
The process by which the boards were appointed was detrimental to effective governance.

“The history of changes in management and demands imposed were not consistent with the interests of the company, further crippling its performance. Today, Petrotrin is overburdened with debt, which substantially resulted from poor investment decisions. The situation resulted:

• • • • in Little room for continuity and planning successful projects beyond a five-year horizon;
      • Creating an unnecessary disruption of business strategies;
      • A lack of consistency in strategic direction;
      • A lack of corporate governance experience and skills;
      • Poor decision-making;
      • Loss of institutional memory;
      • Power distance between policy/strategy and operational management;
      • Loss of confidence and instability;
      • Constant challenges for engagement with major stakeholders;
      • A loss of morale among the employees.“

Ratings and bonds

From April 2001, Petrotrin’s Moody’s rating was downgraded from Baa3 (moderate credit risk) to Ba1 (subject to substantial credit risk) in May 2015, and then further downgraded to B1 in April 2017 (speculative and high credit risk).

The company’s Standard and Poor’s ratings declined from BBB (Investment grade) in 2005 to BB (Non-Investment Grade, or junk) in April 2007. A 2016 JSC Committee chaired by David Small reported,

“The committee noted that the current external and internal environments, coupled with continuing credit downgrades by rating agencies, also made it increasingly difficult for the company to manage liquidity through short–and medium-term borrowing for trade financing and working capital support.”

The company also had two major long-term borrowings comprising two bonds: a US$750 million bond at 6 per cent from May 2007 and a US$850 million bond at 9.75 per cent from August 2009, which involved a substantial bullet principal payment. The US$750 million payment was amortised.

In September 2018, Finance Minister Colm Imbert said the Government guaranteed over $2.5 billion in loans in just 6 months for Petrotrin. He wrote letters of guarantee for Republic Bank, Scotia Bank and First Caribbean for US$50 million, respectively; First Citizens Bank for US$55 million and FCB for US$25 million.Each guarantee affected the Government’s public debt.

As of September 2023, the Government’s public debt was $102.5 billion. The public debt as a share of GDP is 0.54. In February 2013, Trade and Industry Minister Paula Gopee-Scoon announced that Heritage refinanced the Trinidad Petroleum Holdings Limited group debt of US$975 million. It was the second time the debt had been refinanced. The debt resulted from Petrotrin’s US$850 million bullet bond and part of the amortised US$750 million bond.

The (un) foreseeable fallout

On September 4, 2018, Rowley promised a political meeting entitled, “Resurgence of Petrotrin.”

“The Government is not closing down Petrotrin, and in case you didn’t hear that let me repeat it. The Government of Trinidad and Tobago is not closing down Petrotrin.”

It came days after the Government announced its intention to close the Pointe-a-Pierre refinery. Up to then, there was no mention of the company being shut down as well. Twenty-three days later, chairman Wilfred Espinet announced at a press conference that the company would be closed with all workers retrenched.

The decision came despite both the 2017 Lashley report and a JSC into Petrotrin’s operations saying there were opportunities to turn the company around, albeit with significant and difficult changes.

“It is equally clear that this is a valuable source of income and very important for foreign exchange earning potential. There is a great opportunity to harvest this potential, but significantly improved stewardship is urgently required.

Petrotrin has significantly underperformed over the years, and given the current economic realities of T&T, it has become necessary to review the performance of the company with the objective of reducing its dependence on the State and creating value for present and future generations of the country.”

The 2016 JSC into Petrotrin’s Administration and Operations stated that “In spite of these issues, the committee is of the view that Petrotrin has significant potential for positive sustained growth, provided that the tough decisions needed are taken quickly to unlock the full value proposition of the company. Internally, the company really needs to take a hard look at how it has been conducting business in several areas highlighted in this report and make the necessary adjustments to protect the company from repeating the mistakes and the poor decisions of the past.”

Defending the company’s closure in March, Rowley said Petrotrin would have lost at least another $5 billion between 2018 and 2023. To this day, economists and energy experts share opposing opinions on whether closing Petrotrin was the right decision. In May 2023, Heritage Petroleum reported a $1 billion profit in 2022.

Fenceline communities across Marabella, Pointe-a-Pierre, and Claxton Bay remain deeply affected by the closure.

Key historical events

1956 Texaco operates Pointe-a-Pierre refinery

1969 Government acquired BP in a JV with US company Tesoro and launched the National Petroleum Company.

1972- AMOCO began commercial production offhore east Trinidad.

1974 Government acquired Shell, creating Trinidad and Tobago Oil Company Limited (TRINTOC)

1975 National Gas Company established

1980 National Energy Company founded

1985 Government acquired Texaco assets  –

(refinery, onshore producing facilities, share of offshore rights to Block 1 and the South East Coast consortium and real estate).    Government acquired Tesoro equity in Trinidad-Tesoro Petroleum Company Limited, renamed Trinidad and Tobago Petroleum Company Limited (TRINTOPEC).

[For 55 years, over half a century, the ruling party, founded by an immoral nationalist, driven by envy and powerlust, interfered in the prosperous petroleum industry created by private investors from Britain and the USA. Byzantine behaviour of the political party and union shattered dynamic companies creating wealth, contributing knowledge, skills and modern practices . The PNM stymied progress, like the native boa constrictor hunting prey in the rainforests of the Trinidad jungle. Steel magnate Naveen Jindal is not naive and knows he is playing with fire, to rescue the Pointe-a-Pierre pile from the graveyard of greedy governments, reflecting fractious Caribbean regimes, notorious for dirty tricks, smearing opposition critics, neglecting the populace and squandering resources on a zombie culture of crime.]