The Government has some very difficult decisions to make. If it does nothing as a result of political expediency and its fear of the union's reaction, Petrotrin faces a slow death during which it could be a huge burden on taxpayers.
This week's news that state-owned Petrotrin has suffered a loss of $346 million is an indication that the company has found itself between a huge rock and a very hard place.The huge rock includes the fact that the company is significantly overstaffed, with 5,000 employees, and faces an aggressive and sometimes unreasonable trade union that believes the company's sole responsibility is to its highly paid workforce.
Adding to the financial burdens is the fact that Petrotrin pays annual interest of $850 million on its debts, much of which was borrowed to fund the gasoline optimisation programme. That programme, massively over budget and significantly delayed, is proving to be a millstone, because gasoline has been selling at less than the cost of a barrel of crude.Much of the expenditure was made on plants that have had to be mothballed because of prevailing market conditions, which means that Petrotrin is paying 9.75 per cent interest on plant and equipment that is currently unproductive.
The closure of several plants has led to a reduction in refinery throughput from 180,000 barrels of oil per day to 120,000 barrels. This 30 per cent reduction hurt the company's top line, but the expectation was that Petrotrin's exploration and production would take up that slack.
The very hard place the company now finds itself in is due to the fact that its crude exports–long touted as its one bright spot–earn over 30 per cent less today than they did in June; four months after the cat cracker plant was closed.Petrotrin faces the perfect storm of financial, operational and market misfortune and mismanagement–reversal of which will be a herculean task, requiring huge investments of time, personnel and other resources.
The company must give priority to upgrading its ageing infrastructure and must wipe out operational inefficiencies which have caused it to fall far behind its local and international competitors in energy.It may also be time to wean it off the high level of government influence that has overshadowed its operations over the years.
A better business model is urgently needed as the energy company's complete dependence on supply and demand, as well as the market prices of crude oil and refined products, makes it particularly vulnerable to global shocks.
Some experts think the the upstream portion of Petrotrin's operations could be profitable if it operated on its own. There have been recommendations in the past to divide the company into different entities, such as a Trinmar business unit, an upstream land business unit and a refining business unit. It may be time to give this serious consideration, since it is painfully clear that Petrotrin is a failing entity.
But upgrading the company's ageing infrastructure requires billions of US dollars of new capital investment, far more than it could fund internally or raise on international capital markets, because of its highly leveraged balance sheet.
And Petrotrin could easily become a drain on taxpayer resources as the company calls on its 100 per cent shareholder for cash infusions to pay workers and keep production ticking over.
The Government has some very difficult decisions to make. If it does nothing as a result of political expediency and its fear of the union's reaction, Petrotrin faces a slow death during which it could be a huge burden on taxpayers.
Needing to raise capital and improve productivity, the Government may wish to consider a TSTT-like separation programme, even as it explores the possibility of selling a majority stake in the company to a foreign partner with pockets deep enough to fund Petrotrin's capital expenditure needs.