For those unfamiliar with Greek mythology, the Trojan horse was a ruse used by the Greeks to gain access to the city of Troy during their war. Unable to enter the city of Troy by force, the Greeks pretended to sail away leaving behind a huge wooden horse containing Greek soldiers. The Trojans were persuaded that the horse was a gift to the goddess of war which would make Troy impregnable and carried the horse into the city. At night the Greek soldiers opened the gates and that was the end of Troy. Hence the saying, beware of Greeks bearing gifts. So too with the proposed sale to PECTL (OWTU & Partners).
The Finance Minister’s statement in Parliament on September 20 summarised the divestment process and the three bids selected from the 77 respondents. The highest bid came from PECTL with a nominal value of US $700 million, substantially more than the two other bidders; one proposed a lease payment of USD$42,000 a month for 15 years and a 50 per cent share of profit thereafter, and the other simply offered to pay taxes. In short, PECTL made the only real offer. For comparison purposes, using the same terms as the nearest bidder, OWTU offered US$ 3.9 million a month for 15 years. A no-brainer.
So “enthused” was Cabinet with the proposal that it agreed to waive the upfront payment and gave PECTL 13 years to repay the bid price with a three-year moratorium (the Finance Minister’s recommendation presumably). Also, the assets of Paria, the fuel trading company, were rolled into the deal. The same Paria that Minister Khan said was not for sale earlier this year. Two for the price of one Kirpalani style, or the reality that Paria assets ought never to have been segregated as the refinery needs storage space?
PECTL indicated that its financing would come from leveraging the refinery assets, a tall order for two reasons. First, the refinery as currently configured produces diesel fuel of a lower quality than international standards. To be profitable, the refinery must export as the TT market accounts for only 18 per cent of the refinery’s throughput capacity. Operating the plant at a low throughput will lose money from day one. Second, the asset can only be leveraged if PECTL has title. This requires the GORTT to pass title to PECTL before receiving payment as an international bank is unlikely to lend against the refinery assets if the company does not have title.
During the moratorium PECTL will control the asset, but not own it, giving the company time to build operational credibility. Will title pass to the company after the moratorium, or after the 13 years? And what happens if PECTL cannot make payments after the moratorium? By then both local government and national elections would have passed. Government could safely say that they gave the OWTU an opportunity. This is OWTU’s risk.
Minister Imbert has explained this “generosity” stating that “our primary focus is to get it (the refinery) up and running as quickly as possible. We felt that if we relieved Patriotic of that responsibility to go and secure the cash for the purchase, then they would be in a much better position to raise the cash to restart the refinery," said Imbert. “I urge the population to not say much” said Minister Khan noting that it is in the public's interest that the refinery becomes operational again. (Newsday)
There is the issue of TT’s fuel security as PECTL will have a monopoly. This will require industrial behaviour different from that exhibited in January 2017 when the PM rushed to give a five per cent wage increase to avoid a crippling strike. This remains a risk.
The closure of the refinery and associated activities had a negative impact on the economy after the turnaround claimed by Minister Imbert. By announcing a deal before the budget speech, he can now speak of improved economic prospects for 2020. It also provides an opportunity to recover from the political fallout caused by the refinery’s closure. In addition, he has also placed OWTU on “probation”, its continuity and reputation dependent on operating the refinery profitably.
When questioned on whether the deal would be good for the PNM’s electoral prospects in 2020, Minister Imbert responded: "If the company succeeds in starting up and running the refinery, it would be…a win-win for everybody.” And it could be a trojan horse for OWTU.