EN­ER­GY CHAM­BER

T&T is now ranked 69 out of 147 coun­tries in a re­cent glob­al bench­mark­ing sur­vey to as­sess how at­trac­tive var­i­ous ju­ris­dic­tions are for oil and gas in­vest­ment. We have de­clined from a rank­ing of 58 out of 135 coun­tries in 2011. The re­cent­ly re­leased sixth Glob­al Pe­tro­le­um Sur­vey con­duct­ed by the Fras­er In­sti­tute in Cana­da mea­sures glob­al oil and gas ex­ec­u­tives' opin­ions of the in­vest­ment cli­mate in ju­ris­dic­tions around the glob­al, as­sess­ing fis­cal terms, the reg­u­la­to­ry en­vi­ron­ment and so­cio-eco­nom­ic per­for­mance as it re­lates to the en­er­gy sec­tor. For fed­er­al coun­tries, such as the Unit­ed States, Cana­da and Aus­tralia, the sur­vey ranks sep­a­rate states or provinces sep­a­rate­ly. Ar­genti­na, Venezuela, Rus­sia and Iraq are among the coun­tries/ju­ris­dic­tions with the great­est bar­ri­ers to in­vest­ment. Re­spon­dents ranked coun­tries/ju­ris­dic­tions such as Ok­la­homa, Mis­sis­sip­pi, Texas, Den­mark and the Nether­lands in the top ten as the most at­trac­tive ju­ris­dic­tions for in­vest­ment in pe­tro­le­um ex­plo­ration and de­vel­op­ment. In 2012, T&T dropped to the third quin­tile with a score of 69, a de­cline from 58 in 2011 where we were ranked in the sec­ond quin­tile.

The rel­a­tive­ly low­er per­for­mance in 2012 was pri­mar­i­ly re­lat­ed to wors­en­ing per­cep­tion of the tax­a­tion regime in T&T com­pared to oth­er ju­ris­dic­tions. In the tax­a­tion and fis­cal regime in­dex we are ranked as 119 out of 147. It should be not­ed as well that the num­ber of ju­ris­dic­tions eval­u­at­ed in­creased be­tween 2011 and 2012, which al­so ac­count­ed for our drop in places. Over­all, T&T scored rel­a­tive­ly high on in­di­ca­tors re­lat­ed to our po­lit­i­cal sta­bil­i­ty, le­gal frame­work, skilled labour avail­abil­i­ty and qual­i­ty of in­fra­struc­ture. How­ev­er, we score poor­ly in the in­di­ca­tors re­volv­ing around our com­mer­cial en­vi­ron­ment, in­clud­ing our fis­cal terms, tax­a­tion regime and en­vi­ron­men­tal reg­u­la­tions. The pos­i­tive news is that these items, re­lat­ing pri­mar­i­ly to tech­ni­cal fix­es to pol­i­cy, leg­is­la­tion and reg­u­la­tion, are far eas­i­er to im­ple­ment than things like in­creas­ing po­lit­i­cal sta­bil­i­ty, skilled labour and in­fra­struc­ture, which re­quire many years of con­cert­ed so­ci­ety-wide ef­fort and in­vest­ment to re­solve.

Com­mer­cial En­vi­ron­ment In­dex

In­ter­na­tion­al oil and gas com­pa­nies study the com­mer­cial busi­ness en­vi­ron­ment of po­ten­tial mar­kets to de­ter­mine the fea­si­bil­i­ty of en­ter­ing oil and gas mar­kets. This ex­er­cise is even more nec­es­sary for large in­ter­na­tion­al up­stream play­ers, giv­en the sig­nif­i­cant spend re­quired for ex­plo­ration and pro­duc­tion ac­tiv­i­ties. The es­ti­mat­ed cost to drill one well is US$50 mil­lion to drill a well and a com­pa­ny can spend be­tween US$15-US$25 mil­lion to shoot seis­mic sur­veys. As such it is im­per­a­tive that in­ter­na­tion­al play­ers per­ceive the com­mer­cial en­vi­ron­ment in po­ten­tial mar­kets as at­trac­tive and able to pro­vide a good rate of re­turn. The Com­mer­cial En­vi­ron­ment In­dex con­sid­ers gov­ern­ment re­quire­ments re­lat­ing to pro­duc­tion shar­ing con­tracts and roy­al­ty pay­ments (fis­cal regime); the tax­a­tion regime, trade bar­ri­ers (tar­iff and non-tar­iff bar­ri­ers and re­stric­tions on prof­it repa­tri­a­tion); the qual­i­ty of in­fra­struc­ture; labour avail­abil­i­ty and the lev­el of cor­rup­tion of gov­ern­ment of­fi­cials. These com­mer­cial con­di­tions are per­ceived as ei­ther pro­mot­ers or bar­ri­ers to in­vest­ment.

Over­all, T&T ranks 77 out of 147 ju­ris­dic­tions on this in­dex, with the ma­jor­i­ty of re­spon­dents agree that our com­mer­cial en­vi­ron­ment is a mild de­ter­rent to in­vest. Fis­cal terms and the tax­a­tion regime are the most sig­nif­i­cant fac­tors which im­pact T&T's abil­i­ty to at­tract in­vest­ment. Our neigh­bours Guyana (31) and Colom­bia (37) are per­ceived as hav­ing sig­nif­i­cant­ly bet­ter fis­cal terms than T&T (119). Sim­i­lar­ly, Guyana and Colom­bia out­per­form T&T as an at­trac­tive des­ti­na­tion to in­vest as it re­lates to the tax­a­tion regime. African coun­tries such as Ugan­da, Mozam­bique, Ghana and Tan­za­nia are per­ceived as hav­ing less of a non-en­er­gy tax bur­den and less com­plex tax com­pli­ance regime. The re­port shows that the lev­el of cor­rup­tion of gov­ern­ment of­fi­cials, the qual­i­ty of in­fra­struc­ture and labour avail­abil­i­ty are per­ceived less as bar­ri­ers to in­vest­ment.

Reg­u­la­to­ry Cli­mate In­dex

In the sur­vey, a coun­try's reg­u­la­to­ry cli­mate in­dex score was based on per­ceived un­cer­tain­ty in how reg­u­la­tions are en­forced, ad­min­is­tered and in­ter­pret­ed, the cost of reg­u­la­to­ry com­pli­ance plus reg­u­la­to­ry du­pli­ca­tion and in­con­sis­ten­cies. The in­dex score was al­so based on le­gal sys­tem fair­ness and trans­paren­cy and un­cer­tain­ty in changes to en­vi­ron­men­tal reg­u­la­tions. Over­all, T&T ranked 61st out of 147 coun­tries in the reg­u­la­to­ry cli­mate in­dex. Our neigh­bours Colom­bia (57th), Guyana (20th) all scored high­er on this in­dex. In spite of the coun­try's rank on the in­dex, fur­ther re­view of the da­ta re­veals that T&T's reg­u­la­to­ry cli­mate acts on­ly as a mild de­ter­rent to in­vestors in most in­stances. For ex­am­ple, from the re­spon­dents quizzed on un­cer­tain­ty con­cern­ing changes to en­vi­ron­men­tal reg­u­la­tions, 43 per cent not­ed this was a mild de­ter­rent to in­vest­ment while 48 per cent felt this was not a de­ter­rent to in­vest­ment.

Ten per cent of re­spon­dents felt our sys­tem to amend reg­u­la­tions left no un­cer­tain­ty and ac­tu­al­ly en­cour­aged in­vest­ment. Forty per cent of re­spon­dents be­lieved the cur­rent labour reg­u­la­tions, em­ploy­ment agree­ments, work dis­rup­tions and lo­cal re­quire­ments were a mild de­ter­rent to in­vest­ment. The oth­er 60 per cent of re­spon­dents felt the labour reg­u­la­tions and em­ploy­ee agree­ments, cou­pled with lit­tle work dis­rup­tions, were ei­ther not de­ter­rents or en­cour­aged in­vest­ment. The coun­try al­so demon­strat­ed con­sis­ten­cy in its ad­min­is­tra­tion, in­ter­pre­ta­tion and en­force­ment of reg­u­la­tions. Thir­ty-eight per cent of re­spon­dents felt short­com­ings in this area were on­ly a mild de­ter­rent to in­vest­ment while the oth­er 62 per cent felt this area ei­ther did not de­ter in­vest­ment or at­tract­ed in­vest­ment. In oth­er cat­e­gories, such as our le­gal sys­tem fair­ness and trans­paren­cy as well as reg­u­la­to­ry du­pli­ca­tion and in­con­sis­ten­cies, an over­whelm­ing 80 per cent of re­spon­dents and 73 per cent of re­spon­dents, re­spec­tive­ly, deemed these as ar­eas where any faults did not de­ter in­vest­ment.

Con­clu­sion

Giv­en the cur­rent lim­it­ed avail­abil­i­ty of cap­i­tal glob­al­ly, it is es­pe­cial­ly im­por­tant to en­sure the T&T econ­o­my is com­pet­i­tive if we are to at­tract the re­quired in­vest­ment. In a glob­alised world with free move­ment of cap­i­tal, at­tract­ing in­vest­ment from in­ter­na­tion­al fi­nanciers re­quires the cre­ation of a com­pet­i­tive econ­o­my. As in­ter­na­tion­al in­vestors have many dif­fer­ent op­tions about where they can place their in­vest­ment dol­lars, it is im­por­tant we bench­mark our econ­o­my against oth­er glob­al economies. Bench­mark­ing ex­er­cis­es not on­ly help us de­ter­mine how we are do­ing com­pared to our com­peti­tors, but al­so high­light ar­eas of strength and weak­ness with­in the com­pet­i­tive­ness frame­work for the coun­try. Based on the sur­vey, the coun­try has some ad­van­tages that we can use as lever­age such as our qual­i­ty of in­fra­struc­ture, le­gal sys­tem and po­lit­i­cal sta­bil­i­ty but there are al­so ar­eas-in­clud­ing our fis­cal terms and tax­a­tion regime-where we need to re­form and in­sti­tute re­al change.

For more in­for­ma­tion on the ar­ti­cle, con­tact Sher­win Long at: sher­win@en­er­gy.tt and Naz­era Ab­dul-Haqq at re­searchof­fi­cer@en­er­gy.tt.

Vis­it: www.en­er­gy.tt.