Does it matter who owns MHTL?

In March, Britain’s Prime Minister David Cameron asked former Conservative deputy Prime Minister, Michael Heseltine, to produce a report on how that country might more effectively create wealth. Heseltine’s report, which was issued yesterday, is 228 pages, makes 89 recommendations and is entitled No Stone Unturned.

 

In a piece in Wednesday’s Telegraph newspaper, Heseltine wrote: “The drivers of our economy – business, central government and local leaders – should be organised and structured for success. I have therefore reassessed the way that we, as a country, conduct business. I’ve re-evaluated each of their roles with the single overall aim of embedding a culture of wealth creation. As the saying goes, we are all in it together…..

 

“What I suggest is challenging – but it is not just a challenge to central government. It’s a challenge to the public and private sector, boardroom and business leaders, and to us as individuals. The end goal has to be wealth creation. There are debates as to how wealth should be divided, but ultimately these are sterile until it is created in the first place.”

 

It is interesting that Prime Minister Cameron had the foresight to commission a report on UK’s competitiveness and that he chose a former “grandee” in his party to conduct the review. It is apparent that it would be useful for Prime Minister Kamla Persad-Bissessar to commission such an exercise because it is clear that T&T is in need of some analysis of why foreign and domestic investment in the local economy has slowed to a trickle and what the Government here can do to reverse this trend—aside and apart from the fiscal measures in the 2013 budget aimed at boosting the construction sector.

 

There is no doubt that Heseltine’s focus on competitiveness and wealth creation is as appropriate for T&T as it is for Britain, given the concern that this country’s main wealth generators—the industries located at Point Lisas, Point Fortin and Point-a-Pierre—may have peaked some years ago and could well be in secular decline.

 

In a local context, a report on competitiveness would focus on both the energy and non-energy sectors and would make recommendations on what the country can do to ensure that the T&T economy continues in the future to afford its citizens the improving standard of living that they have come to expect from the experiences of the last decade and a half.   

 

Much of the commentary that foreshadowed the publication of the Heseltine report focused on whether it would advocate that the UK government should block foreign and domestic takeovers that are deemed not to be in the national interest. On Tuesday, also in the Telegraph, Richard Madden, the UK CEO of a pan-European corporate finance house, argued that the desire for a law blocking foreign takeovers deemed not to be in the national interest “confuses principles with preference.”

 

Here is what Mr Madden said: “The issue of foreign takeovers is one that is much more political than it is based on the fundamentals of the economy. I think we get into a very difficult area where people confuse principles with preference. “If the principle is that businesses that are critical to the UK economy should be based in the UK and owned by UK shareholders, then I am struggling to understand why. “For so long as the businesses pay people and pay taxes, then it seems strange that we care too much about the shareholding. If you determine that essential businesses should be British owned, you have then got to define what are the essential businesses and again that’s difficult.”

 

It seems to me that an argument that says that countries should simply care about whether companies pay their employees, their suppliers and their taxes and that it does not matter who owns the company is simply wrong as it ignores the fairly important issue of profits and dividends.

 

And it is on the matter of what becomes of profits and dividends that the issue of who owns and controls Methanol Holdings (Trinidad) Ltd becomes relevant (ignoring, for the sake of this argument, the attempts by companies to evade taxes and pay their employees as little as possible).

 

MHTL is one of the largest exporters of methanol in the world with a total rated capacity of over 4 million metric tonnes annually from its five methanol plants located at the Point Lisas Industrial Estate. MHTL has also gone further downstream of methanol by constructing the Ammonia-Urea Ammonium Nitrate-Melamine (AUM1) complex which started commercial operations in 2010 with product sales to both North America and Europe. 

 

Some 56.53 per cent of MHTL is owned by Clico, while the balance, 43.47 per cent, is owned by Consolidated Energy Ltd, a local holding company that combines the interests of German companies Man Ferrostaal, Proman and Helm. The Government owns 49 per cent of Clico as a result of the decision by the previous administration to invest billions of dollars in bailing out the financially troubled insurance company, which collapsed in January 2009. CL Financial owns 51 per cent of Clico.

 

Consolidated Energy Ltd, the minority shareholders of MHTL, sought international arbitration last year, claiming that as a result of the shareholders’ agreement that established the methanol company, they should have been given the first option to purchase the majority stake in MHTL (and I seem to recall evidence presented at the Commission of Enquiry that there were attempts to sell the majority stake in MHTL to Consolidated Energy Ltd AFTER the Memorandum of Understanding was signed on January 30, 2009).

 

While the arbitration ruling was due to have been delivered by the end of October, it seems obvious that the Government’s investment was in Clico, which has never been declared bankrupt, and not in MHTL. The point here is that under the current shareholding, more than half of the declared dividend goes to the State. If MHTL were 100 per cent owned by its foreign shareholders—who now own about 44 per cent of the company—100 per cent of the declared dividends would go to the company’s foreign shareholders.

 

Regardless of what transpires at the arbitration, the best thing for the Government to do with MHTL would be to create an investment holding company, like National Enterprises Ltd, and place the 56.4 per cent of the methanol company now owned by Clico into what would be NEL III.

 

The NEL model allows a company like Phoenix Park Gas Processors—which is 51 per cent owned by the National Gas Company, itself owned 100 per cent by the State—to operate on a technocratic basis. The NEL model also ensures that ownership of the company remains in local hands and dividends from the company continue to contribute to wealth creation by T&T individuals and institutions such as the National Insurance Board and the UTC.