Professor Sir Hilary Beckles, vice-chancellor at the University of the West Indies, was the featured speaker at the 2016 Eric Williams Memorial Lecture Series, held in honour of the country’s...
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Energy revenue drops from $21b to $5b Economist: T&T living beyond its means
While the National Gas Company (NGC) contemplates revenue earning from the sale of two offshore platforms, energy economist Gregory McGuire says the company’s balance sheet was severely affected by the depletion of its reserves by the former People’s Partnership government.
Speaking at the T&T Extractive Industries Transparency Initiative (TTEITI) forum at the Oilfields Workers’ Trade Union’s (OWTU) Paramount Building, San Fernando, McGuire said the country was living beyond its means by spending excessively while energy sector revenue dropped from $21 billion to $5 billion in 2014/2015.
The government at the time maintained that the economy was stable, but according to McGuire, that was due to non-energy revenue between the periods 2013/14 and 2014/15 increasing from $28 billion to $39 billion.
However, it represented NGC’s contributions in the form of payments of regular dividends, but also extra dividends, retroactive dividends and its respective taxes as confirmed in the EITI report.
“Think about it. If NGC was a private company, there was no way the shareholders could come and say, ‘listen, we want extra dividends.’ That has certainly contributed to weakening the company’s balance sheet, weakening the company’s capacity to sustain itself going forward and really represents a poor use of the company’s assets,” he said.
“The other factor I want to point out to you is the size of the fiscal deficit, which has grown from $2 billion to $6 billion in 2014/15 and is much larger in the current fiscal year. In other words the country is living beyond its means, which represents debt.
Citizens to adjust lifestyle
“If you can’t earn enough money, you will have to borrow to buy and therefore the previous government was borrowing and has been drawing down the reserves of NGC to make it appear as if the economy was stable.”
With low oil and gas prices and no indication of a recovery, McGuire said citizens should be learning to adjust their lifestyle choices. Explaining the revenue drop for the secondary school students in attendance, he put it simply: “It is like your parents or a household working for $21,000 for a month and you discover that you now have to live on $5,000 a month. It is that bad.”
He said several contracts with major gas producers ended or were coming to an end. Among them were BGTT and bpTT. He said if those contracts aren’t renewed, T&T cannot find new markets for its gas and as petrochemical industries continue to grow globally, he said, the country’s US market will disappear because T&T cannot meet its current demand.
“That is where we are. We have not diversified the economy and we will have to live with that for the time being. What is happening in the global market is a major structural change and it can’t be reversed. The prospects for higher energy sector earnings are dim because production is down right around.
“There is a major crisis in the gas stream and it is difficult to attract new investments because of our loss of competitiveness. Therefore, the energy sector does not really hold out much promise to be the source of recovery.
Diversification an imperative
“Right now we have to add to an already high debt burden in order to get money for finances. From all of this, diversification remains an imperative and I think also very important is that citizens in general need to learn to adjust and take their lifestyles down to the next level.”
With businesses yearning foreign exchange, which is severely depleted from lower oil and gas revenues, McGuire said T&T has approximately 13 months of import cover left. This means when foreign exchange dollars run out, the country will no longer be able to import goods.
“For those of you who are too young to understand, that is where the crunch comes. When foreign exchange is too short, when you cannot import anymore. When you have a mountain of goods to import and we cannot buy, that is the crisis situation.
“We are in this situation where we are quite happy because we still have about 13 months import cover and off to the Government’s next budget, which is due next month and in terms of how many months import cover we have. Bear in mind that it took five years in the last doom days to come to zero and we are importing much more now, therefore the fall will be much more rapid.”