Two newspaper articles on March 17 highlighted the depth of the energy crisis facing T&T. First, Curtis Williams noted in the Sunday Guardian that the National Gas Company (NGC) reduced its purchases of natural gas. Next, Wilfred Espinet, chairman of Trinidad Petroleum Holdings (TPH), in an interview with Express reporter Asha Javeed, said that two Requests for Proposal's (RFPs) have been issued for the sale of the refinery and another for Paria Fuel.
Espinet’s comments signal that the intent has always been to privatise Petrotrin and its successors. In announcing the sale of Paria Trading company he noted “Paria was not a determination to be a business…something we determined we wanted to do as a business. We had to do it as an obligation so that the State, and the Government at large, could be comfortable there would have been no disruption.” In short, this was an interim measure to ensure fuel supplies.
“Paria's predicament” is that it is not profitable as it is competing with its (Paria’s) suppliers in supplying the Caricom market and losing money; by closing Petrotrin, T&T lost the Caricom market. Further, Paria is a net user of foreign exchange with the same forex issues as other distribution companies.
Selling Paria to a third party leaves National Petroleum and Unipet stranded as both depended on Petrotrin (now Paria) for supply and storage facilities. Storage capacity is neither cheap nor easily available and is vital to the petrol supply chain. If a third party buys Paria, it buys Petrotrin’s storage capacity as well as the modern storage and distribution facility on Caroni Savanah Rd, a joint venture with NGC, which has remained unused since construction. This would allow a third party purchaser to monopolise the import and distribution of petrol.
Mr Espinet is quoted as saying, “I can think of no strategic reason for the State to keep Paria Fuel as long as T&T's security of fuel supply and competitiveness of fuel pricing can be guaranteed.” Which is precisely the problem. How can this be guaranteed? Enter Simpson Oil now a Canadian-owned company?
What is to become of Heritage, the oil producing spin-off? In Espinet’s words, selling the refinery and the trading company, Paria, frees the production arm to become a leaner, efficient, profit-driven entity which can stand up or partner with the international oil companies. Partnership? Surely Espinet jests? In summary, T&T’s place in the future of energy exploration and production is as a passive investor and collector of taxes with no exploration capacity either in gas or oil.
But that was Sunday. On Monday the Minister of Energy issued a press release saying “…The divestment of Paria Fuel Trading Company is not within the current mandate given by the Government to Trinidad Petroleum Holdings Ltd.”
So, is Mr Espinet a loose cannon, or, it is not appropriate to sell Paria at this time? Remember Mr Espinet admitted under oath that it wasn’t his plan to sell or privatise the refinery either. Twice a fall guy?
Curtis Williams reports that the National Gas Company (NGC) has told bpTT it wants less natural gas than is available to it this year, reducing its throughput by 50 million standard cubic feet per day, in the midst of a natural gas shortage. By reducing its gas purchases, NGC reduces the supply to the downstreamers (ammonia and methanol producers). Gas supply to this sector is already inadequate now with two plants are closed. So why the reduced purchases? Perhaps planned shutdowns?
The problem is the gas price. NGC has many gas purchase contracts and many sale contracts. The contracts are mismatched; the purchase contracts with the upstreamers from whom it buys gas do not all dovetail with the sale contracts. Some of the purchase contracts (the new ones) are at higher prices than NGC’s selling prices. Uninformed political intervention in 2017 may have broken a negotiating impasse in the short term but resulted in an uneconomic gas price to both NGC and the downstreamers.
By cutting its purchases, NGC is attempting to limit its operating losses on supply contracts where the buying price is higher than the selling price to the downstreamers. It does not lose on every contract since not all the contracts have been renegotiated allowing NGC some short-term wriggle room. But this is unsustainable; at some time, all the contracts have to renegotiated.
The long-term future of the petrochemical sector (ammonia methanol etc) is threatened unless the pricing issue is resolved or solved. NGC officials told the Sunday Guardian it is “operating in a manner that supports its contractual and commercial imperatives” a self-serving response. But NGC is a wholly-owned government entity through which government’s policy is effected. This is a clear signal that the natural gas saga is in a new, more difficult phase. What happens to the downstreamers without whom there is no NGC and no petrochemical sector?
The implication of the foregoing is that T&T’s economic growth is stalled, as is Government’s revenue profile. Blaming the multinationals for transfer pricing and profit shifting is useless unless we address the underlying issues.