The Gov­ern­ment has some very dif­fi­cult de­ci­sions to make. If it does noth­ing as a re­sult of po­lit­i­cal ex­pe­di­en­cy and its fear of the union's re­ac­tion, Petrotrin faces a slow death dur­ing which it could be a huge bur­den on tax­pay­ers.

This week's news that state-owned Petrotrin has suf­fered a loss of $346 mil­lion is an in­di­ca­tion that the com­pa­ny has found it­self be­tween a huge rock and a very hard place.The huge rock in­cludes the fact that the com­pa­ny is sig­nif­i­cant­ly over­staffed, with 5,000 em­ploy­ees, and faces an ag­gres­sive and some­times un­rea­son­able trade union that be­lieves the com­pa­ny's sole re­spon­si­bil­i­ty is to its high­ly paid work­force.

Adding to the fi­nan­cial bur­dens is the fact that Petrotrin pays an­nu­al in­ter­est of $850 mil­lion on its debts, much of which was bor­rowed to fund the gaso­line op­ti­mi­sa­tion pro­gramme. That pro­gramme, mas­sive­ly over bud­get and sig­nif­i­cant­ly de­layed, is prov­ing to be a mill­stone, be­cause gaso­line has been sell­ing at less than the cost of a bar­rel of crude.Much of the ex­pen­di­ture was made on plants that have had to be moth­balled be­cause of pre­vail­ing mar­ket con­di­tions, which means that Petrotrin is pay­ing 9.75 per cent in­ter­est on plant and equip­ment that is cur­rent­ly un­pro­duc­tive.

The clo­sure of sev­er­al plants has led to a re­duc­tion in re­fin­ery through­put from 180,000 bar­rels of oil per day to 120,000 bar­rels. This 30 per cent re­duc­tion hurt the com­pa­ny's top line, but the ex­pec­ta­tion was that Petrotrin's ex­plo­ration and pro­duc­tion would take up that slack.

The very hard place the com­pa­ny now finds it­self in is due to the fact that its crude ex­ports–long tout­ed as its one bright spot–earn over 30 per cent less to­day than they did in June; four months af­ter the cat crack­er plant was closed.Petrotrin faces the per­fect storm of fi­nan­cial, op­er­a­tional and mar­ket mis­for­tune and mis­man­age­ment–re­ver­sal of which will be a her­culean task, re­quir­ing huge in­vest­ments of time, per­son­nel and oth­er re­sources.

The com­pa­ny must give pri­or­i­ty to up­grad­ing its age­ing in­fra­struc­ture and must wipe out op­er­a­tional in­ef­fi­cien­cies which have caused it to fall far be­hind its lo­cal and in­ter­na­tion­al com­peti­tors in en­er­gy.It may al­so be time to wean it off the high lev­el of gov­ern­ment in­flu­ence that has over­shad­owed its op­er­a­tions over the years.

A bet­ter busi­ness mod­el is ur­gent­ly need­ed as the en­er­gy com­pa­ny's com­plete de­pen­dence on sup­ply and de­mand, as well as the mar­ket prices of crude oil and re­fined prod­ucts, makes it par­tic­u­lar­ly vul­ner­a­ble to glob­al shocks.

Some ex­perts think the the up­stream por­tion of Petrotrin's op­er­a­tions could be prof­itable if it op­er­at­ed on its own. There have been rec­om­men­da­tions in the past to di­vide the com­pa­ny in­to dif­fer­ent en­ti­ties, such as a Trin­mar busi­ness unit, an up­stream land busi­ness unit and a re­fin­ing busi­ness unit. It may be time to give this se­ri­ous con­sid­er­a­tion, since it is painful­ly clear that Petrotrin is a fail­ing en­ti­ty.

But up­grad­ing the com­pa­ny's age­ing in­fra­struc­ture re­quires bil­lions of US dol­lars of new cap­i­tal in­vest­ment, far more than it could fund in­ter­nal­ly or raise on in­ter­na­tion­al cap­i­tal mar­kets, be­cause of its high­ly lever­aged bal­ance sheet.

And Petrotrin could eas­i­ly be­come a drain on tax­pay­er re­sources as the com­pa­ny calls on its 100 per cent share­hold­er for cash in­fu­sions to pay work­ers and keep pro­duc­tion tick­ing over.

The Gov­ern­ment has some very dif­fi­cult de­ci­sions to make. If it does noth­ing as a re­sult of po­lit­i­cal ex­pe­di­en­cy and its fear of the union's re­ac­tion, Petrotrin faces a slow death dur­ing which it could be a huge bur­den on tax­pay­ers.

Need­ing to raise cap­i­tal and im­prove pro­duc­tiv­i­ty, the Gov­ern­ment may wish to con­sid­er a TSTT-like sep­a­ra­tion pro­gramme, even as it ex­plores the pos­si­bil­i­ty of sell­ing a ma­jor­i­ty stake in the com­pa­ny to a for­eign part­ner with pock­ets deep enough to fund Petrotrin's cap­i­tal ex­pen­di­ture needs.