What a week it has been! The coun­try has had the en­cour­ag­ing news of two ma­jor nat­ur­al gas dis­cov­er­ies, in what ex­perts say could mean some­where be­tween 5 and 7 tril­lion cu­bic feet of nat­ur­al gas, and on the oth­er hand we have had the an­nounce­ment by Yara Trinidad Ltd (YTL) that it is clos­ing its am­mo­nia plant at Point Lisas.

In an in­ter­view with Guardian Me­dia, YTL’s pres­i­dent and plant man­ag­er, Richard De La Bastide, said af­ter 16 months of ne­go­ti­a­tions, the com­pa­ny could not reach agree­ment with the Na­tion­al Gas Com­pa­ny of T&T (NGC) for a new gas price.

He said: “We think it is high­ly un­like­ly we will get at a price that will al­low us to op­er­ate the plant, there­fore it is our in­ten­tion to close the plant.”

YTL press re­lease read: “This de­ci­sion comes af­ter sev­er­al ne­go­ti­at­ing ses­sions with The NGC, which failed to reach an agree­ment that could sus­tain the op­er­a­tion of the Yara plant.”

The clo­sure of the plant means five ma­jor plants that have been shut down since the Row­ley ad­min­is­tra­tion came to pow­er.

To be clear multi­na­tion­als look at each (as­set/plant), from its abil­i­ty to de­liv­er free cash flow (FCF) on a sus­tain­able ba­sis. FCF is sig­nif­i­cant­ly af­fect­ed by cap­i­tal ex­pen­di­ture (Capex) so on an old plant, it could be con­tin­u­ous­ly high. Yara would have done the math at the new gas price and found FCF was not sus­tain­able in the fore­see­able fu­ture.

The NGC has in­sist­ed that it too is fac­ing chal­lenges from the glob­al en­vi­ron­ment which has seen soft am­mo­nia prices for well over three years. It has al­so had to deal with sig­nif­i­cant­ly high­er do­mes­tic nat­ur­al gas prices.

The com­pa­ny in a re­lease said: “Like YTL, NGC has al­so felt the ef­fects of the volatile and chal­leng­ing en­vi­ron­ment cur­rent­ly fac­ing both the lo­cal and glob­al en­er­gy sec­tor. NGC has used its best ef­forts to mit­i­gate the ef­fects of these chal­lenges on its val­ued cus­tomers on the Point Lisas In­dus­tri­al Es­tate.”

There are those who have al­so ar­gued that the age of the Yara plant meant it was the least ef­fi­cient and could not sur­vive in the present en­vi­ron­ment.

While the ef­fi­cien­cy adds to op­er­a­tional ex­pen­di­ture costs (Opex cost) those with knowl­edge of Yara say it is in­suf­fi­cient to cause a clo­sure.

In ad­di­tion the Yara plant is the same phys­i­cal age as the Nu­trien O3 plant which just had a new gas con­tract ne­go­ti­at­ed with the NGC. While Yara in 2015 did an up­grade, in­dus­try sources say it was not as ex­ten­sive as that of Nu­trien which pre-in­vest­ed sig­nif­i­cant­ly in up­grades five years ago when FCF were bet­ter due to low­er do­mes­tic gas prices and high­er glob­al com­mod­i­ty prices.

We must how­ev­er not run the risk of los­ing sight of the chal­lenge and the fact that the chick­ens ap­pear to be com­ing home to roost.

While I dis­agree with Mar­i­ano Browne, who has sought to sug­gest that the Point Lisas mod­el of at­tract­ing in­vestors with low gas prices, gen­er­ous tax hol­i­days and then earn­ing rev­enue from ex­ports and high­er gas pro­duc­tion is dead, it is in dan­ger and un­less the gov­ern­ment works with all the play­ers to find a sus­tain­able way for­ward it is doomed.

For­mer head of the Eco­nom­ic De­vel­op­ment Board, Dr Ter­rence Far­rel, ear­li­er this year warned that the coun­try was at a point of in­flec­tion and the down­stream sec­tor was in jeop­ardy.

In his study, Far­rell said the petro­chem­i­cal sec­tor is al­ready not re­turn­ing suf­fi­cient val­ue to its share­hold­ers and while short­ages are neg­a­tive­ly im­pact­ing the cash flow and bal­ance sheet, it is the new prices be­ing de­mand­ed by the NGC that could be the death knell of the sec­tor.

The study reads, “The down­stream petro­chem­i­cals in­dus­try is at a point of in­flec­tion. In a sce­nario of scarce and ex­pen­sive gas feed­stock, the in­dus­try is set for de­cline and pos­si­ble demise. En­er­gy pol­i­cy has not ad­e­quate­ly ad­dressed the chal­lenges which the in­dus­try now faces.”

With re­spect to gov­ern­ment pol­i­cy, which the econ­o­mist was quick to point out, has not re­al­ly changed with the var­i­ous gov­ern­ments the coun­try has had, he feels it is not help­ing the sec­tor.

The re­port read, “The cur­rent ex­plic­it and im­plic­it struc­ture of in­cen­tives would seem to en­cour­age:

a) Up­stream com­pa­nies who have lit­tle or no in­ter­est in petro­chem­i­cals, to max­imise the LNG val­ue chain.

b) The gov­ern­ment to max­imise rents from nat­ur­al gas to sup­port gov­ern­ment ex­pen­di­ture

c) Petro­chem­i­cal com­pa­nies to shift in­cre­men­tal in­vest­ment in new plant to oth­er lo­ca­tions while run­ning down ex­ist­ing plants to even­tu­al clo­sure.

Far­rell sug­gest­ed that the route to clo­sure could start with the plants at Point Lisas be­ing turned in­to swing plants and then run down to even­tu­al clo­sure.

The gov­ern­ment tried to rub­bish the re­port, re­fus­ing to ac­cept its aca­d­e­m­ic rigour and saw it as an at­tack on the NGC and its very ex­is­tence.

The coun­try has a prob­lem re­quir­ing a com­plex and thought­ful so­lu­tion. The prob­lem is sim­ple in that the down­stream sec­tor is fac­ing low­er prices for its com­modi­ties but be­ing asked to pay high­er prices for its raw ma­te­r­i­al which is not be­ing pro­vid­ed in suf­fi­cient quan­ti­ties.

I sus­pect that part of the chal­lenge in find­ing a so­lu­tion is the lack of trans­paren­cy in the sys­tem. This colo­nial no­tion, that se­cret ne­go­ti­a­tions, with the pop­u­la­tion trust­ing blind­ly the politi­cians and their ap­pointees, be­cause “they have in­for­ma­tion we don’t” is at the heart of the prob­lem.

This lack of trans­paren­cy is why the NGC could next year lose mon­ey when it starts the CG­CL plant due to a sweet­heart gas price. The NGC be­ing a share­hold­er in the very plant.

It is this lack of trans­paren­cy that al­lows the NGC to in­vest in a plant to com­pete with its cus­tomers who have no choice but to con­tin­ue buy­ing from the mo­nop­oly that is the ag­gre­ga­tor.

It is the lack of trans­paren­cy that has the NGC hav­ing a sep­a­rate gas price with each com­pa­ny and of­ten for each plant.

It is the lack of trans­paren­cy at the NGC that could al­low it to change its div­i­dend pol­i­cy and its cof­fers raid­ed by the last ad­min­is­tra­tion just be­fore an elec­tion year.

It is the lack of trans­paren­cy at the NGC that had it sink near­ly a bil­lion dol­lars in a waste wa­ter project that its own doc­u­ments now say it is no longer pur­su­ing it.

It is the lack of trans­paren­cy that could lead to more Yara type clo­sures in the fu­ture.