The Opposition United National Congress (UNC) must be commended for providing the country with its plans for the economy over the next five years, should it come to power.
The party in its National-Economic-Transformation-Masterplan-2025 looks at many of the challenges and opportunities for developing the economy and contains some good ideas on what is needed, not the lest of which is the requirement for a more efficient taxation regime, improved competitiveness, by making strides in the ease of doing business, and some level of tax reform.
Where it fails is in the many promises that it cannot and will not keep, like running a balanced budget from 2020/2025, at the same time promising significant increases in subsidies and transfers while reducing personal and corporate taxes.
Unless the UNC expects, starting next year, massive economic growth, the likes of which the country experienced briefly in the early 2000s, and huge increases in energy prices and production, it is nothing but fanciful thinking.
But I do not plan to deal with the party’s fiscal proposal today but merely focus on its plan for the crucial energy sector.
However, before I take a close look at the UNC’s energy proposals, it has to be said that the PNM has failed to provide the country with a manifesto, two weeks before a general election. This is nothing but contempt for the electorate who are encouraged to vote for the party based on jingles and songs, encouraged as they are to win a PNM dancing competition. The belated promise by the Prime Minister that a plan will be made available later this week does nothing to inspire confidence that the party has a plan for the country and gives one a sense that its Chairman is writing his plan with a balisier cover to go with it. If and when the plan is produced we will take a closer look at it. Assuming it comes before the week of the election.
But back to the UNC’s offerings for the energy sector.
As everyone in T&T should know, energy is the most important sector in the country’s economy. It is by far the largest foreign exchange earner and a major contributor to government revenue.
T&T’s economy is also heavily dependent on government spend, from the payment of salaries and wages to transfers and subsidies and investment in infrastructure projects, the hand of the government plays a way to large part in the economy.
You also have an energy sector that is facing one of the longest period of low commodity prices in its history.
It has been five years now since the crash of crude prices and at time of writing Brent prices were US $43 a barrel, less than half the price that the UNC enjoyed during its last term in office.
T&T’s crude production has also declined, with ageing fields, it has fallen from an average of 76,000 barrels of oil per day when the UNC left office to about 60,000 bo/d. So you have an energy sector with lower production and lower prices and immediately you see how government’s revenue will be hurt.
One of the ways to increase crude production is to have more drilling happening. It is well known that in T&T you can increase production by additional drilling in areas that oil has already been discovered and the use of enhanced oil recovery.
The UNC says it intends to increase the drilling by giving more acreage to small operators for farm out and also holding additional bid round.
The party proposes: “We will have the regular holding of competitive bid rounds. The current Government has had just one bid round in the last four years and that ended in failure. Indeed, no new acreage for exploration was licensed in four years.”
More bid rounds cannot be scuffed at, and the party is right that the present government failed spectacularly in its five years where new acreage is concerned. But the UNC must be aware that simply offering bid rounds will not increase production on its own and in fact BHP is still drilling based on acreage it acquired when the UNC was in power in 2012.
The party also plans to again change the fiscal regime. It said within the first 90 days, of coming into office it will remodel the fiscal regime to meet the reality of a low-priced commodity environment.
“A key element to that will be the complete reform of the SPT regime and the royalty rates.” The country should be very careful and warned against this measure. The royalty rates are charged based on production and not profits and changing it could lead to significant loss of revenue. The country has seen this play out with the UNC in the past which hurt government revenue badly. We cannot as a country constantly tinker with the fiscal regime and expect investor confidence, not the least of which hurt government revenue. Perhaps a change in the formula for the SPT can be worked out, especially for stripper fields and small producers but even this requires careful thought since it is a windfall tax designed to ensure the population benefits from strong prices and not just the oil and gas companies.
According to the UNC proposal it will start and complete Phase 2 of the Galeota Port. It noted the first phase of this port was complete in 2014 and the second Phase is needed if we are to service the new oil industry in Guyana and possibly that of Suriname and French Guiana. This will create hundreds of new jobs in south east Trinidad.
This proposal is not new and it is one that pre-dates the UNC. In fact this was a proposal of the late Patrick Manning government which the UNC implemented phase one and is claiming it as its project to implement phase two. The PNM ironically also claims it as its project to implement. At least there is consensus.
The party also plans to expand the Lease Operator and Farmout programme to put idle acreage in the hands of small operators who will bring their own capital to reactivate these fields. This is a long standing policy of successive governments.
According to the UNC proposal it will “work with private investors to re-establish an iron and steel industry at Point Lisas, and this will once again provide jobs, foreign exchange and contribute to improving the communities in Central Trinidad.”
Again, this is not new. In fact for some years there have been attempts to restart the iron and steel business but like the Point a Pierre refinery there are major questions about its feasibility and potential competitiveness.
The party also talks about “getting the refinery working again,” and I have dealt extensively on the folly of such a proposal.
It is a bit disappointing that not a lot of focus is placed on this crucial sector in the UNC’s plans and many of the suggestions are not new but in a couple weeks we will know one way or the other what the population decides is in their best interest.