Last week was not a good one for the Na­tion­al Gas Com­pa­ny (NGC) as it re­ceived the an­nounce­ment that its cred­it wor­thi­ness had been down­grad­ed by the rat­ing agency Cari­Cris and found it­self be­ing ac­cused by the chief ex­ec­u­tive of­fi­cers of the ma­jor down­stream com­pa­nies of hav­ing a con­flict of in­ter­est and threat­en­ing 30,000 jobs.

To be fair it has not been a good decade for the com­pa­ny as it suf­fered un­der the rap­ing of its re­tained earn­ings by the UNC gov­ern­ment; then had to deal with nat­ur­al gas cur­tail­ment; sev­er­al law suits for fail­ing to pro­vide con­tract­ed gas; found it­self ex­posed as its lawyers failed them by sign­ing deals with up­stream providers that had no penal­ty claus­es for fail­ure to pro­vide gas yet had those claus­es in its own agree­ment with the down­stream com­pa­nies.

And, as if things could not get worse for the com­pa­ny, it now has gas agree­ments with the up­stream com­pa­nies that hang like an al­ba­tross around its neck, signed sealed and de­liv­ered by Prime Min­is­ter Dr Kei­th Row­ley, the Min­is­ter of every­thing Stu­art Young and the tit­u­lar Min­is­ter of En­er­gy Franklin Khan.

You add to this pic­ture, a com­pa­ny that last year made its first ever loss and you can see why things are not well at the long her­ald­ed state en­ter­prise.

Last week, Cari­Cris low­ered NGC’s rat­ings on its US$400 mil­lion debt is­sue to Cari­AA (for­eign and lo­cal cur­ren­cy) on the re­gion­al rat­ing scale, and ttAA on the T&T (T&T) na­tion­al rat­ing scale from Cari­AA+ (for­eign and lo­cal cur­ren­cy) on the re­gion­al rat­ing scale and ttAA+ (lo­cal cur­ren­cy rat­ing) on the na­tion­al rat­ing scale.

Ac­cord­ing to Cari­Cris the down­grade is dri­ven by the high­er cost of gas from up­stream sup­pli­ers and his­tor­i­cal­ly low in­ter­na­tion­al com­mod­i­ty prices, which have re­sult­ed in com­pressed prof­itabil­i­ty mar­gins, ad­verse­ly im­pact­ed fi­nan­cial per­for­mance, and con­strained debt ser­vice met­rics.

Cari­Cris not­ed that the NGC’s ma­jor busi­ness is the pur­chase of nat­ur­al gas from up­stream com­pa­nies and then sell­ing it for a prof­it to the petro­chem­i­cal pro­duc­ers. How­ev­er with the col­lapse of methanol and am­mo­nia prices and the high ac­qui­si­tion costs of nat­ur­al gas from lo­cal pro­duc­ers it has left the NGC and the petro­chem­i­cal com­pa­nies in dif­fi­cul­ties.

Cari­Cris al­so as­signed a neg­a­tive out­look on the low­ered rat­ings. The neg­a­tive out­look it said is pred­i­cat­ed on the un­cer­tain­ties in the glob­al eco­nom­ic en­vi­ron­ment to­geth­er with the chang­ing busi­ness mod­el that is char­ac­terised by ris­ing nat­ur­al gas sup­ply costs and sub­stan­tial­ly re­duced in­ter­na­tion­al en­er­gy com­mod­i­ty prices, which are like­ly to have ad­verse im­pacts on NGC’s fi­nan­cial per­for­mance and debt pro­tec­tion met­rics go­ing for­ward.

“These rat­ing strengths are tem­pered by the com­pa­ny’s sig­nif­i­cant­ly re­duced earn­ings and prof­itabil­i­ty due to falling com­mod­i­ty prices and its high vul­ner­a­bil­i­ty to a chang­ing en­er­gy land­scape, char­ac­terised by com­pressed mar­gins on ac­count of falling en­er­gy prices and high­er up­stream prices,” Cari­Cris not­ed.

The down­grade came the same week as the largest Methanol pro­duc­er in the world, Methanex an­nounced that it was un­like­ly to reach a gas sup­ply agree­ment with the NGC in the fore­see­able fu­ture and there­fore was send­ing home 60 work­ers. That is 60 more fam­i­lies who have lost an in­come. There is re­al pain hap­pen­ing in the en­er­gy sec­tor and the strat­e­gy of pre­tend­ing it is not so by sim­ply not deal­ing with it is no strat­e­gy at all.

Cari­Cris’ as­sess­ment is cor­rect and rub­bish­es the En­er­gy Min­is­ter and the gov­ern­ment’s talk­ing point that the chal­lenges fac­ing the down­stream sec­tor is dri­ven by his­tor­i­cal­ly low com­mod­i­ty prices. This is sim­ply not true and even if you re­peat it time and time again, Min­is­ter, Prime Min­is­ter it does not change the fact that the ac­qui­si­tion costs for nat­ur­al gas is sim­ply too high and not sus­tain­able.

It is clear in my mind that the gov­ern­ment’s strat­e­gy in the en­er­gy sec­tor is two fold, tax as much as you can get from a small­er pie and hope for a re­bound of en­er­gy prices. Nei­ther strat­e­gy will lead to re­vival of this coun­try’s en­er­gy for­tune.

Whether we like it or not the en­er­gy sec­tor is still cru­cial to each na­tion­al’s every­day life. The de­ci­sion to raise in­sur­ance rates is dri­ven to a large mea­sure by the lack of forex in the sys­tem. Why is there less forex? Its caused by low­er en­er­gy prices and pro­duc­tion.

The same it true of im­pend­ing in­creas­es in food prices. Un­til we can find things that can re­place the earn­ing ca­pac­i­ty of the en­er­gy sec­tor we have to do all in our pow­er to fix and max­imise re­turns.

I am all for a fair rent for our nat­ur­al re­sources, but one has to con­sid­er what role tax re­form, par­tic­u­lar­ly the rates of tax­es on nat­ur­al gas pro­duc­tion and even cor­po­ra­tion tax may be hav­ing on the de­sire to fix the val­ue chain. Gov­ern­ment must con­sid­er what fis­cal mea­sures it has to put in place for the long term sur­vival of the NGC and to pre­vent the col­lapse of Point Lisas.

Part of what is need­ed is to en­sure that the NGC and its group is re­struc­tured. I have al­ready writ­ten on the is­sue of the or­der staffing of the NGC and point­ed to the com­mu­ni­ca­tions de­part­ment with its 25 em­ploy­ees as an ex­am­ple of the wastage that oc­curs in the mo­nop­oly. That is not unique but when the gov­ern­ment tells the NGC it can re­struc­ture as long as it does not send home any­one it is sim­ply play­ing smart with fool­ish­ness. When the gov­ern­ment in­structs the NGC to take risks and spend hun­dreds of mil­lions to keep At­lantic LNG’s Train 1 go­ing on some no­tion that af­ter 2023 there will be ex­cess gas and does not say whether such a project has a pos­i­tive NPV or how tax pay­ers are go­ing to re­cov­er their in­vest­ments or the in­creased gear­ing ra­tio its like­ly to lead to, then this gov­ern­ment is bet­ting the house on the as­sump­tion that it will buy enough lot­to tick­ets to guar­an­tee the jack­pot.

The lead­ing CEOs of the petro­chem­i­cal com­pa­nies are right to raise the is­sue of con­flict of in­ter­est. More than a year ago I wrote about how the NGC is con­flict­ed and com­pet­ing with its own cus­tomers by sell­ing gas to it­self, due to its in­ter­est in the Caribbean Gas Chem­i­cal’s Methanol Plant. Yes methanol and methanol to DME.

Its ven­ture in Train 1 is a dis­as­ter wait­ing to hap­pen and while there is a tem­po­rary blip in LNG prices, un­less there are ma­jor near shore gas dis­cov­er­ies or gi­gan­tic deep wa­ter gas we are un­like­ly to have prices or pro­duc­tion lev­els nec­es­sary to sup­port what the gov­ern­ment says is its strat­e­gy.

The coun­try has made many mis­takes with the NGC, the good days of in­ef­fi­cient op­er­a­tions and poor deals, masked by large mar­gins are over. The com­pa­ny must now be run as a busi­ness, be­cause if the NGC fails we are all in trou­ble.