Sher­win Long

In 2022, glob­al en­er­gy com­mod­i­ty prices have been buoyed by the glob­al de­mand-sup­ply im­bal­ance caused by the war in Ukraine. And, as ex­pect­ed, T&T has ben­e­fit­ed. Sus­tained high prices of oil, gas, methanol and am­mo­nia, even as the coun­try re­cov­ers from the neg­a­tive ef­fects of COVID-19, have pro­vid­ed a boost in rev­enue.

In last week’s mid-year bud­get re­view, the Fi­nance Min­is­ter Colm Im­bert con­firmed im­proved GDP, cash flow and Gov­ern­ment’s plans to use the spike in rev­enue to tack­le debt, re­duce the bud­get deficit and im­por­tant­ly to fund a de­posit to the Her­itage and Sta­bil­i­sa­tion Fund.

Giv­en these plans, the T&T Ex­trac­tive In­dus­tries Trans­paren­cy Ini­tia­tive (TTEITI) thinks it is im­por­tant to pro­vide the na­tion­al com­mu­ni­ty with an up to date snap­shot on the trends in en­er­gy tax rev­enue. The fol­low­ing da­ta out­lines roy­al­ty col­lec­tions, our earn­ings from pro­duc­tion shar­ing con­tracts as well as our sub­sidy li­a­bil­i­ty.

How­ev­er, it is im­por­tant to note that these pro­vi­sion­al fig­ures have not been au­dit­ed by the TTEITI au­di­tor/ad­min­is­tra­tor and rev­enue for fis­cal 2022 ac­counts for monies re­ceived up to April 30.

Roy­al­ty

Open Oil, an ex­trac­tive sec­tor NGO, de­scribes roy­al­ties as “a per­cent­age share of pro­duc­tion, or the val­ue of the pro­duc­tion which goes to the Gov­ern­ment re­gard­less of the rate of pro­duc­tion or costs to the op­er­a­tor.”

This pay­ment is made by pe­tro­le­um com­pa­nies di­rect­ly to the Min­istry of En­er­gy and En­er­gy In­dus­tries in ex­change for the right to ex­plore and pro­duce from T&T’s oil and gas acreage. Sim­ply put, if a par­tic­u­lar oil well pro­duces 100 bar­rels per day in May and oil prices av­er­age US $50 per bar­rel for that par­tic­u­lar month, the cash flow would be $5,000 per day.

If the Gov­ern­ment agreed to a 12.5 per cent roy­al­ty rate then it would re­ceive $625 per day. Be­tween fis­cal 2011-2021, the roy­al­ty Gov­ern­ment re­ceived to­talled $22.3 bil­lion and af­ter changes to the roy­al­ty rate to 12.5 per cent spiked in 2019. Roy­al­ties in­creased by 53 per cent from $1.7 bil­lion in 2021 to $2.5 bil­lion in 2022. BPTT and Her­itage were the two largest con­trib­u­tors, pay­ing $1.7 bil­lion and $474 mil­lion re­spec­tive­ly in 2022.

PSC share of prof­it

The Gov­ern­ment re­ceives a split/share of the prof­its from its pro­duc­ing Pro­duc­tion Shar­ing Con­tracts (PSCs) with oil and gas com­pa­nies. From this share of prof­it, the Min­istry of En­er­gy and En­er­gy In­dus­tries (MEEI) al­so pays the tax li­a­bil­i­ty of its PSC part­ners to the Board of In­land Rev­enue (BIR).

For in­stance, if Gov­ern­ment part­ners with two com­pa­nies for a PSC, the State is en­ti­tled to pay tax­es such as Pe­tro­le­um Prof­its Tax, Sup­ple­men­tal Pe­tro­le­um Tax, Un­em­ploy­ment Levy, Green Fund Levy etc on be­half of its two part­ners. Be­tween 2014-2022, Gov­ern­ment re­ceived $25 bil­lion in PSC share of prof­it and paid $18bil­lion in tax­es from these prof­its on be­half of its PSC part­ners to the BIR.

For fis­cal 2022, there has been a sig­nif­i­cant in­crease in PSC Share of Prof­it. The share of prof­it the grew by 27 per cent from $2.7 bil­lion in 2021 to $3.4 bil­lion in 2022.

This rep­re­sents the third high­est share of prof­it re­ceived in the past nine years and on­ly ac­counts for eight months of the fis­cal year thus far. If prices con­tin­ue to trend up­wards, this year could see share of prof­it reach­ing a nine-year high. NGC and Shell were the two largest con­trib­u­tors, pay­ing $1.6 bil­lion and $1.2 bil­lion re­spec­tive­ly in 2022.

Ram­i­fi­ca­tions of in­creased

prices on HSF de­posits

The Her­itage and Sta­bil­i­sa­tion Fund (HSF) was es­tab­lished in 2007 for the pur­pose of sav­ing and in­vest­ing sur­plus pe­tro­le­um rev­enues. Ac­cord­ing to the HSF Act, a min­i­mum of 60 per cent of the to­tal ex­cess (dif­fer­ence be­tween es­ti­mat­ed and ac­tu­al) rev­enues must be de­posit­ed to the fund dur­ing a fi­nan­cial year where­as with­draw­al could be up to 60 per cent of short­fall but not ex­ceed­ing 25 per cent of the fund and is per­mit­ted if an­nu­al tax rev­enue from oil and gas is at least tern per cent be­low bud­get pro­jec­tion.

For in­stance, if to­tal ex­cess rev­enues are $20 bil­lion, then at least $12 bil­lion must be de­posit­ed in­to the Fund in ac­cor­dance with the law.

There has been a de­crease in the val­ue of the HSF from US$ 6.3 bil­lion in 2019 to US$5.6 bil­lion in 2021 as a re­sult of the gov­ern­ment turn­ing to the HSF to fi­nance fis­cal deficits and to pro­vide COVID re­lief.

The gov­ern­ment has with­drawn US$900 mil­lion and a fur­ther US$600 mil­lion re­spec­tive­ly for the fis­cal years 2020 and 2021. Ini­tial­ly, a fis­cal deficit of $9.095 bil­lion was pro­ject­ed in the 2022 bud­get based on an oil price of US$65/bbl and gas at US$3.75/mmB­tu.

How­ev­er, with oil and gas prices cur­rent­ly hov­er­ing around US$112/bbl and US$8/mmB­tu, the gov­ern­ment has record­ed a sur­plus of $654 mil­lion in the Mid-Year Bud­get Re­view for the pe­ri­od Oc­to­ber 2021 to March 2022. Ac­cord­ing to Min­is­ter Im­bert, a de­posit is ex­pect­ed to be made in­to the HSF as per the law for the first time in 8 years. Giv­en the swing in petro­chem­i­cal prices as well, there has been sug­ges­tions by an­a­lysts that the HSF should al­so ac­count for wind­falls in petro­chem­i­cal sec­tor rev­enue.

Con­clu­sion

The da­ta pre­sent­ed above tells the sto­ry of en­er­gy sec­tor rev­enue at a time when due to the Covid-19 fall­out and chang­ing glob­al trends such as digi­ti­sa­tion we need re­think how we man­age and al­lo­cate what is earned from the sec­tor. There are al­so struc­tur­al is­sues to be ad­dressed in the en­er­gy sec­tor that will change the coun­try’s en­er­gy land­scape. These in­clude the re­sults of the deep­wa­ter and on­shore bid rounds, the de­vel­op­ment of the Caribbean’s largest so­lar project, changes to the fis­cal regime to in­cen­tivize more pro­duc­tion, the re­struc­tur­ing of At­lantic LNG’s struc­ture and a move to­wards lib­er­al­i­sa­tion of re­tail fu­el prices and re­duc­tion of the fu­el sub­sidy.

While the fil­lip in prices can lead to short term gain, these is­sues must al­so be ad­dressed over the medi­um to long term to pro­vide the coun­try with a plat­form for sus­tain­able growth. The da­ta pro­vid­ed can help in­form le­gal and fis­cal re­forms, pro­vide in­de­pen­dent­ly ver­i­fied re­search for an­a­lysts, pol­i­cy­mak­ers and com­men­ta­tors. Most im­por­tant­ly, it em­pow­ers cit­i­zens with in­for­ma­tion to strength­en their de­mands for sus­tain­able spend­ing of the earn­ings from the en­er­gy sec­tor, the main­stay of the na­tion­al econ­o­my. The lat­est Trinidad and To­ba­go EITI Re­port will be avail­able in Ju­ly.