Joshua Seemu­n­gal

Se­nior Mul­ti­me­dia Jour­nal­ist

joshua.seemu­n­gal@guardian.co.tt

Now that nine suit­ors have for­mal­ly ex­pressed in­ter­est in the moth­balled Pointe-a-Pierre (PAP) Re­fin­ery, a po­ten­tial restart moves clos­er.

With a restart near­ing a re­al­i­ty, is the re­turn of a po­lit­i­cal and pub­lic de­bate around Petrotrin’s clo­sure.

On Fri­day, Pres­i­dent Gen­er­al of the Oil­fields Work­ers Trade Union (OW­TU) An­cel Ro­get burned pho­tographs of Prime Min­is­ter Dr Kei­th Row­ley and En­er­gy Min­is­ter Stu­art Young to sym­bol­ize its dis­agree­ment with the re­fin­ery ac­qui­si­tion process. He called for a na­tion­al de­bate about the re­fin­ery’s clo­sure, say­ing the coun­try was robbed of a ma­jor for­eign ex­change earn­er.

Through­out the more than five years since the coun­try’s largest-ever state-owned en­ter­prise shut down, there have been im­pas­sioned de­bates about the de­ci­sion and its im­pact.

In May, Young pub­lished an op-ed de­fend­ing the clo­sure, while last De­cem­ber, the OW­TU host­ed a fo­rum where some econ­o­mists ex­pressed their be­lief the com­pa­ny ought to have been saved.

As both sides of the di­vide grap­ple to gain con­trol the nar­ra­tive, Guardian Me­dia takes a crit­i­cal analy­sis of the com­pa­ny, what it cost the coun­try and whether it should/could have been sal­vaged.

In the Be­gin­ning

The Pe­tro­le­um Com­pa­ny of Trinidad and To­ba­go, Petrotrin, was formed on Jan­u­ary 21, 1993, as a merg­er be­tween state-owned oil com­pa­nies Trin­toc and Trin­topec.

In No­vem­ber 1993, dur­ing the par­lia­men­tary de­bate of the Petrotrin Vest­ing Bill, for­mer Fi­nance Min­is­ter Wen­dell Mot­t­ley said Petrotrin was cre­at­ed to form a fi­nan­cial­ly strong com­pa­ny, cater­ing to op­er­a­tional ef­fec­tive­ness. He said the com­pa­ny would fo­cus on ex­plo­ration, pro­duc­tion, re­fin­ing, and mar­ket­ing and would, most im­por­tant­ly, sat­is­fy its oblig­a­tions to share­hold­ers and the state.

“These are two com­pa­nies which at one time were prof­itable, got in­to dif­fi­cul­ties and the con­cept here is to do some fi­nan­cial en­gi­neer­ing by putting cer­tain as­sets and li­a­bil­i­ties in­to a new com­pa­ny, keep­ing some of the li­a­bil­i­ties out of it or con­vert­ing some of the li­a­bil­i­ties, for that mat­ter the tax li­a­bil­i­ties, to pro­vide that com­pa­ny with some strength so that it can chart a course for­ward.

“The in­ten­tion is to en­sure that there is a com­pa­ny that would con­cen­trate on its core busi­ness rather than be­ing, as it were, dis­turbed by the non-pe­tro­le­um busi­ness,” he said.

For­mer UNC op­po­si­tion MP Trevor Su­dama asked if the gov­ern­ment un­der­stood the sig­nif­i­cance and po­ten­tial ram­i­fi­ca­tions of the de­ci­sion.

“The two merged com­pa­nies are the largest own­ers of prop­er­ty through­out the is­land, through­out the na­tions of the Caribbean, and they have com­bined to­tal as­sets of over $4 bil­lion, a com­bined work­force of 5,500 with an op­er­at­ing cap­i­tal of $2 bil­lion. So you un­der­stand the ex­tent and the sig­nif­i­cance of what we are do­ing to­day; it is putting un­der one man­age­ment this enor­mous as­set po­ten­tial of the com­pa­nies.

“When the as­sets of Tex­a­co were pur­chased by the Trinidad and To­ba­go Gov­ern­ment . . . in 1985 . . . Were the terms and con­di­tions which were agreed up­on in the in­ter­est of all the peo­ple of Trinidad and To­ba­go? What we en­tered in­to as a trans­ac­tion, was to pur­chase a run­down and out­dat­ed re­fin­ery ca­pa­ble of pro­duc­ing mere­ly low-val­ue fu­el oil.

“We had an­ti­quat­ed equip­ment and plant and we are still ask­ing to­day whether, in that trans­ac­tion, a prop­er in­ven­to­ry was made from 1985 up to now of the as­sets and li­a­bil­i­ties at the time of pur­chase. When that re­fin­ery was pur­chased, the ques­tion is whether we paid the prop­er val­ue for it, in fact, not on­ly for the re­fin­ery but al­so for all the oth­er as­sets of Tex­a­co. Re­fin­ery loss­es in 1985 were es­ti­mat­ed to be US$100 mil­lion and yet, we were pur­chas­ing these as­sets,” Su­dama warned.

The bill was passed in De­cem­ber 1993.

Trevor Boops­ingh was ap­point­ed the com­pa­ny’s first chair­man. Petrotrin’s launch came when nat­ur­al gas pro­duc­tion was over­tak­ing oil pro­duc­tion. In 1995, the Pt Fortin Re­fin­ery was shut down, with most of its op­er­a­tions trans­ferred to the Pointe-a-Pierre Re­fin­ery.

Some up­grades to the peren­ni­al­ly prob­lem­at­ic re­fin­ery were com­mis­sioned by 1998, im­prov­ing prod­uct qual­i­ty and mov­ing ca­pac­i­ty up to 160,000 bar­rels a day. The up­grades were fi­nanced through loan agree­ments with the In­ter-Amer­i­can De­vel­op­ment Bank for US$260 mil­lion and the Eu­ro­pean In­vest­ment Bank for ECU$38 mil­lion. The loans fi­nanced sec­ondary oil re­cov­ery and re­fin­ery mod­ern­iza­tion projects.

De­spite the up­grade, which Petotrin’s board in­sist­ed was nec­es­sary to keep the com­pa­ny afloat, prob­lems with the re­fin­ery built in 1917 per­sist­ed. As­set in­tegri­ty re­mained a se­ri­ous and cost­ly is­sue, af­fect­ing op­er­a­tions, pro­duc­tion and the com­pa­ny’s bot­tom line.

Find­ing ev­i­dence of Petrotrin’s fi­nan­cial per­for­mances in the 1990s and ear­ly 2000s is dif­fi­cult. Guardian Me­dia’s at­tempts to source those fi­nan­cial records were fu­tile. We sought the in­for­ma­tion from sev­er­al for­mer Petrotrin and En­er­gy Min­istry of­fi­cials but they were un­able to as­sist.

The June 2017 Sel­wyn Lash­ley-chaired re­port on Petrotrin’s op­er­a­tions found that be­tween 2007 and 2017 the com­pa­ny pro­vid­ed the gov­ern­ment with around $43 bil­lion in levies, roy­al­ties, sup­ple­men­tal pe­tro­le­um tax and in­come tax­es.

How­ev­er, the com­pa­ny paid no div­i­dends be­tween 2011 and 2015, and Prime Min­is­ter Dr Kei­th Row­ley in a speech on Petrotrin’s clo­sure in Sep­tem­ber 2018 said the com­pa­ny owed $3.1 bil­lion in tax­es and roy­al­ties up to Feb­ru­ary 2017.

His­toric wastage and cor­rup­tion

Petrotrin in­curred over­run costs of $14.25 bil­lion on three flag­ship projects key in at­tempts to rein­vent the com­pa­ny and in­crease its prof­itabil­i­ty. In­stead, the projects’ costs plunged it in­to demis­ing debt.

The Gaso­line Op­ti­miza­tion Pro­gramme had a 314 per cent over­run of TT$10.15 bil­lion.

The Gas to Liq­uid Project, a 174 per cent over­run of TT$2 bil­lion.

The Ul­tra-Low Sul­fur Diesel Project, a 265 per­cent over­run of TT$2.1 bil­lion.

Con­tin­ues on page 9

All three projects were con­cep­tu­alised and/or ini­tialised un­der the chair­man­ship of the late for­mer Petrotrin Chair­man Mal­colm Jones who led a board ap­point­ed un­der the Patrick Man­ning ad­min­is­tra­tion.

To com­pound mat­ters, Petrotrin on­ly man­aged to op­er­a­tionalise one of the projects - the Gaso­line Op­ti­miza­tion Pro­gramme. The GOP in­volved the in­stal­la­tion of an iso­meri­sa­tion com­plex, a con­tin­u­ous cat­alyt­ic re­form­ing plat­former com­plex, an alky­la­tion unit, and a sul­phuric acid re­gen­er­a­tion plant, the up­grade of the flu­id cat­alyt­ic crack­ing unit, the in­stal­la­tion of off­site fa­cil­i­ties, and the up­grade of util­i­ty sys­tems.

Ac­cord­ing to the 2017 Lash­ley Re­port, while re­fin­ery through­put in­creased, the GOP did not lead to the pre­dict­ed in­crease in the gross re­fin­ery mar­gin. When asked if he was sat­is­fied with the work done by Bech­tel, the con­trac­tor, For­mer Petrotrin Pres­i­dent Khalid Has­sanali said not at all.

“Penal­ties in the con­tract were very heav­i­ly qual­i­fied, and dur­ing the mid­dle of the project Bech­tel want­ed to change from lump sum to cost re­im­bursable, which re­sult­ed in a dou­bling of the cost,” he said.

A US$750 mil­lion bond was uti­lized to fi­nance a por­tion of the GOP with a six per cent in­ter­est rate, a fi­nal in­stall­ment was ini­tial­ly due to be paid by May 2022.

The Gas to Liq­uid Project was aban­doned, af­ter in­cur­ring $2.9 bil­lion loss and rel­e­gat­ed as no more than “scrap iron.”

In 2005, Petrotrin part­nered with World GTL Lim­it­ed. Petrotrin went in for 49 per cent, but prob­lems arose with the project and GTL. Petrotrin then de­cid­ed to pur­chase the en­tire loan with Cred­it Su­isse. A re­ceiv­er was ap­point­ed in 2009 for the project’s com­ple­tion, but prob­lems per­sist­ed and the re­ceiv­er man­dat­ed that the as­sets be dis­posed.

It was sold to Ni­Quan En­er­gy- Petrotrin re­ceived a cash pay­ment of US$10 mil­lion, with the re­main­ing US$25 mil­lion in Pref­er­ence Shares.

For its part, Ni­Quan could not op­er­a­tionalise the plant- it has in­curred more than US$400 mil­lion in debt, and in April ter­mi­nat­ed 75 em­ploy­ees, with founder and di­rec­tor Ains­ley Gill con­firm­ing the com­pa­ny was out of mon­ey.

In 2013, un­der the Per­sad-Biss­esar ad­min­is­tra­tion, Petrotrin sued Mal­colm Jones, al­leg­ing he breached his fidu­cia­ry du­ty in ap­prov­ing the pay­ment of US$109.4 mil­lion in over­runs in the failed GTL project.

Mean­while, the Ul­tra-Low Sul­fur Diesel Project is still not op­er­a­tional. It would have al­lowed Petrotrin to pro­duce im­proved qual­i­ty diesel, meet­ing in­ter­na­tion­al qual­i­ty spec­i­fi­ca­tions. It would have al­so al­lowed the re­fin­ery to process a broad­er range of crude oils, re­duc­ing pur­chase costs. The ULSD was crit­i­cal to Petrotrin’s fu­ture. It need­ed the plant to achieve a mar­gin up­lift of US$6 per bar­rel, lead­ing to in­creas­ing earn­ings of up to $3.5 mil­lion per month.

The con­tract award­ed to Sam­sung start­ed in 2009 and had an es­ti­mat­ed com­ple­tion date of 2012. While the project is 98 per cent me­chan­i­cal­ly com­plet­ed, it can­not op­er­ate be­cause the foun­da­tion is faulty due to is­sues with struc­tur­al spec­i­fi­ca­tions. The wrong seis­mic re­sis­tance was spec­i­fied. In 2018, PM Row­ley es­ti­mat­ed that it would cost TT$2.4 bil­lion to rec­ti­fy.

Petrotrin al­so sought le­gal ac­tion, un­der the Peo­ple’s Part­ner­ship gov­ern­ment, against Jones for the ULSD. The state’s case col­lapsed in 2016 af­ter for­mer At­tor­ney Gen­er­al Faris Al-Rawi said he was ad­vised that the case was un­like­ly to suc­ceed. The High Court or­dered the state to pay Jones more than $3 mil­lion in le­gal costs.

A US$850 mil­lion bond, in­clud­ing a bul­let prin­ci­pal pay­ment payable in Au­gust 2019, was used to fi­nance the re­main­ing por­tion of the GOP as well as the ULSD.

Bad loans

The three flag­ship projects were not the on­ly ex­am­ples of wastage and pos­si­ble cor­rup­tion at Petrotrin.

In 1993, Petrotrin was in­volved in a con­tro­ver­sial loan deal with Citibank Trinidad. Petrotrin al­leged­ly sought to bor­row US$61.5 mil­lion but was “pres­sured” to bor­row around US$158 mil­lion: US$96.5 mil­lion ful­ly cash se­cured loan to Trin­tomar; US$49.3 mil­lion pre-ex­port fi­nanc­ing to Trin­toc; and a US$12.3 mil­lion pre-ex­port fi­nanc­ing to the Na­tion­al Gas Com­pa­ny.

For­mer Petrotrin Chair­man Don­ald Baldeosingh hired a Lon­don-based law firm to in­ves­ti­gate the deal. David Hud­son, a re­tired British mer­chant banker, wrote in a re­port that he found the con­tract lan­guage in­com­pre­hen­si­ble and in­con­sis­tent with the ac­cept­ed stan­dards of bank­ing con­duct. He dis­cov­ered that Citibank was paid more than twice as much in in­ter­est and fees as it would have re­ceived un­der its ini­tial pro­pos­al.

“I con­clude, based on the ev­i­dence I have seen, that it is prob­a­ble that the trans­ac­tion, tak­en as a whole, was both fraud­u­lent and cor­rupt,” his re­port stat­ed.

In 2017, a Petrotrin au­dit re­port­ed that the com­pa­ny paid $100 mil­lion to A&V Drilling for oil that was al­leged­ly not sup­plied. Two re­ports, one in­ter­nal and one com­mis­sioned by oil and gas con­sul­tant Gaffrey Cline, sup­port­ed the au­dit’s find­ings. Petrotrin fired oil trans­fer spe­cial­ist and for­mer PNM gen­er­al elec­tion can­di­date Vidya De­ok­iesingh fol­low­ing their in­ter­nal in­ves­ti­ga­tion.

Petrotrin ter­mi­nat­ed a con­tract with A&V, but A&V won a le­gal case be­fore the Caribbean Court of Jus­tice and stood to ben­e­fit from a sig­nif­i­cant pay­out - worth as much as $ 1 bil­lion - for Petrotrin’s fail­ure to pay out­stand­ing bills. The par­ties set­tled with A&V re­ceiv­ing $18 mil­lion in dam­ages and a new ex­plo­ration li­cense from Her­itage Pe­tro­le­um.

In the 2017 Lash­ley Re­port, it was re­port­ed that a deep­er in­ves­ti­ga­tion would iden­ti­fy the spe­cif­ic man­age­ment and gov­er­nance is­sues ac­count­able for the com­pa­ny’s poor per­for­mance.

“Poor choic­es for mem­bers of the board and man­age­ment, a de­ple­tion of ex­pe­ri­ence skills and com­pe­tence and the fre­quen­cy and mag­ni­tude of bad de­ci­sions on cap­i­tal projects have bur­dened the com­pa­ny with debt and con­comi­tant ser­vic­ing oblig­a­tions with­out an in­crease in rev­enues,” it said.

A fi­nan­cial fi­as­co in num­bers (Put In Box)

Ac­cord­ing to Petrotrin’s fi­nan­cial state­ments, au­dit­ed by KP­MG:

● Rev­enues de­clined by 51 per cent be­tween 2008 and 2018. In 2008, the com­pa­ny record­ed rev­enues of $40.8 bil­lion. It de­clined to $20 bil­lion in 2018.

● The com­pa­ny’s fi­nan­cial li­a­bil­i­ties were US$14.5 bil­lion and $5 bil­lion in 2017.

Ac­cord­ing to the 2017 Lash­ley Re­port:

● There was a debt ra­tio of ap­prox­i­mate­ly 0.70 (sig­nif­i­cant­ly high­er than in­dus­try norms).

● A cash ra­tio de­cline of 0.82 be­tween 2007 and 2015 - in­di­cat­ing a high po­ten­tial for dif­fi­cul­ties in ser­vic­ing cur­rent li­a­bil­i­ties

● Times In­ter­est earned de­creased by 95 per cent from 2007 to 2015

● Oil pro­duc­tion de­creased by 26 per cent be­tween 2006 and 2016

● Over fis­cal years 2007 to 2016, Petrotrin’s Land, North and East Coast, Trin­mar and Farm Outs crude oil pro­duc­tion de­creased, while that of the lease op­er­a­tors in­creased.

● Off­shore oil pro­duc­tion be­tween 2007 and 2016 de­clined by 15 per cent

● Gross Prof­it Mar­gins de­clined by 11 per cent be­tween 2010 and 2015

● TT$3.4 bil­lion is need­ed over 10 years to up­grade berths, sea lines, port fa­cil­i­ties, tanks, pipelines and plat­forms.

● At the end of 2015, the net work­ing cap­i­tal po­si­tion was neg­a­tive TT$4.6 bil­lion

In ad­dress­ing the clo­sure of the re­fin­ery in Sep­tem­ber 2018, the Prime Min­is­ter said the fol­low­ing about Petrotrin’s fi­nances:

● Av­er­ag­ing $2 bil­lion in loss­es a year

● Re­quires $25 bil­lion cash in­jec­tion to stay alive

● $7 bil­lion was es­ti­mat­ed for the re­quired up­grade and main­te­nance work for the Point-a-Pierre plant

● At the end of 2015, short-term loans at the com­pa­ny amount­ed to TT$5 bil­lion

En­er­gy and En­er­gy In­dus­tries Min­is­ter Stu­art Young in a re­cent May op-ed said:

● In 2014 and 2015, Petrotrin suf­fered loss­es of $1.56 bil­lion

● Do­mes­tic oil pro­duc­tion de­clined by 71 per cent be­tween 2005 (144,000 bopd) and 2016 (42,000 bopd)

● Each bar­rel of re­fined prod­uct re­sult­ed in a loss of US$5 to US$7

Part 2 to­mor­row