Mar­i­ano Browne

“Every or­gan­i­sa­tion, whether a busi­ness or not, has a the­o­ry of the busi­ness. In­deed, A valid the­o­ry, that is clear, con­sis­tent and fo­cused, is ex­tra­or­di­nar­i­ly pow­er­ful.” Pe­ter Druck­er, The The­o­ry of the Busi­ness.

The as­sump­tion that the en­er­gy sec­tor (nat­ur­al gas, petro­chem­i­cals and oil) run by multi­na­tion­als would be the dy­namo of the Trinidad and To­ba­go econ­o­my has been the key pol­i­cy as­sump­tion since 1974. This led to the im­per­a­tive that tax rev­enue be max­imised and re­dis­trib­uted to the gen­er­al pop­u­la­tion through the gov­ern­ment’s ex­pen­di­ture pro­gramme. Hence, free pri­ma­ry and sec­ondary ed­u­ca­tion and sub­sidised ter­tiary ed­u­ca­tion, health­care and a pletho­ra of so­cial pro­grammes, in­clud­ing un­der­val­ued wa­ter de­liv­ery and sub­sidised elec­tric­i­ty.

All gov­ern­ments, whether red or yel­low, have adopt­ed this pol­i­cy. The on­ly ex­cep­tion was the Na­tion­al Al­liance Re­con­struc­tion (NAR). Eco­nom­ic cir­cum­stances (be­cause en­er­gy prices de­clined pre­cip­i­tous­ly ) and mul­ti­lat­er­al con­di­tion­al­i­ties forced a pol­i­cy change. The NAR did not sur­vive po­lit­i­cal­ly. Whilst it won the 1986 elec­tion by a land­slide 33-3, it re­tained on­ly 2 seats in the 1991 elec­tion.

Wean­ing the coun­try off sub­si­dies and trans­fers is very dif­fi­cult and has a po­lit­i­cal price. This was a pow­er­ful po­lit­i­cal les­son that every sub­se­quent gov­ern­ment has in­ter­nalised. The UNC in of­fice be­tween 2010 and 2015 ex­pe­ri­enced a boom in en­er­gy prices. It chan­nelled the in­crease in­to spend­ing on sub­si­dies and trans­fers. The de­cline in en­er­gy prices, which be­gan in 2014, led to a fall in gov­ern­ment rev­enues un­der the PNM. De­spite the fall in gov­ern­ment rev­enue, it main­tained the ex­pen­di­ture on trans­fers and sub­si­dies dur­ing its 10 years in of­fice.

Main­tain­ing the sta­tus quo and keep­ing sub­si­dies and trans­fers at a lev­el ac­cept­able to the pub­lic dur­ing the 2015-2025 pe­ri­od was fi­nanced by draw­downs from the Her­itage and Sta­bil­i­sa­tion Fund (HSF) and bor­row­ing while it wait­ed for a re­bound in en­er­gy prices even as nat­ur­al gas pro­duc­tion de­clined. The na­tion­al debt dou­bled as a re­sult. The war in Ukraine did in­crease en­er­gy prices and ul­ti­mate­ly gov­ern­ment’s rev­enues in 2023-24, but did not al­ter the long-term po­si­tion. For­eign ex­change earn­ings de­clined, as did for­eign re­serves, which has per­sist­ed.

The Cen­tral Bank dataset as of June 30th showed that sub­si­dies and trans­fers ac­count­ed for 58% of this gov­ern­ment’s ex­pen­di­ture, an un­de­sir­able de­vel­op­ment. It has now been re­vealed that the im­proved fis­cal per­for­mance tout­ed by the fi­nance min­is­ter in the 2026 Bud­get Speech and the mid-year bud­get re­view is the re­sult of draw­downs from the HSF and post­pone­ment of amounts due to the state’s cred­i­tors, in­clud­ing pub­lic sec­tor unions. It pro­duced a pos­i­tive re­sult: S&P’s cred­it rat­ing was main­tained, al­though the out­look re­mains neg­a­tive. But it on­ly post­pones a day of reck­on­ing.

The fis­cal and le­gal ar­chi­tec­ture sup­port­ing the mod­el dates to the 1970s and has not been up­dat­ed to ad­dress sub­se­quent de­vel­op­ments. The Pe­tro­le­um Act came in­to force on De­cem­ber 30, 1969; the Pe­tro­le­um Reg­u­la­tions of 1970, and the Pe­tro­le­um Tax­es Act came in­to force on Jan­u­ary 1, 1974. Notwith­stand­ing that the en­er­gy sec­tor has mor­phed from oil in­to a nat­ur­al gas-based econ­o­my, these leg­isla­tive/ reg­u­la­to­ry arrange­ments have re­mained un­changed and un­ad­just­ed to ad­dress the sec­tor‘s cur­rent op­er­a­tional de­mands.

In ef­fect, not on­ly has the mod­el changed from oil to nat­ur­al gas and petro­chem­i­cals, but many strate­gic and busi­ness er­rors have com­pound­ed the mod­el’s de­fi­cien­cies and its abil­i­ty to max­imise the na­tion’s eco­nom­ic ben­e­fit. The 2018 “Spot­light on En­er­gy” con­fer­ence high­light­ed sig­nif­i­cant val­ue leak­age from nat­ur­al re­source con­tracts, de­clin­ing hy­dro­car­bon pro­duc­tion, and ob­so­lete busi­ness mod­els at state en­ti­ties. Key is­sues in­clud­ed calls to rene­go­ti­ate up­stream con­tracts for bet­ter eco­nom­ic re­turns and the op­er­a­tional in­ef­fi­cien­cy of the state oil com­pa­ny, Petrotrin. How­ev­er, few prac­ti­cal achieve­ments or out­comes ad­dressed these weak­ness­es.

Yet the con­tin­u­ing pol­i­cy ap­proach is to find more nat­ur­al gas and mon­e­tise it through the ex­ist­ing mech­a­nisms. Fur­ther, the em­pha­sis on im­port­ed gas to solve the cur­rent do­mes­tic pro­duc­tion short­fall will not bring the same val­ue to the ex­ist­ing busi­ness mod­el. Venezuela will max­imise its re­turn from the sale of its gas to T&T-based com­pa­nies, re­sult­ing in a sub­stan­tial de­cline in net val­ue added. Hence the ar­gu­ment that “nat­ur­al gas may come from Venezuela, but the mon­ey (val­ue added) may not.”

Whilst the stat­ed pol­i­cy is that T&T must “max­imise its re­turn from every mol­e­cule of gas”, there is nei­ther a mech­a­nism nor a reg­u­la­tor to make this hap­pen. In­deed, while the Min­istry of En­er­gy es­pous­es this ap­proach, it has no mech­a­nism to make this a de­liv­er­able out­come. Fol­low­ing cur­tail­ments and high-pro­file plant shut­downs (such as at Nu­trien and Methanex), NGC redi­rect­ed un­al­lo­cat­ed gas mol­e­cules to oth­er es­tate pro­duc­ers, in­clud­ing Pro­man, Methanex, and Phoenix Park, al­low­ing op­er­a­tional plants to ex­ceed dai­ly con­trac­tu­al quo­tas. What mech­a­nism al­lowed NGC to eval­u­ate which plants were more ef­fi­cient? How can the pub­lic be as­sured that it is get­ting the best from na­tion­al gas pat­ri­mo­ny?

Trinidad and To­ba­go did mod­er­ate­ly well from its gas re­sources. The crit­i­cal point is that the en­er­gy sec­tor busi­ness mod­el had sub­stan­tial weak­ness­es, re­sult­ing in sub­stan­tial val­ue loss. The world is mov­ing on from fos­sil fu­els, and T&T must de­rive more val­ue from that re­source base and find more ef­fi­cient, val­ue-pro­duc­ing ways to in­vest the re­turns and tran­si­tion to a dif­fer­ent path­way, whilst con­trol­ling its ex­pen­di­ture.

Mar­i­ano Browne is the CEO of the UWI Arthur Lok Jack Glob­al School of Busi­ness.