16
UWI TODAY
– SUNDAY 14 OCTOBER, 2018
enterprises. We want money (from them)…and at
some point in time, in my view, this nonsense has to
stop.”
He said the total debt in the economy is
approximately TT$57.4 billion. The State-owned
enterprise debt, as a percentage of total Government
debt, is 35.7%. “That is absolutely unnecessary”, he said.
Stating the reformation of Petrotrin would not
herald the end of this “trying situation”, he said there is
an economic process called creative destruction (where
innovation deconstructs long-standing arrangements
and frees resources to be deployed elsewhere) – “and I
Trinidad and Tobago has long been a nation built
on oil.
From the discovery of the first oil well in 1857
to our launch into commercial oil production in 1908,
our advent into the oil export market in 1910 and
subsequent establishment of our first oil refinery at
Point-a-Pierre in 1917, T&T has owed its prosperity
to this “dark” discovery that has single-handedly
helped shape the patterns of our socio-economic
development.
But now, much is changing. The current
indebtedness of state-owned oil company Petrotrin
(its debt burden is close to $12 billion, said Finance
Minister Colm Imbert in the 2018 Budget) carries
the diagnosis of some necessary amputation and
immediate reconstruction in order to ensure survival,
according to some experts. After listening to some
of the discussion at UWI recently, one could be left
thinking that Petrotrin’s state may be a symptom of a
broader underlying illness infecting the T&T economy.
Dr Roger Hos e in, Seni or
Lecturer in Economics and
Coordinator of UWI’s Trade
and Economic Development
Unit,
said that in his opinion, the
local economy is stagnant and
“in a bad state.” He said the 2018
economy is almost at the same
point as it was in 2007 in terms of the level of GDP,
despite producing approximately 3.6 billion barrels
of oil and gas equivalent. He said while the growth
performance of the national economy from 1999 to
2006 averaged 8.6%, it contracted in the period 2009
to 2017 to -0.51%, which, he said, really troubled him,
because “it points to a deeper problem than Petrotrin.
Somethingmore deep-rooted is wrong with the system
within which State-owned enterprises operate.”
Dr Hosein said that for State-owned enterprises,
debt by 2016 was TT$20.5 billion as compared to
TT$7.2 billion in 2007. He strongly disapproved of
this indebtedness, commenting: “We do not want
to be subsidizing and paying money to State-owned
restore machinery and equipment that had not been
maintained for several years. However, this cost would
have to borne by taxpayers, and would still result in
an annual haemorrhage.
Petrotrin has a TT$12 billion debt and owes
Government more than TT$3 billion in taxes and
royalties. Additionally, the company has a US$850
million bond payment that becomes due in 2019.
McKinsey indicated that although the company
had potential to make money in its Exploration
and Production (E&P) operations, its Refining and
Marketing (R&M) arm was not likely to be profitable.
Chairman of Petrotrin, Wilfred
Espinet
at the UWI discussion
saidthat theBoardwasgivenavery
clear mandate by Government to
make the company profitable and
sustainable. He said the current
plan to transform the financial
performance of the organisation
would require an immediate cash investment of TT$10
billion to:
• effect operational improvements and expansion
in E&P;
• convert the refinery into a terminalling facility to
allow for the importation of bulk fuel to fulfil local
requirements and those of existing CARICOM
customers;
• facilitate the permanent exit of 2,400 employees
and rehiring of 1,000; and
• assist in servicing existing debt.
“We’re trying to do an enormous restructuring
exercise in a very large company. The final outcome of
that is that it would get an E&P stand-alone operation.
You would get a T$5 billion dollar free cash flowwhich
nets – when you consolidate all your other issues – a
TT$3 billion dollar cash flow,” Espinet said.
He added it wouldmean refinancing existing debt
to stretch it out over a longer period of time, but “you
Petrotrinbegan its phased exit of the refining business onOctober 1, andplans to focus its business on exploration andproduction. A transition
process is expected to be completed by November 30, with severance packages for retrenched workers to cost in the region of $2.6 billion,
according to Finance Minister Colm Imbert speaking on Budget Day, October 1. Approximately 4,700 employees – 3,500 permanent workers
and about 1,200 non-permanent workers – may be affected. The Department of Economics at The UWI held a public panel discussion on “The
Economic Impact of the Closure of the Petrotrin Refinery”on September 19. Featured speakers included Chairman of Petrotrin,Wilfred Espinet;
CEO of the Energy Chamber of T&T, Dax Driver; and labour economist David Abdulah. Here are some of the highlights of that discussion.
By
Lisa LuanaOwen
Lisa Owen
is a freelance writer and corporate communications specialist
‘Time to reformall State enterprises’,
says economist
Petrotrin an indication of a more deeply rooted problem,
says Dr Hosein at UWI discussion on closure of refinery
ECONOMICS: THE PETROTRIN DILEMMA
Part of Pointe-a-Pierre-Refinery.
PHOTO COURTESY LoopTT
“This is a golden
opportunity for T&T
to use this recession to
reform the entire State-
owned enterprise system.
We have 63, sowe need to
reformall 63.”
Economist Dr Roger Hosein
Continues on
page 17
personally think that this is a golden opportunity for
T&T to use this recession to reform the entire State-
owned enterprise system. We have 63, so we need to
reform all 63.”
The decision to close the refinery was made on
recommendation from Petrotrin’s September 2017
appointed Board following a TT$28 million study
executed by global financial consultant McKinsey
and Company Inc. The study concluded that, if left to
continue operations as is, the company would require a
cash injection of TT$25 billion over a five-year period
to overhaul its infrastructure, service its debt, and
