By Raffique Shah
July 18, 2018
Because of the interest generated by my column last week on State-owned Petrotrin and the fact that the country has awakened to a possible disaster at our doorstep in the fate of the struggling oil giant, I thought I should return to add a few more salient points to the national discussion that will likely determine its future.
I claim no expertise in the oil industry, and certainly not on Petrotrin. However, I have, over the years, tried to educate myself on the hydrocarbons and petrochemicals industries in order to better understand these engines of our economy. Besides accessing information that is available in print and online, I have interfaced with many workers, technocrats and experts to whom I am grateful for sharing their vast knowledge with me.
So when readers seized upon my strident statement last week that if the principal stakeholders of Petrotrin cannot or will not formulate strategies that include austerity measures for saving the oil company from collapse, then we the shareholders must be prepared to shut it down to save the country from an economic disaster, I thought I needed to further clarify my position.
Shutting down one of the oldest oil refineries in this part of the world is not a first option. It must be a last resort. Over the last decade, two other refineries in St Croix and Aruba suffered that fate, the latter in 2012 after it racked up huge losses for several years. Both were privately owned enterprises, hence the social impact of their closure was hardly a consideration of the owners. They also differed from Petrotrin in that their feedstock (crude oil) was all imported, and they had no access to natural gas to improve efficiencies in their operations.
In Petrotrin’s case, while it should operate as a business, as indeed should all State enterprises, politicians have always intervened in its affairs, mostly to promote their interests, but also in pursuit of social mitigation initiatives that constrain the company.
The fuels subsidies, for example, cost the company billions of dollars that Government is supposed to repay. Most times it does. But during lean times, such as we have experienced since 2015, it does not. Similarly, Petrotrin, which, up to a decade or so ago was the single largest contributor to Government’s tax revenues (since overtaken by the National Gas Company), withholds taxes it owes the Exchequer. In this incestuous relationship, both lose out when oil prices plunge.
In my view, gasoline and diesel should have never been subsidised. The people who benefit most from fuel subsidies are those who can afford to pay market prices. Government could find creative ways to help those who provide public transport (maxi-taxi owners), such as a reasonable exemption on their annual tax returns—thus encouraging them to file returns and either pay income tax or benefit from refunds for fuel expenditure.
Similarly, cooking gas (LPG) subsidy, which, surely, must be intended for the poor in society, could benefit them through the “smart card” that is currently used for those whose names are on the national poverty register, something the relevant ministry must have.
The pricing of fuels at market levels (changing with oil prices on a monthly basis, as Dubai does) will add hundreds of millions of dollars to Petrotrin’s revenue column. If, by pruning the bloated workforce and eliminating corrupt employment practices at all levels, the company’s wage bill can be reduced by at least 25 percent, then there will be hope for having it continue operations.
It must, however, also improve its oil production, which seems to be stuck at around 40,000 barrels per day (that includes its production sharing and farm-out arrangements), and maximise efficiencies at the refinery on which it spent more than TT $11 billion in upgrades.
How can management justify importing 32 million barrels of crude oil in 2017, up from 24 million in 2010, and show TT $2.194 in losses last year, compared with a $160 million loss in 2010, or a $2.4 billion profit in 2011? In other words, after the upgrades that sunk the company deep into debt, the refinery’s performance is worse than before.
It just does not make sense.
Maybe it should consider scaling down refinery operations to meet only the requirements of the local market—approximately 10 million barrels per year in diesel, gasoline, LPG, aviation fuel, etc) and forego foreign sales, mostly in the Caribbean, of 37 million barrels.
While we’d like to retain the close-to-captive Caribbean markets for petroleum products, are we making profits off these sales or are we subsidising them too? I don’t know…none of us knows, silent, invisible shareholders that we are, taken for granted, taken down a long road of losses, details of which are Petrotrin-secrets.
We can only comment and surmise on the company’s annual reports that are published, wrapped in corporate and accounting euphemisms. Assets increase from TT $33 billion in 2010 to $40 billion in 2017, revenues decline from $25 billion to $20 billion (oh, it spiked to $37 billion in 2011), and losses plunged to a frightening $2 billion.
If among them, Government, management and the workers and their representative OWTU cannot explain these puzzles to shareholder-citizens, and show us how they plan to return the company to profitability, then all of them must go!
I, who in 1975 shouted “Texaco must go!”, will fully endorse this new slogan.