Securing T&T’s Energy Future
Credit: Andre Worrell, Deputy Head of News-Business, Guardian Media Limited
Listening to Energy Minister Franklin Khan’s speech at the opening ceremony of Monday’s Energy Conference 2018 proved to be quite the mind-bending experience.
On one hand, it seemed as if the minister was issuing plaudits to the sector, while with the other, he seemed to be taking it away.
As the entire nation knows (because of the constant reminders from the government), the energy sector has not been the shining star it typically is for the T&T economy over the last three to four years. From a pricing perspective, it’s a situation over which we have – and will continue to have – little to no control.
From a production perspective however, much work is being done by many firms to boost local production and output from the sector. That said, two areas that the Energy minister chose to focus on in his speech provide fodder for healthy conversation.
The energy minister made it a point to address the issue of local content in the sector to all and sundry in attendance stating that it was a “pet peeve” of his government.
While acknowledging the industry as capital-intensive, and thus demanding a relatively low labour component, he went on to state that more needed to be done by energy companies to hire university graduates, on whom the state has spent over $600 billion via the GATE program, in the technical areas. He also – briefly – entreated local companies to become more “reliable and competitive” where labour related issues were concerned.
Permit me to spend a moment on this last point.
Firstly, issues of competitiveness must be honestly addressed. Truthfully, it is our responsibility as a country to sort out our local content and competitiveness issues. That said, many local companies in the sector have fallen victim to the damaging effects of trade union posturing and an industrial relations culture that over the last few years, in large measure, has directly impacted the perception of T&T as a “competitive” jurisdiction and as a result done our local companies no favors.
For the minister to just “talk around” this was perhaps a good political move (so as to not raise a hornets nest), but one that didn’t lay the blame – in some regard – squarely where it belongs.
The move by BP to build its Angelin platform in the Gulf of Mexico (lest we forget it was told to by one Union leader to “take its platform and go”, which it did) shows quite clearly that the energy majors doing business in T&T are now willing to explore their options when it comes to maximizing their spend – and rightly so.
Companies that are investing billions of US dollars owe it to their shareholders to make decisions that promote efficiency, where ever that may take them. So while more can be gleaned from the sector through local content, tackling the fundamental causes that hamper our competitiveness going forward and not just imploring the companies to “be more competitive” must be frontally addressed.
In fact, there are elements within the purview of the state that are bearing down directly on the competitiveness of our energy enterprises. Issues such as port efficiency, foreign exchange and industrial park rental fees should also be dealt with in this discussion. One can be certain that our local companies are not playing some sick game to try to be uncompetitive. They will always try to be as competitive as any jurisdiction.
Sadly, the reality is that sometimes forces work against that effort - to our detriment.
Value Maximization and Incentives
The Energy minister also focused on the flow of funds throughout the local energy industry value chain, pointing out that the concept of “value maximization” has been at the expense of the state (the resource owner) for far too long.
He cited work done by energy consulting firm Poten and Partners in their Gas Master Plan report which he said illustrated the “great disparity” in value that accrued to the State versus the energy companies from the monetization of T&T’s hydrocarbon resources.
Khan noted that as a result, the government was reviewing its suite of allowances (which he called “generous concessions”) and the taxation system under which oil and gas companies operate.
The topic of allowances and fiscal incentives has always been an interesting issue for governments to contend with and has been the subject of much back and forth between past and present ministers – particularly those initiated in 2014.
Politics aside, it would appear that the 2014 incentives had little or no impact on fiscal revenues since their introduction. Oil and gas firms have had little or no taxable income in recent years against which many of these allowances could be applied.
Put differently, talk of tightening up allowances and fiscal incentives when they have not even be utilized by companies is a bit of misdirection that the government keeps engaging in.
All told, the local energy industry is at an inflexion point. T&T’s position as the energy sweetheart of the Caribbean is under threat from forces intrinsic and extrinsic to us. Fortunately, firms are engaging in the task of working together to ensure sustainability for many years to come.
One can certainly agree with the minister that the state should benefit appropriately since energy resources are the patronage of the people, but the people must also work to ensure the country remains competitive well into the future.