The government and the energy industry in Trinidad and Tobago does not have the luxury of time if it aims to ensure a sustainable future. We need decisions in the immediate term if we are to deliver a long-term sustainable future for the energy sector.
In his annual budget presentation, the Trinidad and Tobago Minister of Finance, Colm Imbert, outlined the challenges facing the oil and gas sector and detailed some of the measures being considered by the government to stimulate investment. He gave details of the proposals developed by IMF consultants for changes to the fiscal regime and stated that these were under active consideration.
The general direction of the proposed changes to taxation are positive for the oil sector, especially the proposals to replace the existing Supplemental Petroleum Tax (SPT) with a new cash flow-based tax. The proposed fiscal changes may not be as positive for the gas sector, as the new cashflow-based tax will be calculated against both oil and gas production (currently SPT is only levied on oil production). The Minister of Finance clearly stated that the new tax regime would only be implemented after consultation with the industry.
The Energy Chamber has been actively involved in discussions on energy sector taxation with the Ministry of Finance and we are heartened by the commitment for further consultation. However, it is vital that discussion and consultation do not drag on without any decisions being taken. The energy industry in Trinidad and Tobago needs clarity about future taxation and just as importantly, clarity about the structure of the gas markets.
Discussions on the gas master plan have been ongoing for a long time. The consultant’s report on the future of the gas industry was submitted to the government over a year ago. While it was understandable that a new government would take some months to digest and study the complex issues involved in forging a future path for the industry, the time for action is now.
Currently, there are four major gas delivery projects in execution that should help overcome the serious gas shortages that have plagued the industry in Trinidad for the past five years. However, as the Energy Chamber has repeatedly pointed out, we need a constant flow of new investment decisions in gas delivery projects each and every year if we are to maintain our industry. The current projects only take us back to meeting the demand for a short period of time and we will again be in a shortfall in the medium term unless new projects are sanctioned.
For the oil industry, Minister Imbert explained that production has fallen to the lowest levels since 1956. Increasing production requires investment but this will not come under the current taxation terms that put companies in very difficult financial situation, especially when oil prices cross US$50 and SPT kicks-in. Quick decisions are needed on this issue if investment capital is going to be attracted to the oil sector. Furthermore, decisions are needed on the structure of Petrotrin and the ability to attract private-sector capital to invest in production from its mature oil reservoirs.
Achieving clarity about both the fiscal regime, the structure of the gas markets and the structure of Petrotrin requires decision-making. We need consultation and dialogue but we need to make sure that this leads to decision-making, not further rounds of discussion. The time for decisions is now.