Incoming Chairman’s Speech:
Dwight Mahabir, Chairman of the Energy Chamber of T&T
Post AGM Event: Update on the Energy Sector in Trinidad and Tobago
8th October, 2020
Let me start by thanking my fellow Board members, and by extension the wider membership of the Energy Chamber, for the trust that you have placed in me. The Energy Chamber is an important institution with a long and distinguished history, and I am honoured and humbled by the opportunity to lead the organisation. I would like to especially thank Eugene Tiah, who has stepped down today after three years as Chairman and many more as a Board member. Eugene has been an exemplary leader in the energy sector, with a well-deserved reputation for his calm, structured and even-handed approach to difficult situations and in making tough decisions. On behalf of the entire sector thank-you for all your hard work and dedication.
But - Eugene – do not think you are off the hook yet; I will continue to be drawing on the knowledge and expertise that you have so generously given in the past.
I would also like to thank three other members of the Executive Committee who stepped down today – Richard de la Bastide, Karen Darbasie and Vernon Paltoo. It has been a pleasure working with you on the Executive Committee for the past few years. I would especially like to echo the words of thanks to Vernon previously given by Eugene – your contribution to the Energy Chamber as Treasurer over the past 15 years has been immense.
The energy sector in Trinidad & Tobago is faced with extremely difficult circumstances with huge challenges in the short, medium, and long-term. The commodity price crash, brought about by the global pandemic, has placed a spotlight on some structural challenges faced by our oil, gas and petrochemical sectors. But these challenges existed even before the pandemic with COVID exacerbating the situation.
In the short-term this is causing a lot of pain and distress in the energy sector. But the crisis that has been created also creates an opportunity for us to do things differently, rethink and restructure. It is apparent from the national budget statement delivered on Monday and the Roadmap to Recovery report published the week before, that the Government also clearly recognises that it is not business as usual and that hard decisions need to be taken.
The budget statement is just that – a statement – the hard and detailed work now needs to be done to turn that statement into tangible actions. Some of the fiscal changes announced in the budget create new opportunities for many of our members, but these need to be grasped if we are to realize the transformation we all seek. A lot of the work that needs to be done will require close collaboration between the private-sector and the Government and in that regard I am especially pleased that we have with us today the Honourable Franklin Khan, Minister of Energy and Energy Industries – the key agency with which the Energy Chamber will have to work to see many of the budget’s statements turned into actions.
I would like to highlight four areas of the national budget that are very much welcomed by the Energy Chamber, and in respect of which we will need to work closely with the Ministry over the next few weeks and months:
The changes to Supplemental Petroleum Tax – or SPT - and the opportunity thus created for new investment in the traditional oil sector.
The liberalisation of the fuel market and the review of electricity prices.
The commitment for a total overhaul of the energy sector fiscal regime over the next 12 months; and
The opportunity to fully develop Trinidad & Tobago as an energy services hub for the wider Caribbean region.
The change to the rate at which SPT becomes payable from US$50 to US$75 per barrel of oil for small oil companies is very much welcomed by the Energy Chamber, particularly when one considers that the Chamber and several operators have advocated for such change for at least the last 15 years. We thank the Ministers of Finance, Energy and the Government for enabling the achievement of this important milestone.
We have noted some commentary that the measure is unlikely to have an impact as oil prices will probably stay below the US$ 50 benchmark in the near-term. This misses the point. By raising the floor at which SPT becomes payable, the financial models used by potential investors in Trinidad oil production suddenly look a lot more attractive and less risky. This should encourage more capital investment and more activity in the traditional oil sector. As always, the devil will be in the details and the way in which the two-year review of the decision is included in the legislation will be crucial, given the fact that the payback on a new onshore well will typically be four or five years.
In this regard the Energy Chamber was very encouraged by the Minister of Finance’s commitment to work with us on getting the details right and also finding the fiscal mechanisms to attract investment for small offshore oil producers.
Minister Khan – we look forward to working in close partnership with the Ministry of Energy on all of the technical details so we can meet the objective of encouraging investment and reviving the traditional oil sector. As you frequently say – oil is still good business, at least for now.
Recognising that oil remains good business does not mean we do not see the immense challenge that we face with the absolute necessity to de-carbonise the global economy.
Even while acknowledging the major disruptions needed to deal with a global pandemic, the existential threat of climate change is one of the biggest challenges facing humanity. Dealing with this challenge is already reshaping global energy systems and global energy markets. Many scenarios developed by well-respected institutions show 2019 as the peak for global oil demand, with levels of demand never again crossing the pre-COVID level. While that scenario may not play-out exactly, I think we can all comfortably say that over the medium to long term, demand for oil and many of its derivatives is likely to decline.
E&P companies and countries that depend on oil will need to adjust accordingly – many of you would be familiar with recent announcements by the supermajors Shell and BP to pivot and materially shift their strategies to focus more on renewables with corresponding reductions in investment in the conventional oil and gas space.
Reduced global demand will likely result in only the most efficient producers remaining in the game and we are going to have to be extremely efficient in how we use our resources and in how we produce our hydrocarbons. Think of what has happened to coal as its impact on the environment became clearer and other, cleaner and more cost-effective sources of energy emerged. Will the day come when oil suffers the same fate? If so, we’d better monetise our reserves while they still have value!
The Energy Chamber has long argued for the end of the transport fuel subsidy and we welcome the Government’s announcement that they are liberalising the fuel market. The days of subsidising fossil fuels in our economy must come to an end. We also welcome the privatisation of service stations and the Port of Port of Spain.
The privatisation of the Point-A-Pierre refinery is also welcomed and we hope that negotiations can be successfully concluded with Patriotic Energies and Technologies Ltd. We acknowledge and support the Government’s firm position in setting a deadline of October 31 2020 for the conclusion of negotiations and their stated intention to move expeditiously to find another solution for restarting the refinery should negotiations with Patriotic prove inconclusive. Our members lost a lot with the closure of the refinery and will no doubt gain a lot when it is finally restarted.
We have also noted the promise of a rate review for electricity. The Energy Chamber believes that this is extremely important and needs to happen urgently. I do not think that the population of the country fully understands that the cost of cheap electricity has been borne by the gas industry. One of the most serious challenges that faces the National Gas Company and by extension all their customers in Point Lisas is carrying this burden of subsidised gas to the electricity sector. Sorting out this issue, could in itself provide a major boost to the petrochemical sector which is currently under serious strain.
The electricity subsidy has meant that we have become one of the most energy inefficient economies in the entire world – a situation that we cannot allow to continue. The poorest households in the country, who only use very small amounts of electricity, are not the problem and the subsidy for those households should continue – it is the rest of the economy and the richest households who waste electricity.
It is important that we all recognise that higher electricity rates do not have to mean higher bills, if people are careful in how they manage their electricity use. There is a significant opportunity in energy efficiency, and this can also be a major area for business development, especially for small businesses. Many of our member companies are poised to take advantage in this space.
Obviously, the incorporation of renewable energy into the energy mix also has an important part to play in reducing the gas used in domestic electricity generation and making more gas available for the forex earning petrochemical and LNG sectors. On that note, we eagerly look forward to the finalisation of the Power Purchase Agreement between the Government and the private sector investors for the new grid-scale solar project and the start of construction. Hydrogen also has huge potential to help restructure the energy systems and link together renewable energy with petrochemicals and help de-carbonise our economy.
Dealing with the electricity sector is important for the gas-based industry but it is not the only challenge facing the gas sector. The work being conducted by Gas Strategies on the gas value chain is vital for the medium-term sustainability of the sector, though we have to also find the right mechanisms to ensure that the industry survives in the short-term. If Trinidad & Tobago is only able to be a “swing-producer” of petrochemicals, there will be serious implications for the viability of our entire gas sector – upstream, downstream and midstream, and consequently for our members who supply goods and services to the sector.
The fiscal arrangements for the energy sector have an important role to play in the overall competitiveness of the industry. The Energy Chamber welcomes the announcement of a fundamental reform of the overall petroleum taxation regime. We have before us, an excellent opportunity to revise the system to ensure that commercial terms of contracts remain fair and globally competitive so as to encourage capital allocation to Trinidad & Tobago and appropriately reward investment risk. We would welcome the opportunity to work closely with both the Ministry of Energy and Ministry of Finance in this review process.
It is not, however, just royalties and taxes that need to be addressed to encourage investment. It is also the overall ease of doing business. The Energy Chamber is committed to continue the work that we started last year on the approval process for upstream gas projects and we think that significant value could be unlocked by shortening the time from the announcement of a bid round to first gas, which would be a win-win scenario for the industry and the government.
Improving the overall ease of doing business was a general theme of this year’s budget. This is an area that has been widely discussed over the past year and was a feature of the Roadmap to Recovery report.
The Energy Chamber fully supports this focus on the ease of doing business, not just for the energy sector but for the economy in general. Unfortunately, there are many areas in which Trinidad & Tobago scores poorly on the global indexes of ease of doing business and competitiveness. One area we score particularly badly, in fact one of the worst in the world, is in our industrial relations environment. This is a very important area for us to put right if we are to successfully develop the economy and be able to transition into a more productive economic sector. Amending the Industrial Relations Act is a major advocacy objective for the Energy Chamber, and we were heartened to see the attention that this issue received in the Roadmap report.
Fixing the various ease of doing business issues is an important prerequisite to meeting the Governments stated objective of transforming Trinidad and Tobago into a hub for the energy services sector. There is an immediate opportunity that exists to increase our energy services exports to the new and growing markets in Guyana and Suriname and potentially Barbados and Grenada. The potential ExIm Bank financing that was announced in the budget could provide an important boost, especially given the constraints on accessing foreign exchange.
Developing Trinidad & Tobago as a regional energy services hub will be much more feasible if the stated goals of the CARICOM Single Market and Economy (CSME) were fully realized. Extending the free movement of people provision to include a wider range of skilled workers, craftsmen and women for example, would be most welcomed, but there is a need to be keenly focused on making access to skills certification much easier without compromising the certification processes involved. We believe that Chambers of Commerce can play a key role in making the system more efficient and more effective, as the Energy Chamber currently does for example, in providing the PLEA Pass to workers in Trinidad. We look forward to working with both the Ministry of Energy and the Ministry of Trade in this regard.
There is one final point I would like to make with respect to the development of energy services exports. If we are to export services, we need to have strong and competitive service companies here in Trinidad and Tobago that are able to export their products and services. The Energy Chamber has championed local content as a mechanism to both retain more value in the local economy from energy sector investment and build local capacity to support the sector here and enable expansion regionally.
Hon. Minister, we were extremely pleased to have you present at the launch of the Local Content Management System, and we are happy to report that the system has now been rolled out and our members are beginning to populate the database. So far, we have only had twenty-three companies complete the questionnaire, so there is still a lot of work to be done and I encourage all our service company members to input their data as soon as possible. If we are going to effectively drive local content it is vital that we have access to sufficient and reliable information – we all know that what gets measured, gets done.
In all of these areas we need close collaboration between the Ministry of Energy and the Energy Chamber. If we are to navigate the current crisis, we all need to be working together and pulling in the same direction. As Chairman of the Energy Chamber I commit myself to the process of collaboration. There may be times when we disagree on specific policy measures, but if there is one thing that the current COVID crisis has taught us it is that we are all in this together.
In closing, I once again thank the Board and our members for placing their trust and confidence in me and I look forward to the Board’s active participation in service to our members, the energy sector and by extension Trinidad and Tobago.