If the government wants to make a success of the new upstream focused Petrotrin one of the issues it will need to address is the impact of Supplemental Petroleum Tax (SPT) on investment in the oil sector. It will be difficult to attract the necessary capital investment unless this long outstanding issue is resolved. 

The Energy Chamber continues to advocate for many of the same issues that have plagued the sector from year to year and has not seen much movement on them.   In the past, we’ve written on the need for taking hard decisions and making firm commitments, and while this is mentioned in many of the budget speeches, many issues remain unresolved.

Increasing production in both the oil and gas sectors in Trinidad needs to be addressed urgently and a revised fiscal regime needs to be completed for the sector. While some changes were made last year, specifically increases to royalty payments for gas, the government has not unveiled the complete review of the fiscal policy regarding the energy sector.

One area in particular is the review of the Supplemental Petroleum Tax (SPT) system. It would seem that the Government is focused on reform of the gas sector and the oil producers have been pushed to a lower level of priority.

According to the Petroleum Economist, “Oil and gas company executives remain wary of new investment give the recent history of low prices: one executive of an independent oil company was reported as saying “no one wants to do anything that does not work at $50/b”

This is the exact figure where the structure of SPT in Trinidad & Tobago is most problematic. Oil companies in Trinidad & Tobago are in a negative cash flow situation when prices are in the low fifties, only returning to positive cash flows when prices are in the sixty-dollar region.  Because companies are running scenarios on fifty-dollar oil before making investment decisions, addressing the issue of how SPT is calculated and payable, is crucial to attracting investment into the traditional oil sector.

The IMF developed recommendations for oil and gas taxation more than one year ago, including the restructuring of SPT.  The only action that has been taken based on the IMF recommendations has been to increase some royalties on natural gas.  It is unclear why the Government has failed to act on the IMF recommendations relating to the oil sector and there has been no dialogue with the industry on this issue.   The lack of action and dialogue reduces investor confidence.

The Energy Chamber urges the government to bring to conclusion this issue affecting the sector. This will go a long way in bolstering investor confidence in the oil sector.