Trinidad & Tobago’s Minister of Finance, the Honourable Colm Imbert recently reported that he had been pursued by the Energy Chamber of Trinidad & Tobago to introduce changes to the upstream oil and gas taxation regime ever since he became Minister seven years ago. It was, however, only this year with a significantly improved overall national fiscal position, driven primarily by higher commodity prices, that he had been able to respond and make some of the necessary changes.
Minister Imbert made the comments during his feature address at an Energy Chamber networking event (“Conversations on Energy and the Economy”) where he highlighted many of the key issues that he had faced with energy sector revenue and its impact on the overall fiscal balance of the country. The Minister gave a frank explanation of some of the early challenges that the government had faced when it came into power in 2015, the situation that it had faced with the existing system and why it had introduced new royalties on natural gas at that time.
He told the Energy Chamber membership at the session that the CEO of the Energy Chamber, Dax Driver, had been in constant contact with him since he became Minister especially on this issue of supplemental petroleum tax (SPT). While he understood the issues that the Energy Chamber was raising, the overall shortfall in revenue that the government faced, made it difficult to act on the recommendations. However, in recent times, due to the bounce-back post pandemic and then the Ukraine-Russia war, prices for commodities (oil, gas, ammonia and methanol) have increased sharply. This had a positive impact on overall government revenue, both directly from the upstream but also from the petrochemical sector.
Positive impact of higher prices on government revenue
In 2021 with prices suppressed by low levels of global economic activity during the pandemic, the Minister explained that tax collection from the upstream oil and gas sector was TT $3.1 billion. Anticipating better prices in 2022, the government estimated that figure would increase to $5.53 billion.
“What we actually found when we did our estimates just before the budget in October 2022 was instead of getting $5.53 billion in revenue from the oil companies, we got $10.45 billion, almost twice as much,” Imbert said.
Minister Imbert said that oil (and gas) companies contributed less than 20 per cent of tax collections in 2021. “In 2022 our preliminary estimates, oil companies are now contributing 10.4 billion out of $20.7 billion; that’s 35 per cent,” he added. This estimate was based on the actual figures until the end of August 2022 and then estimates for the month of September (the end of the government’s financial year).
Minister Imbert went on to report that just before coming to the Energy Chamber event he had received the final figures for the total actual revenue collections in Fiscal 2022, up to the end of September 2022. The final total revenue in Fiscal 2022 was TT$54.21 billion, which is TT$2.57 billion more than the revised estimate announced in September 2022, and TT$10.88 Billion more than the revenue estimate of TT$43.33 Billion for Fiscal 2022, announced during his budget speech.
In a subsequent press release, the Ministry of Finance confirmed that the total expenditure for Fiscal 2022 was now estimated at TT$54.54 billion, meaning that the fiscal deficit for 2022 is now estimated at TT$329 million, which is less than 0.2% of GDP, well below the international benchmark for fiscal deficits of 3% of GDP.
The press release noted “We have achieved an almost balanced national budget in Fiscal 2022, something that has not occurred in Trinidad and Tobago since 2008, 14 years ago.”
Greater room for reform
With this much more positive revenue situation, the Minister of Finance explained that he now had more room to deal with some of the requests for changes that he had received from the Energy Chamber. He outlined the changes that had been made to SPT and expressed the hope that these would help to stimulate investment into oil production. He noted that oil production was currently stabilized at around 59,000 barrels per day, but anxiously was hoping that this figure could increase. The Minister has also indicated his hope that the recent changes to SPT will encourage better participation in the upcoming onshore and shallow water bid rounds.
In addition to these changes to SPT, the Minister reiterated the intention of the government to work with the private sector and the Energy Chamber to improve the fiscal regime. He told the assembled Energy Chamber membership that the Minister of Energy, the Honourable Stuart Young, was a big supporter of the sector and had championed reform at the level of Cabinet.
Speaker at the same event, outgoing Energy Chamber Chairman, Dwight Mahabir, told the Minister of Finance that the industry was thankful for the changes that had been made with SPT and was looking forward to working closely with the government on further reforms, especially to encourage further investment into gas production.