The Energy Chamber of Trinidad & Tobago welcomes the Minister of Finance’s commitment that the government will conduct a comprehensive review of our oil and gas taxation regime to ensure that we remain an internationally competitive hydrocarbon province. The Energy Chamber would welcome the opportunity to work closely with the government in this review process, that is vital to ensure the continued investment in upstream oil and gas production.
As the Minister of Finance highlighted, continued investment in upstream production is needed even while the country transforms its energy industry to a lower carbon future and diversify our economy.
In early 2021, the Energy Chamber put together a Fiscal Reform Task Force which conducted a detailed analysis of the sector and made recommendations for reforms. A comprehensive final report was delivered to the Ministry of Finance and Ministry of Energy in early August 2021. The Fiscal Reform Task Force recognised that a fundamental review exercise was warranted and that this “should take into consideration all aspects of the energy fiscal environment, with a view to creating an environment appropriate for a mature basin that allows existing participants to continue to invest and new participants to enter and to prosper”.
The Fiscal Reform Task Force also highlighted some areas where changes could be implemented immediately. While the Energy Chamber is very encouraged by the announcement on the comprehensive review process, there are some areas where immediate changes could unlock some projects awaiting a final investment decision. We would welcome a process where some recommendations could be fast-tracked, even as all of the issues are being resolved.
One such reform was with Supplemental Petroleum Tax, where changes could spur immediate investments in oil production, as recognised by the Minister of Finance in his post-budget comments to the TTMA forum.
The positive changes introduced in 2020 for small onshore producers have already contributed to increased activity onshore, where we have seen some exciting new discoveries. If these changes were extended to the offshore crude oil producers and the production thresholds raised, then we believe we would have seen some investment decisions being taken very quickly and new production being brought onstream.
This change to SPT would also have been very beneficial to the state-owned Heritage and their efforts to identify new joint venture partners to build on their initial success in turning around production from their acreage.
For the gas industry, the Fiscal Reform Task Force had recommended changes to the existing flat royalty rate. The current structure is particularly challenging for smaller and more marginal fields, especially if they are distant from existing infrastructure. It also acts as a disincentive for exploration investments and ultimately impacts the entire value chain. Changes to royalties may not have had the same short-term impact on developments of new fields as the SPT changes but could have helped spur on new exploration activity and investment decisions for more marginal fields, to maintain the targeted plateau of gas production in the medium-term.
The Fiscal Reform Task Force also made recommendations for dealing with the vexing issue of VAT refunds, and a commitment to address this issue in the immediate term would also be most welcome.
The Energy Chamber is heartened by the Minister of Finance’s commitment that the review process will take place expeditiously and we know that the Minister of Energy will be especially keen to complete the process, to help boost confidence in the upcoming 2022 bid rounds. The Energy Chamber is confident that the recommendations we made through our Fiscal Reform Task Force will be carefully considered in this process.
We remain committed to working with all stakeholders to implement the reforms we need to sustain our hydrocarbon sector through the energy transition and beyond.