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Is the refinery for sale?

Thursday, March 30, 2017
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When Prime Minister Keith Rowley announced two weeks ago that he would be travelling to Houston this week to hold talks with several energy companies, my ears pricked up when he mentioned that he would be meeting with officials from US energy giant ExxonMobil, as well as with BP and Royal Dutch Shell.

In a statement on Tuesday, to which EOG Resources was added, the Office of the Prime Minister said: “The discussions will centre around strategies for navigating the challenges facing the energy sector and opportunities for growth and partnerships here at home and in the region.”

Presumably, the reason Dr Rowley is meeting with officials from BP, Shell and EOG Resources during his trip to Houston is all of those companies are significant producers of T&T’s natural gas and its oil.

But why would Prime Minister Rowley need to meet with ExxonMobil officials?

The answer, of course, is that ExxonMobil is the company that has discovered a great deal of oil in Guyana in the Stabroek Block, off Guyana’s coast.

In January, ExxonMobil announced “positive results” from its Payara-1 well offshore Guyana. Payara was ExxonMobil’s second oil discovery in the Stabroek Block and was drilled in a new reservoir, according to a statement from the company, which added that “appraisal drilling at Liza-3 has identified an additional high quality, deeper reservoir directly below the Liza field, which is estimated to contain between 100-150 million oil equivalent barrels.”

The ExxonMobil subsidiary, Esso Exploration and Production Guyana Ltd is operator and holds 45 per cent interest in the block, while Hess Guyana Exploration Ltd holds 30 per cent interest and Chinese oil giant CNOOC holds 25 per cent interest.

At some point that block is going to start producing oil and ExxonMobil is probably going to want to refine that oil at a location that is not too far away from Guyana.

If the Petrotrin refinery at Point-a-Pierre is the closest world-scale refinery to Guyana, would it not make economic and financial sense for the ExxonMobil oil in Guyana’s waters to be refined at the Point-a-Pierre refinery?

It is quite noteworthy that the statement from the Office of the Prime Minister specifically mentioned “opportunities for growth and partnerships here at home and in the region.”

Obviously, the possibility of refining oil from Guyana in T&T would be one of those “opportunities” for “growth and partnerships” in the region.

Petrotrin has spent billions of US dollars upgrading the refinery over the last 12 years (see story on page 8). Of the US$1.6 billion in bonds that the company raised to finance the refinery upgrade, the US$850 million bond matures in 2019 and Petrotrin is probably going to have some difficulty in finding the cash to satisfy the bullet payment.

Given the fact that Petrotrin is 100 per cent state-owned, international bondholders are entitled to expect that if Petrotrin cannot pay off the debt, that that US$850 million encumbrance would fall to the owners of Petrotrin, who are the taxpayers of T&T.

If the Government opts to refinance the Petrotrin debt, would it be able to do so on terms that are acceptable to the Government and palatable to the population?

One possibility that the Cabinet surely must contemplate is the possibility that the solution to Petrotrin’s problems would be to sell the refinery in order to raise enough money to pay off the company’s debts.

It is noteworthy that earlier this month, the prime minister appointed a seven-member committee “to review operations at the company in light of falling revenues, allegations of mismanagement and decreasing oil prices worldwide.”

That committee, which is chaired by Selwyn Lashley, Permanent Secretary, Ministry of Energy & Energy Affairs, is “tasked with making recommendations for restructuring of the company and its first report is scheduled to be submitted on June 1, 2017.”

In other words, if ExxonMobil officials raised the possibility of that oil company acquiring the Petrotrin refinery, would the Prime Minister and the Minister in the Office of the Prime Minister tell the oil officials that subject is out of bounds or would they hear what the ExxonMobil officials have in mind?


How big will the hole be?

Last week, in this space, under the deliberately provocative headline “Is Mr Imbert a zero...or a hero?” it was concluded that the current Minister of Finance, Colm Imbert, had done quite a good job in cutting T&T’s expenditure in the 2016 fiscal year by 17 per cent to $52.23 billion from $63.05 billion, which is the number he started off with on October 5, when he presented the 2016 budget.

It was argued in that commentary that Mr Imbert cut $11 billion from the country’s total expenditure “without drawing much attention to that fact and with relatively little public fallout.”

Most of $10.82 billion that was cut from the 2016 budget came in two areas: the $3.2 billion reduction in transfers and subsidies and the $2.95 billion cut in the allocation for capital expenditure.

It was also argued that Mr Imbert was forced to reduce the central government’s expenditure by 17 per cent because T&T’s revenue for 2016 was about 25 per less than had been originally projected, dropping to $44.94 billion from $60.29 billion contained in the 2016 budget speech.

Interestingly, the 2017 Estimates of Revenue indicates that the administration projects that it would receive $38.05 billion in tax revenue during the fiscal year, comprising $29.9 billion in tax revenue and $8.12 billion in non-tax revenue.

T&T’s current account expenditure in 2017 is projected to be $50.56 billion while its expenditure on the capital account is estimated to be $6 billion. The capital account expenditure comprises $2.47 billion for the development programme and $3.53 billion in capital repayments and sinking fund contributions.

That leaves T&T with a fiscal hole of $12.5 billion, which Mr Imbert has already signalled will be financed with $6 billion in debt, with the balance coming from drawdowns from the Heritage and Stabilisation and one-off transactions.

But if the Government only received $7.98 billion for the first quarter of the 2017 fiscal year, does that mean that it could collect $32 billion in total revenue, leaving it with an $18 billion hole?

And if the hole is $18 billion, what measures will the Minister of Finance have to take to collect that money?


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