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Wanted: Greater transparency

Thursday, September 20, 2018

The recent brouhaha over the signing of an agreement for the importation of natural gas from the Dragon Fields (a large natural gas deposit which straddles the border between Venezuela and T&T) and the rejection of demands for details of the deal are symptomatic of the need for greater transparency in the arrangements entered into on behalf of citizens of T&T.

While it is true that the Prime Minister did give significant details of the agreement, with the exception of the exact price that Venezuela would be selling the gas, it still did not seem to satisfy sections of the national population.

At the centre of concern is the long-held view that those in position of power are privy to more information than the average citizen and are therefore in a better position to make decisions that they feel are in the best interest of the country.

But increasingly nationals are saying “not so fast” because we have already seen how bad decision making has, and continues to, cost us money. Petrotrin is just the latest example.

The issue of transparency, and specifically contract transparency, cannot be ignored. In fact, contract transparency is a major issue in the petrochemical sector as the National Gas Company (NGC), which has a monopoly role as aggregator of gas, sells the same molecule of gas to different companies at prices that are not always the same.

Would we have had the protracted negotiations that have led to the continued closure of a methanol plant and the gas turned off at the CNC plant had there been contract transparency?

In other words, should there not be a standard price for natural gas landed at Point Lisas Industrial Estate so everyone knows the price and can know what it will take for their businesses to make money?

Why the need for secrecy?

The issue of contract transparency is one that has been raised by the Extractive Industries Transparency Initiative which pointed to how this secrecy has impacted the country in determining revenues from LNG trading.

The EITI report of 2016 notes, “These companies purchase barrels of oil, LNG cargoes and minerals from one country and sell them to its customers, sometimes, at a significant mark up, without accounting for the value or volume of the first trade. However, in recent times, this practice has been challenged internationally and is slowly changing with significant positive implications for T&T.”

The EITI said it triggered this change when, in 2014, the Trafigura Group—one of the world’s leading energy commodity trading companies—started publicly disclosing what it paid to SOE’s such as Petrotrin and NGC for their cargoes.

Trafigura Group now reports the actual value and volume of products purchased from energy SOEs in all EITI member-countries in which it operates, including T&T.

In December 2016, Trafigura disclosed, via its “Responsibility Report”, that in 2016 it paid Petrotrin US$506 million for 10,586 thousand barrels and 1,425 thousand tonnes of refined products. In 2014 and 2015, the company paid Petrotrin and T&T LNG Ltd (a subsidiary of NGC) a total of US$507 million or approximately $3 billion for 5,381 thousand barrels of refined products and 2.81 million barrels equivalent of gas respectively .

The EITI report read, “The company also reported that in 2013 it paid Petrotrin and T&T LNG Ltd a total of US$503.16 million for 3,880 thousand barrels of refined products and 1.74 million barrels-equivalent of gas.

“This level of disclosure is new to the EITI and the TTEITI steering committee has committed to conduct a mapping exercise on commodity trading to determine if this type of reporting can be included in future reports.”

Economist Gregory McGuire has argued that while the issue of contract transparency is laudable, he does not think it can work in T&T’s energy sector because it is not a free market and too small with too few buyers and sellers to have the level of competitiveness required.

He argued that in an oligopolistic situation if the price is known it could lead to players dropping out of the market and that can skew the market one way or the other.

McGuire said it’s why he supports a state company in the NGC “capturing value” in the middle of a market that is not free.

The economist, who has worked in the past for the NGC, insisted that even if the NGC was not in the middle of the value chain it would not lead to contract transparency as upstream companies would not reveal the price they were selling directly to downstream users.

If McGuire is right then it means like all oligopolies there will be higher than necessary profits and economic efficiency is unlikely to be achieved.


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