Media Should be More Vigilant with Galleons Passage

By Capil Bissoon

I refer to your story in yesterday’s edition of the Trinidad Express captioned “Has the work started” with regards to the mechanical and technical upgrades to the Galleons Passage in Cuba.

I must confess that I am a frustrated reader because the media continues to simply reproduce whatever information is forwarded to their newsroom by NIDCO or Finance Minister Colm Imbert about this vessel.

I would have thought that the media would have opted to ascertain the actual facts and perhaps would have contacted Damex Shipyards in Cuba (website: www.damex.com/en/facilities).

I am suggesting that you do this because many things about this ferry simply do not add up. I would ask you to consider the following:

  1. The ferry was announced as purchased in January, formally handed over to T&T in early February and was originally expected to be in Trinidad by the end of April – over 1½ months ago – expected to having by then traversed the Pacific, the Panama Canal, AND having been retrofitted for 10 days in Cuba.
  2. As is widely known, the ferry experienced numerous delays enroute so when it finally arrived in Cuba, the much touted retrofitting time escalated from the original 10 days to at least a month and now even that is indeterminate because of the latest excuses from NIDCO… that “approved drawings” are not available and “requisite materials” have not yet been sourced.

The questions the media should be asking are:

  1. How did Minister Imbert first come up with the original “10 days” estimate for the retrofitting of toilets, railings and canopies to begin with? That estimate HAD to have been provided by Damex Shipyards themselves and HAD to have been based on something in their possession. I put it to you that they have had from the beginning the blueprints of the ferry provided by the Seller and/or the builder in China, so they had to know exactly what would be required and how long the retrofitting should take, and it was based on this that the original 10-day estimate was given.
  2. That also means – and especially due to the extended delays the ferry experienced enroute – that the shipyard had over 3 MONTHS to procure the “requisite materials” for the retrofitting based on the original scope of work and on the blueprints provided, so the excuses from NIDCO about “approved drawings” and “difficulty sourcing requisite materials” ring hollow at best.
  3. I am attaching a copy of what is purportedly a summary page of the insurance report listing deficiencies found on the Galleons Passage when it was inspected in Honolulu. I believe it is the same document that Mrs. Kamla Persad-Bissessar referred to recently when she had questioned if the ferry had any safety problems that the Government was not making public. You will note that the summary specifically indicates that the vessel is missing firefighting equipment and appliances, various other unspecified safety deficiencies, and MOST importantly that it is MISSING auxiliary engines. THIS is likely the real reason for the sudden and extended delay in Cuba (you’ll note that now NIDCO will not give an estimate whereas before it was an easy 10-day job) and why “approved drawings” are not available and especially why the shipyard is having difficulty in acquiring “requisite materials”. Designing, fabricating and/or adapting and installing auxiliary engines on a boat the size of the Galleons Passage is not an easy task and it was a development that only arose AFTER the inspection in Hawaii. This is most probably why the shipyard is unprepared for the job and why work has not started yet; they need to inspect the vessel, figure out how and where to install the auxiliary engines, and then try to source appropriately sized engines and retrofit them for that installation. 
  4. The identified deficiencies in the report would not be sufficient to curtail the ferry being sailed from China to Cuba because it had not yet been fully commissioned as a passenger ferry – it would have been covered under maritime “sea trials” operation rules, so Minister Rohan Sinanan’s  protestations that if it had safety issues it could not sail are without merit. Plus it was no secret that once in Cuba it was scheduled for various upgrades, so a rider insurance policy would have covered such deficiencies, so once again Minister Sinanan’s protests are without merit.
  5. There is also the question of exactly how much more the Cuba retrofitting is going to cost, because even with the issue of the auxiliary engines aside, every day the vessel is berthed costs money and remember its now jumped from 10 days to at least 30 with an open ended completion date.
  6. The latest revelation from NIDCO is most intriguing of all; apparently the “requisite materials” for the retrofit are now being sourced in Holland and Australia. Really? What is the fascination that this administration has with Australia all of a sudden? And why is it necessary to go so far afield for toilets and tarpaulins and tethering rings for the decking? Surely these can be sourced right next door in Miami where they build all kinds of boats and yachts – why go all the way to Australia? Unless the reason is that they need more than just toilets and awnings – like auxiliary engines, for instance. Then everything begins to make more sense.

I could go into far more about this ferry, but I will like the media to stop simply accepting the information coming from the Government and begin to do their own independent investigations.

First on the list is a call to Damex Shipyards in Cuba.

GAS AND GROWTH IN 2018

Kevin Ramnarine.

Kevin Ramnarine.

By Kevin Ramnarine

For the last two decades, the Trinidad and Tobago (T&T) economy can best be described as a “gas based economy”. When natural gas production grows, it’s likely that our economy will also grow. We produce a lot of natural gas in comparison to our oil production. We produce 7.6 times more gas than oil on an equivalency basis. I will write some more about oil later on as we have an exciting exploration drilling campaign from Lease Operators Limited in 2018 in the Rio Claro Block that was awarded in 2014. There is also the resumption of deepwater drilling by BHP Billiton in 2018 arising out of contracts signed from 2013 to 2015.

Gas as the backbone of T&T’s economy

Getting back to gas however, we acknowledge that gas remains the backbone of the economy. At a production level of 3.3 billion cubic feet of gas per day, this country produces as much gas as Argentina or the United Kingdom. We have built a large gas business over the last sixty-four years. Natural gas was first used for power generation in T&T as far back as 1953. In the year 2010 we attained what I like to call “peak gas”, in that year gas production averaged 4.3 billion cubic feet per day. Could we have sustained that level of production forever? The answer of course is no. In 2015 production levels fell to 3.8 billion cubic feet per day or an 11.6% decline in five years. There has been a lot of debate on what accounted for the decline from 2010 to 2015. I have written extensively about that in the past. I would say that factors that contributed to that decline were in place well before 2010 and the then Government had been warned repeatedly by the industry. That is now history.

Looking at 2018 beyond

In 2018 natural gas production will increase compared to 2017. We should close 2017 at an average of 3.3 billion cubic feet per day. In 2018 that figure should be about 3.5 billion cubic feet per day or an increase of 6%. This is due mainly to the incremental impact of the BP Juniper project which commenced production in August 2017. There are other projects that contributed such as TROC, Sercan and Angostura III but it was Juniper that turned the national gas curve upward. Is Juniper important? If we didn’t have Juniper we would be producing less than 3.0 billion cubic feet per day and that would be calamitous.

Shell’s seven-year decline

What about Shell (formerly BG)? From 2010 to 2017, their production plunged by almost 50%. That’s a big drop in seven years and one I am sure they are eager to start reversing in 2018 as they commence a two-rig drilling campaign. One of these two rigs will be drilling in the Starfish field. In 2015 BG’s attempt to develop the Starfish field was unsuccessful and expensively so. I’m sure Shell has learned from that 2015 failure and will have success with Starfish in 2018. Even with Starfish fully on production by the end of 2018, Shell would have only arrested their decline. Turning Shell’s production curve upward will require further drilling in 2019 and 2020 in Blocks 5C and 5D. Another project that warrants mention is De Novo’s drilling in the Iguana field in the Gulf of Paria. This project when completed would bring on 80 million cubic feet per day of natural gas by the second quarter of 2018. While this is a small volume, in a shortage situation every bit helps. The De Novo model of developing small deposits of natural gas in shallow water depths is one that we will need more of as we move forward.

Growth and Revenue in 2018

Given that 2018’s gas production will be only marginally better than what obtained in 2017, the IMF’s forecast for 1.9% growth is optimistic. I expect that there will also be growth in the fourth quarter of 2017 due to Juniper and that growth trend will continue into 2018. So, in a nutshell, the economy will return to growth after two years of decline. What about revenue from the energy sector? The Central Bank’s November 27, 2017 Monetary Policy report (page 16) reports that we will collect TT$ 10.1 billion from the energy sector in 2018. While this is much less than the TT$ 28.1 billion collected in 2014, its still not the “not one cent” that we were told about in the 2017/2018 budget. It is however much better than the TT$ 6.6 billion collected in 2016. A modest recovery in GDP and revenue in 2018 does not mean we can celebrate. In fact, no one has seen a light at the end of the tunnel.

Concluding Thoughts

While Juniper is a life raft for the economy we must now think beyond it. Angelin will deliver gas in 2019 but not on the scale of Juniper. Starfish will keep Shell from further declines. Angelin and Starfish are important. The reality is we will never get back to 2010 production levels of 4.3 billion cubic feet per day. We must accept that we have to live with a production level of (3.2 to 3.5) billion cubic feet per day. This has long term consequences for the economy going forward.

The Bogeyman Thesis – Budget 2018 has not inspired public and investor confidence

Kevin Ramnarine.

Kevin Ramnarine.

Is Government deliberately making the energy and banking sectors into the economic bogeymen of T&T? If so, this is an extremely dangerous course that does not augur well for the future of this nation. Despite the economic storms of the last three years, these two sectors have held firm. Things could have been worse.

Coming back to the “Bogeyman Thesis”, in his budget speech, the Minister of Finance said, it was untenable that we had “Three billion cubic feet of gas extracted every day and not one cent coming to the citizens of Trinidad and Tobago”. He was wrong about that and he was totally wrong about the fiscal incentives of 2013/2014. He held that the fiscal incentives of 2013/ 2014 were to blame for the country not getting revenue from oil and gas companies for the next seven years (until 2024). That is an absolutely mind-boggling claim when you consider that the “accelerated capital allowances” expire in less than three months (end of 2017) and the Finance Act of 2014 made no provision for them to be rolled over.

The published facts also refute the “not one cent” proposition. The Central Bank’s September 2017 Economic Bulletin shows that the country collected TT$ 6.0 billion in revenue from the energy sector for the first 10 months of fiscal 2017. The Review of the Economy says the country collected TT$9.0 billion from the energy sector in fiscal 2017. This was first flagged by the Leader of the Opposition. If we assume revenue from natural gas was equal to zero, as the Minister claimed, then that quantum of money could never be all from oil revenue. In fact, revenue from oil would have been minimal in 2017 given the problems from the country’s major oil producer, Petrotrin. So, the “not one cent” thesis holds no water.

For the information of the public, the Government collects energy related revenue from several sources. These include: Supplemental Petroleum Tax (SPT), Petroleum Profits Tax (PPT), Unemployment Levy, Royalties, Petroleum Production Levy, Petroleum Impost, corporation tax from firms at Point Lisas, corporation tax from the NGC, dividends from the NGC, corporation tax from the various Atlantic companies, Green Fund Levy and Business Levy. Whatever way you look at it, to say the country gets “not a cent” in revenue from the production of three billion cubic feet of natural gas a day is at best wrong and at worst an exaggeration.

With regard to the banking sector, it seems that there is a habit in this country to punish success and efficiency and reward failure and inefficiency. Darryl White of RBC summed it up when he said banks were “being taxed for being efficient”. If you will be punished for being efficient they why bother? In the budget speech, the Minister spoke of plans to make T&T an international financial centre. The policy dichotomy here is glaring. How can the Minister on the one hand speak about an “international financial centre” while on the other hand we have one of the highest corporation tax rates in the world for banks? Deloitte’s review of corporation tax rates around the world shows that T&T has one of the highest corporation tax rates in the world. The issue is really tax compliance and tax collection.

The Minister was also “full of sound and fury” when he announced that a royalty of 12.5% would be applied to oil and gas companies. With dramatic effect, he declared this royalty would be applied “across the board”. In T&T we have two legal regimes that govern the exploration and production of petroleum. They are: (1) Exploration and Production Licenses (E&PL) and (2) Production Sharing Contracts (PSC’s). Firstly, royalty does not apply to companies that hold production sharing contracts (PSC’s). So, immediately the “across the board” logic falls totally flat. Secondly, those companies that operate with Exploration and Production Licenses (E&PL) already pay royalty at rates between 10% to 12.5%. So, the royalty grand charge in the budget is moot.

The royalty issue is really aimed at bpTT who, in my opinion, was singled out in this budget on more than one occasion. The Minister admitted “petroleum companies attach high value to stability and predictability in terms of the fiscal regime they face.” His declarations have had the opposite effect on upstream companies. They now all face an environment typified by shifting goal posts. It is therefore not surprising that bpTT conceded that they needed “much more clarity” on these issues. It is likely that bpTT will be paying royalty in cash from 2017 after it had paid its royalty in kind (as natural gas) from 2005 to 2016. This may be what is at the heart of the royalty issue.

Budget 2018 has not inspired public and investor confidence. Investors like certainty and predictability. Budget 2018 creates uncertainty and unpredictability. The Government seems to want a bigger slice of a shrinking pie when what they should be focused on is growing the pie. Growing the pie in the short to medium term will require collaboration with energy companies and banks. Making them into fall guys or bogeymen is not in the national interest. Government should address their attention to the real destroyers of value in the economy.

Kevin Ramnarine
Former Minister of Energy and Energy Affairs of Trinidad and Tobago
Trinidad express
October 13 2017

THE BOGEY MEN

Kevin Ramnarine.

Kevin Ramnarine.

By Kevin Ramnarine

The Government is deliberately making the energy and banking sectors into the economic bogey men of T&T. That is dangerous since investors have options. T&T isn’t the only girl on the dance floor. This is not 1977.

To say that the country produces 3.0 billion cubic feet per day and “not one cent” comes to the country is wrong. It assumes firstly that Trinidad and Tobago only exist in the year 2017. It did not exist before and will not exist in the future. T&T is a going concern. A time will come in the future when energy revenue will rebound. In years gone by the country received its share of royalties and taxes as per law.

The facts also rebuke the “not one cent” Imbertian theory. The records of the Central Bank as published in the last Economic Bulletin show that the country collected TT$ 6.0 billion in revenue from energy companies for the first 10 months of fiscal 2017. While this is much lower that what was collected in previous years, it is still not the zero that we heard about from Minister Imbert and Junior Minister Young. Why then did they come with this “not one cent” story?

Was it to deliberately paint Banking and Energy in a bad light and set the stage for increased taxation and application of Royalties? T&T is walking down a dangerous and slippery road when its banking and energy sectors being made into fall guys.

Ramnarine: Imbert Wrong on Fiscal Incentives

Kevin Ramnarine.

Kevin Ramnarine.

Statements by Colm Imbert regarding the fiscal incentives of 2014 are totally wrong and misleading. These statements and their tone also serve to erode investor confidence in T&T’s energy sector. The facts of the matter remain that these incentives (accelerated capital allowances) have had little or no impact on Government revenue from the oil and gas sector since their introduction in 2014. This is largely due to the fact that oil and gas companies have had little or no taxable income in recent years against which these allowances could be applied.

It should be noted too that these allowances do not change the fact that oil and gas companies could have always claimed 100% of capital expenditure for exploration and developmental drilling. The 2014 accelerated allowances simply changed the phasing of how that 100% was claimed. This improved project economics and got more projects approved.

Mr. Imbert however claims that they are responsible for T&T not getting corporation tax from oil and gas companies for the next seven years. This is false. The Finance Act of 2014 makes provision for the expiry of these accelerated allowances on December 31st, 2017. How then can a tax incentive that expires in three months impact tax payments for seven years? Is it that the Minister of Finance is unaware that these incentives expire in three months? Interestingly, the then Opposition PNM voted for the Finance Bill of 2014 that contained these accelerated capital allowances.

These incentives are responsible for the increase in exploration and developmental drilling in recent years. This has led to the increase in natural gas production in the second half of 2017 and the rebound in the energy sector that Mr. Imbert was able to boast about in his budget presentation yesterday. He also cited their benefits in his April 8th, 2016 mid-year review.

Low levels of corporation tax (also called petroleum profits tax) in the oil and gas sector in 2017 and beyond are not because of the accelerated capital allowances but are because of:

1) Carry forward losses from earlier years. Provision is made for this in Section 16 of the Income Tax Act.

2) Low Supplemental Petroleum Taxes collection because oil prices have been under US$ 50 per barrel for most of 2017.