By Kevin Ramnarine
The March 6th 2017 statement by the Minister of Finance regarding the accounts of Petrotrin is misleading. It also suggests that the Minister has now arrogated onto himself the role of the external auditor of Petrotrin.
The facts are as follows:
1. Petrotrin’s external auditor is KPMG who audits the company to international standards. KPMG signs off annually on Petrotrin’s audited accounts and these audited accounts are laid in Parliament and made public. It is therefore wrong to suggest that something was being hidden or not reported. All financial transactions were reported in the company’s audited accounts. Nothing was hidden.
2. In previous years (and prior to 2010), the auditors in accordance with generally accepted accounting practice approved the carry forward of losses stemming from large investments in the refinery upgrades such as the Gasoline Optimization Programme, the World GTL and the Ultra-Low Sulphur Diesel projects. These projects had severe cost overruns and delays which contributed to refinery losses.
3. It should be noted too that Petrotrin had been expending interest related to large capital investments made before 2010 namely the hugely overspent Gasoline Optimization Programme and the failed World GTL project. The expending of this interest which was hitherto capitalized increased cash outflows and was a major contributor to the losses.
4. These losses were carried as a “deferred tax asset” on the Balance Sheet and were to be used at a future date to offset taxable income. This is an accepted accounting practice and it considers that the company is a “going concern”. In the audited accounts for the year 2015, the “Deferred Tax Asset” was reported in the Balance Sheet as being about TT$ 4.5 billion.
5. A “deferred tax asset” is recorded on the balance sheet if it is expected that the company would in the near future make a profit and have taxable income against which the deferred tax asset could be applied. That is to say, the deferred tax asset can be used. It is clear therefore that in 2015, the auditors believed that Petrotrin would return to profitability and therefore have taxable income to which the deferred tax asset could be applied.
6. In 2016, it is clear that having regard to low prices, the curtailment of necessary operating activity (such as – drilling) and at the same time an increased operating cost, there may be the view that the company will not return to profitability and hence the “deferred tax asset” would be of no use and therefore it was impaired and appears in the “profit and loss statement” as a significant write down. This is an indictment on the Government.
7. In his statement, the Minister of Finance who is corporation sole has made a serious accusation against a State Enterprise (Petrotrin) which will damage its reputation in the eyes of international bondholders. He has also assailed the integrity and independence of the auditor which is one of the world’s “big four” accounting firms.
8. This sends the wrong signal at the wrong time. It comes at a time when the country is under the microscope of the credit ratings agencies. A downgrade of the country and Petrotrin will impact the ratings of the NGC and FCB. This comes at a time when the FCB is preparing for a second share offering.
Given the seriousness of the matter, the Minister ought to have been more responsible in his statements. He has demonstrated that he is either unaware of the true facts or is making mischief out of what is a perfectly straightforward matter. Or it could be that he has some ulterior motive.