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.
Former Minister of Energy and Energy Affairs of Trinidad and Tobago
October 13 2017