Poor governance, lack of vision caused TT gas sector to lose US$$$millions in taxes

Apr 26, 2022 News

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– Guyana must be extremely cautious – Expert

Kaieteur News – For the last decade, Energy Strategist and Local Content Expert, Anthony Paul, has observed that Trinidad and Tobago’s oil and gas sector has been nothing but a slow train wreck.

In a virtual discussion this year with his fellow Trinidadians on the depressing state of the economy, Paul said in no uncertain terms that the country’s gas sector has been doing dramatically badly for a long time.
Paul said he would attribute the industry’s declining health to a lack of adherence to the principles of transparency and accountability, two key elements of any robust governance framework.
The oil expert said, “The fact of the matter is that there are systemic issues that have not been addressed over the years but have gotten worse, hence where we are today…But what surprises me is that not enough questions are being asked. I get the feeling that this prosperity that we have had or enjoyed for a long period, people seem to think it is coming to an end. And they don’t know if this is going to be a temporary state…”
The Energy Strategist continued, “We see that there is a difference in the prosperity we enjoy now compared to previous years. And, that observation leads me to ask firstly: well what led us to the prosperity in the first place and what did we do right then? And how have things changed?”
Candidly speaking, Paul said when Trinidad and Tobago started governing the oil industry post independence, it was lucky to have the late Eric Williams as a visionary leader who took the “long game approach” and that allowed the country to be positioned for the fluctuations in the sector, to be able to build on it in the long term and to benefit from what was put in place. “Now sadly, what we are seeing today is a lack of that vision,” expressed Paul.
Speaking to the birth of Trinidad and Tobago’s vision for its oil sector, Paul noted that in 1963, the government of the day had set up a Commission of Inquiry (CoI) into the oil and gas sector, which sought to analyse the industry, the needs of the country, and the desires of its people.
Paul said this CoI led to the birth of a robust regulatory regime to manage the sector, which included Trinidad’s Petroleum Act. This CoI, he said, also paved the way for robust institutions and people to be interwoven into the system. “So it was all about good governance, transparency and accountability. Several instruments were also put in place to allow those managing the sector to be held to account. But if I fast forward to today, the big difference between then and now is the lack of accountability for those who govern the sector,” expressed Paul.
The Trinidadian also bemoaned the fact that Trinidad’s Energy Ministry is governing the sector with outdated laws and regulations. “It is still using a law which is from 1969 vintage and regulations which are 1971 vintage. Beyond that, the law sets up a mechanism for regulations to be added as the industry grew but this is honoured in breach,” the oil expert noted.
Paul was keen to note that the absence of updated laws is not the only area of concern. What troubles him also, is the failure to implement even the fundamental aspects of the oil laws. In this regard, Paul noted that the nation’s legislation dictates that any company operating in the sector, no matter where, must be licensed and each licence must be in a register.
To this day, the Trinidadian said none of the downstream companies are licensed and are therefore operating without the control mechanisms that were designed to govern their granular activities. Paul stressed that this state of affairs has actually worked against the country and “cost it millions of dollars in taxes.”
Expounding further, Paul referenced the case of Train 1, which began commercial operations on March 13, 1999, in Trinidad and Tobago and became the first Liquefied Natural Gas (LNG) facility to operate in the Atlantic Basin, and the second in the Western Hemisphere. Paul said one issue that was not mentioned about Train 1 is that it had received a 10-year tax holiday when it started operations and under the laws of Trinidad and Tobago, every operation, meaning processing plant and its subsidiary activities including storage, shipping, etc. should be licensed. Furthermore, every contractor associated with the plant and its operations should also be licensed. This even includes the marketing company used. Unfortunately, none of those agents were licensed.
“What happened is that Atlantic LNG (which is owned by the National Gas Company of Trinidad and Tobago and local subsidiaries of companies such as BP) was allowed to operate its Train 1 plant above nameplate capacity for 10 years in which they paid no taxes. So it means they put through a whole lot more volume than intended tax free,” explained Paul.
Had a licence been in place, Paul said the volume of gas produced during that 10-year time would have been capped.
In addition to this, Paul said at the time the investment was made in Train 1, and the 10-year tax holiday approved, the price for Natural gas was one TT dollar. He noted, however, that when the tax holiday came into the effect, the price for gas shot up to TT$14. He said in the absence of a licence, this led to a huge windfall of profit for Atlantic LNG and no returns for Trinidad and Tobago in the form of taxes. To make matters worse, when the 10-year holiday was over, Paul noted that the company suddenly started to experience technical issues and was shut down for extended periods.
“Even production at the fields was shut down for extended revenues and that shortened revenue. So that is just one of the many examples of what can happen in a broken regulatory and governance system and it has caused us immense harm and that has multiplied along the value chain,” expressed Paul.
He concluded, “So if you ask me why we are here, I would say to you it is because there was a breakdown in governance.”
Paul has since urged Guyana to be extremely mindful of the Trinidad experience as it continues to develop the legislative and regulatory framework for its oil sector. For him, if the fundamentals are not in place, the interest of the people is never served and the sector essentially becomes infected with massive scales of abuse.

 

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