PETROTRIN said that the agreement with the Oilfield Workers Trade Union (OWTU) for the period 2011-14, would cost an estimated TT$80 million (One TT dollar =US$0.16 cents) annually.
In a television broadcast Prime Minister Dr. Keith Rowley said the taxpayers of the country “cannot continue to turn a blind eye or be uninterested in the challenges” at the oil company, which he said “is so central to our fortunes.
“The current situation cannot be left to limp along unattended,” Rowley said, adding that it is the intention of his administration to take the best advice, consult widely “but in the end take all necessary steps to respond to the challenges and to position the company to realise its fullest potential…”
He said he wants PETROTRIN to be able to deliver on the promise “not only of good jobs for those who are fortunate enough to be employed there but to the wider national community which depends on the company’s success and have to be protected from any chronic misadventures which may be spawned there”
Rowley acknowledged that these are difficult times but these are also times of great opportunities.
“Even though the company is an integrated operation the weight of our capital spending, as we all know monies often not well spent, has been on refinery operations at the expense of oil and gas production, whether on land or off- shore.
“Because of financial constraints at both the level of the state and the company, rectifying this imbalance now can only be effected by imports of external and domestic capital as well as new technology into oil and gas production at PETROTRIN”.
Rowley said that survival depends on such a successful import demanding the cooperation of all the company’s stake holders.
“In this approach there will be opportunities for local equity investment and employee stock ownership in a future profitably restructured company.
“The question is, are we up to the task of grasping these exciting possibilities or will we be stuck in the past of failed confrontations and finger pointing. Time is not on our side. We must act with decisiveness and clarity if we are to give ourselves the best chance to succeed.”
Rowley said that it is the government’s duty to do right for all the people of the country, noting that “in our journey of progress we have often times detoured to our detriment.
“We are called upon then to face up to our realities. PETROTRIN is probably as good a place to start. Even if we have other ideas, the pressing challenges surrounding this major state enterprise demand immediate action whether it is strengthened management, improved accountability, restructuring of its shape and business model, geared towards increased production, better productivity and sustained profitability.
“The Government will act as is necessary and I appeal to all involved to see our circumstance as a national prerogative requiring reason and maturity. We can rise to the occasion as we prescribe our own bitter medicine which must be so distilled to take us to a place of economic good health, peace and social justice,” Rowley said, telling viewers that his administration is doing all within its capabilities to ensure the country does not have to approach the International Monetary Fund (IMF) for assistance.
“Failure to fix the PETROTRIN problem and similar problems leave us vulnerable. We have the resolve and we have the opportunity. Let us go brave and do it, for the benefit of all our people.”
He said while the country had been able to avert a major disruption when PETROTRIN signed the wage agreement for the workers for the period 2011-14 “let us not for one minute believe that we have dealt with or have solved the problem.
In his 25 minute broadcast, Prime Minister Rowley said PETROTRIN, the country’s major oil producer, currently accounting for more than one-half of the country’s total oil production of about 72,000 bpd is a net earner of foreign exchange, estimated at TT$250 million per year in 2015 and 2016.
He said it is also an important contributor to government tax revenues and a guarantor of the country’s energy security.
But Rowley said that the company had been able to mask a range of fundamental weaknesses for many years as a result of high international oil prices.
He said the company has more than 5,000 employees, with an annual wage bill of TT$1.9 billion, which is close to 50 per cent of its total annual operating costs.
“This payroll ratio is exceptionally high even compared with that of other state-owned oil companies,” he said, adding that these negative factors were compounded after 2007 by a significant increase in PETROTRIN’s debt burden, largely due to two external loans, namely a US$750 million loan contracted in 2007 and a US$850 million loan, contracted in 2009, used largely to support refinery upgrade projects.
Rowley said that a dramatic slump in crude oil prices, combined with an ongoing decline in refinery margins and declining local oil production led to a more than 50 per cent decrease in the company’s revenues, from TT$37 billion in 2012 to TT$16 billion in 2016.
He said that because of acute cash flow problems, caused by its drastically reduced revenue, PETROTRIN asked for and received government guarantees in 2016, for short term loans up to a maximum of US$230 million in order to carry on its operations and meet its basic financial obligations. Rowley said cash flow difficulties have also led to PETROTRIN’s large arrears of payments of royalties and taxes, estimated at TT$1.2 billion.
“In other words, when you net off the money owed by the State to PETROTRIN at this time for the fuel subsidy against the royalties and taxes belonging to the state but withheld by PETROTRIN, the company currently owes the Treasury TT$1.2 billion in unpaid taxes.
“Additionally, because of an unfavourable oil price outlook and the Company’s high debt service burden, which includes a balloon payment in 2019 of US$850 million or TT$5.8 billion, Moody’s Investors Service downgraded PETROTRIN’s credit rating in March 2016 from Ba1 to Ba3.”
Rowley said another US-based rating agency, Standard and Poor’s (S&P), in April last year affirmed PETROTRIN’s “BB” ratings, in the expectation that the government would continue to provide the required budgetary support to the company as needed.
“In other words PETROTRIN, in its current form, is somewhat of a ward of the national treasury, heavily dependent on the taxpayer who is already struggling to make ends meet,” Rowley said, noting that S&P warned, however, that PETROTRIN could face up to a two-notch downgrade if the company’s liquidity weakened because of an increase in its deficit; or if, in S&P’s view, government’s support for PETROTRIN had fallen from ‘very high’ to “high”.
“This is not solely a PETROTRIN problem, it is also a situation which is ever present in all discussions of the national borrowings and debt servicing and the downgrade could easily stretch beyond PETROTRIN onto the operations of the Ministry of Finance.”
Rowley also dealt with the wage negotiations the company is now involved in with the OWTU and warned that over the past few years, the company’s revenue stream has not been able to support its current cost structure.
“Accordingly, given the outlook of oil prices these kinds of increases would have contributed to continuing sizable losses, to be financed through increased borrowing by the Company. It is worth noting that PETROTRIN’s debt is currently at TT$13.2 billion, and that high debt service charges are among the main causes of the Company’s weak financial state.
“It is also to be noted that any such borrowing to meet these needs would of necessity have to be secured by guarantees by the taxpayer base and such liabilities would become part and parcel of the national debt with all the attendant negative consequences.
“In the absence of PETROTRIN’s ability to borrow on its own merit, the wage increases that the OWTU had asked for would have had to be financed either by Government transfers or by government-guaranteed debt. Either option would carry serious pitfalls for the entire country,” Rowley told the nation.
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