Biting the bullet… Petrotrin style!

A monthly column by Dr Marlene Attzs, Economist. Email: marlene.attzs@gmail.com

I deliberately shied away from the cacophony of opinions surrounding the Petrotrin issue. So when the CN Editor said he hoped I would address the matter in my next column, I groaned. Guess you could run but hiding sometimes is difficult.

I decided to write about Petrotrin as an opportunity to lay out the bare facts and provide information on this issue.

It’s no secret that as you’re reading this month’s instalment of ‘My Point of View’, the country is in convulsions—some contrived and some real. The convulsions revolve around (i) a decision taken by the PM Rowley-led GORTT of the day, to mothball the refinery section of Petrotrin (ii) the impacts of the ‘mothballing’ on persons who will be unemployed as a result of the decision (iii) the figure of US$850 million or TT$6 billion. ‘Mothballing’ generally means to stop using a piece of equipment or a building but keep it in good condition so that it can readily be used again.

Once the Petrotrin decision was announced, an archival story—published in the New York Times newspaper of Monday, April 15, 1985—began making the rounds on social media. That story was titled ‘Trinidad to keep refinery going’. TnT make international news!  Readers can access the story online at https://www.nytimes.com/1985/04/15/business/trinidad-to-keep-refinery-going.html.

Petrotrin has been in the news on many an occasion over the past decade.

In Budget 2008 the population was told “… The upgrade of the Pointe-à-Pierre Refinery … is proceeding at a cost of US$850 million …”.  There’s that figure of US$850 million again.

Budget 2014 mentioned “… the Government … mandated the company to refocus its strategy on the upstream sector…”. 

Budget 2017 spoke of “… unforeseen and unbudgeted Government guarantees to Petrotrin’s creditors of the order of $1.7 billion, which were unavoidable in 2016, because of the cash-strapped position of the company…”.

In 2017 also came the ‘Lashley Report’.   That report, officially called the Report of the Team to review the operations of PETROTRIN and make recommendations for its restructuring, contains many interesting facts.

“…Petrotrin’s major long-term borrowings comprise two bonds: (i) US$750 Million, 6.00% – 08 May 2007; and (ii) US$850 Million, 9.75% – 14 August 2009…  The US$750 Million bond is amortized with the final instalment being payable in May 2022…  Petrotrin is currently servicing this bond from its cash flows. These upgrades, while resulting in increased refinery throughput, have not led to the predicted increase in the gross refinery margin…The US$850 Million bond includes a bullet principal payment [ emphasis mine] payable in August 2019…”

A story carried by ‘The Economist Intelligence Unit’ on July 14, 2017 said “…The [Lashley] report confirms our forecast that Petrotrin’s structural problems will continue to compound the government’s severe fiscal challenges…”.

A bullet loan, such as the one I’ve repeatedly mentioned, is a loan where a payment of the entire amount of the loan is due on a specific date, unless the borrower shows it is prepared to change its operating model and the lender is willing to renegotiate.

In other words, had it been business as usual at Petrotrin, the loan of US$850 million (TT$6 billion) would have to be repaid in its entirety in August 2019.  That might still be the case, but with the decision taken to mothball the refinery, there now stands a chance, the terms of the loan can be renegotiated.

Let’s put TT$6 billion in perspective: that’s paying about 600,000 Trinbagonians $10,000 each (a month’s salary for many); the cost of about 7,000 houses, assuming each house costs around $900,000; and more than the Government projected to raise with the recent National Investment Fund!

As I said from the outset, we cannot ignore the loss of jobs and the impact on the psyche of those affected.  I understand there will be financial cushions, in the form of severance payments to the employees in question.  I am hopeful that these financial cushions will be seen as investment in their long-term economic security and not an “answered prayers” to engage in wanton and wild spending.

We also ought not to ignore the opportunity for there to be different kinds of governance arrangements and conversations between those responsible for managing our state enterprises and the trade unions that represent employees in those enterprises.

Amidst the cacophony around this decision and anticipating the continued ‘noise’ as Budget 2019 looms, let us use this opportunity to frontally and honestly craft better governance and financial models for the remaining Petrotrin-like enterprises in the country so that we can contemplate, and possibly even achieve, a brighter economic future for all.

That’s just my point of view!

A monthly column by

Dr Marlene Attzs Sooping-Chow

Economist

Email: marlene.attzs@gmail.com