Trinidad and Tobago's state-owned oil company to reorganise

Navigating the future of state-owned oil company Petrotrin has become one of the most urgent strategic decisions facing the administration of Prime Minister Keith Rowley. Petrotrin is recording fiscal losses and has become heavily indebted. The company has made some poor managerial decisions, operates alongside a powerful trade union – the Oilfield Workers’ Trade Union (OWTU) – and seems unable at present to deliver on two key outcomes: increased crude oil output and a commercially sustainable refinery operation.

Issues at Hand

The company borrowed heavily in 2007 ($750m) and 2009 ($850m) to fund refinery upgrade projects that were later abandoned; the planned ultra-low sulphur diesel plant and the gasto-liquids project were both flawed at a technical level.

In more recent years, as a result of low oil prices and falling production of indigenous crude, Petrotrin registered net losses of TT$819m ($122m) in FY 2015 and TT$533m ($79.6m) in FY 2016. The government had to step in to guarantee $250m in additional shortterm loans in 2016. Furthermore, Petrotrin arrears on royalty and tax payments to the central government have grown to TT$1.2bn ($179.4m). Petrotrin also faces a debt repayment of $850m that comes due in 2019. Moody’s global credit rating agency downgraded the entity’s rating in March 2016 from “Ba1” to “Ba3”.

The company employs 5000 staff with a total annual wage bill of TT$1.9bn ($283.9m), which represents more than 50% of its operating costs. In wage negotiations, talks are in process regarding a company offer of a 1% per annum increase for the 2014 to 2017 period. In these negotiations, OWTU declared a breakdown and called for strike action in January 2017. To avoid the operational stoppage – which the prime minister said would have had a hugely negative effect on the economy – the government authorised Petrotrin to offer a 5% per annum wage increase for the previously disputed 2011-15 period and sought to resolve the dispute over the 2014-17 period by the end of February 2017. On March 1, 2017, however, negotiations moved to the Industrial Court. Back payments for 2011-15 will be made in addition to that period’s 5% increase, conditional on Petrotrin meeting productivity, production and profitability targets.

Industry Thoughts

The reaction of many analysts was that the Petrotrin problem had bought time, but was not yet completely solved. The prime minister recognised as much, saying that it was his government’s intention to engage OWTU on the future of the company. In March 2017 a seven-member committee was established to conduct a review of Petrotrin’s operations, with the purpose of presenting recommendations for restructuring the company in a report to be submitted in June 2017. Private sector analysts believe Petrotrin cannot be restored to financial health without major restructuring. Many favour partial or full privatisation, or distributing Petrotrin assets to private operators that have the capital and technical expertise to increase oil output.

“There is an urgent need to monetise some of Petrotrin’s oil assets, both onshore and in the Gulf of Paria, over the next two years. That would involve bringing in private capital, such as equity partners,” Thackwray Driver, president of the Energy Chamber, told OBG.

Local operators have suggested that the major reform of Ecopetrol, Colombia’s state-owned oil company, more than a decade ago might provide one model for how to restructure Petrotrin. However, political sensitivity and the likelihood that OWTU may seek to block any changes are realistic threats.

Tackling the Petrotrin issue is an important challenge in two senses. The first is the specific practical problem that the company is losing money and the haemorrhage needs to be stopped, not least to protect the government’s finances. The second is more symbolic: initiating reforms would send a positive message to the energy sector about the government’s commitment to get the industry moving forward again.