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Saturday 21 September 2019
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Local firms have not cracked code for global competitiveness

The local energy services sector is one of the most successful legacies of TT’s storied 110-year-old history as a hydrocarbon producer. But despite extraordinary strides in providing support for major multinational companies, local firms still for the most part haven’t really managed to crack to code for global competitiveness.

It’s not that the sector is ignored by the government—far from it: energy services is one of the key diversification pillars identified by successive administrations. What, then, is holding back the sector’s growth?

TT seems, on paper, to know what to do. Former chairman of the Economic Development Advisory Board, Dr Terrence Farrell, while moderating a panel on maximising value for the TT energy sector on Monday, delineated some of the energy engineering services that TT can focus on to create a centre of excellence for the industry, including education, networking, digitization, asset restoration, data mining, mapping future skills, fabrication, and reserves and resource analysis.

“There is great potential for the sector, but there is a lot that needs to be done,” vice president of the Energy Chamber and chief executive of local services firm Damus Ltd, said. The country has a lot of experience, he noted, but often it seems TT doesn’t give itself enough credit. Yes, there are complaints about output and productivity that are true, but there is also plenty good that the country can offer — especially to the region.

What the sector needs to figure out is how to balance its human resources with financial resources.

For human resources, there needs to be a tripartite collaboration and understanding among labour, business and the government.

For financing, the struggle is getting commercial banks to take a risk on a fairly volatile industry.

Farrell described the local commercial banking sector as “not willing to provide capital, particularly to high risk businesses like energy services.

Deputy chief executive for state bank First Citizens, Jason Julien, responded. Banks see the opportunity in the sector, but the job of a commercial bank is to maximize value. Julien did, though, acknowledge that perhaps commercial banks need to evolve their operations to take advantage of the opportunities of the sector and learn and understand the risk involved in investing in the industry.

Energy companies are naturally volatile investments, because much of their revenue is dependent on the price of volatile commodities — oil and gas. Their smaller scale also makes it more difficult for them to weather the vicissitudes of the commodities market than larger multinationals. Multinationals also have the advantage of access to financing from international banks and investors, whereas small, local firms have to depend on local commercial banks.

In 2016, according to Central Bank data, local commercial banks loaned $817.1 million to the private sector petroleum interests, down from $1.034 billion in 2015. Conversely, they made $1.54 billion in loans to public sector interests, versus $660 million in 2015.

Energy services companies are a component to banks’ entire energy sector portfolios, Julien noted, but that doesn’t mean they don’t want to support—it just depends on the risk analysis.

There’s also a place for commercial banks along the pipeline, he suggested. Equity is required, especially for start-ups, and while commercial banks can intervene when their capital is needed, there is also a need for early investors who can provide a chunk of that start-up capital.

Zachary Kaplan, a business analyst and director of Washington, DC-based firm DAI Sustainable Business Group, suggested that there was a practical mismatch between what energy services firms can offer, and what banks might be looking for, especially related to collateral. The firms may have the technology and expertise, but may not have the contracts that could serve as a form of collateral that would allow them to access financing, and this inability to access financing can constrain their ability to compete.

Kaplan suggested, then, that the dialogue between banks and firms be about timing, rather than risk appetite, allowing for a balance between the timing of procurement schedules and execution on the part of the firm and financing from banks. It’s a collaboration then, between all the parties, he said, that will allow for investment.

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