Sweet crude

KIRAN MATHUR MOHAMMED

kmmpub@gmail.com

The government has risked tremendous political capital on Petrotrin, reflected in the tired eyes of the board and in the national budget.

This is nothing to the 22,000 people who bear the full burden. Worried engineers with young families and grizzled old unionists alike have had the bottom drop out from under their lives. How can we make sure that the company is saved, and their sacrifice is not wasted?

Petrotrin must craft a narrative to pitch to investors and bondholders if it is to refinance its debt. It will have to answer the question: can it generate enough cash to meet its obligations? In fundraising, the story is crucial. By telling a good story, Jamaica has seen its borrowing costs fall despite having an otherwise crippling debt burden.

Petrotrin’s chairman Wilfred Espinet built his reputation on the turnaround of Trinidad Cement Ltd (TCL). That narrative went like this: once upon a time, a cement company made a deal with its unions, overhauled its plants; and brought in capacity and fresh money from an international investor. It was then able to refinance its debt, keep on its workers, and start throwing off cash.

I played a very small part in that transaction but am proud of it.

What is Petrotrin doing now? Most people (alarmingly, including its lenders) don’t have the full picture. All 5,000 workers will be retrenched. Another 1,000 will then be hired for the exploration and production operation, presumably at lower wages.

For Petrotrin’s lenders and bondholders, this is a good thing. It means the company will have more cashflow on an ongoing basis to service its debt.

The company’s infrastructure is ancient. A Houston-based engineer told me he refused to complete his asset review because he was afraid for his life. The board plans an overhaul at the cost of US$1 billion and change. This is good; and will allow the company to increase oil production from 40,000 to 60,000 barrels per day. It will also stem the oil spills that have killed fish, drowned birds, and damaged fishing communities.

There has been rampant speculation on secret negotiations to sell Petrotrin, but for now let us take the government at its word. It will shut the refinery.

If that is the case, what is the cost of decommissioning the plant? Is this cost included in the US$1 billion in planned capital expenditure, or is it an additional amount? Disclosing this will strengthen the narrative and quell the fear and rumours.

I asked Espinet whether he would consider bringing in an outside partner, as he did with TCL. He replied that he was "pleased that the Oilfield Workers Trade Union was no longer opposed to that." An oblique response, perhaps (he did look exhausted after forceful public questioning), but one that lends hope.

Petrotrin’s offshore reserves (known as Trinmar) have long been rich spoils that the company could never afford to extract. A private company could. The French oil company Perenco has already expressed interest. Perhaps the Japanese energy investor Marubeni, which runs Powergen? In Powergen’s model, Marubeni has the casting vote in management: but the government retains the majority shareholding. This model might work again. It would not be a fire sale of the country’s natural resources, but a real partnership.

Local investors should be included in a potential joint venture. This would transfer skills across the economy. A private partner would bring a much-needed infusion of cash, expertise and technology.

I couldn’t help but chuckle at BP’s digital assistant at the last Energy Chamber conference. "Phoebe" suggested that the engineers arrange a conference call. Just as inefficient as most meetings at multinationals, I thought. But the technology was impressive: and Petrotrin could benefit.

The government’s credibility is tied to Petrotrin. It cannot afford to do anything less than fully meet its external obligations, lest it drag down the entire country’s credit rating. The government has rightly stated that Petrotrin should be independently profitable. But even after the sacrifices made, Petrotrin will operate at a loss for years to come.

The new narrative cannot be separated from history. Petrotrin has been and remains state-owned. Yes, policymakers are wary of a formal guarantee that could send public debt shooting up. But short of that, if the government plainly asserts its backing, investors would gain comfort and certainty. If the company is to raise the US$3.7 billion it needs to survive, it will need us to rally around it one last time.

Kiran Mathur Mohammed is a social entrepreneur, economist and businessman. He is a former banker, and a graduate of the University of Edinburgh.