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Sunday 9 December 2018
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Tobago’s fair share of gas patrimony

32.3% of nat’l development budget

Economist Vanus James makes a contribution at a public consultation on Tobago’s autonomy with representatives of the Parliamentary Joint Select Committee (JSC) on June 10 at the Victor E Bruce Financial Complex in Scarborough.
Economist Vanus James makes a contribution at a public consultation on Tobago’s autonomy with representatives of the Parliamentary Joint Select Committee (JSC) on June 10 at the Victor E Bruce Financial Complex in Scarborough.

In an article titled ‘Tobagonians: Watch Your Gas, (Newsday Tobago, Nov 23/25), Vanus James argued that Tobago should get its fair share of the gas patrimony, noting that Shell was about to start extracting gas from Block 22 and NCMA-4 and pipe the proceeds to the gas-processing facilities at Atlantic LNG in Trinidad. All of Block 22 and 96 per cent of NCMA-4 are squarely in Tobago waters, he noted. BHP Billiton has recently announced major gas finds in block TTDAA-14, which is also squarely in Tobago’s waters.

Last Thursday, Communications Minister Stuart Young announced that Government had successfully negotiated gas agreements with Atlantic’s Train One’s main shareholders, Shell and BPTT, including a new pricing formula that will “enhance the revenue of TT.” He promised further details in coming weeks.

Today, James continues his advocacy for Tobago to get its fair share of gas profits – which he puts at 32.3 per cent of national development spending using an updated formula with the island’s boundaries correctly defined.

By VANUS JAMES

The first major positive effect of adopting the right definition of Tobago in the Constitution will be on the island’s cashflows. If Tobago is defined to include all its gas fields, then the revenues resulting from gas extraction will yield taxes that must be deposited into the Tobago Fund. Whatever the ultimate arrangements for sharing these tax revenues with Trinidad, the cashflows will increase Tobago’s short-term capacity to initiate spending on infrastructure and other development priorities.

The second major effect of adopting the right boundaries for Tobago is to change its fair share of national development expenditure and development opportunity. Tobago must now get at least 32.3 per cent of the national development budget. Historically, national development expenditure was never shared in a manner designed to encourage industrialisation in Tobago. Trinidad exercised its right to use its oil revenues to industrialise its own economy. None was used in Tobago to set up industry outside of government. Tobagonians had to migrate to Trinidad to share in the high-quality jobs and careers created by oil and its revenues, in law, medicine, engineering, and other professions. Now that gas is being mined in Tobago, it is taken for granted that the gas should be shipped to Trinidad to continue its industrialisation process. What is most troubling is that there is still no talk of switching to a fairer revenue sharing arrangement to support industrialisation in Tobago.

Currently, revenue-sharing is based on a formula recommended by the DRC (Dispute Resolution Commission) but implemented by Trinidad. That formula has two components: a recurrent revenue component and a development component. The recurrent revenue component was tied to the principle of equal treatment of all citizens of Trinidad and Tobago. This implied a minimum budget share for Tobago’s government equal to the per cent of Tobago’s population in the national population, at the time 4.03 per cent. At present, that share would be approximately 4.6 per cent. The recurrent budget maintains the status quo - pays current employees, keeps education, healthcare, and utilities running, maintains pensions, and the like. For industrialisation in Tobago, it is the development budget that matters. Here, the DRC set an upper limit of 6.9 per cent of the budget plus borrowing rights, based on an estimated requirement of just over TT$2 billion of initial development spending. Only the borrowing provisions have been recently activated. Tobago has been allocated development budgets of TT$500 million or less, typically fitted under the minimum share of 4.03 per cent. TT$500 million cannot finance the public capital projects, credit facilities, and access to foreign exchange required to signal to investors in Trinidad and abroad that Tobago is ready to industrialise.

Defined with its correct boundaries, Tobago could pursue an updated formula that links its development budget to both population and geographical factors, as is done in other jurisdictions. This formula would allocate to Tobago a share of agreed national development spending, equal to the arithmetic average of its population share and its share of the geographical space. With more than 60 per cent of the geographical space and 4.6 per cent of the population, Tobago’s fair share would be at least 32.3 per cent plus borrowing rights. On this basis, current national development spending of about TT$5 billion would bring Tobago at least TT$1.6 billion of development allocations, compared to the TT$231 million plus TT$300 million of borrowing provided this year. The formula refers to an agreed development budget, because Tobago cannot rely on Trinidad to shape national development priorities and financing methods. These must be jointly determined by the two island governments in regular dialogue, assembled in a 10-year package, and brought to the Tobago public for its consideration in open hearings at least four months before being placed before Parliament.

A third crucial aspect of Tobago’s fair share is its right to borrow. Development of viable export-oriented industries in Tobago will require substantial foreign direct investment. However, foreign investment will flow into those industries in proportion to the amount of capital already invested in them, in infrastructure, education, skills training, healthcare, utilities, and the like. A big development push in Tobago will inevitably require large scale upfront investment spending to signal to the world that profitable investment options are available on the island. These investments will require borrowing. At present, Tobago’s capacity to borrow is defined by the government in Trinidad. In the last budget, Tobago was allowed TT$300 million, which is way too small to make a serious difference. Instead, borrowing by Tobago should be justified by its capacity to repay. The main aspect of that capacity is the net savings the development industries will generate annually. The other is the development revenue flow from Tobago’s fair share of the national development budget. None of this denies the need for Tobago to collaborate with Trinidad to develop industries in Tobago in the national interest, just as in the past its human and other resources were co-opted to support industries developing in Trinidad. However, this time, in forging that collaboration, Tobago can meet Trinidad halfway. That would be the day when Tobago stands side by side with Trinidad and gives true meaning to the words of the National Anthem.

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