The truth about Petrotrin and its restructuring

STUART R YOUNG

Minister of Energy and Energy Industries and Minister in the Office of the Prime Minister

Part II

In this account, Part I of which was published yesterday, the Energy Minister explains the financial and other factors that led to the Government’s decision to restructure Petrotrin. This concluding section explains what happened after a Cabinet-appointed committee made recommendations in 2017 on the company’s future.

The Government appointed a new board of directors with specialist skills, led by Mr Wilfred Espinet, an experienced businessman who had successfully restructured companies and their operations in complex situations before, including Trinidad Cement Ltd.

The new board was mandated to assess Petrotrin and to come back to the Cabinet with its recommendations, including, importantly, a proposal to deal with the US$850 million (TT$5.8 billion) bullet payment due in August 2019, and to do so without recourse to the Minister of Finance having to liquidate it and without the provision of a government guarantee.

The board hired a number of consultants and industry experts, all of whom concluded that Petrotrin was in a dire position and at minimum it was threatening to downgrade the country’s sovereign rating.

In 2017/2018, to add to the operational woes, Petrotrin’s auditors insisted that cumulative losses that were being carried forward for tax purposes to the tune of approximately $5 billion had to be written off. This would have had detrimental effects on Petrotrin’s financial standing and affected its solvency, threatening to result in triggers on payment of its debts, including the US$850 million and US$750 million debts.

The continued need to import crude oil was being supported by short-term US-dollar loans which required government support. By the time the decision was taken to shut down the refinery, these short-term US-dollar loans totalled approximately US$450 million. These US-dollar short-term loans continue to be carried up to today’s date, totalling approximately US$402 million (TT$2.77 billion).

The Espinet-led board and its advisers met regularly with a sub-committee of the Cabinet chaired by the Prime Minister, and they also met with the full Cabinet on occasions as they worked through the various options available for the restructuring of Petrotrin.

The Cabinet was advised that to continue without any changes, and in particular, to continue operating the refinery in the manner it was being operated, with the high costs of production and negative projections, would lead to Petrotrin’s continuing to incur losses at an average of over $2 billion per annum. In 2017 Petrotrin declared another loss of $2.4 billion, in addition to defaulting on its statutory payments of royalties and taxes.

Eventually the board submitted to Cabinet that the only way that it was possible to refinance the US$850 million loan without a government guarantee was to go to the market with a restructured company that separated exploration and production into a separate company, freeing it of the financial burdens of the refinery.

It was also submitted that it was prudent to shut the refinery down and import fuels, as the refinery was sinking Petrotrin, for the reasons stated above.

After much analysis and deliberation, the Cabinet gave the board the green light to proceed and Petrotrin was restructured, with the workers being paid off approximately $2.7 billion in cash, along with a Cabinet decision to provide land to workers from the land bank of Petrotrin.

The restructured companies were also able to secure a refinancing of the US$850 million debt without a government guarantee, which prevented the financial fallout to the Treasury and country that would have taken place had the restructuring not taken place.

The root of the problem which resulted in the refinery being closed was the unavailability of sufficient crude from Petrotrin’s sources. This made the refining business largely dependent on imported crude.

Added to these unsustainable costs, Petrotrin’s lifting cost per barrel of oil was inefficient and uncompetitive: it was costing significantly more to lift each barrel of oil than other exploration and production companies.

Petrotrin’s exploration and production operations were inefficient, and added to the high cost of running the refinery as the input cost to the refinery.

The refinery was a loss-making enterprise that was sinking Petrotrin and threatened to bankrupt Trinidad and Tobago if it defaulted on its payment of the US$850 million debt in August 2019, which would also have triggered a call on the US$750 million debt at the same time, as well as the US$450 million short-term debt. This would have required the Minister of Finance to find US$2.05 billion (TT$14.145 billion) to pay off these debts, which was not available.

In turn there is little doubt that Trinidad and Tobago would have had to turn to the IMF for this money, as well as facing downgrades and possible cross-default calls on sovereign debt, which would definitely have placed us in the hands of the IMF.

It is easy for persons who live in a fantasy to say that the refinery should not have been shut down and to ignore these hard and irrefutable facts that the Government had to face to save Trinidad and Tobago from an IMF programme.

It cannot be left to those opposed to the Government who object to the policy of restructuring as carried out to try to rewrite history by putting forward false narratives based on disinformation and untruths.

The reality is that the only reasonable option that was available to a responsible government that was concerned about the well-being of the country was to get out of the refining business and to restructure Petrotrin in the manner that we did. A very difficult decision to have taken, but a necessary one, which allowed us to continue to manage our own affairs without turning to the IMF.

The restructuring of Petrotrin and closure of the refinery have been a success. Not only did we avoid calls on the treasury to make payments of the long- and short-term US-dollar debt; we also managed to secure refinancing of the US$850 million debt, not once but twice, at competitive rates of interest and without any government guarantee.

The newly formed companies of Heritage and Paria have also been successful, a fact that is often conveniently ignored by Ralph Maraj and others opposed to the government.

For the period FY2019 through March 2024, Heritage has made $40.3 billion in revenue, paid $12.6 billion in taxes and royalties, and made a profit of $6.5 billion. Heritage has also paid TPHL $1 billion in dividends.

For the same period, Paria has made $52.6 billion in revenue, paid $0.9 billion in taxes, and made a profit of $1.3 billion.

These results are indicative of the benefits of the restructuring exercise that this Government undertook.

These irrefutable statements of fact are not associated with any laziness or lack of intellect. Any unbiased assessment of this major business turnaround, resulting in the removal of a loss-making refining operation and leading to the success of Paria and Heritage, whilst keeping the refinery in a preserved state, would conclude that it was appropriate to restructure Petrotrin and to shut the refinery.

It is important to note that the refinery is being preserved, and that the Government has consistently indicated and invited those who may be interested in restarting it to provide their proposals for doing so.

A prerequisite to the refinery’s restart is an operator that has a source of crude, the wherewithal to restart the refining and the financial ability to underwrite the costs associated with supplying the crude and paying for all costs associated with a safe restart. Government has very carefully kept the door open.

I have taken the time to provide this factually accurate op-ed to ensure that those who seek the truth and facts are fairly provided with them.

Mr Maraj and others who pretend to be concerned about Trinidad and Tobago would do well to be honest in their contributions and respect the public enough not to attempt to mislead them.