Imbert: Patriotic confused about tax credits

FINANCE Minister Colm Imbert on Saturday sought to clarify why Government could not proceed with the sale of the former Petrotrin refinery to the OWTU-owned Patriotic Energies and Technologies Company Ltd.

Imbert’s attempt at clarification was met with a request from Patriotic for an urgent meeting with him to find an agreement that would allow its bid for the refinery to proceed.

In a statement, Imbert noted comments made by Patriotic’s spokesmen on Friday, about its proposal to finance the purchase of the Point-a-Pierre refinery and the Paria Fuel Trading Company.

“It appears that there is a complete misunderstanding of the true nature of transferable tax credits as compared to tax concessions or incentives to industry. Patriotic has said that the tax credits are nothing new and are given to multinational companies making foreign direct investment in TT.”

But Imbert observed, “What is being missed is that the tax credits given to other companies making an investment in TT are not transferable or tradeable.” He explained, “It is only non-transferable tax credits that are given to other companies making investments, and these non-transferable tax credits can only be used to offset tax on income from their own operations.” These credits, he continued, cannot be used by other unrelated companies and therefore do not represent any financial outlay on the part of Government.

Imbert said the problem with with a transferable tax credit, is that “it is not linked in any way to the activities, income or operations of the company involved and is in effect a form of cash or revenue foregone.” He added, “A transferable tax credit can thus be sold on the open market for cash and is a legal and binding obligation of the Government, which in this case would have no relationship or connection to the restart or operation of the refinery.”

Whether the refinery was restarted or not, Imbert said the proposed transferable tax credits would be sold for cash. “Simply put, the fundamental conditionality in the financing proposal from Credit Suisse was that the Government was required to issue to Credit Suisse, through Patriotic, US$750 million in fully transferable and tradeable tax credits in exchange for the US$500 million that would be paid to Trinidad Petroleum Holdings (TPHL) for the refinery and Paria.”

He reiterated this meant the Government was required to give Credit Suisse US$750 million in fully transferable money market instruments. Imbert indicated Credit Suisse had stated up front they planned to sell these instruments on the open market. “Patriotic would then get the refinery and Paria for free, having put up no money, collateral or security and could mortgage the refinery and Paria as they saw fit.”

Imbert said this was not what was envisaged or stated when the request for proposals for the sale or lease of the refinery was issued in 2019. “It is also completely inconsistent with the general criteria and conditions associated with the procurement process for the disposal of the refinery and certainly not in the public interest.”

In response, Patriotic requested an urgent meeting between its bankers and technical team with Imbert and his technical team “to arrive at mutually agreeable terms.” In a statement, Patriotic said arriving at an agreement would allow it “to make its upfront payment of US$500 million and invest another US$500 million to restart the refinery. Patriotic insisted, “There is absolutely no doubt that Patriotic has access to the US$1 billion required to acquire and restart the refinery. There is also no doubt as it relates to its partners to adequately support Patriotic in restarting and profitably operating the assets."

At a news conference on Friday, OWTU president general Ancel Roget denied that Patriotic would get state assets for free and its financiers could transfer them to a third party. He also said Patriotic was not giving up its bid to acquire the refinery. Patriotic also claimed there were “ significant and serious misunderstandings about its proposal to acquire the refinery. The company said it was requesting Government provide it with tax credits that are provisioned in the incentive package offered for investment in the energy sector. Patriotic claimed Government currently offer tax credits of 140 per cent of the investment made in the sector.

In Parliament on Friday, Oropouche East MP Dr Roodal Moonilal asked if Government would be “returning to the earlier bid in or around September 2019, when there was indeed a second-placed bidder,” having rejected Patriotic’s bid. At that time, US private equity firm Beowulf Energy and German refiner and trader Klesch were the other bidders short-listed for the refinery. Beowulf offered a US$42,000 monthly lease over a 15-year term while Klesch’s proposal indicated the only payment to Government would be through taxes. Imbert reiterated Government’s decision on Thursday.

“TPHL and Government will proceed immediately to return to the open market to explore all other options which may exist for the utilisation of the refinery assets.” He also reiterated that TPHL “has been mandated to submit for the consideration of Cabinet, within three weeks, a proposal for the canvassing of the current market for the exploration of options for the utilisation of the assets of Guaracara.”