(Trinidad Guardian) Energy Minister Franklin Khan is sending a strong warning that Petrotrin’s current state of affairs has the ability to “bankrupt” the country, as he yesterday described the state oil company as coming to what is referred to in astrophysics as a “black hole”.
Khan’s stark warning ahead of tomorrow’s meeting between Petrotrin and the Oilfields Workers’ Trade Union on the restructuring of the company, came at a news conference at the Hyatt Regency, Port-of-Spain, as he described Petrotrin’s future as “the most fundamental issue the country faces in terms of our economic fortunes or lack thereof”.
“If Petrotrin is not handled properly, it could bankrupt this country. It is as serious as that,” Khan said.
Asked to explain this statement further, Khan said, “Once Petrotrin cannot face its bankers and put a plan in place to repay its debt the obvious corollary is that they will need a Government guarantee, which will throw all our indicators way off course, our debt to equity all these things. And then our repayment schedule, our debt servicing. It is unimaginable the dire consequences if not managed properly,” Khan said.
Khan urged citizens to support the Government in its attempt to bring stability and long-term viability to Petrotrin. He said while successive administrations, “both PNM and UNC, have kicked the can down the road” with respect to Petrotrin, it just could not continue as the company has serious systemic, structural and operational issues which must be dealt with.
He explained that Petrotrin “has a massive debt profile in excess of TT$13 billion and we all know about the famous bullet US$850 million payment due in November 2019.” He said if something is not done “Petrotrin and or the Government will have to find a cheque of US$850M to pay to the bondholders.”
“As we speak, Petrotrin owes the state $3.5 billion in outstanding taxes and royalty, that is the people’s money which is being consumed by a company to satisfy whatever inefficiencies that operate in the company,” Khan said, noting the company is also saddled with high operating costs.
He said it costs an average of between US$30 to US$40 for the company to lift a barrel of oil and when oil prices are US$40 it is obviously uneconomic. The company is also generating no working capital to reinvest because it is operating at a loss. He said Petrotrin’s local crude production is a mere 40,000 barrels per day but the refinery has a capacity of 150,000 barrels per day.
Saying this means in order to keep the refinery going the company has to import 110,000 barrels per day, Khan said, “What compounds this matter is that for every barrel of crude refined the company loses US two dollars and fifty cents to US three dollars per barrel, so you importing oil to lose money.”
But Khan explained that Petrotrin is a “net user of foreign exchange, so here you have your state oil company not bringing in any net foreign exchange, because the amount they are spending to import crude and lose money on the crude they import, it has made the refinery unprofitable.”
Khan also expressed concerned that salaries and wages account for 50 per cent of the company’s operating cost.
“For an oil company to be skewed so badly that in excess of 50 per cent of its operating cost is salaries and wages, something has to be fundamentally wrong,” he said.
Khan said Petrotrin was coming to what was called in astrophysics a black hole.
“That means an area of such intense gravity which if you come to it sucks you in and you cannot come out. Before we reach that stage we have to do something and something quickly.”
On Tuesday when the Petrotrin board and OWTU meet, Khan said it will be the first time “we will lay bare what our plans are, what consequences will follow and the way forward for Petrotrin.” Khan urged all parties to treat the matter with maturity, pragmatism, and a certain level of patriotism, because of the fundamental national consequences. He said as the numbers reveal themselves the situation will become clear.
He said after Tuesday’s meeting between the union and Petrotrin Prime Minister Dr Keith will address the nation on the future of Petrotrin on September 2.
Quizzed on options Government could look at going forward, Khan refused to say whether privatisation or a merger with Shell could be involved.