A
alexk
Guest
The country is, today, bracing for a decision on the restructuring of the Petroleum Company of Trinidad and Tobago Limited (Petrotrin).
The decision has been preceded by allegations that the company has the potential to bankrupt the country and clear indications that the restructuring of Petrotrin will be a painful exercise.
How did we get here? Who is to blame and what are the lessons to be learnt?
Petrotrin was incorporated in 1993 to consolidate the interests of the Trinidad and Tobago Oil Company Limited (Trintoc) and the Trinidad and Tobago Petroleum Company Limited (Trintopec).
These companies were, in fact, an amalgamation of predecessor companies including Trinidad Leaseholds Limited, BP, Shell, Texaco and others. In the case of both Trintoc and Trintopec and later Trinmar assets, the Government of Trinidad and Tobago spent hundreds of millions of dollars of taxpayers’ money to protect jobs and to control “the commanding heights of the economy.”
The core mandate of protecting jobs has remained with the company, regardless of which political party has been in power. By bringing all three assets together then, the Government unwittingly helped consolidate the Oilfield Workers’ Trade Union’s power in the State-owned energy sector and made it even more difficult to institute changes.
The amalgamation of the companies was done without a full understanding of how the two cultures were to be integrated, basic issues like the classification of workers and salaries were not properly thought through, with some positions requiring individuals to operate in the same job with different titles. This never helped and the crucial issues of esprit de corps and organisational commitment would have been difficult to achieve.
Petrotrin as a company has three key areas, Exploration and Production (both on-land and offshore in its Trinmar assets), Refining and the Marketing and its Administrative areas that will include things like its hospital.
To appreciate the company’s challenge, it must be looked at from these perspectives.
In terms of Exploration and Production, Petrotrin is in control of significant assets and its on-land fields are stripper fields in which the individual wells produce few barrels of oil per day. This is because most of the fields were discovered over 100 years ago and cannot produce significant oil without the use of various secondary recovery methods.
In terms of its offshore assets in Trinmar, the last discovery, the Soldado Field, was made in 1914. Therefore, you have a company that is in the business of producing fewer and fewer barrels of oil per day but with the same level of staffing and fixed costs. This is a recipe for significant increase in the average lifting cost since this is determined by volume divided by fixed and variable cost.
The lack of money to explore for new oil has left the company in a chicken and egg situation, where it is sitting on potentially lucrative assets but with no money or technology to go after it. This leads to make-up news about major fields being discovered by Petrotrin, as happened in 2012 when then prime minister Kamla Persad-Bissessar announced a major discovery of the Jubilee field which was supposed to lead to significant increase in production.
On the Refining and Marketing side, Petrotrin was faced with an ageing refinery that had long passed its best days when it was the fifth largest refinery in the world and key to the World War II effort. Changes in the stipulation of fuels, like the removal of lead, the challenges to its traditional markets due to the PetroCaribe deal and colossal waste of money in cost overruns due to the refinery upgrades have crippled the company.
There was no doubt that the board of the late Malcolm Jones had to reconfigure the refinery if it was to stay in business, but Petrotrin did so on borrowed money that was not used efficiently with massive cost overruns. The project management skills of the company left a lot to be desired and the projects were all years behind schedule, hundreds of millions over budget and significantly increased the company’s gearing ratio.
It is this debt and the inability to pay back the money from creditors, coupled with the near junk rating that is driving this restructuring. The Government is faced with Petrotrin’s liability impacting its own credit rating and its ability to borrow.
On the administrative side, Petrotrin continues to carry much higher costs than other similar companies and its pension and health benefits carry major costs with it supporting workers and their families, even after they retire, in private clinics and its own hospital.
Faced with this, governments have refused to act, part of their inaction has had to do with the strength of the union that has always threatened and on some occasions shut down the company if threatened. This has led to a continuous increase in salaries that are unsustainable.
But a big part of the challenge is that from the People’s National Movement to the United National Congress, both major parties have seen Petrotrin as an opportunity for political largesse, supporters are regularly placed in positions in the company and the management is changed whenever there is a change in government and often when there is even a change in the board.
This has led to a situation where it’s about survival for the upper management and a loss of talent, as those who have the capacity often take opportunities where innovation and stability reside.
There is no doubt that today has an omen of a watershed moment, but with the strength of the OWTU at risk and so much to lose on personal and political levels, the issue is whether there will be common ground or if there will be an attempt to mash up de place.