MANNING
ALTHOUGH PETROTRIN stands to lose substantial revenue should other Caribbean countries take up Venezuela's Petrocaribe offer, the company's executive chairman, Malcolm Jones, is not a worried man.
The oil giant, which sells mainly downstream products such as gasoline, diesel and fuel oil to our Caribbean neighbours, earns substantially more than the crude equivalent of the 50,000 barrels a day it markets in the region. Jones did not quantify the potential loss, but based on the average price of this country's crude today, it has to be at least TT$11 million (J$110 million) a day (gross), and quite possibly more, given the value-added nature of the products. On an annual basis, this market brings to the petro-giant around TT$4 billion (J$40 billion) in revenue.
"I'm an optimist," said Jones. "I don't think that Petrocaribe is the 'done deal' it's made out to be. I cannot speak for the Government, but our Prime Minister did say that he would want to examine the agreement more closely before declaring this country's position on it. Relations between Venezuela and us, on the one hand, and other Caribbean signatories and us on the other, have been good for a long time. In fact, it has grown better within recent years, and I see no reason why a regional oil plan like Petrocaribe would create a rift now. So I expect them to reach some agreement sometime soon."
LOOKING TO NEW MARKETS
Describing the Caribbean region as the refinery's biggest and most lucrative market for its products, Jones said if "nothing is resolved", the company would have to look for new markets. "There is great demand for oil products at this time, so if talks fail, we shall have to look at new markets. There's the USA, which is the biggest market of them all. Then there's Central and South America, both of which are growing economically, hence consuming more energy. It would mean higher shipping costs, and we may have to do some aggressive marketing, but we are not worried, not yet anyway."
The biggest refinery in the region, Petrotrin processes approximately 160,000 barrels of oil a day (bopd), making a wide range of products, in the main LPG, gasoline, kerosene/aviation fuel, gas oil, sulphur and bitumen. From its own wells it gets 48,000 bopd, and it imports the remaining 112,000 bopd from Venezuela, West Africa and Brazil. The company also refines crude oil for Barbados, which produces a little over 1,000 bopd. Its gross revenue in 2004 was TT$12.325 billion, but with high operating costs, its net profit last year was a mere $489 million. Major costs include cost of sales ($8.360 billion), personnel and personnel services (just over $1 billion), administrative costs ($856 million), and marketing.
The 50,000 bopd sales to Caribbean countries that it now stands to lose, amounts to almost 30 per cent of its product sales. This could hurt even more since the company invested substantial capital in upgrading obsolete plant and equipment, for which it has secured external loans. In 2004, for example, its net cash used in financing activities-repayment of advances for project funding, repayment of loans and interest-amounted to $553 million. On investing activities, the company expended $776 million. All these were done over a period of almost a decade, bringing the refinery throughput, which once stood at 360,000 bopd (under Texaco) but had declined to less than 60,000 bopd, back up to 160,000 bopd. It has also expanded its range of products to meet increasingly sophisticated markets.
It is important, therefore, that Prime Minister Patrick Manning and his Cabinet make a speedy decision on the Petrocaribe initiative. Repeated efforts to reach Energy Minister Eric Williams for an update on this failed. But one oil analyst said Trinidad and Tobago had little to lose by playing a major role in Petrocaribe. "Bear in mind almost all our Caricom colleagues have signed the agreement, and understandably so. With oil prices rocketing to over US$60 a barrel, these countries could find their economies seriously destabilised by having to buy oil products at such prices. All their costs will skyrocket, and they don't have much by way of revenue sources barring tourism. And even the latter could suffer if oil prices continue to rise, since the cost of air travel will also rise. I think the government needs to be mindful of this and see the Petrocaribe initiative by (Venezuelan President) Hugo Chavez as a positive move."
He cited the second objective of the Agreement that says: The fundamental objective of Petrocaribe, the new international energy company of Caribbean governments, is to contribute to the energy security, the social and economic development of participating countries. The initiative is part of the Bolivarian Alternative for the Americas (ALBA) that, according to Chavez, "is an alternative to the FTAA that extols unequal trade and unjust debt". With 11 new countries signing on the dotted line, ALBA has de facto moved from a Venezuela-Cuba alliance to a 13-country block. Countries that signed are Antigua, The Bahamas, Belize, Dominica, Dominican Republic, Grenada, Guyana, St Lucia, St Kitts, St Vincent and Suriname.
Under the terms of the Agreement, the proposed contributions for the social and economic development will come out of a fund which will be known as the ALBA-CARIBE Fund, to which participating countries may deposit part of their savings from the cheaper oil offered them by Venezuela, which has kicked it off with a US$50 million deposit. Prior to Petrocaribe, Venezuela had extended US$412 million in credit to Cuba to purchase a wide variety of Venezuelan goods, ranging from foodstuff to clothing to furniture.
A stumbling block to the Caribbean becoming ultimately fully integrated into the ALBA-CARIBE initiative, especially when it comes to purchasing Venezuelan manufactured goods, is that we are "US brand named conscious", according to the Venezuelans. The "subsidies" on offer in the Petrocaribe deal ranges from five per cent when oil price stands at US$15 a barrel, to 40 per cent at US$50. There will be an initial "grace period" for repayment of two years, but Chavez has hinted that this can be extended to up to 25 years if the price of oil remains above US$50 a barrel which seems to be what it will be henceforth. The other attractive repayment option for the signatories is that Venezuela is prepared to accept goods (like sugar, bananas, avocados) and services (medical, telecommunications), for which Chavez promises to pay preferential prices.
The stumbling block for the T&T Government is that it has actively pursued the FTAA, and more so trying to win its headquarters to be located in this country. ALBA-CARIBE is seen as an alternative to the FTAA. When Prime Minister Patrick Manning and Barbados' Owen Arthur declined to sign until they will have studied the document, there appeared to be discord within Caricom. In fact, many felt Manning berated his colleagues at the recent summit in St Lucia when he outlined the assistance this country has extended to its neighbours, including the "forgiven" US$500-million-plus debt that Guyana owed. That seems to have been resolved by the end of the annual meeting.
Commenting on Trinidad and Tobago's stance, Fidel Castro said: "No two countries are the same in this hemisphere, as is evident from what the Prime Minister of Trinidad and Tobago has said." He added: "This divergence can be overcome." Petrotrin, more than any other corporate entity in the country, will hope that the uncertainty that hangs over its 50,000 bopd sales to the region will be "overcome" sooner rather than later.
Taken from the Trinidad Express.
