Dr Roger Hosein
With the work of the Mostofi (1963) Commission in hand and in conjunction with the intellectual push given by Lloyd Best to take over the commanding heights of the T&T economy, the Government proceeded to take over the assets of British Petroleum (BP) in 1969 and of Shell in 1974.
In 1985, amidst growing tensions between the company and the OWTU, the Government also took over the Texaco refinery for the paltry US $189.2 million. Over time, the OWTU continued to play a very heavy hand at the refinery and pushed wages significantly above the industry average. For example, using data by the Energy Chamber in 2017, for a production operator, the industry average was $14,000 (TT), whilst the Petrotrin minimum monthly was 42.9 per cent higher for the same job classification—$20,000 (TT). As concerns technical craftsmen, the industry average was $17,500 (TT) and the corresponding minimum monthly at Petrotrin was $21,000 (TT), a mark-up premium of 20 per cent.
Similarly, for accounting technicians, the industry average was $15,200 (TT), whilst the Petrotrin minimum monthly income was $22,000 (TT). For engineer/geologist, the industry average was $20,000 (TT) and the minimum Petrotrin monthly was $24,000 (TT), a wage premium of 20 per cent.
These type of wage premiums motivated by the behaviour of the union escalated costs of the company. Indeed, manpower costs at Petrotrin escalated to 50 per cent of total operating costs, motivating the Prime Minister of T&T last year to say that "the payroll ratio is exceptionally high even compared with that of other state-owned oil companies". The chairman of the company noted that the company's operating cost is 70 per cent more than its closest competitors.
Implications and the way forward
The closure of the refinery would result in inflation, especially if it is that the cost of imported fuel is pushed to a higher price than currently prevailing at the pump (I am assuming no subsidies on imported fuel, as that would be irrational). In terms of the implications for the unemployment level, the communities around Petrotrin that benefit on a daily basis from the backward and forward linkages associated with the operation of the refinery and the associated expenditures of the Petrotrin workers would likely contract on account of the demulitplier effect.
Businesses may close, and the unemployment rate may rise from the national average of 5.3 per cent to higher levels, particularly in the communities of San Fernando, Marabella, Point-a-Pierre, Plaisance Park, Claxton Bay, and Gasparillo.
There is a possibility that the net foreign exchange position on the market can improve. Specifically, if we assume that US$3 is lost on each imported barrel of crude oil (we import 100,000 bpd) and the country exports 40,000 barrels of crude oil per day, then the sum of those two at US$60 per barrel yields an improvement in the foreign exchange position of US$2.7m. If the country imports 25,000 barrels per day of refined petroleum products at US$70 per barrel, this would cost the country US$1.75 m per day, with an overall net saving close to US$0.95 m per day (if we use US$50 as the export price and US$60 as the import price, the net foreign exchange savings is US$0.8 m per day).
Two related issues
(1) In the context of the discussions with Venezuelan, the TT economy can consider joining Petrocaribe as a means of bringing in cheaper, refined crude oil. Pertrocaribe was designed for non-oil producers, but given the decline in Venezuelan crude oil production, there may be an avenue for Venezuela to get some crude oil and manufactured goods from the T&T economy in a type of barter-swap arrangement. Under the Petrocaribe rubric, there was the Guyana/Venezuela Rice Trade Agreement. The Guyanese would receive fuel from Venezuela which they would pay for with rice. Rice was not originally part of the arrangement but Guyana petitioned for rice to be included. There is room, especially for a nation grasping at straws (Venezuela) for latitudinal flexibility. We, in turn, are not grasping at straws, but I'm sure we would be glad for a good coconut branch!
2) Finally, I hope the State is not considering maintaining a subsidy on an imported good to maintain domestic consumption. It makes no sense. If you are adjusting, adjust. In closing the refinery, the State now has a very reasonable explanation to discontinue the fuel subsidy. As a guide, the cost of a unit per litre of fuel in Barbados is US$1.94 per unit, as compared to US$0.64 per unit in Trinidad.