An­tho­ny Wil­son

The de­ci­sion by Arcelor­Mit­tal to per­ma­nent­ly moth­ball its steel pro­duc­ing com­plex on the Point Lisas In­dus­tri­al Es­tate is due more to the Lux­em­burg-based com­pa­ny's de­sire to ex­tract a re­duc­tion in their T&T costs than on any­thing else.

In sim­ple terms, the com­pa­ny closed the com­plex, sent home hun­dreds of work­ers and is fac­ing hun­dreds of mil­lions of dol­lars in im­pair­ment charges be­cause it wants the Gov­ern­ment to main­tain or even re­duce the cost of the nat­ur­al gas, elec­tric­i­ty and port charges.

Along with those de­mands, Arcelor­Mit­tal Point Lisas al­so does not want to pay the in­dus­tri­al prop­er­ty tax the Gov­ern­ment is in­tent on in­tro­duc­ing and is re­luc­tant to pay the high­er Green Fund and Busi­ness Fund levies that the Min­is­ter of Fi­nance, Colm Im­bert, out­lined in his 2016 bud­get pre­sen­ta­tion.

The clo­sure of the Arcelor­Mit­tal plant at Point Lisas, there­fore, is a ploy to bring the Gov­ern­ment–along with the Na­tion­al Gas Com­pa­ny, the T&T Elec­tric­i­ty Com­mis­sion, the land­lord of the es­tate Plipde­co and the Min­istry of Fi­nance–to the ne­go­ti­at­ing ta­ble.

Some his­tor­i­cal con­text is im­por­tant:

Arcelor­Mit­tal's chair­man and CEO, Lak­sh­mi Mit­tal took over the run­ning of the steel com­plex at Point Lisas in 1989 on a five-year lease.

In 1994, Mit­tal pur­chased the com­plex from the gov­ern­ment at a cost that for­mer fi­nance min­is­ter Wen­dell Mot­t­ley puts at US$70 mil­lion.

I be­lieve it is true to say that what be­came known as Caribbean Is­pat ne­go­ti­at­ed and signed 20-year nat­ur­al gas and elec­tric­i­ty sup­ply agree­ments with NGC and T&TEC. Those agree­ments would have ex­pired in 1994 and Arcelor­Mit­tal tried to brow­beat the pre­vi­ous ad­min­is­tra­tion in­to al­low­ing it to con­tin­ue get­ting ul­tra-cheap nat­ur­al gas and elec­tric­i­ty.

The tech­nocrats from NGC and T&TEC–know­ing that Arcelor­Mit­tal had re­ceived 20 years of ul­tra-cheap gas and elec­tric­i­ty–ob­vi­ous­ly thought that it would be ap­pro­pri­ate if the com­pa­ny paid more for its two main in­puts.

That, in essence, is why Arcelor­Mit­tal is clos­ing its op­er­a­tions at Point Lisas: It wants to con­tin­ue get­ting ul­tra-cheap gas and elec­tric­i­ty from T&T.

The ques­tion that the pop­u­la­tion should be ask­ing is not whether the Gov­ern­ment should buy the com­plex for $1 and as­sume its $1.3 bil­lion in debt. That sim­ply is a non starter and, if the is­sue of the pur­chase of the com­plex even gets to the stage of a Cab­i­net Note, the coun­try would know that some­thing sus­pi­cious has hap­pened.

The more rel­e­vant ques­tion is this: can T&T af­ford to keep the Arcelor­Mit­tal fa­cil­i­ty or whether it should be con­signed to the his­to­ry of failed en­ter­pris­es?

In my view, the an­swer is ob­vi­ous, for the fol­low­ing rea­sons:

1. If the PNM ad­min­is­tra­tion grants Arcelor­Mit­tal the con­ces­sions it is de­mand­ing, it would be re­quired to grant sim­i­lar–but not the same–con­ces­sions to all of the oth­er op­er­a­tors on the Point Lisas In­dus­tri­al Es­tate.

In oth­er words, if the Gov­ern­ment agrees to roll back the Green Fund and the Busi­ness levies for Arcelor­Mit­tal, it would be re­quired to do the same for all the methanol, am­mo­nia, urea and oth­er petro­chem­i­cal plants on the es­tate.

If it agrees to give Arcelor­Mit­tal a bligh–with re­gard to the in­dus­tri­al prop­er­ty tax–it would be re­quired to pro­vide a sim­i­lar con­ces­sion to all oth­er oc­cu­pants of the es­tate.

And, of course, if the ad­min­is­tra­tion agrees to pro­vide the nat­ur­al gas and elec­tric­i­ty con­ces­sions that the com­pa­ny is de­mand­ing, it will have to pro­vide sim­i­lar con­ces­sions to oth­er large-scale users. What's note­wor­thy is that the steel pro­duc­er is the largest sin­gle user of both nat­ur­al gas and elec­tric­i­ty on the in­dus­tri­al es­tate and is, there­fore, en­ti­tled to a vol­ume dis­count. But, all of the plants there use nat­ur­al gas and elec­tric­i­ty.

2. Con­ces­sions to the Point Lisas in­dus­tries would re­duce the amount of rev­enue that the coun­try can count on from its petro­chem­i­cal sec­tor in the fu­ture. This would be par­tic­u­lar­ly dif­fi­cult at a time when en­er­gy rev­enues are ex­pect­ed to con­tin­ue to be con­strained un­til the end of 2017 and per­haps be­yond.

3. Any con­ces­sions grant­ed at a time when all of the petro­chem­i­cal pro­duc­ers in the coun­try are un­der pres­sure be­cause of low mar­ket prices, would con­tin­ue when the prices of those prod­ucts re­cov­er. While the price of nat­ur­al gas for most of the Point Lisas com­pa­nies is linked to the fi­nal price they re­ceive, it is my un­der­stand­ing that there is both a floor and a ceil­ing in most of those con­tracts. The floor pro­tects the Gov­ern­ment/NGC when the com­mod­i­ty prices in the mar­ket de­cline so if the price of the nat­ur­al gas de­clines, it does not go be­low a cer­tain lev­el.

Rather than pro­vide con­ces­sions to Arcelor­Mit­tal in the hope of sav­ing the 700 di­rect jobs, it would be much more ap­pro­pri­ate for the Gov­ern­ment to come up with a pol­i­cy frame­work to guide the op­er­a­tions of plants at Point Lisas and Point Fortin.

The ba­sis of the pol­i­cy frame­work should be a re­al­is­tic analy­sis of the avail­abil­i­ty of nat­ur­al gas, an ap­pro­pri­ate and agreed pric­ing mod­el and a firm idea of where the coun­try's nat­ur­al gas earns the most tax rev­enue for T&T.

This frame­work should be en­shrined in the nat­ur­al gas mas­ter plan, which the cur­rent ad­min­is­tra­tion has been sit­ting down on for the six months it has been in of­fice.

It is al­so very sig­nif­i­cant, in my view, that Arcelor­Mit­tal has not an­nounced the fi­nal clo­sure of its op­er­a­tions in T&T on its group Web site, which it would be re­quired to do if the com­pa­ny has, in fact, de­cid­ed to shut up shop here as the de­ci­sion would be ma­te­r­i­al in­for­ma­tion.

The news is al­so not on the com­pa­ny's Brazil Web site. This is im­por­tant be­cause T&T, from an or­gan­i­sa­tion­al struc­ture point of view, re­ports to the Brazil seg­ment which "in­cludes the flat op­er­a­tions of Brazil, and the long and tubu­lar op­er­a­tions of Brazil and its neigh­bour­ing coun­tries in­clud­ing Ar­genti­na, Cos­ta Ri­ca, T&T and Venezuela," ac­cord­ing to the Arcelor­Mit­tal 2015 an­nu­al re­port.

What is al­so use­ful in­for­ma­tion is that the com­pa­ny's an­nu­al re­port states that the group's per­for­mance in 2015 "was im­pact­ed by im­pair­ment of US$176 mil­lion re­lat­ed to Point Lisas (T&T) cur­rent­ly idled."

More his­tor­i­cal con­text

The com­plex, which had be­gun op­er­a­tions in 1980, was known as IS­COTT (the Iron and Steel Com­pa­ny of T&T) when it was es­tab­lished as one as­pect of the vi­sion of T&T's late Prime Min­is­ter Er­ic Williams.

In pre­sent­ing the 19th Er­ic Williams Memo­r­i­al Lec­ture, ti­tled "Er­ic Williams and the emer­gence of the na­tion­al en­er­gy sec­tor," on June 10, 2005, Pro­fes­sor Ken Julien cit­ed ten defin­ing mo­ments in the de­vel­op­ment of T&T's en­er­gy sec­tor.

Julien's sev­enth defin­ing mo­ment was the de­ci­sion by the gov­ern­ment to in­vest in IS­COTT which, he says, was tak­en on Jan­u­ary 17, 1976.

Julien quot­ed Williams at a speech that must have been de­liv­ered at the sod-turn­ing cer­e­mo­ny of the steel com­plex.

"Point Lisas is the sym­bol of this fun­da­men­tal re­ori­en­ta­tion of the in­ter­na­tion­al econ­o­my. Sug­ar cane gives way to wire rods. Sug­ar has sep­a­rat­ed us as wire rods will weld us back to­geth­er.

"There have been at­tempts to per­suade us that the sim­plest and eas­i­est thing to do would be to sit back, ex­port our oil, ex­port our gas, do noth­ing else and just re­ceive the rev­enues de­rived from such ex­ports and, as it were, lead a life of lux­u­ry�at least for some lim­it­ed pe­ri­od.

"This, the Gov­ern­ment has com­plete­ly re­ject­ed, for it amounts to putting the en­tire na­tion on the dole. In­stead, we have tak­en what may be the more dif­fi­cult road and that is, ac­cept­ing the chal­lenge of en­ter­ing the world of steel, alu­mini­um, methanol, fer­tilis­er, petro­chem­i­cals. We have ac­cept­ed the chal­lenge of us­ing our hy­dro­car­bon re­sources in a very def­i­nite in­dus­tri­al­i­sa­tion process."