Mariano Browne
Tomorrow, budget day, the finance minister will boast that the long-promised turnaround in government revenues has finally arrived. It is midterm, approximately 36 months before the next general election. Any structural reform of consequence should by now be well underway if the country is to reap the benefit of such reforms by the next election in 2025.
However, the improvement that the minister claims is not the result of structural reforms or productivity improvements or improved competitiveness. It comes without the broad-based growth of which the minister boasted in his pre-budget review of the country’s economic performance. The improvement rests solely on higher export prices of natural gas, ammonia and crude oil.
Although he may appear outwardly calm, the minister is sitting on the horns of a dilemma. There are many competing claims for increased energy revenues. The public sector wage negotiations have been stalled for nine years. Higher international energy prices force a choice between a higher fuel subsidy or higher prices at the pump, a bigger electricity subsidy or higher electricity prices. The primary and secondary roads are in a parlous, deteriorating due to leaking subterranean water mains which undermine the road subsurface. This means bigger subventions to WASA without any improvement in the delivery of water. Inflationary pressures and the higher cost of food will also require concessions to those citizens on fixed or low incomes.
One can expect that this budget will be given an optimistic, forward-looking theme as were the minister’s last seven speeches. What are the successes of the last seven years which could serve as a launch pad to revive, revitalise or reposition the economy? Is the energy sector better placed?
Petrotrin was reorganised to dispose of the loss-making refinery and excess staff and to ensure that the State did not become responsible for Petrotrin’s foreign loans. The more profitable oil-producing division, Heritage, remains largely the same with its positive cash flow pledged to pay the foreign loans and make some contribution to the treasury. But Heritage has no exploration capacity or cash to increase its production to take advantage of the higher international prices.
Companies generally increase output when market prices are high to take advantage of the profit opportunity as in the USA, where new plants are being built to take advantage of higher natural gas prices in European export markets. Yet in T&T, despite claims that the natural gas sector was “saved” by agreeing to higher prices with the upstream producers in 2017, natural gas production continues to decline, though the increase in energy prices has encouraged BpTT to recommence its drilling programme. ALNG Train 1 remains closed because there isn’t enough gas to operate the plant. The petrochemical sector is in a similar position with the ammonia plants operating below full capacity and some methanol plants remaining closed.
Trinidad Lake Asphalt (TLA) is a victim of the refinery’s closure. Asphalt cannot be used to resurface the road on its own. It must first be blended with bitumen, an oil refinery by-product. Since there is no refinery, bitumen must now be imported. Road paving contractors now import bitumen but are ill-equipped to blend it with TLA’s asphalt, leaving TLA dependent on its sole export customer (who is not Chinese contrary to public opinion). The real tragedy is that there are government specifications for the use of a bitumen/asphalt mix for paving of highways though this requirement is not enforced, nor does this requirement extend to the repair or repaving of the primary and secondary roads. Instead, TLA receives state support.
Similarly, the Government has not improved its selection methodology or evaluation process for capital investment projects. For example, a highway is being built to nowhere in Toco, whilst the multibillion-dollar Galeota port is underutilised because the access roads (from Grande to Galeota or San Fernando to Mayaro) are in a perilous state of disrepair.
State enterprises continue to claim a significant share of the annual budget without any improvement in output or productivity. With very few exceptions, these organisations are a feeding trough for political patronage to feed the troops or those best connected to obtain contracts. And whilst the Government has offered soothing words about the potential benefits of digitalisation, there has been precious little improvement in the ease of doing business. We haven’t addressed the social conditions, health care, the education system, procurement or campaign finance.
Building confidence in T&T’s future requires leadership and action, not empty promises and loose talk of game changers.