The an­nounce­ment by Na­tion­al Gas Com­pa­ny (NGC) of a pro­posed 70 to 80 per cent hike in the price of nat­ur­al gas to its light in­dus­tri­al and com­mer­cial cus­tomers (LICs) has been the sub­ject of much de­bate over the last three weeks.

Var­i­ous state­ments from Gov­ern­ment sources sug­gest that the ra­tio­nale for the in­crease is to sus­tain NGC’s prof­itabil­i­ty. In mak­ing the an­nounce­ment, the NGC chair­man, Ger­ald Ramdeen not­ed that this pol­i­cy—of high­ly sub­sidised gas prices sold be­low ac­qui­si­tion costs, with­out any ev­i­dence of sav­ings go­ing to cus­tomers, in ex­is­tence for over a decade—is fi­nan­cial­ly un­sus­tain­able for NGC.

Prime Min­is­ter Kam­la Per­sad-Bisses­sar said, “NGC is not a char­i­ty. NGC can­not take a loss to make pri­vate­ly owned com­pa­nies prof­itable.”

Min­is­ter of Fi­nance Dav­en­dranath Tan­coo de­clared, “The TTMA man­u­fac­tur­ers are as­tute enough to ap­pre­ci­ate that NGC has to live.” He ad­vised that they should ab­sorb the in­crease in pro­duc­tion costs and not pass this on to con­sumers. For Min­is­ter Tan­coo, this was part of Gov­ern­ment pol­i­cy to re­duce sub­si­dies and bring gas prices clos­er to the ac­qui­si­tion costs.

The in­ten­si­ty of the de­bate demon­strates wide­spread recog­ni­tion of both the macro­eco­nom­ic and mi­cro­eco­nom­ic con­se­quences re­lat­ed to this de­ci­sion. Un­for­tu­nate­ly, the dis­cus­sion has been af­fect­ed by mis­in­for­ma­tion and dis­in­for­ma­tion. It is es­sen­tial to con­sid­er his­tor­i­cal con­text and un­der­ly­ing phi­los­o­phy to de­vel­op a com­pre­hen­sive un­der­stand­ing of this com­plex is­sue. This analy­sis seeks to elu­ci­date the var­i­ous facets in­volved, en­abling cit­i­zens to bet­ter com­pre­hend the sig­nif­i­cance of the mat­ter at hand.

What is the sig­nif­i­cance of LICs to T&T?

The LICs refers to that group of nat­ur­al gas cus­tomers, with in­di­vid­ual con­sump­tion of less than 3 mil­lion stan­dard cu­bic feet per day (mm­scfd). NGC has a to­tal of around 100 cus­tomers in the LIC clas­si­fi­ca­tion con­sum­ing a to­tal of about 9 mm­scfd with an av­er­age con­sump­tion of 90 mcfd. The av­er­age con­sump­tion is skewed by six large cus­tomers who to­geth­er ac­count for ap­prox­i­mate­ly 48 to 50 per cent of the to­tal gas load.

The di­verse group con­tains firms and or­gan­i­sa­tions in man­u­fac­tur­ing, food pro­cess­ing, hos­pi­tal­i­ty ser­vices and trans­porta­tion sub sec­tors. The ma­jor man­u­fac­tur­ers in­clude Abel, Carib Glass, Carib Brew­ery, An­gos­tu­ra, Kalei­do­scope, and three as­phalt plants. The food pro­cess­ing sub­sec­tor in­cludes firms like Bermudez, As­so­ci­at­ed Brands In­dus­tries Ltd, Vem­co, Ma­touk, Nes­tle, SM Jaleel, Joseph Charles Bot­tling Works and Nu­trim­ix. Com­mer­cial en­ter­pris­es on the gas grid in­clude ma­jor ho­tels—Hilton, Hy­att, Radis­son and Mar­riott, two hos­pi­tals, cre­ma­to­ri­ums and the max­i­mum-se­cu­ri­ty prison. A cur­so­ry ex­am­i­na­tion of the group­ing would show that the out­put of these firms im­pacts a wide range of ba­sic goods and ser­vices used by cit­i­zens. More­over, they rep­re­sent the core of our non-en­er­gy man­u­fac­tur­ing ex­port (forex earn­ing) sec­tor. In 2024, the non-en­er­gy man­u­fac­tur­ing sec­tor ac­count­ed for an es­ti­mat­ed 16 per cent of GDP, mak­ing it a crit­i­cal com­po­nent of the na­tion­al econ­o­my and a key in the di­ver­si­fi­ca­tion ef­fort.

The sig­nif­i­cance of this sec­tor to our over­all eco­nom­ic health is un­de­ni­able. How­ev­er, re­gard­ing its rel­e­vance to NGC, the to­tal gas load of the LIC sec­tor (9 mm­scfd) con­sti­tutes less than 1 per cent of NGC’s gas sales (about 2,600 mm­scfd). With an av­er­age price of $3.00/mmb­tu, NGC’s gross rev­enue from this sec­tor is es­ti­mat­ed at $67 mil­lion with­in a to­tal gross rev­enue of ap­prox­i­mate­ly $22 bil­lion (2024).

Gas pric­ing to LICs: His­tor­i­cal con­text and the gas ad­van­tage

T&T’s ap­proach to nat­ur­al gas pric­ing dates back to the 1978 Adams Com­mit­tee Re­port. This re­port es­tab­lished cost-plus pric­ing for all sec­tors, in­clud­ing the LICs, where the base price re­flect­ed ac­qui­si­tion and op­er­at­ing costs, with an an­nu­al in­crease aligned to up­stream con­tract es­ca­la­tors. The petro­chem­i­cal sec­tor lat­er adopt­ed prod­uct-in­dexed pric­ing in the ear­ly 1990s. The LIC price is the on­ly con­sumer price that is pub­lished. For the LIC sec­tor, the com­mit­tee ad­vised that prices be set in TT dol­lars with a 7 per cent an­nu­al es­ca­la­tion. How­ev­er, af­ter 15 years and two cur­ren­cy de­val­u­a­tions, this TT$ mod­el be­came un­sus­tain­able for NGC.

To ad­dress these is­sues, an in­ter­nal pol­i­cy pa­per rec­om­mend­ed three changes:

• ↓Raise the nat­ur­al gas price from US$1.16 to US$1.28;

• ↓Low­er the an­nu­al es­ca­la­tor to 4 per cent; and

• ↓Shift to US dol­lar-de­nom­i­nat­ed pric­ing, though pay­ments would still be made in TT$.

In 1995, fur­ther changes al­lowed LIC cus­tomers to choose: they could pay up­front for ser­vice pipeline and me­ter­ing sta­tion costs to re­ceive a low­er gas price; or let NGC cov­er those in­fra­struc­ture ex­pens­es and pay a high­er rate spread across five to sev­en years. Many LIC cus­tomers pre­ferred the lat­ter be­cause even the high­er gas prices were sig­nif­i­cant­ly cheap­er than al­ter­na­tive fu­els. At the same time, NGC ex­pand­ed its gas net­work to ma­jor in­dus­tri­al es­tates, bring­ing gas clos­er to end users. By 2003, the LIC sec­tor had grown to 100 cus­tomers, in­clud­ing 12 CNG sta­tions.

A fur­ther re­vi­sion came in 2005 in re­sponse to plead­ings from the man­u­fac­tur­ing sec­tor. Rec­og­niz­ing the role played by the man­u­fac­tur­ing sec­tor in terms of em­ploy­ment cre­ation and forex earn­ings, NGC agreed to a con­di­tion­al US$0.20/mmb­tu re­duc­tion in the price of gas, but main­tained the 4 per cent es­ca­la­tor, in or­der to en­sure that the LIC price re­mained in close par­i­ty with the ac­qui­si­tion cost over time.

In 2012, the NGC gift­ed the LIC cus­tomers a five-year price freeze, in a fur­ther ef­fort to sup­port the de­vel­op­ment of the sec­tor. This re­mained in place un­til 2017, when the es­ca­la­tor was again ap­plied to the price. Giv­en the im­pact of COVID-19 pan­dem­ic, in 2020 NGC again agreed to a price freeze which re­mained in place un­til 2022.

This brings us to the cur­rent im­passe. While the sec­tor has been ac­cus­tomed to the an­nu­al es­ca­la­tor and makes busi­ness plans around the known fact, it is ex­treme­ly dif­fi­cult to make an ad­just­ment of an av­er­age 75 per cent with­out warn­ing. The pro­posed price of over US$5 per mmb­tu still of­fers a huge cost ad­van­tage com­pared with al­ter­na­tive fu­els like diesel (US$17.06 per mmb­tu), LPG (US$10 .70 per mmb­tu) or elec­tric­i­ty (US$16 per mmb­tu).

Gas ac­qui­si­tion cost and sub­sidy is­sue

NGC has jus­ti­fied the pro­posed price in­crease based on the need to re­duce sub­si­dies rel­a­tive to its ac­qui­si­tion costs. It is im­por­tant to con­sid­er the con­text: ear­ly nat­ur­al gas sup­ply con­tracts in­clud­ed pro­vi­sions for a spe­cial tranche of gas from a ma­jor gas sup­pli­er for the Trinidad and To­ba­go Elec­tric­i­ty Com­mis­sion (T&TEC) and the LIC sec­tor. This is a prece­dent that ap­pears to have been main­tained in sub­se­quent agree­ments. The ques­tion there­fore aris­es as to whether these are the ac­qui­si­tion costs ref­er­enced by NGC.

Ad­di­tion­al­ly, some of NGC’s up­stream con­tracts in­cor­po­rate prod­uct-re­lat­ed pric­ing mech­a­nisms, which can re­sult in sig­nif­i­cant fluc­tu­a­tions in sup­ply prices. If this ap­proach un­der­pins NGC’s ra­tio­nale, it is per­ti­nent to ask if LIC cus­tomers will al­so ben­e­fit from price re­duc­tions should av­er­age costs de­cline.

Fur­ther­more, the Gov­ern­ment’s stat­ed com­mit­ment to re­duc­ing sub­si­dies ap­pears in­con­sis­tent with the re­cent re­duc­tion in the price of su­per gaso­line. The cur­rent dis­par­i­ty be­tween ac­qui­si­tion costs and the LIC price has been ex­ac­er­bat­ed by the de­ci­sion to grant a five-year mora­to­ri­um on price in­creas­es in 2012.

NGC’s prof­itabil­i­ty and sus­tain­abil­i­ty

Apart from 2023, NGC has al­ways been a prof­itable state en­ti­ty over the 50 years of its life. The re­port­ed loss in 2023, was due to im­pair­ment charges of $1.8 bil­lion. In 2024, the Com­pa­ny re­port­ed af­ter-tax prof­its of $1.6 bil­lion.

NGC’s pri­ma­ry chal­lenge lies not with the man­u­fac­tur­ing sec­tor, but with T&TEC. Ac­cord­ing to its 2024 an­nu­al re­port, de­spite main­tain­ing prof­itabil­i­ty, NGC faces sig­nif­i­cant cash man­age­ment dif­fi­cul­ties due to $6.3 bil­lion in out­stand­ing re­ceiv­ables from the T&TEC. For con­text, T&TEC, through var­i­ous pow­er pro­duc­ers, ac­counts for ap­prox­i­mate­ly 250MM­scfd—around 10 per cent of to­tal gas con­sump­tion. NGC es­ti­mates that re­ceiv­ables from T&TEC could in­crease by $1.6 bil­lion an­nu­al­ly. Ac­cord­ing­ly, con­cerns re­gard­ing NGC’s sus­tain­abil­i­ty should log­i­cal­ly fo­cus on ad­dress­ing these sub­stan­tial risks. In­creas­es in LIC prices can­not ad­e­quate­ly off­set the chal­lenges posed by T&TEC’s ar­rears.

In sum­ma­ry, man­u­fac­tur­ers and oth­er LIC clients have long ben­e­fit­ted from af­ford­able gas prices. Yet, the pro­posed av­er­age 75 per cent hike in nat­ur­al gas rates for this sec­tor ap­pears un­jus­ti­fied. It doesn’t tru­ly re­solve NGC’s un­der­ly­ing sus­tain­abil­i­ty is­sues and may al­so be ques­tion­able re­gard­ing its re­la­tion to ac­qui­si­tion costs. This sit­u­a­tion points to the need for a more con­sis­tent Gov­ern­ment sub­sidy pol­i­cy across dif­fer­ent sec­tors. Ad­di­tion­al­ly, T&TEC re­mains a sig­nif­i­cant con­cern that re­quires at­ten­tion if sus­tain­able prof­itabil­i­ty is the goal.

Gre­go­ry McGuire is an en­er­gy econ­o­mist and con­sul­tant, who worked for 24 years at NGC