Andrea Perez-Sobers
Senior Reporter
andrea.perez-sobers@guardian.co.tt
The new process to find a buyer for the Petrotrin refinery has received nine potential bidders.
The bidders are CRO Consortium, IEM Refinery Company, GN Fenceline, Columbus Refining Trinidad and Tobago, Integritus Group of Companies, Oando PLC, Nautical Partners, Patriotic Energies and INCA Refining.
As the deadline for submitting proposals to acquire the refinery is expected to close by the end of this month, there is a possibility that more proposals could be submitted.
The refinery was mothballed at the end of November 2018 and there have been three attempts by the Government to dispose of the assets.
Prime Minister Dr Keith Rowley at the ruling People’s National Movement (PNM) family day last month said the Government should be able to announce whether it has found an operator by the end of August.
He said the team will have to evaluate those who have the means to convince the Government they are a good fit for the refinery.
Two bidders speak
The Sunday Business Guardian spoke to two of the bidders, who asked not to be identified due to the sensitivity of the issue. They said they were not pleased with how the process has been going.
They both said no detailed inspection of the refinery has been done since 2018, which is concerning.
One of the bidders said international funding for brownfield assets is very difficult as the refinery is an aged asset.
“Bidders have been trying to get information, but nothing has been forthcoming from Scotiabank Houston, which is in charge of evaluating the various bids,” one bidder said.
The other bidder said the longer the process takes, the more money it would cost to restart the refinery.
The bidder indicated that three to five years ago it could have cost between US$400 and 500 million dollars. Now it would be about US$1 billion and it would take up between three and five years to restart.
The bidder noted that the Government did not have a choice in shutting down the refinery as over ten refineries in the region have been closed in the last two decades. These include refineries in Curaçao, Aruba, St Croix, Honduras and Guatemala.
On July 7, in the Senate, responding to a question from the Opposition, Tourism Minister Randall Mitchell said a team headed by T&T’s High Commissioner to the UK, Vishnu Dhanpaul (a former permanent secretary in the Ministry of Finance ), will evaluate proposals for the refinery. Mitchell was standing in for Energy Minister Stuart Young.
The proposals will be forwarded by Trinidad Petroleum Holdings Ltd (TPHL), which is the holding company for Heritage Petroleum, Paria Fuel Trading, Guaracara Refining and Petrotrin. Guaracara Refinery oversees the preservation of the refinery assets.
“Within recent months, TPHL received several proposals for the restarting of the refinery. As a result, the board of TPHL decided to have their experts, including independent international experts, evaluate the proposals to then advise the board as to the feasibility of these proposals,” Mitchell detailed.
“To make it abundantly clear, neither the Prime Minister nor the Minister of Energy has been involved in any Request for Proposal (RFP) process or any evaluation of the proposal process. To date, the receipt of proposals has been handled and managed by TPHL as stated above,” he said.
Refinery needed to close
A former senior official at Petrotrin said the best thing to do was to shut it down as every year the refinery was losing nearly $2 billion.
“Petrotrin’s exploration and production operations were inefficient and added to the high cost of running the refinery as the input cost to the refinery was high.
“The refinery was a loss-making enterprise that was sinking Petrotrin and threatened to bankrupt T&T if it defaulted on its payment of the US$850 million debt in August 2019. That would also have triggered a call on the company’s other debt of US$750 million at the same time, as well as the US$450 million short-term debt,” the official disclosed.
In 2017 the senior official said Petrotrin declared a loss of $2.4 billion, in addition to defaulting on its statutory payments of royalties and taxes.
The official also indicated that the representing union OWTU was not prepared to work with the company after the union executives were told that the refinery was not making money.
In January 2017, the OWTU secured a 5 per cent increase for the workers after rejecting 3 per cent.
The official added that for a refinery to be profitable there must not be any political interference, as that was one of its downfalls as well.
Lack of understanding
Former energy minister, Kevin Ramnarine, said the decision to close the refinery was based on a flawed understanding of the financials of Petrotrin, a lack of understanding of the business model of an integrated oil company and a loss of institutional memory that happened after 2015.
In 2015 the refinery was making an operating profit and the factors driving the accounting loss were “noncash” items including:
1) A reduction in the value of inventory on account of falling oil prices;
2) Expensing of interest related to the startup of new plants in the Gasoline Optimisation Programme (GOP); and
3) An increase in depreciation expenses when the GOP plants had to be depreciated.
In addition, Ramnarine outlined that from 2012 to 2015 the refinery had to play catch up on maintenance that had been deferred for years.
“This meant major turnaround activity which reduced throughput, and this showed up as the negative margins. These factors all contributed to the misdiagnosis of Petrotrin and ultimately to its closure.”
Also, he said any new operator of the refinery will have to do due diligence on the plants and the utilities. All of the refinery’s software, for example, would need to be updated.
“Certification from international agencies would have expired. It’s a huge task that I estimate would cost US $1 billion. What is tragic is the fact that by 2014 the Gasoline Optimisation Programme was completed and that included five new plants and an upgraded cat cracker. All that has now depreciated over the last six years with the consequent loss of value. It’s a tragedy that has to be explained to the people of T&T,” Ramnarine said.
The good news, he highlighted, is that it seems people are still interested in the refinery, as the public knows of the OWTU proposals and the interest by Indian businessman Naveen Jindal.
“I will let the evaluation team do its work but it’s a daunting task to restart that refinery. However, all the expertise to restart it resides in T&T. A restart will also benefit the communities that most depended on the refinery namely Marabella, Vistabella, Claxton Bay, Gasparillo, and San Fernando,” the former minister added.
Flashback to finding a bidder
Finding a preferred bidder to run the refinery seems to be an uphill battle. Back in September 2019, Finance Minister Colm Imbert indicated its intention to offer for sale or lease the refinery and associated fuel trading facilities, where applicable. The bidding process was divided into two stages, with Stage 1 of the bidding process attracting 77 expressions of interest.
Imbert said of 77 potential bidders, 25 elected to sign NonDisclosure Agreements (NDAs) which allowed them access to a virtual data room, containing highly confidential information on the assets and on the overall process.
After evaluation, a shortlist of five bidders was prepared:
Beowulf Energy; Glencore Limited; Edgewood Holdings; Klesch; and Patriotic Energies and Technologies Company Limited (Patriotic) which is a company set up by the Oilfield Workers Trade Union (OWTU).
The minister outlined that Patriotic was the only bidder that offered an upfront payment consideration. Their proposal indicated upfront cash of US$700 million for the refinery assets plus US$300 million for the non-core assets of legacy Petrotrin, for instance, the hospital. However, the non-core assets were not offered for sale by the Government.
Things went downhill for Patriotic in 2021, as they were rejected three times, as the Government said it failed on every occasion to satisfy the evaluators.