• NGC’s cash flow wor­ry­ing

• T&TEC a ma­jor prob­lem.

• Busi­ness mod­el needs chang­ing

Hav­ing record­ed an his­toric loss of $316 mil­lion for its half-year 2020, two char­tered ac­coun­tants have con­tend­ed that the re­al vul­ner­a­bil­i­ty lies with­in the Na­tion­al Gas Com­pa­ny (NGC ) of T&T cash flow.

In an in­ter­view with the Busi­ness Guardian, Char­tered Pub­lic Ac­coun­tant (CPA) Prakash Ram­lakhan pre­dict­ed that the NGC could be in re­al trou­ble if it does not do some­thing soon.

“They will con­sume all their cash, if it stays this course. They will run out of cash in two years if they fail to col­lect cash.” Ram­lakhan said.

Ac­cord­ing to Ram­lakhan who is al­so a Char­tered Fi­nan­cial An­a­lyst (CFA), NGC’s so­lu­tion to it’s cash prob­lem is to im­prove on cash col­lec­tion, es­pe­cial­ly with large clients.

Ram­lakhan con­tin­ued: “Oth­er­wise, if they don’t col­lect, then they are go­ing to con­sume their cash and per­haps by 2022-2023 they could be in a cash deficit po­si­tion.”

NGC’s chair­man Con­rad Enill ad­mit­ted that cash man­age­ment was a ma­jor chal­lenge fac­ing the NGC and it had tak­en ac­tion to ad­dress it.

“”Of course it takes cash to run the busi­ness, and yes NGC is con­cerned about the cash flow man­age­ment in the or­gan­i­sa­tion and that’s why we en­tered in­to ne­go­ti­a­tions to try and re­duce the im­pact of the T&TEC sit­u­a­tion by get­ting the gov­ern­ment to guar­an­tee the bor­row­ing so at least we can clear that out, but that’s a short term so­lu­tion. The longer term prob­lem we are work­ing through,” Enill told the Busi­ness Guardian.

NGC’s cash prob­lem was not on­ly re­vealed in the 2020 half year state­ments but, the trend was al­ready start­ing to show in its 2019 an­nu­al re­port.

In its 2019 con­sol­i­dat­ed state­ment of Cash Flows, NGC record­ed net out­flows of cash for its op­er­at­ing ($959mil­lion), in­vest­ing ($1.6bil­lion) and fi­nanc­ing ac­tiv­i­ties ($668mil­lion).

Where­as in 2020, net cash gen­er­at­ed from op­er­at­ing ac­tiv­i­ties stood at $54 mil­lion (be­fore ad­just­ments NGC post­ed a $253mil­lion loss from op­er­at­ing ac­tiv­i­ties, but the net cash used for in­vest­ing and fi­nanc­ing ac­tiv­i­ties were post­ed at $51 mil­lion and $81mil­lion re­spec­tive­ly.

For its half year 2020, the com­pa­ny’s cash and cash equiv­a­lents at the be­gin­ning of the year dropped by 47 per cent from $6.8bil­lion to $3.6bil­lion.

Com­ment­ing on the NGC’s half year 2020 cash flows, Char­tered Cer­ti­fied Ac­coun­tant (AC­CA) Ian Nar­ine in­di­cat­ed that the com­pa­ny’s cash flows for the pe­ri­od re­flect an evo­lu­tion of the NGC’s cash flow chal­lenges.

He said: “Last year NGC post­ed a prof­it but there were work­ing cap­i­tal chal­lenges...that neg­a­tive­ly im­pact­ed the cash flow po­si­tion.”

Ac­cord­ing to Nar­ine, these work­ing cap­i­tal chal­lenges faced by the NGC are re­lat­ed to prob­lems with cash col­lec­tion as it re­gard the re­la­tion­ship with T&TEC.

In the NGC’s 2019 an­nu­al re­port, the Group con­vert­ed trade re­ceiv­ables of $3.5 bil­lion (US$524 mil­lion) for un­paid gas sales to a ten-year loan fa­cil­i­ty is­sued in two tranch­es at six per cent per an­num.

T&TEC was sched­uled to be­gin to pay the first tranche (with prin­ci­pal amount of $1,776.5 mil­lion (US$262 mil­lion) at in­ter­est rate of six per cent) to the NGC from June 2020 as T&TEC was giv­en a one year mora­to­ri­um on re­pay­ment of prin­ci­pal and in­ter­est.

The sec­ond tranche (with prin­ci­pal of $1,776.5 mil­lion (US$262 mil­lion) at in­ter­est rate of 6 per cent) com­mences in 2024 as T&TEC was giv­en a five year mora­to­ri­um on re­pay­ment of prin­ci­pal and in­ter­est.

Nar­ine said: “The con­ver­sion of a trade re­ceiv­able to a loan in or­di­nary cir­cum­stances may be­ing in­to ques­tion whether the pur­chas­er is able to pay for goods or ser­vices sold.”

How­ev­er, he high­light­ed that T&TEC is a Statu­to­ry Cor­po­ra­tion and there­fore op­er­ates as an ex­ten­sion of the Gov­ern­ment of T&T, not­ing that it is high­ly un­like­ly that a sale to a state au­thor­i­ty will be chal­lenged on the ba­sis of col­lectibil­i­ty.

Nonethe­less, Nar­ine in­di­cat­ed that the is­sue is one of cash flow and whether NGC can con­tin­ue to op­er­ate ef­fi­cient­ly if it is pro­vide a ser­vice from which it is not gen­er­at­ing cash.

He said: “It is like­ly that some­where else in its op­er­a­tions NGC will have to fi­nance this cash short fall and this may be tak­ing place at a cost to the NGC—a cost that is not priced in­to the ex­ist­ing terms with T&TEC.”

Fur­ther­more, Nar­ine con­tend­ed that a big chal­lenge for the NGC is the short­fall in pay­ments from T&TEC, which has af­fect­ed the cash flow of the gas com­pa­ny.

Ac­cord­ing to Nar­ine, those cash flows car­ry an op­por­tu­ni­ty cost to NGC in terms of the com­pa­ny’s abil­i­ty to un­der­take ex­pan­sion and growth projects.

If NGC is suc­cess­ful in some of these ini­tia­tives, Nar­ine ex­plained that it can pos­i­tive­ly im­pact its busi­ness mod­el.

He said: “Cash is a nec­es­sary part of this tool kit and work­ing cap­i­tal chal­lenges will make it even more chal­leng­ing to nav­i­gate the cur­rent en­vi­ron­ment.”

Oth­er chal­lenges high­light­ed by Nar­ine was that the price for nat­ur­al gas on the Point Lisas In­dus­tri­al Es­tate and the shut down of plants on the es­tate would have a sig­nif­i­cant im­pact on NGC’s op­er­a­tions. He said: “This is just seeks to high­light the im­por­tance of cash gen­er­a­tion from oth­er ar­eas of the op­er­a­tions to al­low for growth and ex­pan­sion.”

So far for the half year, Nar­ine ex­pressed that the neg­a­tive cash flow changes to NGC’s work­ing cap­i­tal has con­tin­ued due to the op­er­at­ing en­vi­ron­ment where the com­pa­ny record­ed a loss be­fore tax of $252 mil­lion.

Ac­cord­ing to Nar­ine, in times when the op­er­at­ing en­vi­ron­ment is chal­lenged it is a com­pa­ny’s cash buffers that will help it stay the course.

He added that the com­pa­ny still has some wig­gle room but as cash flows de­cline in­vest­ment ac­tiv­i­ty can be paused and div­i­dends may be cut.

Enill ad­mit­ted that if gov­ern­ment al­lowed the com­pa­ny to re­tain more of its earn­ings it will be good for the or­gan­i­sa­tion but in­sist­ed that this de­ci­sion was com­plete­ly out its hands.

Mean­while, Ram­lakhan added that the cash ac­cu­mu­la­tion for pri­or years sup­port­ed NGC’s op­er­a­tion in 2019. He ar­gued: “If they have not ac­cu­mu­lat­ed suf­fi­cient cash in 2019, the NGC would have had to source cred­it to main­tain its spend­ing and go­ing for­ward, the cash po­si­tion look very un­com­fort­able for NGC un­der ex­ist­ing con­di­tions.”

Ram­lakhan added that the cash flow “looks very weak” for the NGC as com­pa­ny is burn­ing more cash than it is gen­er­at­ing, not­ing that part of the cash flow chal­lenges has to do with the re­ceiv­ables that are not be­ing col­lect­ed on a time­ly ba­sis, which is plac­ing ad­di­tion­al pres­sure on the NGC.

Go­ing for­ward, Ram­lakhan in­di­cat­ed that NGC would have to relook its busi­ness mod­el to en­sure that it is com­pet­i­tive, by hav­ing sus­tain­able de­mand, sup­ply and mar­ket ac­cess and per­haps more par­tic­i­pa­tion oth­er than be­ing a sup­pli­er.

He said: “They may have to do some JV’s (joint ven­tures) so that they cre­ate val­ue at dif­fer­ent lev­els out­side of the sup­ply to en­hance prof­itabil­i­ty for the group.”