Over the last two weeks a number of things occurred in the downstream petrochemical sector and by extension the economy of T&T.
La Brea based Caribbean Gas Chemicals Ltd CGCL started loading its first cargo of methanol for export from its newly minted facility. This must be a relief for its shareholders.
CGCL is a joint venture led by a consortium comprising Mitsubishi Gas Chemical Company, Inc, Mitsubishi Corporation, Mitsubishi Heavy Industries, Engineering Ltd., The National Gas Company of T&T Ltd and Massy Holdings Ltd.
CGCL commenced construction in September 2015 of its US$990 million Methanol and Di-Methyl Ether (DME) Facility at Union Industrial Estate (UIE), La Brea.
The shipment therefore comes more than five years after the breaking of ground for the construction of the methanol to Dimethyl Ether (DME) plant and is a significant step forward for the company.
Proman Group, the second largest methanol company in the world, which has significant interest in T&T also announced the temporary restart of one of its methanol plants that had been idled.
In addition Nutrien, one of the largest ammonia company in the world and one of the largest single users of natural gas in T&T said it will indefinitely keep its 600,000 metric tonne per annum plant shut.
This means job losses for close to 30 permanent workers and the NGC having to pay for a tranche of gas that Nutrien no longer needs or if not sell it onto another customer.
Meanwhile on Monday, the government hosted its spotlight on the economy in which it was expected to be frank and honest with the population.
I say expected because it is clear that at least on the issue of the petrochemical sector the Minister of Finance Colm Imbert’s analysis shows a lack of understanding of the challenge or he is being his usual paltering self.
You see Imbert argued that the challenge of the petrochemical sector is because of the collapse of global commodity prices.
This is true but it is not the whole story. If the Minister of Finance was prepared to be frank with the population he would have agreed that the cost of production of the plants had gone-up significantly due to the increase in the price of their major feed-stock natural gas. What the Minister will not say is that T&T as a destination had become increasing uncompetitive because the upstream companies were able to get higher prices for their gas following the intervention of Prime Minister Dr Keith Rowley in what his Minister of National Security used to call the famous Houston trip.
All the Minister of Finance has to do is look at the Terrence Farrell study in which two years ago he demonstrated that the sector was at a point of inflection and at that time the companies were struggling to even generate free cash flows, let alone profits to shareholders. The Rowley administration in its usual way, dismissed it because it was not part of the narrative it was trying to push that it had rescued the energy sector.
The truth is that higher unit costs due to the rising price of natural gas and natural gas curtailment threaten the viability of the sector and unless the prices of commodities recover to such an extent that it is profitable to produce, the plants will remain shut. Companies cannot operate over the long haul without returning value to their shareholders.
Mr Imbert, perhaps in a moment of clarity, you would also read the Roadmap to Recovery report which clearly identifies the danger of T&T loosing its downstream sector.
The report says: “Trinidad and Tobago is fast becoming a marginal ammonia and methanol producer and must quickly find a way to bridge the down cycle to avoid the risk of being rationalised in favour of other producers.”
If Mr Imbert wants to be truthful with the population he would also admit that the government has finally or is at least beginning to realise that the status quo cannot continue in the petrochemical sector and has hired a firm to do a study on the gas value chain.
Again the Roadmap to recovery committee is spot on. It says in its report:
“In this respect, consideration must be given to urgent engagement of the Gas Value Chain recalibration to optimise gas and commodity output in the short term.”
Part of the problem Mr Imbert has had over the last five years is her profligacy for misspeaking and once again he did it on Monday. The country deserves better.
The Roadmap to Recovery committee points in this direction, it warns that on Monday when the Minister of Finance presents his budget he must communicated in next week’s national budget in a “frank and forthright conversation with the population.”
The committee recognised that communication and truth are the only way to get the kind of buy-in required to make the structural changes.
The country has lost billions of dollars in wealth caused by COVID-19. The committee warns of inter generational poverty and the debt trap if we do not get it right. It requires forthright and open discussion and the victim cannot be the truth.
As identified by the committee in its report the following must be done.
• Reduction in the level of imports, beginning with a reduction of the food Import bill through the proposed agriculture stimulus (Targeted reduction is $2 billion by 2022)
• Accelerated employment of targeted PPP arrangements for infrastructural development as well as leveraging of idle capacity in the public sector. Sponsored parks eg E-idcot, Eteck etc must be fully activated. (The level of activity aimed at here could be $1.5 billion)
• Increase of non-energy earnings using the Exim Bank, ExporTT and other private sector partnerships (The earnings target here could be $1 billion
• Rationalisation of transfers and subsidies predicated on a unique e identity system to make transfers and subsidies more efficient while protecting the vulnerable and to make state-owned enterprises more self-sufficient whilst carefully considering a divestment programme for non-core assets (conservatively $1.5 billion)
• Focus on innovation and entrepreneurship to stimulate the micro and SME sector targeting traditional and non-traditional areas.
“This is the defining moment to change productivity levels and culture to embrace digitalisation, to think, re-engineer and act transformatively and execute differently,” the report read.
This is also a time for Mr Imbert to come clean with the numbers, to come clean with the prescriptions and to recognise that true solutions are never found in group think.
It is why the country must also resist any attempt to foist on the Central Bank anyone whose job will be to acquiesce to the government and Minister Imbert’s interest and not the interest of the Central Bank and independent advice on monetary policy.