The 2018 National Budget Of The Republic Of Trinidad And Tobago
Despite low oil and gas prices the Minister believes the energy sector has a “very positive outlook” as a result of new projects coming online in the next three years. Moreover, a new tax regime designed to incentivise increased exploration and production should provide a fillip for additional oil and gas output.
Oil and Gas Production
Although oil production declined marginally in 2017 year-on-year, production is expected to reach 85,000 bpd by 2020. Gas production also declined in 2017 but because of new projects the gas shortage experienced in Trinidad and Tobago should be alleviated.
New projects on stream or coming on stream include:
- The BP Juniper Platform.
- The BP-EOG Resources Sercan Phase 2 Project.
- The BP Trinidad Region Onshore Compression (TROC) Project.
- The Angelin Project.
- Redevelopment of the Starfish Field by Shell and additional drilling in the Dolphin, Bounty and Endeavour Fields.
- The BP Cassia Offshore Compression Project.
- The BP Savannah and Macadamia Wells.
The government is also working with Venezuela to complete a gas sales agreement to access cross border gas in the Dragon Field and to access gas from the shared Loran-Manatee Field.
The Gas Master Plan
The Gas Master Plan (GMP) is expected to be adopted by the joint Select Committee of Parliament on Energy shortly. The main elements of the GMP are:
- Ensuring new exploration efforts are undertaken to the maximum extent possible.
- Ensuring that suppliers develop and supply their gas resources to the market in an optimal manner.
- Maximising the government take from the gas sector.
- Ensuring that sufficient gas supply is available to strategic downstream sectors.
- Ensuring that if gas supply curtailment is required it is applied in a transparent and fair basis.
In addition, to deal with what the Minister described as unfair transfer pricing arrangements, a consultant is working with the government to ensure that the government can increase and maximise its share of income generated from sales of LNG.
Review of the Energy Tax Regime
The PNM administration has been looking at ways to promote investment in the energy sector while raising the governments revenue take since taking office two years ago.
Critical areas being addressed are:
- Making the Supplemental Petroleum Tax (SPT) responsive to underlying profitability rather than price.
- Extending the SPT to gas.
- Reconciling and simplifying the tax regimes applicable in the sector to exploration and production.
- Standardising and uniformly applying appropriate royalty rates to all crude oil, condensate, and gas.
The government expects to present the new oil and gas fiscal regime before the end of this year.
The Revenue Authority
The Board of Inland Revenue and the Customs and Excise Division will be merged under one administration umbrella that will be called the Revenue Authority.
This will allow collaboration and coordination between the two entities as well as allowing for the recruitment of specialist staff. Legislation to create the Revenue Authority is expected to be laid before Parliament by December 2017.
All subsidies are now squarely in the Ministers cross hairs
According to the Minister the fiscal system of Trinidad and Tobago is “overrun with subsidies, many of which are unsustainable.” As a representative example, the fuel subsidy, something the Minister started chipping away at in previous budgets, still cost $800 million in 2017 (mainly because of the subsidy applicable to diesel).
Firmly in the Ministers cross hairs and on notice are:
- Subsidies and financial support paid to the Port Authority, Caribbean Airways, the Public Transport Service Corporation (PTSC), the Water and Sewerage Authority (WASA), and the Trinidad and Tobago Electricity Commission (TTEC).
- The Government Assistance for Tertiary Education (GATE). While GATE has increased student participation in higher education from 8% of the population in 2002 to 65% in 2015, the levels of expenditure on it (since inception in 2005 it has cost TT$6.5 billion) are not in the Ministers opinion sustainable. Moving forward GATE will be means tested and will also be subject to an additional review and possibly further reform in 2018.
- The Unemployment Relief Programme (URP) and the Community Environmental Protection and Enhancement Programme (CEPEP) which annually cost TT$1 billion.
Diversification
The diversification initiatives announced by the Minister encompass the following initiatives:
- Export Promotion: The Central Bank is to license the EximBank as a dealer in foreign exchange and give the EximBank the responsibility to allocate foreign exchange to qualifying exporters. The facility run by the EximBank will be initially capitalised at US100 million. To qualify at least 30% of production must be for export, although start-ups with lower export percentages will also be considered.
- The Business Development Incentive Programme: The Government is to establish a new Business Development Fund for start-ups and small businesses. Access to the fund will be through an interview process much like the TV shows “Shark Tank” and “Planting Seeds”. Grants will be available up to TT$100,000. To create the programme, provision has been made in the budget for TT$50 million meaning that potentially 500 start-ups or small businesses could receive assistance.
The vexing issue of the exchange rate
According to the Minister many large businesses have expressed the view that the exchange rate is uncompetitive, and that it should be managed to ensure maximum economic benefit and to open the CARICOM market.
The view of the Government is that all the social and economic impacts of devaluation must be considered and that we should “not make hasty decisions or rush to judgement.”
The Minister concluded:
“The management of our exchange rate will therefore continue to be within the purview of the Central Bank, with appropriate guidance from the Government. However, the exchange rate will move more in step with demand and supply and the availability of foreign exchange.”
This statement is open to interpretation but implies that the Minister has abandoned the previous policy enunciated in the 2016 Mid-Year Review of 8th April 2016 of supporting the exchange rate but not allowing it to fluctuate by more than 7% from the exchange rate that prevailed in September 2015.
Closing thoughts – time to consider your investing strategies
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I’m disappointed that only two initiatives were highlighted under diversification. Yes the investment in SMEs is a good initiative but the allocation of $100,000 to each is simply not sufficient to get any SME off the ground. Where are the industrial parks that were mentioned in the manifesto? It does not appear that the government is serious about developing the non oil sector. Why not take example from countries that have done it successfully and develop a real road map to grow the non oil sector. Where are the real estate initiatives. They took what was the best beach in the north coast and made a mess of it. What are the plans to restore it or enhance it. Possibly I missed it but what the plans to grow the renewable energy sector. Again have a look at Dubai for example that is adding over 1000 solar projects per year creating employment, developing new skills while reducing the dependency on fossil fuels.
Hi Randall,
While the Minister referred to just two diversification initiatives being the Export Promotion and the Business Development Incentive Programme, you will see in today’s blog entry that he talked in depth about key diversification thrusts in respect of tourism, agriculture, business process outsourcing, yachting, and the creative industries.
Whether he went far enough under those headings is in my opinion debatable. The allocation of $100,000 grants to SMEs is – again in my opinion – almost certainly not enough, nor is the amount allocated for a similar programme for agriculture. But the establishment of the programmes is an important first step. Hopefully the Minister will review the incentives in the Mid-year Review and adjust as necessary. I would prefer to see the creation of a government supported or guaranteed loan system managed by the private sector aimed at promoting start-ups especially for those who have good business ideas but no real access to capital finance because of lack of security. Maybe that is something the Minister will consider in the future.
It is hard to agree that the Minister is not serious about diversification. The cold reality is that over the last three years there has been a catastrophic reduction in the revenue derived from oil and gas from TT$20.9 billion in 2014 to TT$2.8 billion in 2017. Even if oil and gas prices picked up and reached US100 per barrel tomorrow the government would be no better off because incentives granted under the previous administration give oil companies an effective tax holiday for as much as the next seven years. Selling CLICO assets bridges the finance gap in part in 2018 but after that the Minister must place his faith on new taxes, reform of the BIR into the Revenue Authority, reform of the HSF, and diversification to help fill the coffers.
While there were no initiatives for major real estate projects the refocusing of the HDC and the $100,000 grant per property to the private sector are a sensible attempt to promote the private sector into entering the low income house construction market. Whether the $100,000 per property is a success perhaps depends on the private sectors assessment of how quickly government will be able to pay those funds.
I agree that is is disappointing that the Minister said little about renewable energy or the industrial parks given the sums spent on industrial parks in the past.
Mike