Stable revenues from Trinidad and Tobago’s extractive sector amidst changing market conditions

The 2013 EITI report contains a number of recommendations for improving governance.

Trinidad and Tobago EITI (TT-EITI)’s 2013 report shows that, despite structural changes in its export markets, revenues from oil and gas remained stable. In the fiscal year ending in September 2013 T&T received USD 3.3 billion, similar to 2012 and a slight drop compared to 2011 (USD 3.6 billion). The US, traditionally the number one export destination for T&T gas, fell to fourth place, in 2013. The growing domestic production of shale gas has significantly reduced US dependence on foreign gas. Trinidadian gas has now found new important markets in South America and Asia.

The oil and gas sector accounted for more than half of the GDP in 2013, although this has declined from 58% of the GDP in 2011 and 54% in 2012.  Fiscal revenues from the extractive sector represented the largest source of the Government’s budget in 2013. The report highlights that more than half of government’s spending (52%) went to transfers to local governments, the water authority WASA, among others, and subsidies including the petroleum subsidy which was 8% of the total budget.

Full subsidies

The fuel subsidy, introduced in 1974, is a significant vehicle for distributing revenues to citizens. The subsidy, the report explains, is financed through a petroleum levy paid by the exploration and production companies and from the government’s other revenues.  The figure below, extracted from the report, illustrates how the fuel subsidy works.

Saving for the rainy days

In 2000 T&T established a Heritage and Stabilization Fund (HSF) meant to save money for stabilization purposes and savings for future generations. In 2013, the TTEITI report shows, the Government contributed USD 43 million to the Fund. The HSF has accumulated a net asset value of USD 5.5 billion as shown in the below graph (extracted from the report).

Heritage and Stabilization Fund (HSF)

Reforming and improving governance

Nicole Olivierre, Minister of Energy and Energy Industries (MEEI), said at the launch of the report that, through the EITI, the Government is committed to improving the governance of the sector including better tax collection systems. The 2013 EITI report contains a number of recommendations for improving these systems. The report notes that “improving procedures and audit practices by the Auditor General’s office” are pending. It also recommends to reconcile the Production Sharing Contracts (PSC) tax settlements, update the oil and gas’s license records, review the system used to compile production figures and to improve MEEI’s manual systems dealing with financial and production information of the oil and gas sector.

EITI Bill

51 companies participated in the 2013 EITI report, covering 99% of revenue earned in 2013. This participation, as in previous reports, was facilitated by a memoranda of understanding between the Government and companies to overcome confidentiality provisions.  The Independent Administrator that prepared the EITI Report, BDO-Hart Group, highlights that although this procedure has ensured companies’ reporting in the last three fiscal years, a more stable solution would be desirable. The TT-EITI Steering Group has drafted an EITI bill that addresses this. Minister Olivierre said that “it is very important to institutionalise the EITI as the primer system of good governance and transparency in the extractive sector in Trinidad and Tobago” and promised to review the EITI Bill shortly.