(An adaptation of address given at the seminar titled “At the Crossroads – Building Local Content in the T&T energy Sector” hosted by the Venture Capital Incentive Program and the University of the West Indies – 26th April 2005.)

 

It is indeed ironic that the same company that propelled the Government of Trinidad and Tobago into owning a share in the petroleum industry in 1969 has again provided a catalyst for a renewed debate on the imperative of increasing national ownership of our oil and gas business. In the last issue we examined with some trepidation the proposal by BP to sell its TSP oil assets.  Many have called for the local private sector to be given an opportunity to acquire these assets. Today we take a look at the evolution of the philosophy and practice of national ownership in the energy sector and distil some lessons in the current context.

 

I take national ownership to mean equity participation by the people of Trinidad and Tobago, Government and private sector, in the hydrocarbon industry. The term today does not refer only to state ownership but to all private sector ownership.  It recognizes that shareholding is a necessary but not a sufficient condition for economic sustainability. What one seeks is effective national ownership, which allows the T& T firm to be part of the strategic decision-making process.

 

 Of course, the issue of national ownership is not new to T&T.  The quest for national ownership can perhaps be discussed in five distinct periods, each marked by changes in philosophy and practice.  Beginning from the attainment of self-government in 1956, the first period extends to 1968. In these early years the question of national ownership i.e. state ownership of petroleum resources was unthinkable. Government was to play the role of passive revenue earner, and to ensure that proper atmosphere prevailed for the operations of the transnational corporation (TNC). The state had embraced fully Sir Arthur Lewis’s Industrialization by Invitation model as the dominant economic development strategy.   Thus, generous fiscal incentives were given to TNC to invest in T&T. The nation’s first downstream petrochemical plant – Federation Chemicals was a beneficiary of such generous fiscal incentives.  The reluctance of state and local capital to undertake investment in energy was reinforced by the dictates of institutions like the World Bank which declared at that time that “the business of oil exploration, production and refining was not an expedient undertaking for underdeveloped countries.”

 The second period -1968-73 may be described as the years of turbulence.  There was a sharp reversal in the Government’s philosophy on national ownership fuelled by dramatic local and international events.  The Government itself as early as 1968 seemed concerned about the mounting disquiet about the dominance of foreign capital in the petroleum sector.  In its third five year development plan 1968-73( the last before planning lost its mystic”) the Government expressed its intention to “ intensify its involvement in the industry”  in order to ensure “ that the petroleum industry of the country can expand and develop economically in harmony with the national interest.” . Over the next few year three major events were to catapult Government into action perhaps sooner than planned. 

 

First, British Petroleum (BP) decision to cease operations and sell out its assets in Trinidad triggered a potentially explosive labour crisis.   In an effort to save jobs and the viability of economic life in south Trinidad, Government acquired the assets of BP through a joint venture with Tesoro Petroleum Corporation.  Trinidad Tesoro became the first state owned company in the petroleum sector.

 

 The second important event was the revolution of 1970.  In some ways the revolution was a mass protest against the failure of the industrial development strategy to provide the jobs and economic progress promised and a rejection of white foreign capitalist domination. Given the scale and intensity of the protests, the Government was compelled to seek solutions beyond military suppression.

 

Thirdly, a wave of nationalism was sweeping across the developing countries at this time.  The work of the New World Group which sort to advance Caribbean economic and political thought from an internal perspective was of particular significant within the Caribbean. Internationally, Gadaffi’s revolution in Libya (1969) triggered a flood of nationalization among OPEC members which would have the effect of fundamentally altering the balance of power in the oil market.

 

 In the wake of the new consciousness among the people, Government responded with fresh populist initiatives.  In the White Paper on Public Participation (1971) Government announced its intention to accelerate the transfer of control of foreign owned firms to local hands and to save jobs. Its new policy position was that “no new 100% foreign ownership enterprises will be allowed in the key sectors of the economy, and national participation in joint ventures involving foreign firms must be of meaningful participation”. “Control of the commanding heights of the economy” became the official buzz words of the time. In this period Government established the National Petroleum marketing Company (NP) to manage the retail marketing outlets acquired from BP and later ESSO.

 

 The next period 1974-84 represents the golden age of the first oil boom. By 1975, Government had received the financial resources to turn its policy prescriptions into action.  In an address to the nation on the energy crisis Williams said: Our main thrust in respect of Government participation in Trinidad and Tobago extends to the entire field of petrochemicals together with petroleum-based industries and industries that will consume large quantities of energy. The buzz words at that time were “wider public participation in the commanding heights of the economy”.  Williams declared further that the Government had accepted “the challenge of entering the world of steel, aluminium, methanol, fertilizer and petrochemicals in spite of our smallness and in spite of our level of technology. The Point Lisas Industrial estate became the reality largely on the basis of state funding. The period 1975- 85 capital investment in the energy sector amounted to an estimated US$ 3.3 billion, with Government debt and equity amounting to 51.5%.  Table 1 provides a listing of the major investment during the period.