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From The Editor
Imagine
if God, in her wisdom, had endowed a country called
Iere with limes. So many limes that 80 per cent of
the country’s exports and two-thirds of its
GDP were derived from the commodity.
So
many limes, in fact, that the nation was among the
world’s top producers and foreign investors
flocked to its shores to cultivate the land to produce
limes for the world market.
Imagine
if the main producer of limes in this country was
a company called Atlantic Limes, which was 90 per
cent owned by foreign investors with the other ten
per cent held by a state-owned company called the
National Lime Company (NLC).
Imagine
if lime juice last year had exceeded its all-time
high—shooting past US$10 a litre to the unprecedented
figure of US$15.50 an litre.
The
shareholders of Atlantic Limes were obviously delighted
that their investment in the first three lime plantations
had paid off so handsomely as their investment decisions
were predicated on a world market price for limes
that was substantially less than current values.
As
a result of their delight, Atlantic Limes opened a
fourth plantation which, like the previous three,
had cost about US$1 billion to establish.
The
Government, which collected substantial taxes from
the lime producer, was also delighted.
The
taxes it collected allowed it to reduce taxes to the
population, to make university education “free”
and distribute work-lite jobs and food debit cards
to thousands of its poverty-stricken citizens (and
some criminals).
The
Government, which was facing a general election in
2007, was extremely reluctant to make the connection
between the taxes on Atlantic Limes and the reduction
in taxes and the “freeing” of tertiary
education. This was because it knew that when (not
if) the world market price for lime juice collapsed,
it would have to increase taxes and resume charging
for university education.
And,
furthermore, the limes were a depleting resource as
the soil in which they were cultivated was losing
its potency.
With
six more factories using lime juice due to come on
stream, Iere had an estimated 13 years of proven lime
reserves left.
Faced
with such a situation, what’s a country to do?
If
God endowed a country with conditions ideal for the
production of limes, would we turn to God and say,
“O Lord, give us alternative industries that
use less land and energy,” or would we say,
“Yahweh, our limes may run out in 13 years.
Let us cut back on our aggressive exploitation of
it?” Or do we say, “our country is too
small for another lime plantation?”
If
God in Her wisdom has given us limes, I feel it would
be uncharitable to lament our inability to make grape
wine.
The
appropriate use of God-given talents, in my view,
would be to cultivate the limes, pick them and create
an industry out of lime juice which would create jobs
and pay taxes.
Gas
into money
I
am on record as supporting the continued monetisation
of T&T’s natural gas (limes).
As
I hoped would have been clear by now, the main reason
I have done so is that I believe that one of the ways
in which the standard of living in T&T will continue
to improve over the next 50 years is by turning our
natural gas into wealth for the benefit of T&T’s
citizens.
In
this column in the last three months, there has been
a consistent argument that it is the taxes from the
monetisation of T&T’s natural gas (especially
the Atlantic LNG developments in Point Fortin) that
have allowed the State to lower the marginal tax rate
to 25 per cent from 30 per cent and increase the tax
allowance to $60,000 from $25,000.
A
general reduction in the tax rate, and in the number
of people who pay taxes, is a means by which the State
transfers wealth from the energy companies to the
residents of the country.
Maybe
those who are opposed to the continued monetisation
of our natural gas don’t want living standards
for the majority of T&T citizens to improve.
By
making tertiary education “free” and by
increasing the number of university places in the
country, the State is promoting social mobility thereby
helping to break the cycle of poverty that contributes
to hopelessness and social decay.
In
my view, it is silly for us to to be endowed by God
with natural gas and not look to maximise the wealth-creation
possibilities from it.
Given
the fact that we are endowed with a depleting natural
resource, how do we ensure that the standard of living
in T&T continues to rise?
We
can only improve our standard of living by ensuring
that we maximise the revenue from natural gas in order
to develop an economy that is so sustainable and sufficiently
diversified that it can survive a prolonged price
collapse or the end of gas—by developing a strong
post-gas economy.
The
important phrase in that sentence is maximising the
revenue.
I
feel the State’s position must be: how do we
maximise our revenues from natural gas in order to
create new industries that will lead to an increase
in T&T’s living standards?
It
seem elementary to me that the first judgment the
State has to make about the six new gas projects T&T
is planning in the next three years is this: will
each project maximise our tax revenues, diversify
our economy and lead to sustainable wealth creation?
If
aluminium does not meet the criteria of revenue maximisation,
diversification and sustainability then clearly we
should not go forward with it.
The
recent spot market for natural gas is about US$7 per
unit at Henry Hub (the US benchmark). It seems to
me that the economics of smelting needs natural gas
at substantially less than US$7 per unit. Again, given
the disparity between the US spot market for natural
gas (and the taxes derived from the LNG netback price)
and the gas price that the Government would need to
attract Alcoa and Sural (which is much less) my previous
point about the effective revenue maximisation of
our natural gas holds.
And
I would expect that such financial analysis will be
applied to the two UAN projects (Ansa McAl, the Guardian’s
parent company has an interest in one of them), the
Essar iron and steel project and the syngas development.
By
the way, the second judgment would have to be: do
we have enough natural gas to sustain these projects
as Charles Thavenot argued last week?
The
third judgment should be whether the projects meet
the environmental and health criteria.
Business
Guardian is
Trinidad Guardian's Weekly Business Review.
Petroleumworld not necessarily share these views.
