This
column outlines a framework for a proposed common Caribbean
energy policy. It is offered to stimulate debate and discussion
on this important issue which has been highlighted in the region
especially since the signing of the PetroCaribe agreement with
Venezuela.
The
proposals are targeted at the countries comprising the Caricom
Single Market and Economy (CSME).
As
the region moves to greater levels of economic integration,
a common CSME-wide energy policy becomes critical to our wider
social, environmental and economic development.
The
proposed energy policy framework takes into consideration all
aspects of the energy industry, from exploration to the delivery
of power or products to the end user. It must therefore consider
oil, gas and renewable forms of energy.
The
energy sector is one of the CSME’s major economic sectors.
While
CSME-wide economic data is difficult to come by, the STCIC estimates
that the energy sector accounts for at least 14 per cent of
the combined gross domestic product (GDP) of the CSME. This
is approximately the same as the tourism sector’s contribution
to the combined GDP of the CSME. The energy sector is, however,
not well geographically spread across the CSME.
T&T,
the only significant existing source of hydro-carbons in the
CSME, dominates the upstream, refining, downstream manufacturing
and service subsectors of the industry.
The
power generation and retail sub-sectors are more diversely spread
across the region.
This
geographical pattern creates significant economic, social and
environmental problems for the CSME and a common CSME-wide energy
policy is needed to address these issues.
Key
policy issues
There
are five key issues that the STCIC has identified that need
to be addressed in any common Caribbean energy policy, namely
ownership, pricing, trade in services, external trade negotiations
and environment and energy conservation.
Ownership
Deepening
and widening Caribbean ownership of the energy industry is central
to ensuring that the sector is able to deliver the anticipated
development objectives. Caribbean ownership of the energy industry
must encompass both the State and, crucially, the regional private
sector.
CSME
state-ownership is currently found in the following sectors:
1.
Refining: the three refineries in the region (Jamaica, Suriname
and T&T) are state-owned and the State holds a minority
position in the gas liquification plant in T&T.
2.
Exploration and production of oil: a state-owned company in
T&T is a major producer of crude oil (over 50,000 bpd).
In addition under the production sharing contract (PSC) system
the State retains title to crude oil (and gas) produced and
has access to its percentage of production to utilise as it
sees fit. The coming on stream of the Angostura field through
a production sharing contract gives the State direct control
over its share of the field’s production. In Suriname
and Barbados state-owned companies produce about 11,500 bpd
and 1,000 bpd of oil respectively.
3.
Exploration and production of gas: a state-owned company in
T&T holds minority non-operator ownership positions in a
number of gas fields and through various PSC’s the State
has access to significant quantities of gas.
4.
Distribution of gas: a state-owned company in T&T is the
owner of the gas distribution pipeline network and is the sole
distributor of gas to the downstream plants and to light manufacturing
users.
5.
Downstream plants: the State has minority ownership positions
in a number of T&T downstream plants and a majority position
in one plant.
6.
Petroleum product marketing and distribution: a state-owned
company in T&T is the major distributor and retailer of
petroleum products in the domestic market, while in Guyana the
state-owned company is also a major distributor of product.
7.
Power generation and distribution: the State is a minority shareholder
in one of the two power generation companies and is the monopoly
distributor of electricity. Power generation in Antigua and
St Vincent is state-owned.
CSME
private sector ownership in the energy sector is currently found
in the following sectors:
1.
Services: a large number of the companies providing services
to the energy sector are either wholly or partially owned and
operated by the T&T private-sector.
2.
Exploration and production of oil: there are a small number
of local private sector companies involved in the production
of oil, through farm-out, lease-out and joint-venture arrangements
with the state-owned company, on-shore and in the Gulf of Paria.
3.
Exploration and production of gas: there is one T&T-owned
and operated private-sector company with minority non-operator
stakes in gas production off Trinidad’s east coast. The
same company is a minority non-operator partner in some of the
new exploration blocks.
4.
Downstream plants: some of the downstream plants in T&T
are majority owned and operated by the local private sector,
with a number of proposed new plants including local private
equity investment.
5.
Distribution of gas: a CSME private-sector consortium is pursuing
a project to build a gas pipeline to Barbados and other islands
in the eastern Caribbean. A T&T private-sector company dominates
the distribution of LPG to domestic and commercial users in
T&T and has a strong presence in Jamaica.
6.
Petroleum product marketing and distribution: there are a number
of local privately owned marketing companies who distribute
petroleum products in Jamaica.
7.
Power generation and distribution: in most of the countries
of the Eastern Caribbean, the power generation and distribution
sector is owned and operated by the local private sector.
With
one minor exception, there are no energy sector companies listed
on the regional stock exchanges.
There
is limited T&T private or State investment in the extra-regional
energy sector, though there are a few examples, including investment
in a downstream plant in Oman and the establishment of subsidiaries
of service companies in other markets (including Venezuela,
Canada and Oman).
The
Government has expressed an interested in investing in regasification
terminals and gas distribution in the United States (the major
export market).
Caribbean
energy policy should aim to increase Caribbean ownership along
two different axes.
Firstly,
the policy should encourage the widening of state-investment
in the T&T energy sector, in particular, in the Pointe-a-Pierre
refinery and in upstream E&P, beyond the Government.
By
investing in T&T exploration, production and refining, CSME
governments will be able to ensure increased security of supply
of petroleum products to their markets.
State
investment in other facets of the energy sector should not be
a particular policy aim, though strategic minority positions
can help to ensure national interests are met.
Secondly,
the policy should encourage the deepening and widening of CSME
private-sector investment in the energy sector.
The
T&T “Local Content and Participation Policy”
should be widened to encompass the entire CSME economy and preferences
for T&T-owned and operated companies should be extended
to all CSME owned and operated companies.
Likewise,
the T&T “Local Content & Participation Policy”
should be utilised as a model for a CSME-wide policy to increase
CSME private-sector participation in all aspects of the energy
sector across the region.
Governments
should have an active policy of divesting investments in the
energy sector when there is clear evidence that the Caribbean
private sector has the interest and capacity to place capital
in the investment.
Divestments
should be made on to the regional stock exchange to encourage
the widest possible spread of ownership across the private sector
and private investors.
Pricing
The
issue of pricing of gas, electricity and petroleum products
across the region is a key issue of concern and debate, especially
given the subsidised rates enjoyed by some consumers in T&T
and the high prevailing international prices for products in
the rest of the CSME.
The
Treaty of Chaguaramas has been used by some CSME member countries
to argue that T&T should export gas and other petroleum
products to other members states at the same price they are
offered to the market in T&T, plus transport costs.
It
has been suggested that this issue will have to be resolved
by a Caribbean Court of Justice interpretation of the treaty.
The
issue of pricing is complicated by the fact that the Government
does not have direct control over the prices offered by the
multinational operating companies who produce the vast majority
of oil and gas available.
The
State subsidises the cost of gasoline and diesel offered to
consumers in T&T and off-sets this subsidy through a petroleum
production levy against the major oil producers.
At
high petroleum prices this subsidy is a significant cost to
the Government. The gas prices for downstream plants in Trinidad
are a function of the ability of the state-owned National Gas
Company to strike a good deal with both the producers of gas
and the consumers.
Each
gas contract is negotiated separately and is a function of the
economics of each particular upstream and downstream project.
The
price of electricity in T&T is likewise partially a function
of the deal negotiated between the upstream producers, the Electricity
Commission and the two independent electricity generators. Actual
prices paid by consumers are regulated by the Regulated Industries
Commission.
The
general policy in the region should be that prices should be
dictated by the market and that subsidies should be limited
and where they exist, should be phased-out over time.
The
issue of pricing of natural gas and electricity in T&T compared
to the rest of the region is not, however, a matter of subsidy
but a matter of the proximity of these consumers to natural
gas reservoirs.
CSME
energy policy should be designed to ensure a supply of cheap
gas or electricity to the rest of the region by utilising technology
and commercial opportunity to extend the geographical distribution
network (eg through the Eastern Caribbean Natural Gas Pipeline),
not by the provision of subsidies from government revenue.
Once
a distribution system is established, the Government, though
the state-owned gas company, could negotiate competitively priced
gas from multi-national producers for and on behalf of other
regional markets.
Trade
in services
The
growth and development of an indigenous energy services sector
is important for the sustainable development of the region,
as the service sector can be sustained even after reserves are
depleted.
The
Government has published a local content policy which seeks,
amongst other things, to develop the local service sector.
In
keeping with the commitments for a single Caricom economy the
definition of “local” in this policy needs to be
expanded to include companies from all CSME states.
The
T&T local content policy should be utilised as a blueprint
for a CSME wide “local content policy” in the energy
sector.
The
liberal trade environment with respect to right of establishment
of extraregional companies and the development of a single market
for services needs to be carefully considered; in order to avoid
the possibility of international service companies establishing
“brass plate” offices in one territory and then
utilising CSME free trade in service provisions to access the
entire regional market, with little commitment to sustainable
development in any particular economy.
The
regional adoption of a local content policy, including strict
definitions of what constitutes a CSME company (not legal registration
alone) will assist in ensuring that the liberalised trade in
services regime benefits the region, rather than extraregional
companies. External trade negotiations
The
Caricom region should ensure that all negotiations with external
parties are conducted through the established Regional Negotiating
Machinery (RNM).
In
keeping with established best practice consultation with the
regional private-sector should take place prior to any trade
or trade-related commercial agreements with extra-regional governments.
As
the major expertise in the energy sector resides in both the
private and public sectors in T&T, these two groups must
take a leadership role in any negotiations.
The
Government should, in keeping with this principle, consult with
regional partners in the development of its own international
energy sector agreements with extraregional governments.
There
are two external parties of crucial importance for the CSME
energy sector, namely the United States of America and Venezuela.
The
signing of the PetroCaribe agreement between most Caricom (and
other Caribbean) states and Venezuela has put in place certain
measures relating primarily to the financing of crude oil and
petroleum product imports into the regional market.
There
are, however, many other facets of the trading relationship
between the region and Venezuela, including the possibility
of a liberalised trade regime for goods and services through
a bilateral treaty.
Venezuela
represents a large potential market for CSME companies looking
to export energy-related services and this should be taken into
account in future trade negotiations.
Energy
sector issues should also form a major component of trade discussions
with non-Caricom Caribbean countries such as the French Departments,
the Netherlands Antilles, the Dominican Republic and Cuba.
These
territories could provide small but lucrative markets for energy
products and energy services from the CSME.
Environment
and energy conservation
The
small island and fragile nature of the eco-system in much of
the region means that there are significant dangers from environmental
degradation (eg the vulnerability of coral reefs and related
fisheries to pollution).
The
major environmental cost of the current CSME energy industry
is borne by the host communities of oil production facilities,
especially in south Trinidad, but transport, storage and utilisation
of hydro-carbons across the region has potentially serious environmental
impacts.
The
reliance upon tourism as a major earner of foreign revenue adds
an additional dimension to the importance of environmental protection.
The
switch to renewable energy sources could provide significant
benefits to the region and this has been a focus of some activity
at a Caricom level.
The
existence of a world-class energy sector in Trinidad should
be used to leverage interest and adoption of renewable energy
technology in the rest of the Caribbean region, especially given
the stated commitment of some of the multinational energy companies
present in the CSME to developing renewable energy sources.
In
addition, the switch from oil or diesel-fired power stations
to gas-fired power stations could significantly reduce atmospheric
pollution and improve efficiency.
Likewise,
the adoption of gas-cooled air conditioning systems can offer
great potential savings and reputation gains for hotels and
other commercial developments throughout the region.
A
single CSME energy policy should focus on both mitigating negative
environmental impacts of the energy industry and on encouraging
energy conservation.
Consumer
education programmes and development of appropriate renewable
technology will be more cost efficient if undertaken at a regional
level.
At
present, the Government is funding a US$100 million Caricom
Trade Support Programme under which the regional private sector
(outside of T&T) can access interest-free loans to source
technical assistance aimed at increasing competitiveness. A
similar facility could be implemented to assist companies, governments
and individuals implement energy efficiency measures.
Likewise,
a regional approach, building on private-sector expertise, should
be developed to deal with the potential for environmental disasters
created by significant oil spills or similar events.
This
proposed policy framework was initially discussed at a workshop
organised by the STCIC, in conjunction with the Caribbean Association
of Industry and Commerce.
The
STCIC has outlined these proposals for a regional common energy
policy with the objective of stimulating informed discussion
and debate throughout the CSME.
To
make comments on this proposals visit our Web site at www.southchamber.org.
