ENERGY Minister Franklin Khan has defended Paria Fuel Trading Company’s business as “above board,” and on Tuesday he denied that Trinidad and Tobago was losing revenue on royalties, because of poor negotiations by Government.
Speaking in the Senate, Khan said that, in the last two years, T&T has actually earned around $7.7 billion in revenue from a 12.5 per cent royalty imposed on all hydrocarbons produced in the country. He said the royalty system remains “fundamental to the taxation of non-renewable assets,” which include oil and gas resources.
“A royalty system is a taxation system based on volume. It is not based on profit,” Khan said, in response to a question by Opposition Senator, Wade Mark, who raised a matter on the adjournment involving T&T’s revenue from the royalty.
The minister said the 12.5 per cent royalty has “always” been applied to crude oil but a similar system was not implemented until the 2018 budget presentation, because it was considered a by-product of oil.
“We took the position that we will impose a 12.5 per cent royalty,” Khan said, referring to natural gas.
He said “it already existed on oil” and “we imposed it on gas”. He later noted that only upstream producers are subject to the royalty on gas.
“You have so many write-offs against your capital expenditure,” Khan said, adding, “In fact, BP was in a position where they were producing one trillion cubic feet of gas per annum and did not have any tax liability.”
Khan had earlier stated that he was not being boastful when he said that the Energy Ministry was “an important one” and he assured that it was treated as such.
He quipped at Mark that the Senator’s “informants” were not being wholly truthful and said the present Government has had to correct numerous miscalculations in the energy taxation regime, that occurred under the previous People’s Partnership (PP) government.
Khan said that he would not disclose details of Government’s gas price arrangements, as he chose to “honour” the sanctity of sensitive commercial and non-disclosure agreements.
System working well
Khan said the taxations measures have been working well and this was reflected in $7.753 billion in revenue, collected from April 2018 to the end of fiscal year 2020.
He said “once you are profitable, nobody looks at the fundamental construct of the taxation regime”.
“It started to hurt when the volume dropped and the price dropped,” the minister explained.
The minister also noted that 65 per cent of the country’s natural gas is consumed by LNG production, while the remaining 35 per cent goes to the National Gas Company (NGC) and then to smaller, light industries.
Many of those small companies are in the Point Lisas Industrial Estate, Khan said.
He questioned why a gas royalty had never been imposed by previous governments and suggested that this was due to the “aggregation business of the NGC” being “very large”.
Those were the days of “cheap gas”, Khan said, where the commodity could have been bought “at x and then you sell at x plus three”.
“So, your margin remains x plus n, where n could be from one to how much,” Khan said.
The NGC has two choices with regard to the royalty on natural gas, he said, where it could impose additional charges on downstream industries - but that could “collapse the whole of Pt Lisas”.
“Or, find a mechanism to work it through,” he said.
Khan was also called on to explain Paria Fuel Trading’s transactions with Singapore-based commodities trader, Trafigura, by Opposition Senator Anil Roberts.
Roberts had raised issues, also spoken about by the Opposition in recent weeks, in which they said Trafigura had a chequered business record.
United National Congress (UNC) leader Kamla Persad-Bissessar also this week called on Government to clarify whether Paria, a profitable State-owned energy entity, was packaged as part of the intended sale of the former Petrotrin oil refinery at Pointe-a-Pierre.
Persad-Bissessar last week disclosed some details of the bid to purchase the refinery and Paria by Patriotic Energies, the company that is wholly owned by the Oilfields Workers’ Trade Union Company (OWTU), when she said, Paria was shown as part of the deal and Trafigura was proposed to fund. The former prime minister raised an alarm that Paria would end up being owned by Trafigura.
Speaking on Paria’s transactions, Khan said these were “conducted from Paria Trading’s day-to-day operational bank accounts”.
Among the recent transactions was a payment to Paria by ES Euro Shipping SA, for 148,968 barrels of gasoline. The minister said the amount received would be sensitive commercial information and could not be disclosed.
Paria Trading also purchased 1.24 million barrels of gasoline from Trafigura Pte Ltd, between March and April 2020, Khan said.
He said Trafigura would have been paid in accordance with its supply contract with Paria and it was common knowledge that Paria buys fuel that it supplies to the local and Caricom markets.