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Petrotrin’s transfer on-shore
Petrotrin’s refinery is to be closed putting some 1,700 workers on the breadline. Given the large debt load that the company is carrying, the hope is that it can use its depleting petroleum upstream asset to transform the company into one that can in the future service its refinanced debt.
The refinery, as Mariano Browne tells us, was operating at a conversion ratio of 65% as compared with that of the competition out there, at some 90%. This comparison is based on the Nelson Complexity Index, which when applied to Petrotrin shows that the products it was extracting from its oil throughput were of low value given its low complexity index; its plant was unsophisticated.
Eventually its board and management realised the incapacity of its aged plant and attempted upgrades, some of which were spectacular failures.
One may ask why did these projects fail since they were not inventions of Petrotrin or the first installations in the world of similar upgrades and they were being done by supposedly qualified foreign contractors.
Moreso, the gas to liquids plant utilised an untested process, adding to the risk of this upgrade.
Understanding what happened demands that we look at the bigger picture, at the economic model that Lloyd Best called the plantation economy.
This small open plantation economy used the rents- the foreign exchange left in the country by foreign investors invited to exploit our petroleum resource- to purchase the many imports that we could not produce for ourselves.
Hence the energy sector, the foreign investment activity, made efficient use of their factors of production (capital, technology, innovation and people) and was able to perform, drive the whole economy with only four per cent of our labour force.
On-shore the main activity of the private sector was import-markup-sell. This could not provide full employment for the remaining 96 per cent of the labour force. Hence we have a large public service, particularly in Tobago, make work programmes, endemic over staffing at state enterprises and public utilities.
This is made more difficult given the impact of the Dutch Disease on wages and salaries on-shore. In other words, employment on-shore was always a problem, a government problem that it attempted to solve via the rents from the energy sector.
Indeed some 50 per cent of government’s spending goes to transfers and subsidies!
The Petrotrin we know today is the result of acquisitions over the years. Trintoc was formed when we acquired the assets of Shell in 1974; in 1985 Trintoc subsumed the assets of Texaco when they left our shores; in 1969 Tesoro was formed from the assets of BP; Tesoro became Trintopec in 1985 and Petrotrin was formed in 1993 when Trintoc and Trintopec were merged; the Petrotrin of today was formed in 2,000 when the outstanding shares in Trinmar were acquired.
Petrotrin then is an amalgam of assets originally held by the oil majors of the world and these acquisitions like Caroni were about preserving jobs and also our ascent to the commanding heights of the economy when the majors left as the market conditions changed and the oil resource was depleting.
These acquisitions were not based on us having built world-class ability and capability locally in the technologies, the emerging innovations and the marketing required, as happened in Brazil’s deep water venture.
Though these companies in the energy sector were considered off-shore, the acquisition brought them under government control and into the philosophy of the on-shore, where the overriding concern was the provision of jobs and hence the over staffing at exorbitant, for the on-shore, salaries and wages, ensured by a very powerful union that would not hesitate to shut the company down to get its way.
The blame now is being put on the successive managers and boards of Petrotrin for the financial/commercial collapse. But one can question whether the major objectives of the unions, the management, the boards and the governments were economic efficiency, given the low refinery complexity, the poor state of the company’s infrastructure and the neglect of the exploitation of the remaining upstream petroleum assets; assets that today are touted as the salvation of the company.
If we were to apply Prof Michael Porter’s stages of economic growth to Petrotrin it is clear that it may have entered the exploitation of basic economic factors (petroleum), then investment through its acquisitions.
However, it remained stuck there with no highly skilled knowledge acquisition, no local R&D support institutions, hence no ability to improve economic efficiency via plant development, no innovation. When at last it was recognised that the refinery’s conversion ratio, its Nelson Complexity Index was low—its products were low value and below international standards, eventually losing money on the refinery production—the move was made to upgrade the refinery. But this lack of skills, of knowledge, contributed to the fiasco that has now hung a large debt onto the company for failed upgrades with little capacity to repay.
The closure of the refinery was inevitable. However, the problem still remains on-shore: How do we provide good jobs on-shore and also earn foreign exchange via exports to fund the imports we cannot produce ourselves?
Diversification via a national innovation system is the only option; one that all of our governments pay lip service to as we continue to live off the depleting rents from the energy sector.
Still, this is not a short-term process and the pain of adjustment, of sacrifice as we achieve this transformation will test our resolve.
MARY K KING
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