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‘We fiddled while Rome burned’

Saturday, September 1, 2018
Espinet lays bare Petrotrin’s state
Petrotrin’s refinery in Pointe-a-Pierre.

Government is reported to have told the Petrotrin board it could not finance the US$850 million debt to bond holders and gave the company the green light to proceed with the option to shut down the refinery and send home workers.

Well-placed sources told the T&T Guardian that in separate meetings, board chairman Wilfred Espinet made presentations to the upper management and supervisory staff and the unions representing Petrotrin workers detailing the financial state the company had found itself in and the need for hard decisions to be taken.

Espinet is reported to have told the meetings that bankers had told the company in no uncertain terms that they could not give the company working capital because of uncertainty about the company’s ability to repay the US$850m bond.

While there was a view that Government would pay the bond, Espinet is reported to have said the Government told him they could not afford to pay it, telling him that they had just sold shares in the National Investment Fund (NIF) to get money to fund health care and other things.

It was in a scenario where things looked financially hopeless that Espinet is said to have indicated hard decisions had to be taken. He is reported to have said that there was no “joy” in the decision, which was a “heavy burden to bear,” but he said having gone through the financials of the state oil company and having received advice they had no other option.

Petrotrin insiders told the T&T Guardian that Espinet told the unions and management that although the company had been on a downhill financial slide for years, “everybody continued to fiddle while Rome burnt” and that despite significant losses it was business as usual with “increases in salaries and benefits.”

With no money being put back into the system, Espinet is reported to have said that it dug a hole into the balance sheet of the company, “so that the balance sheet is almost insolvent.”

Espinet said top officials of the company who were in a position to know and understand the state of the company operated as though nothing was wrong.

“Our cash flows were tightening, but treasury got into all kinds of fancy footwork of selling cargo long before it was delivered so we could finance the operation,” Espinet reportedly told stakeholders.

At one point shortly after the board came into office, staffers were told the management proposed a budget of TT$16 billion for capital expenditure. Describing what was happening as “crazy” and “unreal”, Espinet said there were proposals to pay hundreds of millions of dollars to lawyers as though they did not see “there will be an impact somewhere.”

In addition, Espinet said skill sets in the organisation had become “distorted” over time because of questionable hiring practices.

International experts who were brought in to assist the board in finding ways to make the company viable advised of the need for significant change in the way things were being done.

An analysis over the next five years was done utilising three options. Details of the options were revealed to the unions, management and Government in separate presentations made by Espinet.

The T&T Guardian obtained copies of the options.

The first was to continue operating as is as an integrated company, with no additional investments and no exits of the company’s 3,400 permanent employees.

But according to the figures, if things stayed as was, the Refinery and Marketing (R&M) was estimated to lose TT$6.8 billion and Exploration and Production’s loss was estimated at TT$400 million, for a total loss of TT$7.2 billion.

If that option were utilised, at the current debt level and because of the amount of money being lost stakeholders were told the company would need to find TT$25 billion, which Espinet said was just under half of the national budget.

Because the company could not afford any more loans, Espinet is reported to have said they would literally have needed to find a Godfather who did not want any return on their investment.

Option 2, titled ‘Improve Financial Performance,’ forecast a headcount loss of 1,500 employees and a requirement for TT$20 billion in investment. But according to the figures presented, it forecast a net loss of TT$4.1B, an E&P contribution of TT$4.7B and a loss in R&M of TT$8.8B. Espinet said if this option was utilised losses in R&M would continue to offset gains made in E&P.

Declaring that the refinery was the problem, he said people who thought otherwise were just “digging their head in the sand.” It was determined that the refinery needed to go. He is reported to have said, “Unless somebody has a magic wand and find the TT$20B we talking about and to find a way for the refinery to make money, we have no option but to deal with the problem.”

The third option, titled ‘Transform Financial Performance of Organisation’, showed that without the refinery, E&P would be a stand-alone company with the ability to cover the company’s debt with a requirement for TT$8B in bridge financing for the first two years. The refinery would be replaced by a terminalling stand-alone company and the exit out of the refinery operations, according to the presentation, would be TT$2B to be borne by the legacy company.

Under this option, a total of 2,400 of the company’s workforce would be sent home, 1,700 from upstream with 45 per cent or 800 of those workers to be rehired. Another 1,700 would be sent home from the refinery operations with the plan being to rehire ten per cent or roughly 200 members of the workforce.

Espinet is reported to have said that this option would pave the way for “a real company that does real work and give people real jobs.”

It was this option which the Government gave the board “the authority to proceed with.”

Questions have been asked about how the board could be painting such a gloomy financial picture when for the first quarter ending in June this year an after-tax profit of $85.6m was recorded.

In response to this, Espinet told the staff that in the three-month period the company had “an increase in inventories that made a major contribution and a few other anomalies,” but he said that should not be “confused” with what was happening every month when the company was losing.

“The balance sheet gets further depletions when you lose money every month,” Espinet said.


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