No clear decision on TT’s energy pricing to Caricom

No clear decision has emerged from the Caricom Secretariat advisory legal opinion concerning a disagreement between Jamaica and Trinidad and Tobago over the issue of access to and pricing of Liquified Natural Gas (LNG). However, Heads of Government at a special meeting in St Lucia last month acknowledged that the advisory legal opinion was not requested to do so and as such, there was no determination of the fundamental question in contention. Specifically, the main issue in the disagreement concerns whether arrangements for access and pricing of LNG fall within and are controlled by the provisions of the Revised Treaty of Chaguaramas.

The leaders have since referred the opinion to their legal officers for further analysis and that another broader report will be presented at their Inter-Sessional Meeting next March, which hopefully will shed further light on the issue. The opinion was requested by leaders following a dispute between Jamaica and Trinidad and Tobago over LNG pricing under the Caribbean Single Market and Economy (CSME). Jamaica argues that under the non-discriminatory provisions of the Revised Treaty, the road map by which Caricom states are creating the CSME, Trinidad and Tobago must supply natural gas to domestic consumers in Jamaica on no better terms than what it would sell to firms in other CSME countries. Trinidad and Tobago however disagrees with Jamaica’s interpretation of the treaty, insisting that national treatment must only apply to firms within its national borders.
The opinion makes a number of broad conclusions. It said the issue of the national treatment and non-discrimination is “eminently an international legal opinion and therefore one susceptible of legal analysis based upon the sources of international law.” It said where governmental practice or policy determines or critically influences the ‘price’ or ‘pricing policy’ for energy, the member state is enjoined to ensure access by all community nationals on the basis of non-discriminatory pricing. “Where prices are set by private sector entities in the market place, there is a related but different obligation upon the member state to ensure there is no anti-competitive business practice. Such practice may include predatory pricing and price discrimination.”

But it said a determination of whether anti-competitive business practices exist in relation to access to and pricing of energy is beyond the remit of the question posed to the Secretary-General by Heads of Government. “On virtually any view of modern competition policy, including that described in the Revised Treaty, price discrimination is permissible in respect of different products and different markets. As presently advised, the market organisation that currently exists is one in which natural gas is, but LNG is not, sold on the Trinidad and Tobago market. “As Jamaica proposed to purchase LNG and not natural gas, the crucial question arises as to whether the same product is in issue; a matter requiring evidence of a technical, scientific and possibly economic nature not now available to the Secretary General.” On the question of whether Trinidad and Tobago is breaching its Most Favoured Nation (MFN) obligations to Jamaica by permitting operation of differentiated pricing in relation to LNG or the natural gas that goes into LNG,  the opinion said “ it cannot be resolved without the offer of further evidence of the relevant facts.”

According to the opinion, Trinidad and Tobago argues that the private sector, acting without governmental control or involvement sets prices for natural gas and LNG and that this is both consistent with and in furtherance of the market-led model of economic development underpinning the CSME. “From this perspective and relying on jurisprudence developed in general international trade laws, ‘national treatment’ is considered to be irrelevant to the question of the pricing of energy or energy-related products in as much as that concept refers to the proscribing of certain governmental activities that discriminate between nationals and persons from other countries. “The Trinidad and Tobago brief emphasises that the Government of Trinidad and Tobago is not involved in the setting of prices for LNG or the natural gas that goes into LNG.” In a basic position set out in a Reply Brief last September to the Caricom Secretary General, Jamaica said it has embarked on a national energy diversification strategy to reduce the island’s dependency on imported oil, to protect the economy from the destablising impact of oil price volatility and to enhance competitiveness of the Jamaican productive sector. Jamaica’s energy landscape is highly dependent on oil which accounts for 90 to 92 percent. Jamaica requires approximately one to 1.2 million tonnes of LNG annually to supply their domestic power and bauxite sectors. The importation of LNG will also serve to reduce Jamaica’s hefty oil bill calculated at US$640 million last year in the face of export earnings of US$837 million. This year’s expenditure on oil imports is projected to be in excess of US$700 million.

Jamaica said as part of the overall strategy it wishes to import LNG from Trinidad and Tobago, the main producer of natural gas in the sub-region and the only producer of LNG. It said while LNG is not sold in the domestic market of Trinidad and Tobago, the market is supplied with natural gas through a network of pipelines with the main consumers being the power generation company, industrial plants, methanol producers and the cement plant. “The government-owned monopoly National Gas Company (NGC) fixes the price of natural gas delivered to each consumer in Trinidad and Tobago based on economic policy decisions made by the Government of Trinidad and Tobago,” according to the Jamaican government. “The Jamaican position is that, as a matter of law, Trinidad and Tobago is obliged to sell the natural gas for liquefaction into LNG to nationals of Jamaica, at the same price that it sells natural gas to nationals of Trinidad and Tobago.” Jamaica maintains more specifically, that the net back value natural gas to the LNG train gate for suppliers of LNG to Jamaica cannot and must not be higher than the delivered price of natural gas to similar customers in Trinidad and Tobago.

On that basis, Jamaica further submits that the gas intended for supply to a power generation company in Jamaica must have a net back value equal to that charged to the power producers in Trinidad and Tobago. “For clarity, Jamaica would bear the reasonable cost of liquefaction, transportation, regasification and other incidental charges. “Our position is that on matters concerning the pricing of LNG, Jamaican nationals are entitled to the same treatment as that available to nationals of Trinidad and Tobago: the pricing of natural gas and LNG  may throw up their own share of complexities but these complexities do not undermine Jamaica’s basic premise of equal entitlement as to pricing for both Jamaicans and nationals of Trinidad and Tobago.” Jamaica’s position on the question of equal entitlement as to pricing for both Jamaicans and nationals of Trinidad and Tobago is built essentially on the terms of Article 7 of the Revised Treaty. Article 7 (1) states “ Within the scope of application of this Treaty and without prejudice to any special provision contained therein, any discrimination on grounds of nationality only, shall be prohibited.” The opinion however states that where prices are set by private sector entities, the question arises as to whether this activity is controlled by the non-discrimination provision of the Treaty.

“It is submitted that, in accordance with basic principles, where pricing policy is determined by private sector actors, the principle of non-discrimination does not apply directly; rather, resolution of any dispute as to pricing is a matter turning largely upon fidelity to rules in the Revised Treaty governing competition. It further states that under the general international law, States are the parties to international agreements. “Exceptionally, treaties do impose obligations and confer rights on private individuals but this is normally done by clear and express language...” The opinion concludes that the Secretary-General, not having all the relevant facts, is not in a position to advise upon whether entities responsible for the production and sale of LNG or the natural gas that goes into the making of LNG are public or private enterprises.