TT’s oil and gas will run out by 2020

THE EDITOR: The International Monetary Fund (IMF) 2003 Article IV Consultation Staff Report has revealed some of the major weaknesses of our economy and our present socioeconomic construct. In the past weeks, the report has been the subject of much speculation as a number of experts and some Opposition UNC politicians were wondering out loud whether the report was deliberately being kept from the public.

Among the major claims and suggestions in the report are as follows:
(i) At the current and projected rate of consumption of oil and gas, based on proven reserves, our natural resources could be depleted by the year 2020.
(ii) The unemployment rate is due to increase with the mass retrenchment at Caroni Limited, which the IMF expects to be temporary.
(iii) The IMF has also chided the Government on a deterioration of its overall fiscal position, which is masked by the higher than anticipated returns from the energy sector.
(iv) The report also stated that at the end of 2002, overall public sector debt was 66 percent of GDP, six points over the allowable 60 percent. 
(v) It also pointed out a number of areas where the Government’s Revenue Stabilisation Fund (RSF) falls short of international best practice criteria. Among the recommendations, in the interest of transparency and accountability, was that the Parliament should approve expenditure from the fund.
(vi) The IMF report also strongly recommended that Government focus its increasing access through rising revenues on addressing long standing social issues such as health care, education and infrastructure.
(vii) By the same token, however, they warned against a repeat of the fiscal indiscipline displayed by the Government in the first oil boom of the early ’70s and the second in the late ’70s, which they referred to as “wasteful, inefficient spending”.

It is clear that the points contained in the report are merely representative of the level to which our weaknesses are beginning to show externally. Local analysts have been issuing stern warning in all of these areas for more than a year. Now, there is no hiding from the facts. As regards point (i), as the technology for energy exploration and extraction is modified oil and gas will be extracted at a far more efficient level and there will be a high rate of increase in the level of consumption. Not 10 years ago, the energy industry was projecting that the then level of proven gas reserves would have allowed consumption  “well into the next century.” Today, with a much higher level of proven reserves, greater access to international markets and relatively stronger bargaining power, our reserves are being projected to last only for the next two decades.

But local experts are already on record as having warned against high expectations of seemingly unending supplies. ALNG President, Rick Cape, expressed concern very recently over the current situation being considered a gas boom. It isn’t, in his opinion. So the questions that arise will focus on the Government’s initiatives in capacity building for the non-oil sector. What is the Government’s programme for economic diversification? With the expectation of an increase in unemployment, a fundamental difference between local and foreign opinions is that optimism is not as buoyant here as it is abroad. The IMF’s expectation of a temporary increase is perhaps based on the assumption that the workers will be absorbed by the ‘revitalised’ sugar industry or, with the mention of training, into other industries. But here at home, knowledge of the sociological underpinnings of the industry leads one to appreciate that this increase in unemployment will not be temporary.

Sugar in Trinidad and Tobago was not simply an industry, it was a culture and way of life for thousands. In addition to the sudden rather than phased process of restructuring, training cannot be a short process if these workers are expected to be absorbed by other sectors. There is a complete lack of hard information on the nature of training, land use plans, estimated workforce for the new sugar company and also social implications and adjustments that were anticipated and planned for. In the absence of such information, local pessimism can be expected and is even justified. The IMF concern over the Government’s deteriorating fiscal positions could be linked to the Government’s increased expenditure burden. The annual budget was increased by 25 percent in 2002 as compared to 2001. A large part of the increase was to allow delivery of campaign promises and also service non-income generating CEPEP and other ‘social’ commitments. What happened was that (a) an enormous bloc of money was cornered, without the expectation of a return via income through taxation or other fiscal instruments and, (b) large amounts of money were being given as loans abroad and the budget lacked any compensating fiscal mechanism for the overall increase in expenditure.

There are also questions still to be answered by the Labour Minister as regards the amount of money channelled through the National Entrepreneurial Development Company (NEDCO) and other like agencies. So how is the fiscal position not expected to deteriorate? While one might speculate that this is part of a long-term plan, the absence of transparency with regards to spending leaves one to assume that good money is chasing after the maintenance of political power (read: not so good intentions) and nothing else. In spite of the indication of our public sector debt position being six percentage points higher than the allowable level, here too we have seen no hard information on how large amounts of money are being spent, supported by explanations of a strategic purpose for that new expenditure. What we are hearing of are requests for increases in the current budget through the Parliament and agreements for loans from international lending agencies such as the IADB.

Where the RSF is concerned, interpretation has been left to the devices of pro-Government members of the public in response to Opposition calls for detailed explanations of the use and position of the fund since 2001. With over $1 billion being deposited by the former Government, one is left only with a less than forthright suggestion of what the current level could be today. There has also been no word on working towards protection of the RSF by legislation and a policy on maintenance and use of the fund. Points (vi) and (vii) are related in that during the 1970s boom periods, the level of capital expenditure increased astronomically. Pressures of increased demand levels allowed prospects for the development of the non-energy sectors to weaken and overall competitiveness was compromised. Thus the post-boom period of recession and economic hardship! That period in the late 1980s saw Caricom countries pleading for leniency with lending organisations for Trinidad and Tobago. At the same time, then Prime Minister ANR Robinson reported a minus position in international reserves.

The post-boom period also saw the education system, health sector and general infrastructure still in a sore state. Today again, there are reflections of the boom period in terms of seeming indiscipline in spending with the announcements of hundred million and billion dollar projects including the proposed new Parliament, the institutionalisation of the $400 million CEPEP initiative and billion dollar home construction plans. We are yet to hear word from the Government on how it has learnt from the previous booms. The Prime Minister as Finance Minister has not yet articulated the Government’s policy programmes for economic diversification alongside boom conditions. The Manning administration has so far not demonstrated that it understands what developed country status is, and also what is required to create a developed country in terms of ideology and action. Or, if it does understand, it is being very frugal with information.

Still there is a compelling irony in that PNM in Government, past and present, has shown a clear preference for heavily centralised approaches in spite of expressed partly capitalist intentions. While at the same time, the UNC which is led by a man born out of the socialist movement, opted for a more market-oriented approach to governance. But one major issue here is transparency. In the absence of information, or at the very least, some hint of a solid plan, local experts and the layman population alike, can only speculate. Hardships in the post-boom period of the 1980s saw a bloody attempt to overthrow the Government of ANR Robinson. One wonders what act of man or God will herald the breaking point this time.

CHE  RAMSINGH
Marabella