MEASURING THE WORKER’S PLIGHT IN LNG INDUSTRY

THE EDITOR: The Governor of the Central Bank, Mr Ewart Williams, very recently made statements as to the wage increases for the continued construction of Train 4 is inimical to public interest. The question here is: Is the demand of the workers reasonable for the work they are performing? An answer to the question is premised upon the following facts:

* LNG exported from Trinidad under 20 year Contracts: Train 1 Contract extends to the year 2019, Train 2 Contract extends to the year 2022 and Train 3 Contract extends to the year 2023. The pricing for LNG is Netback pricing called Henry Hub. This embraces market prices minus shipping, regasification and distribution.  LNG is sold to Spain and its pricing is linked to a basket of oil prices and LNG sold in the United States is linked to gas prices quoted on the New York Mercantile Exchange (NYMEX). Both pricing systems are subsumed under Henry Hub.

* The net effect is that prices follow the NYMEX and the current April natural gas price is quoted at US$5.43 per million British thermal units (mmbtu).

* The United States total LNG Imports are 4.79 Million tonnes (Mt) of which Trinidad supplies 3.17 Million tonnes, prior to Trinidad exporting LNG to the US; the significant US supplier was SONATRACT from Algeria.

* Atlantic LNG exports 9.7 million tonnes of LNG per annum and is expected to boost that to 15 million tonnes a year when Train 4 is completed, with all the LNG produced, sold on 20 year contracts.

* The standard fiscal package for energy-based investors are: Standard tax holiday (5-10 years): Relief from taxes on dividends and other distribution: Value Added Tax exemptions on imports, including capital imports: Concessions on import duties: Relief on withholding tax. The Governor of the Central Bank should realise that LNG is sold as an international commodity that has been increasing in price significantly. For September 2002 the posted price on the NYMEX was US$3.27 mmBtu and in September 2003 the price was US$4.49 mmBtu, while gas futures for April 2004 is US$5.43 mmBtu. With the present production of LNG by Atlantic being 1.7 billion cubic feet per day or 65 percent of Trinidad’s total natural gas production, the benefit to the local economy: selected indicators are as follows:

Gross Domestic Product: Marginal increase in value added in the Petroleum Sector.

Marginal improvement in value added in Finance, Insurance and Real Estate.

Balance of Payments: Temporary worsening of Trade account: — Imports (via increased imports of machinery in the construction phase)

Improvement in Terms of Trade — Exports (via LNG exports, liquids exports).

Employment: In the construction stage, net increase in temporary employment of 3,000 at peak (Civil engineers, mechanical engineers, manual labourers, etc.) In operational stage, increase in permanent employment of 140 people, of which 120 from TT.
(Plant operators, shift engineers, administrative managers, maintenance personnel).

Foreign exchange generation:  Significant gross earnings (exports of LNG). Conversions of foreign exchange by Atlantic LNG to Trinidad and Tobago dollars take the form of payments to local subcontractors, local wages and salaries, land and building taxes, etc.

Public Finance: Increased tax revenues from upstream sales of gas (pre-tax profit on BP Amoco gas sales taxed at 55 percent(petroleum profits tax (PPT) and Unemployment Levy (UL).

Taxation of condensate from ALNG gas (supplemental petroleum tax (SPT, PPT, UL). Limited royalties on gas sold to ALNG by BP Amoco. Taxation of increased NGC revenue (dividends from ten percent shareholding). Personal income taxation from employee payroll. VAT on private consumption paid by local sub-contractors of ALNG. Taxation on personal services. With the benefit of the above the Central Bank Governor should realise that an increase in wages would add to the purchasing power of construction workers for basic necessities and consumer durables.

Of course a balancing act will have to be performed to ensure these levels of wages do not spill over to the rest of the economy. The political leader of the PNM, who generated the level of expectations of differential wages for the energy sector, should perform a counter-balancing act. Now the Prime Minister should marshal arguments and convince the nation why differential wages ought not to be paid to these workers, in the wake of accepting benefits in kind, such as, free-riding in an executive jet from one of the investors. Moreover, on a macro economic point of view this group of workers, as a percentage of the labour force, is small and from a micro point of view, it has always been that the purchasing price of the energy workers has always been favourably disposed in to the rest of the economy.

However, in good industrial relations practice, the expectation of higher wages has been incorporated in the energy workers pay package. The hard-core economic arguments are compulsive for the levels of wages required by the workers are reasonable and justifiable. We call on the Governor of the Central Bank, in open debate, to show cause. The only “eye sore” in the equation is that  the leader of the PNM, during the election campaign, purportedly raised the worker’s expectations, knowing that Government would not have made the necessary changes in the legislation, and deceived the entire population! 

DR SHASTRI MOONAN
BRIAN GARNER
Woodbrook