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E&Y: Details sketchy
Ernst and Young has observed that details of the way forward for Petrotrin are sketchy at best, although it acknowledged that Finance Minister Colm Imbert did offer some insight into the Government’s plans for a profitable and internationally competitive entity during Monday’s Budget.
Imbert told the country the closure of the refinery was the only commercially sound and viable option, that exploration and production activity would be aggressively pursued through a new lean and streamlined entity of some 800 employees to increase current crude production from 40,000 to 60,000 barrels per day. He also indicated that they would establish a terminal business with an additional 200 employees to import finished petroleum products including motor gasoline, diesel, aviation fuel, LPG and other derived and refined products.
Asking the question “how did we arrive at this point,” Ernst and Young noted that while the “lion’s share of the blame in the public domain has been placed on the oversized and richly compensated workforce” with an annual wage bill of TT$2.2 billion and an “uncooperative and hostile industrial relations partner” in the OWTU.
“The sheer size of this failure simply means that the union cannot solely be the responsible party,” Ernst and Young noted.
After conducting what it said was a thorough analysis, Ernst and Young, in identifying factors which led to the closure of the refinery, said consideration should be given to the World GTL project which cost the country TT$3.15 bn and which was sold for TT$235 million, the gasoline optimisation programme which was estimated to cost TT$2.45 bn, but which cost TT$12.6 bn and the Ultra-Low Sulphur Diesel Plant which was estimated to cost TT$791 million but cost TT$2.89 bn and currently has been deemed structurally unsound and will require an additional TT$2.5 bn to resolve.
During a CNC3 panel discussion on Monday night, Khan said had the money spent on the refinery been pumped into exploration and production “we would have been laughing all the way to the bank today.”
But Movement for Social Justice head David Abdulah, also a panellist, reminded him that “the irony is that a PNM government made the decision which developed the debt, that was all on your watch and you cannot escape responsibility.”
In its analysis, Ernst and Young also observed that a passive Exploration and Production programme had contributed to the “demise of crude oil production, the exorbitant crude import bill and the contraction of the refining margins.”
Ernst and Young also expressed concern that “political nepotism in the employment practices at the company, together with the rotational political appointments at the board of directors” had also contributed to “poor governance.”
According to the accounting firm, there are many unanswered questions if the country is to understand the way forward. It is seeking answers on “what is the all-in cost of the closure of Petrotrin over and above the estimated termination payment of TT$2.6 bn? What are the medium to long-term plans for the refining assets? What measures would be put in place to ensure the efficient and cost-effective procurement of the finished petroleum products?”
In addition, it wants to know how the Government intends to manage the volatility of prices.
“What is the quantum of reserves of finished petroleum products that must be maintained for strategy purposes and how would the arrangement governing the exploration and production business be managed?” E&Y asked.
The accounting firm said this exercise would require “significant strategic thought, clinical adherence to best practices in governance and effective execution to avoid the mistakes of the past.”
The E&Y analysis expressed the hope that “the open wounds from this financial fiasco that exist today would be indelibly etched in our minds and ensure that suitable systems and controls are implemented going forward.
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