EITI Midstream & Downstream Revenue
Notwithstanding Trinidad and Tobago’s small size, our energy sector is widely recognized as being unique in several important ways because of our pioneering initiatives and innovations introduced over the years. Historians remind us that the beginning of T&T’s energy sector dates back to the discovery of the Pitch Lake by Sir Walter Raleigh in the 16th century. They also remind us that we drilled our first oil well in 1857, not far from the Pitch Lake, one year before the USA drilled its first well. T&T’s crude oil industry developed quickly during the first six decades of the 20th century until a game-changing event occurred in 1971 when natural gas was first discovered off the North Coast.
Thereafter, the focus of T&T’s energy sector gradually transitioned from oil to natural gas exploration and production and the linking and integrating of the companies that explore for and produce gas, those that transmit and process the gas and those that use the gas as both feedstock and fuel for their plants. The success of the actors along these separate upstream, midstream and downstream links is integral to the combined success of all of the other players and the integrated energy value chain accounts for T&T’s economic strength.
Today, citizens of countries rich in natural resources are recognizing and claiming their ownership of those resources. That ownership gives them an inalienable right to information on how the resources are exploited, the amount of revenues generated and how the revenues are spent to their benefit. Citizens are demanding more transparency and accountability from their government and the extractive companies and that is the cornerstone of the Extractive Industries Transparency Initiative (EITI) that is being implemented in T&T.
The TTEITI Steering Committee that was mandated by Cabinet in December 2010 to oversee EITI implementation has published three EITI Reports (fiscal 2011, 2012 and 2013) and reports for fiscal 2014 and 2015 are currently being completed. The data being reported is only in respect of companies operating in the upstream oil and gas sectors. Therefore, given T&T’s unique integrated energy sector value chain, the data does not tell citizens the whole story of T&T’s energy sector revenue generation. By focusing only on the revenues resulting from the upstream portion of the extraction process, T&T’s EITI does not cover the full spectrum of the extractive sector revenues. Midstream payments related to the transportation of natural resources can be of considerable importance in terms of their economic effects and social impacts. Transparency regarding the delivery of natural resources to world markets is also of crucial importance.
As a result, there have been calls, starting with government and followed by civil society, to invite T&T’s midstream and downstream companies to join the EITI reporting process. In parallel, there are also calls for the mining sector (asphalt and quarries) to join the process. These calls are becoming more incessant.
There are good reasons why the midstream and downstream sector companies would benefit from joining the EITI reporting process including:
National recognition: The midstream and downstream sectors contribute approximately US$3 billion to T&T’s GDP, over $5 billion in tax revenue in 2013 and employ about 20,000 workers including temporary workers. These companies’ participation in the EITI reporting system is an avenue to share with the wider national community the sectors’ significant contribution to government revenues. At a time when contract renegotiations for several gas purchase and supply contracts are underway and being discussed publicly by Parliament’s Joint Select Committee on Energy Affairs, participation by the midstream and downstream sectors companies in the EITI will mark a shift from the perceived secrecy that shrouded the sectors and create greater public awareness around governance and transparency throughout the linkages in the energy sector value chain.
Company recognition: A company that participates in the EITI increases its shareholders and investors confidence and, with several of the midstream and downstream companies being publicly listed, the EITI Reports will help create another layer of audit assurance for companies. Participation in the EITI also enhances a company’s public image, CSR profile and highlights the company’s adherence to sound Corporate Governance principles.
Existing synergies: Currently, the TTEITI Steering Committee membership consists of several company representatives such as bpTT, BHP Billiton, Shell, The Energy Chamber and The Trinidad and Tobago Chamber of Industry and Commerce. These Steering Committee representatives are already affiliated with midstream and downstream sectors companies and can share experiences and lessons learnt to facilitate the transition towards full EITI participation. The companies represented on the TTEITI Steering Committee can attest to the minimal cost implications, manpower demands and other practical issues related to EITI implementation and provide guidance to help minimize any teething problems for midstream and downstream sectors companies that join the process.
Future trends: Participation in the EITI now will present midstream and downstream companies with the opportunity to join in the decision-making conversation on future trends in EITI implementation that will, if agreed to, have an impact on their operations, e.g. full disclosures on beneficial ownership of companies, contract transparency, commodity trading disclosure and transfer pricing etc.
The conversation has been started between the TTEITI Steering Committee and Secretariat and the midstream and downstream sectors companies’ representatives and a meeting of minds is expected to be achieved that would lead to those companies joining with the upstream energy companies to share with citizens the details of the revenues they generate and payments made to government.
The net result will be the removal of any perceived opacity in the midstream and downstream sectors so that citizens would have a better sense of what revenues are being generated from these all important sectors and, as a result, their trust in the process will be reinforced.