UTC's
bold step into TT's energy
By
Energy Correspondent
Trinidad Express
Port Spain
Petroleumworld.com
06 25 06
The UTC is leading the way among financial institutions
in Trinidad and Tobago, but is under scrutiny by
some unit holders and the Auditor General. At its
24th Annual General Meeting held on 7th June 2006,
UTC Executive Director, Micheal Alexander announced
a record payout to unit holders of TT$751 million,
16.7 per cent higher than in 2004. Other remarkable
achievements included a 16 per cent growth in total
investment, and a 13 per cent growth in unit holders.
The
UTCs record breaking achievements were realized
in a period of persistent high liquidity and relatively
low interest rates. Notwithstanding its outstanding
performance, the Auditor General (AG) gave the UTC
financials a qualified report. The AG principal
contention was that the UTC had made an investment
in a Company to the extent of 45 per cent of its
issued share capital. This investment exceeded the
10 per cent statutory limit imposed by the UTC Act.
In
question was the investment of sum of TT$11.6 million
in the Eastern Caribbean Pipeline by the UTC. The
investment represented part of the initial funding
of the Company, which ultimately require an investment
of over US$500 million. In justifying the investment,
the UTC Chairman Amoy Chang Fong noted the UTC's
intention to "sell down" its equity position
in the pipeline so that it would be in compliance
with its existing statutory limits.
Ms
Chang Fong also informed the Unit Holders that the
pipeline investment would form part of a portfolio
of the soon-to-be launched Energy Fund. While the
ruling of the Auditor General is not inconsistent
with the governing regulations, we need to assess
the merits or demerits of the pipeline investment
in particular and UTC's Energy Investment trust
from a much broader perspective.
My
own view is that the UTC venture into energy is
consistent with its initial mandate to create a
people's sector in the world of finance. The formation
of the UTC in 1982 was against a background of cries
for nationals to own a greater stake in the economy.
Both Government and Opposition had supported the
formation of the UTC as an instrument for the creation
of a share owning democracy.
In
the initial reading of the UTC Bill in the House
of Representatives in 1981, then Minister in the
Ministry of Finance Mervyn De Souza pointed out
that the real objective of the Unit Trust is that
"it is going to further prevent concentration
and give the small man a larger share in the economic
activities of the country."
The
Opposition Chief Whip described the Bill as "a
piece of legislation which would permit the unsophisticated,
uninitiated investor to participate in ownership
of the commanding heights of the economy".
These were the sentiments on both sides of the House
in 1981. The truth is that notwithstanding the phenomenal
growth of the UTC over the last 24 years, its investments
have been unrelated to the "commanding heights
of the economy". The pipeline investment represents
an initial step in that direction.
It
is a step for which the UTC should be complimented.
Oil has been produced in T&T on a commercial
basis for nearly 100 years. Over that time, the
industry has been dominated by largely foreign ownership.
State participation became a feature of the energy
sector in the 1970s and early 1980s. In the aftermath
of decade of decline and structural adjustment,
the state elected to sell a substantial portion
of its holdings in the energy sector.
These
included Ispat, Trinidad and Tobago Methanol (TTMC),
Fertrin and T&TEC generation business. Unfortunately,
with the exception of TTMC, these assets were sold
to foreign firms. CL Financial and its foreign partners
were the major beneficiaries of the TTMC divestment.
CL Financial shares are privately held. The Government
had reneged on its promise to have the UTC and local
investors participate in its divestment programme.
An
indirect opportunity for equity participation in
the energy sector was created through the vesting
of a small percentage of the shares of two subsidiaries
of the National Gas Company in the National Enterprises
Limited (NEL). However, the UTC's list of equity
investments does not include the NEL stock. If indeed,
we accept the philosophy that the UTC (and other
competing mutual funds) is to provide the vehicle
for the creation of a share owning democracy, then
its participation in the energy sector is a necessary
condition for the fulfillment of that mandate.
The
pipeline investment represents a ground floor opportunity
which could provide competitive returns for Unit
Holders. The proposed Energy Fund will provide a
stock of Funds for wider, more diversified participation
in the local and international energy sector by
the financial institution. It represents a departure
from the conventional conservative position that
the local financial system does not have the depth
to participate effectively in energy sector financing
and investment.
Of
course, it would be naive not to recognise that
the potentially higher returns from energy sector
investments come with commensurate higher risks.
Government may assist in this regard by divesting
part of it shareholding in viable energy sector
companies on the local stock exchange- a thought
for the current Minister in the Ministry of Finance.
Feedback:energyczartt@yahoo.com
Trinidad
Express
Wednesday, June 21st 2006
Copyright
©2006 Trinidad Express. All Rights Reserved.
