TT:
Natural gas revenues under-reported
By
STCIC
Port
Spain
Petroleumworld.com
09 10 06
The
system of national accounts currently in use in
T&T was developed for an oil-based economy.
We are, however, now a gas-based economy, raising
the issue of whether the current national accounting
system adequately represents the realities of our
economy. Since 1996, gas production has surpassed
oil production and the gap between the two continues
to grow, with gas production outstripping oil production
by a factor of four, in energy equivalency terms.
Over the past decade natural gas prices have also
increased steadily and natural gas has emerged as
the major earner of foreign exchange and as a major
driver behind economic growth.
Despite
this shift, the system of national accounts and
economic reporting continues to recognise oil as
the dominant contributor to T&T’s economy
and fails to fully capture and communicate the reality
that natural gas has long surpassed oil as the dominant
hydrocarbon.
The
objective of any system of national accounts is
to present a framework that enables an understanding
of the working of the economy not only for the policy
makers and decision makers but also for the wider
public. Central to this is the classical definition
of accounting as a process of identifying, measuring
and communicating economic information to permit
informed judgments and decisions by users of that
information.
The
national budgeting process has oil as its centrepiece
and the national budget is presented as being based
on the price of oil. Oil price figures are given
for both revenue and expenditure levels. No indication
is given in the national budget of the natural gas
price that is used to forecast revenue.
In
terms of revenue from the energy sector, what is
reported as “oil revenue” in the national
accounts is restricted to revenue collected from
companies that fall under the Petroleum Act (which
includes revenues realised from production sharing
contracts).
In
the 2005/2006 budget it was reported that “oil
revenue” was budgeted at $ 18.1 billion or
53 per cent of forecasted government revenue. The
last time oil revenue surpassed non-oil revenue
was 1981 at the height of the oil boom. Back then
the main factors were strictly oil price and oil
production, with gas being of only marginal importance.
It
must be noted, however, that this figure of $ 18.1
billion does not take into consideration the substantial
corporation tax paid by the petrochemical plants
in Point Lisas, the National Gas Company, Atlantic
LNG and the Petrotrin oil refinery (who all still
pay corporation tax of 35 per cent, while all other
companies had their tax reduced to 25 per cent).
Dividends
paid by NGC and other state companies in the energy
sector are also excluded from “oil revenue”
in the accounts. In addition, energy service companies
also pay corporation tax (at the lower rate) and
duties on imported equipment.
Furthermore,
the significant revenue paid into the Green Fund
by energy sector companies is not accounted for
as energy sector revenue.
It
is not possible to determine the overall contribution
to government revenue from the energy sector from
the current national accounts, though we can safely
state that it is significantly higher than the oil
revenue figure quoted in the budget documents.
According
to one reliable and well-placed source, the mid-
and downstream energy sector will contribute more
than $1.5 billion in corporation tax, or well over
half of the budgeted revenue figure ($ 2.8 billion)
for this financial year. The true contribution of
the energy sector to government revenue should be
reflected in the national accounts in order to enhance
understanding of the nature of our economy.
Another
important consideration that must be communicated
to the national population is the issue of oil pricing.
When it is reported on the various world media that
the price of oil is US$ 77 per barrel, it is assumed
by the wider public that this is the price that
is fetched for T&T crude oil. The reality is,
however, often very different, especially for crude
oil from the Petrotrin /Trinmar operations and land
based crude oil, which fetch a price that is substantially
below West Texas Intermediate prices.
Crude
oil from the East Coast, what is referred to as
the Galeota mix, fetches a price that is closer
to West Texas prices.
News
of high oil prices have the potential to create
expectations that are not necessarily matched by
what is actually happening at the level of government
revenue. The disconnect between international oil
prices and the oil revenue that the Government collects
has been explained by the Ministry of Finance and
the Junior Minister of Finance repeatedly, but seemingly
without entering into the national consciousness.
The way in which oil price data is presented to
the national community through the national accounts
could assist in developing this understanding.
It
should be noted that two years ago the Central Statistical
Office (CSO) rebased the gross domestic product
data from a base year of 1985 to a base year of
2000. This rebasing was done in order to provide
a more accurate measure of growth in the economy
and was primarily undertaken because of the shift
from oil to gas.
The
rebasing exercise resulted in a very significant
change in the picture of the national economy painted
by the GDP data, with the energy sector contribution
jumping from 25.8 per cent of GDP (1985 base) to
39.9 per cent of GDP (2000 base) for the year 2003.
At
the time, CSO reported that the change was as a
direct result of the inclusion of natural gas in
the estimation of real output in the exploration
and production sector, the emergence of Atlantic
LNG and several new or expanded petrochemical plants.
A
similar exercise to that undertaken by the CSO for
GDP data needs to be undertaken for the national
accounts, if they are to truly reflect the reality
of our economy and to allow the general public to
fully understand the nature of our economy.
The Trinidad Guardian
Thursday 31st August, 2006
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©2006 Trinidad Publishing Company Limited.
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