The State as Facilitator

• Author: Wendell Mottley
• Profession: New York-based Investment Banker having previously served as executive director of the company which eventually became the pivot of Trinidad and Tobago s natural gas-led industrialization and as Minister of Finance, credited with playing a decisive role in setting Trinidad and Tobago on a sustained path of growth from 1994 onwards
• Pages: 37-59

37

THE STATE AS FACILITATOR

In the early 1980s, macroeconomic circumstances shaped

Trinidad and Tobago’s industrial policy. Government revenue

peaked in 1982 at TT$7.118 billion, and declined rapidly thereafter

on account of falling domestic oil production and lower international

oil prices. Crude oil production peaked in 1978 and declined 30 per

cent by 1983. From 1980 to 1983, the real price of oil declined

approximately 23 per cent. The government had been erratically

employing economic policies in search of a soft landing for its

economy from the heights of the boom. The Central Bank of

Trinidad and Tobago (CBTT) was pushing for, but could not get,

the real devaluation that was required to offset the massive and

retroactive public sector-wage increases following the 1981 general

election. Since oil production had by then already begun to decline,

and real prices also began their slide in 1981, this public-sector wage

increase must be judged as the mother of all policy mistakes.1 Then

in 1986, crude prices collapsed dramatically to approximately US$10

per barrel. Suddenly the government was forced into the most painful

adjustment caused by the reversal of the fortunes of the petroleum

sector. Boom swung to depression, a position from which there was

no recovery until 1994. The financial constraint on industrial policy

was re-imposed with a vengeance.

And so it was that economic misfortune played importantly in

two changes in government, first in 1986, and again at the end of

1991. Post-1986, the new government, the National Alliance for

Reconstruction (NAR), attempted a policy of industrial development

outside of the energy sector. However, the government was

financially constrained and distracted by the urgent necessities of

managing the deteriorating macroeconomic situation. Initiatives in

agriculture and tourism were stillborn. Nevertheless, four significant

THE STATE AS

FACILITATOR

Chapter Three

38

TRINIDAD AND TOBAGO INDUSTRIAL POLICY 1959–2008

developments in energy industrial policy were effected by this

government from 1986 to 1991.

The first development was the introduction of local firms to the

business of farmouts and lease operatorships of onshore petroleum

properties. At then prevailing low oil prices, mature low production

oil fields could not be profitably operated by state oil companies

saddled with high overheads. By employing lean private sector

operators through a programme of farmouts and lease operatorships

of those fields, the state successfully increased production, generated

activity in the moribund sector and, most importantly, increased

employment. (See Box 1)

Box 1: Farmouts and Lease Operatorships –

Definition

Lease Operatorship

In 1989, Petrotrin, through its predecessor companies, introduced

the lease operatorship programme for reactivation of idle wells. In

this programme, contractors sub-lease small blocks of idle or

marginal wells and are allowed to earn revenues from the sale of

crude produced from reactivation and production of these wells.

Petroleum rights have generally been limited to primary production

but the contractors are allowed to drill replacement wells. Petrotrin

derives an overriding royalty from the produced crude which is sold

to the company’s refinery. Oil and gas reserves are booked by

Petrotrin.

Farmout

The farmout programme was introduced in 1991 for the exploration

and exploitation of small inactive blocks. In this programme the full

acreage within the block is leased to the farmout operator who has

unlimited rights to petroleum from the block. The farmout operator

is committed to a work programme which includes exploration and

development drilling and, more recently, the acquisition of seismic

data. The operator is free to pursue enhanced oil recovery

opportunities. Reserves are booked by the operator who earns

revenues from the sale of crude. Petrotrin derives revenues from

overriding royalties.

Source: Petroleum Company of Trinidad and Tobago (www.petrotrin.com)