Heritage Petroleum paid the Government $833 million in royalties, levies, licenses and taxes last year, Finance Minister Colm Imbert says.
Imbert made the statement yesterday as he defended Government’s treatment of Heritage Petroleum. He said the current situation with Heritage was “a complete turnaround from the situation with Petrotrin in previous years, where Petrotrin owed the Government billions of dollars in unpaid royalties and taxes.”
Imbert issued a release which he said was aimed at correcting what he labelled as “misinformation” in yesterday’s editorial.
“In that editorial, the Guardian accused the Government of favouring Heritage Petroleum Limited over private companies by waiving the imposition of oil taxes for the company, specifically supplemental petroleum tax, “ Imbert said.
“The editorial also erroneously suggested that because Heritage Petroleum Limited was not required to pay supplemental petroleum tax in fiscal 2020, this may have prevented the auditors from questioning whether Heritage Petroleum Limited was a going concern.”
Imbert said this was “simply untrue and misleading in the extreme.”
Heritage Petroleum Limited is a subsidiary of Trinidad Petroleum Holdings Limited, which is a wholly-owned state enterprise and was created in 2018 when the former Petrotrin was restructured.
“As part of the restructuring of Petrotrin and the refinancing of the US$850 million Petrotrin bond that was taken over by Trinidad Petroleum and due for payment in August 2019, the Government gave an undertaking to make equity investments in Heritage Petroleum to finance the exploration and production of oil, in sums equal to the amount of supplemental petroleum tax that would be due and payable over the period July 2019 to June 2021,” Imbert said.
“As any oil producer will know, investment in exploration and production, specifically the drilling of new wells, the workover of existing wells and the maintenance and upgrade of ageing infrastructure, such as pipelines, pumps, tanks and machinery is critical to the maintenance of oil production volumes.”
Imbert said it is no secret that because of its financial difficulties, Petrotrin was unable to make the required investment in exploration and production, which led to a reduction in oil production.
“As the owner of Heritage Petroleum, therefore, the Government is entitled to make any investment in this important state-owned company that is appropriate and necessary,” he said.
“It is also basic business common sense for the Government to ensure that the national oil company has sufficient cash flow to maintain its oil production volumes.”
Yesterday’s editorial to which Minister Imbert refers looked at the KPMG examination of Heritage Petroleum’s financial statement, which looks at whether Heritage would have been considered a going concern had the Ministry of Finance not decided to forego Supplemental Petroleum Tax as is the law.
From the KPMG report, it is clear that the nature of the oil business is such that small changes can have a significant impact on the cash flow of Heritage and on determining if the company is a going concern.
It must be noted that while Heritage is not in and of itself heavily leveraged, it is part of the Trinidad Petroleum Holdings (TPH) group which owes bondholders US$850 million plus interest.
It is Heritage’s cash flow that is being relied upon to pay that debt. Therefore, if Heritage is to pay the debt, deal with commodity volatility and moderate commodity prices, then one can see how the assurance that it will retain its earning from windfall prices would allow the company to be more viable in the medium term, ceteris paribus.
The editorial points this out and looks at three issues, the effectiveness of the SPT (windfall tax), the fairness of it and if Heritage is being favoured instead of free enterprise.
The editorial does not deal with nor deny Heritage made a profit, nor that it paid other taxes, not that it is in a better financial position than the former Petrotrin.