Last Saturday Energy Minister Franklin Khan announced the government had rejected the counter-proposal of Patriotic Energies and Technologies Company Limited for the acquisition of the Petrotrin refinery.
Patriotic Energies and Technologies Company Ltd is a wholly owned subsidiary of the Oilfield’s Workers Trade Union and was selected as the preferred bidder for the mothballed refinery.
According to Khan, after more than a year of negotiations, the decision to reject the counter-proposal and seek another interest to run the refinery was based on three shortcomings of the OWTU’s proposal. Among the issues that separate the sides is whether the refinery assets are already pledged to bondholders and who would have first lien of the assets.
According to Khan the government came to the conclusion after long and challenging negotiations.
He said “Let me say from the onset that this was and has been a very complex negotiation because we were attempting to sell a complex asset involving the sale of the multi-billion dollar state asset. As such, due diligence by the State was paramount in this exercise.”
Noting that both parties are bound to non-disclosure agreements in these discussions, he said the key issues at the end of prolonged discussions were the purchase price financing, the restart financing and first priority lien on the assets.
Non disclosure agreements are a normal part of major contracts between and among parties as it is important to protect the integrity of the businesses whether the planned acquisition/merger/joint venture etc works or not.
However there are two basic question that have to be asked. The first is whether Patriotic Energies is likely to have what it takes to acquire, safely start up and efficiently operate this major state asset.
In this respect the following questions must be addressed.
1. Who are Patriotic’s financiers? Does Patriotic have a signed document, committing its financiers to fund the project?
2. If so, what are the conditions attached to the financing? If, for example, Patriotic is unable to repay its, who covers/guarantees the debt? If no one is able to repay, what happens to the refinery?
3. Refining oil is a risk activity. Who is Patriotic’s senior management team? What are their names? Do they have the technical know-how and experience to safely restart and run the plant? Are agreements in place with these people?
4. Where will Patriotic’s be sourcing its feedstock of crude? Have discussions regarding these arrangements begun? What is the status of the discussion and what level of commitment has been reached.
5. The refinery business is highly competitive and exposed to inevitable international market shocks — given the OWTU’s history, will Patriotic be committed to make the hard commercial decisions and, if necessary, cut wages or jobs to keep the refinery globally competitive? If not, who will carry the cost?
6. In the event of a plant shutdown or some other unforeseen event, what systems will Patriotic have in place to ensure that the country (and the region) has a continued secure supply of refined fuels?
To the best of my knowledge these questions have not been ventilated in the public, the shareholders of the refinery and both parties have failed to address them, hiding behind the NDA.
The other question that has to be asked is whether the government ever felt Patriotic could operate the refinery and essentially used the deal and the OWTU to assist it in its re-election bid?
You would remember when the refinery was closed thousands of permanent workers were sent home from their jobs. In addition to their loss of jobs it also meant hundreds of other people employed in companies that provided services to the refinery also went home.
Businesses lost significant earnings and the constituencies in the south, particularly the marginal San Fernando West and Pointe-a-Pierre were hurt. With an election a mere months away the government announced that the OWTU was the preferred bidder. Part of the attraction, according to Finance Minister Colm Imbert was the US$700 million offer made for the refinery by the OWTU.
There were many nay sayers at the time of the announcement, with some insisting the OWTU lacked the experience and the credibility to operate the refinery and make it into a business.
The government however, led by the Prime Minister spoke extensively about the Union’s bold move insisting that it was prepared to do all it could to help the company make a fist of the venture. The government even offered a three-year moratorium on the payment of the US$700 million, insisting that it would allow the OWTU breathing space to bring the refinery up to scratch to operate.
Importantly, the Minister of Finance also insisted that the refinery was unencumbered and that it was debt free.
Imbert said the reason the refinery failed and could now be profitable is that in the past it was “saddled with huge debt, billions of dollars of debt.”
“Any person taking over the refinery now will not have to carry that debt, which was a tremendous drain on the revenue being derived from the refinery. The refinery is going forward debt free..Secondly, the refinery had extremely high operating costs. It was overstaffed and it was never able to make a suitable profit because of its very high operating costs…We do not expect any entity, including Patriotic, to operate the refinery with the same number of employees or the same cost structure that was there before.” Imbert told a news conference in 2019 called to discuss the potential sale.
Imbert said he expected Patriotic to restart the refinery within 12 months since it does not have to immediately come up with the US$700 million payment.
It has now become apparent that the Finance Minister’s claim that the refinery was unencumbered is not true.
Imbert has a growing reputation of being less than honest in many of his statements, and this column has on numerous occasions had cause to call him out on it.
That the government would have misled the country and from all reports the OWTU on this matter is shameful.
More than that the citizens who are the shareholders of these assets need to know the truth about it and a solution found so that the refinery can be sold to the best entity.
If the OWTU cannot do it then stop the games now and move on. If the OWTU through Patriotic has the capacity to successfully run the refinery and can answer the questions I posed then find a way to an agreement. At a time when the country deeply needs investment, when jobs are being lost every day due to the pandemic and the failure of this administration to re-open the economy we have no time for games with the people’s assets.
We need not say that real people’s lives and reputations are at stake and as the saying goes what is game for children is death for crapaud.