Energy Chamber's Budget recommedation - Phase out diesel, gas subsidy
...Petrotrin must be restructured, remove VAT from oilfield service equipment
THE Energy Chamber on Tuesday issued a press statement containing its Budget recommendations to Government for fiscal year 2013/2014. Among the recommendations is the phasing out of the Budget day is September 9.
The following is the Energy Chamber's statement -
The Energy Chamber of Trinidad and Tobago’s budget recommendations for the fiscal year 2013/2014, centre on attracting further investment into the country, reducing government expenditure, facilitating business development, ensuring efficient operations within the energy sector and closing the skills gap.
The following is a summary of the major recommendations submitted by the Energy Chamber to the Ministry of Finance and the Economy.
To continue to attract investment into the energy sector the Energy Chamber has concentrated its budget recommendations around three objectives: the need to balance risk and reward along the value chain, reversing the decline in oil production and facilitating further downstream expansion. Policy must therefore focus on ensuring that the structure of the energy market creates conditions in which continued investment takes place.
The key to attracting investment dollars into the gas industry is to ensure that all operators along the gas value chain gain rewards which are commensurate with the risks taken to operate. If the potential returns from the investment do not meet company’s thresholds for an adequate rate of return at a particular level of risk then capital will simply not be invested into Trinidad & Tobago.
Several fiscal measures must also go hand in hand with policy prescriptions to ensure the risk-reward structure of the gas value chain is competitive. They include revising the Petroleum Act to recognize Production Sharing Contracts in order to remove the petroleum tax liability from companies operating under PSCs (reduces fiscal risk for PSC operators).
The Energy Chamber also proposes that there should be a public commitment on no new petroleum taxes for E&P license operators. Other measures include introducing additional capital allowances for platform construction for isolated, marginal gas fields that need platforms.In order to promote local content these allowances should be restricted to platforms fabricated in Trinidad and Tobago. Tangible drilling allowance on plant and machinery used in marginal gas field development should also be increased to 30%.
To arrest the decline in oil production, there are a number of solutions to choose from. The Energy Chamber recommends restructuring Petrotrin in a way which optimises resources and streamlines operations for both the upstream and refinery business units. For the upstream, getting the untapped and underdeveloped acreage into the hands of the right players is essential if we are to attract new investment.
Encouraging investment into downstream manufacturing has been a goal of successive Governments.Therefore, in order to stimulate this sector the Energy Chamber is urging Government to provide the right physical infrastructure to encourage investment. In addition, the Energy Chamber is advocating that port infrastructure and efficiency is improved and that the government ensures existing trade agreements are fully implemented, well understood and monitored. Further steps to fostering downstream manufacturing include providing assistance in identifying potential foreign investors with access to technology and markets (through InvesTT), developing market intelligence studies as well as identifying potential foreign buyers through ExporTT and overseas missions.
Reducing Government Expenditure
The Energy Chamber’s focus for reducing Government expenditure revolves around reducing the fuel subsidy. We recommend phasing out the diesel and gasoline subsidy (publishing a multi-year programme with annual phase-out plan) and creating national fuel efficiency standards and raising import taxes on less fuel efficient vehicles. The Energy Chamber reiterates that plans should be put in place to phase out the subsidy once the uptake of CNG conversion and investment in CNG retail stations has come on stream.
Burdensome VAT administration practices and double taxation inhibits the growth of the energy services sector. The Energy Chamber recommends that Government negotiates double taxation agreements in countries where local service companies do business. The Energy Chamber also recommends the removal of VAT on all oil field service equipment and smaller marine vessels. VAT was already removed on larger equipment items and larger vessels in previous budgets.
Efficient Sector Operation
Due to the recent gas supply disruptions, the Energy Chamber proposes that a well informed decision be taken to delivermost economic method to secure a buffer of gas either through storage facilities onshore or by developing additional infrastructure capacity offshore. The benefits of developing a gas bufferoption includes reduced impacts on downstream exports during maintenance periods/shortfalls and better coordination of turnaround scheduling to ensure year round work for energy services companies.
The local energy sector faces several skills gap and competency development challenges. Investment in technical and vocational training needs to be directed to the actual companies employing technicians rather than technical training institutes. The Energy Chamber recommends provision of small grants to companies who successfully ensure that their workers receive competency certification (through theNational Training Agency). These grants should be given per person once certification is achieved, rather than paid in advance to undertake training. Small grants should also be provided to companies who ensure that illiterate/semi-literate workers successfully complete an adult literacy course. These grants must be publicized and tied to a company’s incentives programme where apercent of the grant is given to individual workers as a bonus or other incentive.