Urgent Need For Changes To Trinidad’s Fiscal Regime

(Trinidad Energy Chamber, 7.Jun.2021) — On the first day of the Trinidad & Tobago Energy Conference 2021, Peter Inglefield, Chair of the Energy Chamber’s Task Force on Fiscal Reform outlined the need for changes to Trinidad & Tobago’s fiscal regime, if the industry is to be able to attract investment in the future, especially in the context of the global energy transition. 

The Energy Chamber’s Task Force, comprising senior representatives of major operating companies and experienced and knowledgeable industry professional advisers, has been meeting regularly for the past six months to review the fiscal regime and to make recommendations for changes.  The Task Force has advocated for the adoption of a fiscal regime that recognises that we are a mature oil and gas province and that most further reserves will be in smaller and more challenging reservoirs.   A country with less attractive geological prospects needs to have more attractive fiscal terms if it is to attract scarce upstream investment dollars, especially in an environment when global capital markets are increasingly concerned about the long-term future of the hydrocarbon industry.

The fiscal regime needs to be responsive to the specific economics of specific fields or exploration prospects if energy companies are going to allocate capital for upstream exploration or development activities.  Top-line taxes, such as Supplemental Petroleum Tax (SPT), and royalties can be especially difficult for the economics of potential investments or exploration programmes, as these taxes must be paid irrespective of profitability. Investors also need assurances that the fiscal regime will be stable over the life of a project and that there are not anomalies in the regime that add specific additional risks.  

Taking these general concepts into account, the Fiscal Reform Task Force made some preliminary recommendations at the T&T Energy Conference 2021:

  1. When it was originally introduced, SPT was designed as a windfall tax to be paid at high oil prices which at the time, was determined to be US$50 per barrel.  However, the trigger at which it becomes due has not been adjusted over time to take into account inflation, until it was changed this year for small onshore producers and increased to US$75.  However, the US$50 trigger price remains for marine crude oil producers, and this makes it very difficult to secure any investment in increased production in that sector.  The Task Force has recommended that this should change to US$75 for all crude oil producers and that the SPT should be calculated against the incremental income, not all the revenue.
  2. For gas producers, the current flat rate of royalty at 12.5% for all fields makes it difficult to economically produce from small, marginal or technically challenging fields.  This therefore acts as a disincentive for exploration activity, as investors risk having a non-commercial project even if they find gas.  The Task Force has recommended that instead of a flat rate royalty, there should be a variable royalty rate that takes into account field size and complexity and hence encourages investment.
  3. The current capital allowance rules allow the write down for tangible and intangible capital expenditure on a straight line over five years. To enhance project economics for new exploration and development projects, the Task Force has recommended that and accelerated write down should be allowed over a three (3) year period or by the re-introduction of an Initial Allowance.​

In addition to these three major preliminary recommendations, the Task Force made a number of other recommendations, all aimed at encouraging investment into oil and gas production and reducing risk and uncertainty for both the companies and the Government.  

The next step will be to for the Task Force to engage in detailed discussions around the recommendations with the Ministry of Energy and Ministry of Finance. The Task Force Chairman reminded conference delegates that oil and gas left in the ground produces no revenue for the government or people.

____________________