A review of the energy tax incentive measures is strongly needed following the decline in oil prices since Government is getting “zero” revenue from the current incentive system.
Officials of the Energy Ministry—including Permanent Secretary Selwyn Lashley and deputy PS Heidi Wong—yesterday agreed the review is necessary after Finance Minister Colm Imbert told them Government is obtaining “zero” from current incentives.
“We went from US$1 billion to zero,” Imbert added. Views were expressed at yesterday’s Parliament Joint Select Committee interview of Energy Ministry officials on the state energy sector’s status.
JSC member Franklin Khan, Minister of Rural Development and Local Government, asking about incentives, said that in a wasting asset, getting the maximum “rent” was required. He said he saw very lenient tax measures, such as an early write-off of exploration development, and saw no new sector investment.
Wong said the incentive list was enacted over 2011 to 2014 and meant to simplify the tax regime and get greater benefits for T&T. Khan, arguing that the oil price was higher over 2011-2014, queried if the measures bore fruit since they were very “affable” (sic) to the oil companies.
“If you don’t get a ramp up (of measures), you’re just picking the government’s pocket,” Khan said.
Wong said while the increased revenue would not have been obtained immediately, the measures yielded increased sector activity and ministry hoped this in turn yielded increased production. But Khan said the tax breaks to companies affected the Finance Ministry’s figures negatively and production didn’t bring in benefits.
Lashley said Khan was “right.” But he added the tax measures were based on the need to be competitive and some had “sunset” clauses up to 2017. Wong said a team had been set up to review the fiscal regime and it was found T&T needed to increase competitiveness and incentives to upstream investors to boost activity as soon as possible.
Khan, however, said at the time the measures were undertaken the oil price was high.
Imbert, said since oil companies, can for instance, write off 100 per cent of exploration costs, the incoming tax to government is “zero” and due to the size of the investment, some (companies) might pay no taxes. He asked if the ministry had considered this.
Lashley said at the time incentives were introduced, principal consideration was that they were needed for exploration. Wong admitted a team had noted issues with incentives, but she said oil prices were different than now. Imbert queried why a sliding scale wasn’t used, Wong said no one could have anticipated the oil price drop.
Imbert asked if they agreed that with the oil price volatility, and with government getting “no taxes,” the situation has to be changed. Lashley said he agreed. He said he strongly felt the “fiscal architecture” in the current changed oil price environment needed to be reviewed. He said it was incumbent on government to address this through the Tax Review committee.
Wong also said an annual, constant review of the measures is needed in the current price environment. Imbert said he’d gotten some information from Inland Revenue on rectifying the situation. He also said small operators had expressed concern about the Supplemental Petroleum Tax (SPT). He said this was geared to price windfalls but would make production unprofitable at an oil price of (US)$50 a barrel.
Wong said the SPT had been through substantial changes in the last five years and the ministry had been simplying that regime. Imbert asked when a promised energy consultation would be held since this was “very, very important” as the BHP president recently called for it, noting the PNM Government had promised consultation.
Lashley said by the end of March.