Another former Energy Minister has contradicted the position by Finance Minister Colm Imbert that the new 12.5 percent royalty to be imposed on energy companies, for all locally produced oil, natural gas and condensate, would have no impact on Foreign Direct Investment (FDI).
Carolyn Seepersad Bachan, energy minister in the People’s Partnership yesterday said the new royalty, which comes into effect on December 1, will negatively impact the favourability of this country’s energy sector as a preferred destination of FDI.
Strong criticism has come from several former government ministers including Vasant Bharath, Mariano Brown and Kevin Ramnarine on the new royalty. Multinational energy company bpTT is also seeking more clarity on the new measure announced by Imbert during Monday’s presentation.
In a statement yesterday, Seepersad Bachan weighed in on the proposal saying investors are easily attracted to countries with low risk environments that are highly predictable and stable. “In this regard government should avoid capricious behaviour as illustrated by the introduction of an ad hoc 12.5 percent royalty rate across the board on the extraction of all, gas, condensate and oil.”
She said government should have announced the measures of the new fiscal regime in the budget presentation as expected by anxious stakeholders. “This regime, as promised, has been under discussion with the IMF for the last year.” She reminded government of the outcome of their attempts, in 2006, to revise the fiscal regime, maximize the tax dollar at a time when exploration was proceeding into deep and ultra deep blocks.
“The reduction in concessions for exploration and modifications to the Production Sharing Contract (PSC) resulted in the precipitous decline in exploration activity. Not heeding the warnings by many experts at the time, these radical changes led to the loss of confidence and consequently this country’s upstream sector lost its global competitiveness.”
Seepersad-Bachan contended that the introduction of this tax to access the unlikelihood of the collection of corporation taxes from energy companies over the next seven years, due to the high levels of investment in exploration and production, demonstrates government’s failure to appreciate the fundamental principles and objectives of a globally competitive fiscal regime