Trinidad and Tobago’s compliance with a global transparency initiative looks set to draw more business

In January 2015 Clare Short, a former UK minister and current chair of the Extractive Industries Transparency Initiative (EITI), a global lobby group, announced in Port of Spain that Trinidad and Tobago had become fully compliant with all of the group’s reporting requirements. It was a significant moment for T&T’s oil and gas sector, and for its attempts to achieve high standards in the management of its natural resources. Such a badge of good governance stands to make T&T a more attractive destination for foreign investment.

Transparency Initiative

Launched in 2003 as a global coalition between governments, resource mining companies and civil society groups, the EITI is an attempt to tackle the so-called resource curse, the paradox that resource-rich countries often achieve lower growth rates and see more waste and corruption than resource-poor ones. Its key aim is to promote “transparency and accountability by companies and governments involved in extractive industries … by having them agree to disclosing to citizens the total payments made by companies to government, independently reconciled with government’s declared receipts”.

In complying with the EITI standard, T&T joined 50 other countries in the international movement. “The whole aim is to get the sector of oil, gas and mining transparent, which has traditionally been very opaque and secretive,” Short said at the announcement of T&T’s compliance. “People have traditionally asked where the money is going to. Transparency is important for the trust of the people.” Energy minister Kevin Ramnarine added, “This is great news for our country. It means we are now part of a prestigious global standard. This is the culmination of four years of hard work.”

Four Years’ Work

The process has indeed been lengthy. After an initial nine-country committee advised T&T on how to adapt EITI principles to local operations, in 2010 the government formally committed itself to EITI membership. As part of this compliance, it appointed a multi-stakeholder “steering committee” composed of six representatives of the government, including the ministers of energy and finance and a delegate from the state oil company, Petrotrin; six representatives of the oil and gas industry, including BP T&T (BPTT), the local BP subsidiary, BG, BHP Billiton and the Energy Chamber, an industry association; and six representatives of civil society, including the T&T Transparency Institute, the Oilfield Workers’ Trade Union, and Fishermen and Friends of the Sea. The committee has since overseen the publication of two reports by independent auditors, one in September 2013 covering fiscal year 2010/11 and one a year later covering 2011/12.

Difficult Data Reconciliation

The first of these reports uncovered a number of discrepancies. In fiscal year 2010/11 the government reported oil and gas revenues of TT$23.18bn ($3.57bn), some TT$73m ($11.3m) less than the 17 companies said they had paid in taxes. The auditors attributed this to foreign currency fluctuations and issues with payment phasing. In the second report it was the other way round, with government receipts TT$49.55m ($7.6m) higher than company payment records. A third discrepancy transpired on the production side: the companies reported oil output 2m barrels higher than government figures did.

The full reports, published on EITI’s local website, reveal some practical difficulties in reconciling the accounts. In the report for 2011/12, for example, discrepancies are again traced to foreign currency and timing issues, but also to some tax payments being made by an oil firm’s head office rather than its local subsidiary, and to Petrotrin’s inability to document some insurance receipts. The steering committee has also been struggling to reconcile local legislation – which says company tax returns are confidential – with the disclosure standards the EITI requires.

Nonetheless, most parties have welcomed the EITI initiative as an all-around positive step for the economy. Norman Christie, regional president of BPTT, welcomed the 2011/12 report’s release, saying, “BP is in favour of workable solutions and effective disclosable rules. Wherever we have operations, BPTT has a strong interest in promoting accountability and good governance. Therefore we applaud the EITI putting a report together in the universally accepted format allowing for easier comparison with other hydrocarbon economies.” Victor Hart, the steering committee chairman, said such disclosures would bring more public engagement on T&T’s resource management.

Attracting Investors

There is some evidence that transparency is not just desirable in principle, but that it also delivers measurable economic benefits. A 2013 study by Maya Schmaljohann of the University of Heidelberg concludes that EITI compliance brings two distinct benefits to member countries. First, it reduces the likelihood of economic loss due to misallocation of resources and corruption. But second, and just as important, it enhances a country’s attractiveness to foreign investors. Examining 81 countries, Schmaljohann found that joining the EITI increases the ratio of foreign direct investment (FDI) to GDP by an average of around two percentage points – striking given that the sample average was 5%. In the case of T&T, two percent of its 2013 GDP of $24.64bn equals just under $500m a year. While net FDI in the country is already high – at 7% of GDP in 2013, according to the World Bank – the possibility of raising this by another two points should be attractive to any administration.

Latin American and Caribbean countries face big challenges in “resource governance” and lag OECD countries in areas like institutional quality, quality controls and reporting practices, argues Daniel Kaufman, a global economy and development specialist at the US-based Brookings Institute. Kaufman welcomes EITI but notes that take-up in the region has been slow: only Peru, Guatemala and T&T have become compliant countries as of mid-2015, although Colombia and Honduras are candidates and Mexico is considering applying.

In 2013, Brookings joined with the Natural Resource Governance Institute to compile a resource governance index, ranking 58 countries. T&T performed strongly, coming in 10th overall and fifth in region, behind Brazil, Mexico, Chile and Colombia but ahead of Peru, Ecuador and Venezuela. Nor was it far behind the front-runners, scoring 74 out of 100, compared with 80 for Brazil and 77 for Mexico. T&T did especially well in “reporting practices” (fifth overall) and “safeguards and quality controls” (also fifth), though less so in its “enabling environment” (19th) and “institutional and legal setting” (23rd). In all rankings, it scored above the median.

Oil Brand Trinidad

Transparency can also be good for T&T in another sense: promoting its oil and gas sector globally, which can open up new business opportunities. Roger Packer, head of the oil services company Tucker Energy Services Trinidad, told OBG that T&T has exported oil professionals across the globe, creating a T&T brand. “The focus right now should be on raising standards and exporting services,” he said. “That’s why the EITI is so important.” In 20 years’ time, he added, half of the local oil services business could be in the export sector, operating in markets like Suriname, Brazil, Cuba and Uganda. In this light, T&T’s new status as EITIcompliant is sure to attract and retain more business.