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What game is Mittal playing?

The decision by ArcelorMittal to permanently mothball its steel producing complex on the Point Lisas Industrial Estate is due more to the Luxemburg-based company’s desire to extract a reduction in their T&T costs than on anything else.

In simple terms, the company closed the complex, sent home hundreds of workers and is facing hundreds of millions of dollars in impairment charges because it wants the Government to maintain or even reduce the cost of the natural gas, electricity and port charges.

Along with those demands, ArcelorMittal Point Lisas also does not want to pay the industrial property tax the Government is intent on introducing and is reluctant to pay the higher Green Fund and Business Fund levies that the Minister of Finance, Colm Imbert, outlined in his 2016 budget presentation.

The closure of the ArcelorMittal plant at Point Lisas, therefore, is a ploy to bring the Government–along with the National Gas Company, the T&T Electricity Commission, the landlord of the estate Plipdeco and the Ministry of Finance–to the negotiating table.

Some historical context is important:

ArcelorMittal’s chairman and CEO, Lakshmi Mittal took over the running of the steel complex at Point Lisas in 1989 on a five-year lease.

In 1994, Mittal purchased the complex from the government at a cost that former finance minister Wendell Mottley puts at US$70 million.

I believe it is true to say that what became known as Caribbean Ispat negotiated and signed 20-year natural gas and electricity supply agreements with NGC and T&TEC. Those agreements would have expired in 1994 and ArcelorMittal tried to browbeat the previous administration into allowing it to continue getting ultra-cheap natural gas and electricity.

The technocrats from NGC and T&TEC–knowing that ArcelorMittal had received 20 years of ultra-cheap gas and electricity–obviously thought that it would be appropriate if the company paid more for its two main inputs.

That, in essence, is why ArcelorMittal is closing its operations at Point Lisas: It wants to continue getting ultra-cheap gas and electricity from T&T.

The question that the population should be asking is not whether the Government should buy the complex for $1 and assume its $1.3 billion in debt. That simply is a non starter and, if the issue of the purchase of the complex even gets to the stage of a Cabinet Note, the country would know that something suspicious has happened.

The more relevant question is this: can T&T afford to keep the ArcelorMittal facility or whether it should be consigned to the history of failed enterprises?

In my view, the answer is obvious, for the following reasons:

  1. If the PNM administration grants ArcelorMittal the concessions it is demanding, it would be required to grant similar–but not the same–concessions to all of the other operators on the Point Lisas Industrial Estate.

In other words, if the Government agrees to roll back the Green Fund and the Business levies for ArcelorMittal, it would be required to do the same for all the methanol, ammonia, urea and other petrochemical plants on the estate.

If it agrees to give ArcelorMittal a bligh–with regard to the industrial property tax–it would be required to provide a similar concession to all other occupants of the estate.

And, of course, if the administration agrees to provide the natural gas and electricity concessions that the company is demanding, it will have to provide similar concessions to other large-scale users. What’s noteworthy is that the steel producer is the largest single user of both natural gas and electricity on the industrial estate and is, therefore, entitled to a volume discount. But, all of the plants there use natural gas and electricity.

  1. Concessions to the Point Lisas industries would reduce the amount of revenue that the country can count on from its petrochemical sector in the future. This would be particularly difficult at a time when energy revenues are expected to continue to be constrained until the end of 2017 and perhaps beyond.
  2. Any concessions granted at a time when all of the petrochemical producers in the country are under pressure because of low market prices, would continue when the prices of those products recover. While the price of natural gas for most of the Point Lisas companies is linked to the final price they receive, it is my understanding that there is both a floor and a ceiling in most of those contracts. The floor protects the Government/NGC when the commodity prices in the market decline so if the price of the natural gas declines, it does not go below a certain level.

Rather than provide concessions to ArcelorMittal in the hope of saving the 700 direct jobs, it would be much more appropriate for the Government to come up with a policy framework to guide the operations of plants at Point Lisas and Point Fortin.

The basis of the policy framework should be a realistic analysis of the availability of natural gas, an appropriate and agreed pricing model and a firm idea of where the country’s natural gas earns the most tax revenue for T&T.

This framework should be enshrined in the natural gas master plan, which the current administration has been sitting down on for the six months it has been in office.

It is also very significant, in my view, that ArcelorMittal has not announced the final closure of its operations in T&T on its group Web site, which it would be required to do if the company has, in fact, decided to shut up shop here as the decision would be material information.

The news is also not on the company’s Brazil Web site. This is important because T&T, from an organisational structure point of view, reports to the Brazil segment which “includes the flat operations of Brazil, and the long and tubular operations of Brazil and its neighbouring countries including Argentina, Costa Rica, T&T and Venezuela,” according to the ArcelorMittal 2015 annual report.

What is also useful information is that the company’s annual report states that the group’s performance in 2015 “was impacted by impairment of US$176 million related to Point Lisas (T&T) currently idled.”

More historical context

The complex, which had begun operations in 1980, was known as ISCOTT (the Iron and Steel Company of T&T) when it was established as one aspect of the vision of T&T’s late Prime Minister Eric Williams.

In presenting the 19th Eric Williams Memorial Lecture, titled “Eric Williams and the emergence of the national energy sector,” on June 10, 2005, Professor Ken Julien cited ten defining moments in the development of T&T’s energy sector.

Julien’s seventh defining moment was the decision by the government to invest in ISCOTT which, he says, was taken on January 17, 1976.

Julien quoted Williams at a speech that must have been delivered at the sod-turning ceremony of the steel complex.

“Point Lisas is the symbol of this fundamental reorientation of the international economy. Sugar cane gives way to wire rods. Sugar has separated us as wire rods will weld us back together.

“There have been attempts to persuade us that the simplest and easiest thing to do would be to sit back, export our oil, export our gas, do nothing else and just receive the revenues derived from such exports and, as it were, lead a life of luxury�at least for some limited period.

“This, the Government has completely rejected, for it amounts to putting the entire nation on the dole. Instead, we have taken what may be the more difficult road and that is, accepting the challenge of entering the world of steel, aluminium, methanol, fertiliser, petrochemicals. We have accepted the challenge of using our hydrocarbon resources in a very definite industrialisation process.”

Source Guardian

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