UNCLAS PORT OF SPAIN 000643

SIPDIS

SENSITIVE
SIPDIS

FOR EB/IFD, EB/ESC/IEC - MAUEL, HAENDLER, HAYMOND
ENERGY FOR POLICY & INT'L AFFAIRS GWARD, SBROWNE

E.O. 12958: N/A
TAGS: EFIN EPET ECON EAID ENRG PGOV PREL TD
SUBJECT: TRINIDAD'S EITI IMPLEMENTATION IS ON HOLD

REF: (A) STATE 75118 (NOTAL), (B) 06 POS 117,

(C) 07 POS 21

SENSITIVE BUT UNCLASSIFIED - HANDLE ACCORDINGLY


1. (SBU) This is an action request for State/EEB/ESC - see
paragraph 8.


2. (SBU) SUMMARY. The GOTT has reportedly done the groundwork to
prepare Trinidad & Tobago's candidacy for the Extractive Industries
Transparency Initiative (EITI), but the effort came to a stop in
mid-2006, when Cabinet ministers voiced concern that T&T's
reputation would suffer by association with other EITI candidates
and discomfort with the role of international NGOs in the
initiative. EITI Board Chairman Eigen's letter to Prime Minister
Manning will not overcome these reservations. The Finance Ministry
official who has led EITI implementation to date recommends that
developed country sponsors and international oil companies in T&T
make a joint approach to the Prime Minister. Post concurs with this
advice and seeks Washington guidance on whether and how to act on
it. END SUMMARY.


3. (SBU) EconChief confirmed with UK High Commission DCM that ref
(A) letter on the Extractive Industries Transparency Initiative
(EITI) from EITI Board Chairman Peter Eigen was delivered to Prime
Minister Patrick Manning during the week of May 28. Christine
Sahadeo, the minister in the Ministry of Finance who has led EITI
implementation, told EconChief that she too had seen the letter.

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EITI Implementation Remains on Hold
--------------


4. (SBU) GOTT implementation of EITI had significant momentum in
early 2006, to the point that a draft work plan and proposed
nomination of a senior-level individual to lead implementation were
referred to the Cabinet-level Standing Committee on Energy.
According to Minister Sahadeo, the draft work plan focuses on the

petroleum sector but could be expanded to cover liquefied natural
gas and gas-based petrochemicals, which have overtaken petroleum as
the principal sources of export revenue.


5. (SBU) GOTT work on EITI came to a halt when other Cabinet
ministers expressed concern that signing up for EITI could damage
T&T's reputation as an investor-friendly, industrializing nation by
associating T&T with considerably less developed and less
transparent oil and gas producers. Sahadeo also cited concern among
Cabinet ministers over the role of international NGOs in the EITI,
commenting that while the GOTT "has no problem with dialogue," it
draws the line at "NGOs that attempt to dictate government policy."


6. (SBU) Sahadeo asserted that if the Cabinet decides to move
forward with EITI, T&T would be in a position to make rapid progress
on its candidacy and implementation. However, based on EconChief's
conversation with her, Post does not believe the Eigen letter alone
will revive EITI in Trinidad & Tobago. While Sahadeo herself
remains interested in the initiative, she suggested to EconChief
that developed-country sponsors and international oil companies
active in T&T consider approaching Prime Minister Manning to
overcome GOTT reservations about the initiative.


7. (SBU) COMMENT: T&T appears well equipped to lead by example in
EITI, based on its relative transparency and success in leveraging
natural resources for development. Moreover, as the GOTT reaches
out to developing oil and gas producers (see para. 21), having T&T
solidly on board with the EITI would reinforce the message that
transparency is a key ingredient in the recipe for success. A quiet
withdrawal from the initiative, on the other hand, would be a missed
opportunity for both T&T and the EITI. Minister Sahadeo has
demonstrated commitment to the EITI. Post concurs with her advice
on making a joint approach to Prime Minister Manning. END COMMENT.


8. ACTION REQUEST: Post requests guidance on whether and how to
formulate a joint approach by government and industry sponsors of
EITI. Post believes this could be coordinated on the ground in
Trinidad, perhaps in the form of a joint letter, but complementary
outreach from Washington to others on the EITI Board would also be
needed to get a consensus among the governments and organizations
whose representatives in Trinidad would sign such a letter.

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GOTT relations with stakeholders
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9. (SBU) All of the major international oil companies operating in
T&T support EITI: British Petroleum (bpTT), British Gas (BG Group),
Repsol YPF, BHP Billiton, ChevronTexaco, and Talisman. These
companies enjoy positive, constructive relations with the GOTT.
When the EITI got underway, these companies gave the South Trinidad
Chamber of Industry and Commerce (STCIC) a green light to engage
with the GOTT on their behalf in support of the EITI and sent STCIC
CEO Thackwray Driver to represent them at several international EITI
gatherings. Industry focus on EITI has waned since GOTT
implementation efforts stopped, but Driver told EconChief recently
he believes they would be willing to re-engage, provided all of the
companies act together.


10. (SBU) The weak point in T&T's capacity to implement an EITI work
plan is the absence of constructive dialogue with relevant civil
society organizations. The GOTT has an uneasy relationship with
Transparency International (TI) and is not always adept at handling
NGO criticism. Ruling party sensitivities are likely to increase in
the run-up to parliamentary elections, which observers expect to be
called for November or December this year.


11. (SBU) When TI released its 2006 Corruption Perceptions Index
(CPI), GOTT ministers publicly chafed at the fact that T&T's ranking
had slipped steadily since former government ministers from both
ruling and opposition parties were charged with financial
misconduct. GOTT ministers complained of being penalized rather
than getting credit for bringing high profile corruption cases to
light and prosecuting them in the courts. In response, then head of
TI's local chapter Reginald Dumas precipitated a public spat with
Housing Minister Keith Rowley by criticizing the GOTT for not
conducting public consultations on housing projects.


12. (SBU) Soon after the spat with TI, the GOTT lost face in a
confrontation with local environmental activists opposed to Alcoa's
planned aluminum smelter (reftel C), a project identified closely
with PM Manning. Alternately ignoring and rising to the bait of the
activists' aggressive tactics, in the end the GOTT pulled the plug
on the planned industrial estate where the Alcoa smelter was to be
constructed, leading observers to conclude that the activists had
forced an unprecedented change in GOTT industrial development
plans.


13. (SBU) While Reginald Dumas' April 2007 resignation from the
local TI chapter has given his successor Victor Hart an opportunity
to develop a more constructive relationship with the GOTT, Post
believes these episodes have reinforced perceptions among
ruling-party ministers that NGO agendas are motivated by partisan
politics, particularly in this election year.

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Energy Sector Background
--------------


14. (SBU) International oil companies are responsible for virtually
all oil and gas production, as well as processing and export of
liquefied natural gas (LNG). GOTT-owned companies operate T&T's
aging refinery and control the supply of gas and petroleum products
to industrial and retail consumers, as well as exports of refined
products to import-dependent Caribbean neighbors.


15. (SBU) T&T has attracted significant investment in
capital-intensive on-shore industries over the last fifteen years,
transforming the country from a waning oil producer into a
significant exporter of natural gas and petrochemicals and a growing
center for gas-based industries. T&T provides roughly 70% of U.S.
imports of liquefied natural gas (LNG) and significant shares of
U.S. imports of ammonia and methanol. While using state-owned
companies to pioneer some of these areas, the GOTT has then
generally stepped aside to let foreign companies take the lead,
strongly encouraging but not coercing those companies to hire and
train T&T nationals at all levels of their operations.

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Energy and Fiscal Transparency
--------------


16. (SBU) The GOTT routinely reports aggregate oil and gas revenues,
both in parliamentary budget proceedings and in annual reports
available on the Ministry of Finance website
(http://www.finance.gov.tt). At the company level, Finance Ministry
officials note that confidentiality rules apply to individual
corporate tax returns and contracts. While anti-smelter activists
fault the GOTT for not publishing the prices at which gas is offered
to major industrial projects, GOTT officials point out that
disclosing that level of detail would violate confidentiality
clauses and disadvantage the GOTT in future negotiations with
prospective investors.


17. (SBU) Industry contacts praise the GOTT for transparency in
publishing oil and gas reserve estimates and having them audited by
independent U.S. consultant Ryder Scott. While this is aimed
primarily at giving certainty to foreign investors, it also has

facilitated vigorous public debate over the GOTT strategy of
encouraging investment into gas-based industries and downstream
manufacturing.


18. (SBU) T&T's modest reserves, combined with memories of the oil
boom/bust of the 1970s and '80s, prompted the GOTT to enact
legislation in March 2007 establishing a Heritage and Stabilization
Fund (HSF), developed after studying international best practices.
The legislation includes formulas for minimum deposits of surplus
energy sector revenues, clear conditions on withdrawals for revenue
stabilization, and rules designed to ensure that T&T will have a
stream of investment income to replace oil and gas revenues when
reserves are depleted. While the HSF board has not yet been
appointed, the GOTT has so far deposited US$1.5 billion in the
fund.


19. (SBU) The more pressing transparency issues in T&T are on the
expenditure side. Decision-making on major projects is often
opaque, with a recent proliferation of special purpose companies
that are not subject to standard tender requirements. The current
government has promised but never formulated legislation to reform
government procurement. In fact, Prime Minister Manning recently
brushed off calls for procurement reform, suggesting that it would
only slow needed infrastructure spending.

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GOTT Giving and Receiving Advice
--------------


20. (SBU) As a middle income country with one of the highest
sovereign credit ratings in the Western Hemisphere, T&T is neither a
significant recipient of ODA nor a borrower from international
financial institutions. Nevertheless it actively cooperates with
the IFIs, and it made use of World Bank technical assistance in
formulating its Heritage and Stabilization Fund.


21. (SBU) It is worth noting that the GOTT also has begun providing
technical assistance to other developing country oil and gas
producers, geared toward helping governments negotiate on an equal
footing with international oil companies and replicate T&T's success
in attracting investment into gas-based industries. Prime Minister
Manning announced this initiative during a February 2007 speech to
the African Union in Addis Ababa. Since then the GOTT received
delegations from Equatorial Guinea and dispatched T&T experts to
provide advice to governments in Chad and Belize. While the GOTT
does not envisage offering advice on fiscal transparency, the
officials involved acknowledge that transparency will have a bearing
on other countries' success in following the Trinidad & Tobago
model.

AUSTIN