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Chronicles from a Caribbean Cubicle

3/19/2007

The War of Words Between Kingston and Port of Spain

Thanks to my colleague Wayne for sending this over:

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Jamaica Gleaner EDITORIAL -

More action less talk, Mr Manning
published: Tuesday | February 13, 2007

Mr. Patrick Manning, the Prime Minister of Trinidad and Tobago, has to do more than make statements if he expects to win back Jamaica's trust and assure us of his government's commitment to the ideals of the CARICOM Single Market and Economy (CSME).

His declarations, therefore, have to be backed by concrete action. So, we look forward to the follow-up from Mr. Manning to his promise that Jamaica will be supplied with LNG from Trinidad and Tobago, to fuel a major energy conversion programme here. We, however, would not advise Prime Minister Simpson Miller nor the Jamaican authorities to hold their breaths.


Indeed, the Trinidadians knew that a US$1.6 billion investment by Alcoa to double the capacity of the 1.5 million tonne alumina refinery it jointly owns with the Jamaican Government was predicated on the LNG project that would lower the cost of energy and help make the plant globally competitive.

At first, Port-of-Spain quarrelled over what would be their pricing obligation for LNG, within the concept of the CSME, this seamless economic space that the countries of the Caribbean Community are seeking to create. Kingston insisted that Jamaica, being part of the same market, should enjoy the same price that Trinidadian domestic producers pay for natural gas. The only addition would be for cost liquefaction and transportation.

The Trinidadians held that LNG was a different product that should be subject to Henry Hub pricing, thus seeking to place Jamaica on the same plane as "foreign" buyers. This is a dispute that will eventually be resolved by the Caribbean Court of Justice, but in 2004, Mr. Manning signed a memorandum with then Prime Minister P.J. Patterson to supply 1.1 million tonnes of LNG a year on a preferential basis, although the specific price was not agreed. He signed the same agreement with Mrs. Simpson Miller when she succeeded Mr. Patterson.

But in reality, Port-of-Spain dithered, and while Jamaica waited, Alcoa began to have second thoughts about the expansion project. Alcoa's and Jamaica's fears would have been deepened with the statement late last year by Frank Look Kim that Trinidad did not have the natural gas with which to supply Jamaica. It could hardly be Mr. Look Kim to whom Mr. Manning referred as the "dubious sources" that had stated Port-of-Spain's inability to fulfil the LNG compact. What Mr. Manning should be aware of is that Jamaica's project cannot await an agreement with Venezuela on the development of gas fields that straddle the borders of the two countries. By the time that happens, new alumina refineries will be well under way in China and the Alcoa plant will hardly be as attractive as it used to be. In other words, this is an issue that demands urgency.

It also demands common sense politics, which, for Trinidad and Tobago, also translates into good economics. Jamaica is Port-of-Spain's largest market in CARICOM; it enjoys a balance of trade of about US$500 million. It is in Trinidad and Tobago's interest to support Jamaica's economic growth to help maintain that market. And Jamaica, after all, only requires a fifth of its current gas supply. Some market shifting may be in order.

And Mrs. Simpson Miller must not let Mr. Manning forget that balance of trade figure.



Financial Gleaner
March 10 2007
By Wilberne Persaud, Financial Gleaner Columnist

Surviving regional operations of the colonial enterprise known as the British West Indies and the sabotaged West Indies Federation include cricket, meteorological services, University of the West Indies - morphed by UWI Alumni-led governments and compliant former administrations into a besieged dependent, struggling hybrid - and not much else.

Let me immediately avoid misinterpretation: Jamaica's referendum was no act of sabotage.

I refer to manoeuvrings of the former British Colonial Office which in a sense were calculated to end in that referendum. The British knew political expedience, poverty, uninformed opinion, conflict over Chaguaramas as United States Military Base vs. Federal Capital and political rivalry would take us there. Eric Williams aptly concluded: 'One from 10 leaves zero'.

Recently, P.J. Patterson checked with Patrick Manning, trying to make one plus zero ten again.

They too failed causing The Gleaner to replace 'one from ten leaves zero' with "Myopic economic nationalism" - the title of its February 25 editorial - its description of Prime Minister Manning's reneging on an "undertaking to supply Jamaica with liquefied natural gas (LNG) for an energy conversion project critical to Alcoa's proposed US$1.6 billion investment to double the capacity of its Jamalco alumina refinery here."

Sluggish growth

The Gleaner opines: "Jamaica, with its troubled economy with sluggish growth, is Trinidad and Tobago's largest and most lucrative market. Port-of-Spain enjoys a US$500 million trade balance with Kingston."

Discussing Trinidad's non-supply of LNG, The Guardian had resorted, according to The Gleaner, to jingoism in making an "inconsequential case [seeking] to claim it was an attempt by Prime Minister Portia Simpson Miller to divert attention from corruption and criminality in Jamaica ahead of a general election".

Stranger things have happened. Yet, The Guardian's views on supply of LNG, Jamalco expansion and the rationale for subsidy rested on solid foundation.

The case relies on the fact that subsidised LNG would facilitate the "profitable operation of a three million-tonne alumina refinery in Jamaica that would be 80 per cent owned by Alcoa. Alcoa would then transfer the alumina, which is being produced at a lower price because of subsidised LNG, to T&T, where it would be smelted into aluminium in the 100 per cent Alcoa-owned facility in T & T."

Subsidies

The question for Manning was how to justify subsidies to Alcoa in face of Trinidad and Tobago's other pressing needs.

But this question raises so many others in the saga of bauxite in Jamaica and West Indian economic cooperation. The idea of Jamaican bauxite with Trinidad and Tobago power generation is not new.

The LNG idea may be. Because Jamaica has no money to invest with Alcoa in expanding the plant, our ownership stake is diluted.

Of greater interest is why Jamalco becomes only 20 per cent Jamaica owned after significant contributions to capital potential in the form of the bauxite levy? And why have we seemingly moved away from a bauxite ore basis of payment back to an income tax basis after the long hard struggle to change it?

Bauxite is a wasting asset. Mining and processing create huge environmental and other problems.

In the deals colonial administrations brokered with mining companies it would not be uncommon for US$0.20 cents or thereabouts to be the norm a country realised per ton of ore extracted.

Bauxite has no known market price since really, no market exists. Our formula, the core of which was developed by Alfred Francis, now retired, Emeritus Professor of Applied Economics at UWI, used the revealed price of aluminium ingot, a commodity for which there is a ruling price on the London Metal Exchange.

Obviously, if bauxite becomes aluminium there is a conversion ratio for bauxite input to aluminium output - elementary really, and equitable too, it seems to me.

Bauxite levy

That formula was instituted around 1974 and the payment termed the bauxite levy. It provided Jamaica payments ranging from US$12-16 per ton of ore extracted.

My late friend Ronald Manderson-Jones, brilliant historian, foreign affairs practitioner and lawyer, always insisted that a different name should have been found for it and that Prime Minister Michael Manley should have refrained from discussing it as a triumph over the multinationals.

This,he suggested, created problems Jamaica did not need.

That aside, the question remains: Would Trinidad and Tobago have provided LNG if Jamaica owned 50 per cent of both Jamalco and the smelting operation in Trinidad and Tobago? Interesting questions, answers to which I could not provide.

wilbe65@yahoo.com

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Trinidad Guardian March 14th



Jamaica manufacturers threaten blockade of T&T products

BY SANDRA CHOUTHI

Doreen Frankson, president of the Jamaica Manufacturers Association, has threatened to lobby the Jamaica government to ensure that products from T&T do not enter that market as freely as they have been.

So said Paul Quesnel, president of the T&T Manufacturers Association (TTMA), stating that Frankson had written a response to an editorial in the Jamaica Gleaner on February 13, which criticised T&T Prime Minister Patrick Manning for reneging on a Memorandum of Understanding (MOU) to sell natural gas to Jamaica.

Venezuela and Jamaica on Monday signed an MOU which will allow Kingston to buy 2.5 million tonnes of liquefied natural gas (LNG) annually from Caracas- a development that will give impetus to Jamaica's plan for major developments in the bauxite/alumina and electricity generation sectors.

The agreement, signed at the Half Moon Hotel in Montego Bay by Jamaica's Prime Minister Portia Simpson Miller and Venezuela's President Hugo Chavez, came two weeks after T&T, which was to sell Jamaica 1.15 million tonnes of LNG, backed out of the deal.

The Gleaner wrote in its editorial: "Indeed, the Trinidadians knew that a US$1.6 billion investment by Alcoa to double the capacity of the 1.5 million tonne alumina refinery it jointly owns with the Jamaican Government was predicated on the LNG project that would lower the cost of energy and help make the plant globally competitive."

Responding to these developments, Quesnel yesterday said there are no hostilities toward Trinidad businesses operating in Jamaica.

In reply to Frankson's statement that it's not as easy for Jamaican businesses to set up shop in Trinidad as it is for the latter to operate in Jamaica, Quesnel said: "Trinidad businesses face problems in Trinidad, that it takes well over 18 months to get all necessary approvals to set up a business."

Quesnel said, too, that all the industrial parks in Trinidad are full and E-Teck, which is responsible for such parks, has not built a new one for the last three years.

Quesnel quoted Frankson as saying that Trinidad had a lot of non-tariff barriers to block Jamaican businesses from entering the Trinidad market, to which he has offered the TTMA's assistance to any Jamaican business that feels it is being discriminated against.

I haven't had a call yet. The TTMA is willing to assist any Jamaican or Caricom partner who wishes to set up a business in Trinidad in whatever way we can, be it lobbying government or helping it to get through the paperwork," Quesnel said.

Quesnel also said that the Jamaica Manufacturers Association has not attended the TTMA's Trade and Investment Convention (TIC) for the last five years.

They say they can't do business in Trinidad. If the Jamaicans wanted to do business here, the TIC is an ideal place for them to come, expose their wares, meet all the regional agencies, E-Teck, Customs, the Bureau of Standards, to be able to find out firsthand what they need to do to enter the Trinidad market," Quesnel said.

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Trinidad Guardian

Editorial March 15th

That MOU just a fairy tale

ON MONDAY, Jamaica Prime Minister Portia Simpson Miller and Venezuela President Hugo Chavez signed a memorandum of understanding covering the supply of liquefied natural gas (LNG) to Jamaica from Venezuela.

This MOU has some significance for the local business community which has looked on in shock and awe at the bellicose rumblings coming from Jamaica on this thorny issue of LNG.

Jamaica's private sector is upset at what it perceives to be T&T's failure to live up to its undertaking to provide cargoes of LNG to Jamaica.

Last week, the Jamaica Manufacturers Association (JMA) said it had reached the end of its tether with respect to trade relations with T&T. Referring to T&T's private sector, the JMA said it had never witnessed a "more insular and selfish group" which seemed to be only interested in "plundering our country to increase their wealth and the current US$500 million trade surplus which they enjoy with our economy."

The JMA also advocated that T&T "must be brought to book and held accountable" and threatened the Jamaican Government that if it did not do so "the JMA will be forced to act on behalf of its constituents."

Not to be outdone, the Jamaica Chamber of Commerce issued a news release stating that T&T's perceived failure to supply Jamaica could threaten the future of the Caricom Single Market and Economy and disrupt Jamaica's future development.

"The perception of a large segment of the Jamaican business sector is that it has always been difficult to trade with Trinidad, because non-tariff barriers are used to block the entry of Jamaican goods and services into Trinidad, even while there is the expectation that Trinidad will have free access to the Jamaican market," the Chamber said.

Thankfully, the local private sector and its leaders have responded in a mature and measured fashion to the intemperate language coming out of Kingston.

Is the anti-integrationist rhetoric from Jamaica's private sector justified? Absolutely not.

The first difficulty for our northern neighbours lies in an appreciation of the difference between an MOU and other kinds of agreements.

By its very definition, an MOU is an expression of intent and not a promise to supply.

By its very definition, therefore, an MOU cannot be breached because in signing an MOU one undertakes to use one's best efforts to deliver a product or service. Such an expression of intent is subject, always, to the undertaking of feasibility studies and negotiation of the final terms.

So the common-sense understanding of the MOUs between T&T and Jamaica (one in 2004 and one last year) is that T&T expressed an intention to supply 160 million cubic feet of LNG to Jamaica by 2009.

The MOUs that T&T and Jamaica signed are likely to be quite similar to the one signed by Jamaica and Venezuela on Monday. This means that Venezuela would have expressed an intention to supply LNG to Jamaica by 2009, just as T&T had done.

It would be interesting for the Jamaican private sector to note that President Chavez signed the MOU without having in place any identifiable LNG facilities whatsoever. While President Chavez may purchase LNG shipments on Jamaica's behalf, it would be difficult for Venezuela to supply LNG over the long term without the requisite liquefaction units.

It is also worth mentioning that it took Atlantic LNG four years from the signing of the sales contracts (not the MOU) to the delivery of the first LNG shipment-and that was considered to be warp speed in the LNG industry at the time.

Also relevant is the fact that Venezuela has been trying since the early 1970s (more than 30 years) to get an LNG facility off the ground and that the closest the South American country has come is the framework agreement signed by Shell and Mitsubishi five years ago. Little has been heard of that project, involving two blue chip multinationals, since 2002.

Monday's natural gas MOU, then, is a fairy tale as it is highly unlikely that Venezuela will be able to deliver LNG to Jamaica within two years.

However, if Jamaica's private sector believes that President Chavez's fairy-tale MOU will come through for it, it may stop trying to provoke Mrs Simpson-Miller into declaring a trade war against T&T.

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