Trinidad & Tobago’s Petrotrin spends $63 million on consultants then asks for discount

Low revenue and high sales costs have forced state-owned Petrotrin to come up with a creative way to cut costs. After years of consecutive losses, Trinidad & Tobago’s national oil and gas company has asked contractors and suppliers for a 20% discount on all invoices – past and present – indicating that it will terminate all contracts that do not comply.

The profits of Petrotrin have a strong correlation to the shape of Trinidad & Tobago's economy. So, when the company posted consecutive losses in 2016 and 2017, ministers across the political spectrum started to ask questions. Throughout the past few months, it has surfaced that the company is in greater trouble than previously thought.

Petrotrin is a state-owned oil & gas company, which operates across the two islands off the coast of Venezuela. As a state-owned Company, Petrotrin is under the direct control of the Minister of Finance acting as Corporation Sole. Petrotrin is the largest crude oil producer in the country, and operates the only petroleum refinery in Trinidad and Tobago.

In May this year, the company posted a $2.2 billion loss for the year that ended in September 2017, on the back of a $5 billion loss in the year to 2016. During the same period, the company reported a rise in revenues of roughly $20 billion, although it also saw sales costs increase 17% to the tune of $19 billion.

In the wake of that period of increased sales costs and back to back losses, Petrotrin has spent $63 million on contractors between July 2017 and today, including one contract with McKinsey & Company for $22 million. The oil company brought in the leading management consultancy firm for a company strategic review and transition.

16 consultancies engaged

Furthermore, DeGolyer & MacNaughton – a global energy consulting firm – was paid $12 million for crude and reserves gas evaluation. In addition, a global performance improvement advisory by the name of Solomon Associates was paid over $7 million for company optimisation. Overall, 16 consulting firms were paid a grand total of nearly $64 million in an 11 month period.

Pointe-a-Pierre MP David Lee raised the question to the current Minister of Energy and Energy Affairs as to why the bill had been so high, stating that “to spend 63 million dollars in less than 11 months on only 16 consultants is quite an incredible feat especially when for the past two and a half years this government has routinely spoken on the poor financial health of the state company. What is even more worrying is the fact that the company recorded a loss of $2.2 billion in 2017 yet still spent this significant sum on consultancy fees.”

Before this information came to light, Energy Minister Franklin Khan had said that McKinsey and Solomon & Associates had been brought on board for company restructuring. “The board of directors have been given a mandate to govern and manage the company as a competitive business and as a sustainable, profitable entity.”

The move was apparently necessary as the board had lost members and needed to call in external expertise. “The board and management are responsible for the conduct of the restructuring of the organisation, however, the board has engaged external consultants which have specific industry expertise and experience to advise the board on the strategic issues related to the achievement of this mandate,” Khan said.

The move was met with criticism that a public company posting such losses could not afford to be having such a consulting spend. The Chairman of Petrotrin, Wilfred Espinet said that as the company has a monthly revenue of $2 billion and that $63 million is a fraction of that figure. He said that all the consultants hired by the company have and will continue to, add value to Petrotrin.

Cost cutting creativity

However, in an unusual turn of events, Petrotrin’s transition team has announced that the company demands a discount on all invoices from both contractors and suppliers. The move comes as a ploy for the company to reduce costs for themselves and to bring themselves back into a surplus revenue.

Petrotrin’s discount is a minimum of 20% on each and every new and existing contracts as well as purchase orders. As per the firm, for any invoice that has already been submitted, the discount should be added to the bill in a separate line. The new measures also include a policy wherein invoices must be presented within 30 days and paid within 60 days, in an attempt to reel in their cash to cash period.

Petrotrin’s executives believe that the move will help the company improving performance whilst managing costs. The company is facing critical challenges, and has a mandate to ensure success on behalf of the country. Espinet says that Petrotrin has been on a program to cut costs and stop the financial haemorrhaging that has plagued the refinery in recent years. The ballpark figure of funds that the new measures are expected to save the company have not yet been disclosed.