The Board of Petrotrin is expected to submit a plan to Cabinet this month on restructuring of the energy company based on recommendations for establishment of three operationally independent business units.
This was confirmed by Energy Ministry officials yesterday after the report of a seven-member team, headed by permanent secretary Selwyn Lashley, was laid in Parliament on Tuesday. Last February, the team was mandated by Cabinet to make recommendations for restructuring of the company.
The team recommended establishment of three operationally independent business units within the company—Trinmar Land Exploration, Production Refining and Marketing. They also recommended that each unit be led and managed by persons who will be responsible for organising all the financial, human, physical resources within each unit to achieve established targets.
Petrotrin’s president will be responsible for ensuring implementation of policy across all business units.
Energy officials said the report is with Petrotrin’s board which has been mandated to present a plan to Cabinet soon.
The Lashley report stated that absorption of Trinmar into Petrotrin’s amalgamation of companies has compounded problems “and has been, at least in part, reason for the deterioration in the performance of those assets.”
“Petrotrin is a large, complex and unwieldy entity that frequently has had senior management changes and mandates,” the report stated, adding that this hybrid suffers “an identity crisis that needs urgent correction, clarification and structural intervention.”
“The confusion of purpose has led to collapse of governance, lack of transparency in performance and accountability, resulting in the Company’s performance falling to the bottom of benchmarks of comparable companies. Further impediments to commercial success have resulted from frequent changes in board and management.”
The report alluded to “poor choices for board members and management” and related skills/competency issues.”
“These mandates and board changes have created an environment of uncertainty making it difficult to attract and retain the best available talent. Petrotrin has significantly underperformed over the years.”
The team further stated: “Petrotrin’s mandate as a business must be unambiguous and it shouldn’t be used as a vehicle for advancing other objectives. Management is unable to focus on key strategic areas and accountability is adversely affected.
“Disaggregation is therefore necessary to form more manageable business units and facilitate a higher levels of transparency, leadership and accountability.”
According to the report, Petrotrin’s cash flow “is tight, its working capital is eroded, margins are negative, salaries are estimated at 50 per cent of operating costs, and the company has an over leveraged system.”
Noting that the salary level is too high against any benchmark, the reported continued: “It’s a management problem resulting from long-term failure to address culh1ral and operations systems and practices. Significant change on all these fronts are required if it’s to survive even in its current state.
The report stated that an unsustainable high debt profile and “alarming lack of returns on investments in capital-intensive projects such as the Gasoline Optimization Programme have strangled Petrotrin,”
However, it warned putting more money into the company will not resolve the problems “unless it has the right governance model; the appropriate organization structure” and other improvements.
Financiers and investors must have confidence in Petrotrin’s ability to manage large capital projects within budgets and dead lines, and to achieve appropriate return on investments, it said.
“Viable future depends on a departure from low levels of efficiency. “
OTHER RESTRUCTURING RECOMMENDATIONS
• Board members to be selected through a process which provides for comprehensive and transparent input and feedback from key stakeholders to ensure members possess the relevant experience and capabilities to address priority matters.
• Petrotrin adopts/adheres to laws and regulations that apply to publicly listed companies, especially with respect to transparency and accountability.
• Board of directors’ terms of office are cycled in such a manner as to ensure that at all times there is continuity of membership of at least 50 per cent of the board.
• Following December 2013 and May 2017 oil spills,, Petrotrin can no longer ignore its poor asset integrity. Infrastructure is a serious problem and high priority area.