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The elephant in the room
Anthony Gomes
Wednesday, June 15, 2011
THE "elephant in the room" is discussed only sotto voce in official circles but may well morph into "a bull in a china shop" if and when the issue is officially ventilated. With growing concern, involved private sector business leaders are making their voices heard much louder as they witness the continued erosion of their domestic market due mainly to the cost differential of electricity in Trinidad and Tobago.
When Jamaica signed the Revised Treaty of Chaguaramas on July 5, 2001 in Nassau, Bahamas, it was not intended to grant Trinidad and Tobago a waiver for their nationals to enjoy a preferential energy price unattainable by other states in the community, thus distorting regional competition. The issue was referred to the Caricom secretary general by Jamaica's then energy ambassador. The secretary general's response was reported to be favourable, supporting Jamaica's contention regarding the disparity in the cost of electricity in Trinidad and Tobago due to the national preferential price of energy.
Jamaican manufacturers and exporters continue to experience difficulty in competing with goods entering the Jamaican market duty-free, while enjoying lower production costs at home, with the national preferential energy price. Reports say Trinidadians pay US$0.3 cents per kilowatt hour for electricity, while Jamaicans pay US$0.30 cents per kilowatt hour. While it is accepted that other domestic factors also affect the manufacturing sector's precipitous decline, the loss trajectory is illustrated by the sector's contribution to GDP in 2002 which was 15.4 per cent, while in 2009 its contribution had fallen to 8.3 per cent! Concerning entitlement, Caricom's obligations are stated in the Preamble of the Revised Treaty of Chaguaramas, including the following:
"Resolved to establish conditions which would facilitate access by their nationals to the collective resources of the Region on a non-discriminatory basis.
"Mindful further that the benefits expected from the establishment of the CSME are not frustrated by anti-competitive business conduct whose objective or effect is to prevent, or distort competition."
According to a US Embassy cable on June 6, courtesy of Wikileaks, that refers to an agreement between T&T and Jamaica on LNG: "The US believed that the Trinidadian government might have pulled out of the deal because of a desire to ensure its manufacturers maintained a competitive advantage in the region. T&T firms enjoy significant competitive advantages in the region due to their low electricity costs." This reinforces the fact that the price differential on electricity in Trinidad is a significant advantage for T&T manufacturers, which their government has a keen interest in defending, given the substantial trade surplus accruing to Trinidad. The cable confirms that: "Favourable terms for Jamaica would erode these benefits and eventually allow Jamaican firms to replace some of the goods now being imported from T&T, thereby narrowing T&T's US$500-million trade surplus."
"Trinidad and Tobago signed a memorandum of understanding in 2004 to supply Jamaica with 1.1 million tonnes of LNG per year for 20 years, beginning in 2009, for use by the Jamalco refinery and the JPS's electric power plants. Trinidad later said it could not supply LNG to Jamaica because supplies were inadequate," the cable said. The negotiations were marred by public contention over what Jamaica said was a Caribbean price for LNG, and the Manning administration's insistence Kingston must pay the market value. Now the GOJ has decided to use LNG as one of its main national fuels, a third-country purchase price would probably be also at market value. The T&T price today, with an abundance of LNG on the world market, could well be the same as an extra-Caricom source, but that a T&T source should enter Jamaica duty-free with a transit time of approximately two days is a distinct advantage over sourcing from a third country with a longer transit time that should be dutiable unless a waiver is applied.
Business leaders had this to say about the issue: "Our farmers are being short-changed within the Caricom arrangement due to a subsidised agro-processing sector in oil-rich Trinidad, using raw materials imported extra-regionally, with unclear duty arrangements," said Minister Chris Tufton. Trinidad also imports oil due to an inadequate supply from its state-owned oil company.
According to Douglas Orane of GraceKennedy: "In Jamaica we are paying US$0.31 cents per kilowatt hour versus Barbados, which is in a similar position to ourselves as a small-island economy, and pays US$0.12 cents per kilowatt hour. Then we look at Trinidad & Tobago. Yes, they are oil and gas producers, but they are still part of Caricom and are paying US$0. 6 cents per kilowatt hour. When we compare these energy costs and the toll it takes on the progress of manufacturing, it is clear that we have taken far too long to make a decision as to which route to go in terms of reducing energy costs, particularly since there is such a wide array of choices available." This view has been repeated by other private sector leaders.
The consequences of inaction have been debated for many years, while Jamaica's industrial base, including agriculture, continues to be disadvantaged while ceding a larger share of its domestic market to Eastern Caribbean interests. To shrink from this adversarial challenge would ultimately result in Jamaica's domestic goods and agricultural market becoming more compromised. It is high time for consultations with T&T to take place on this national issue.
Read more: http://www.jamaicaobserver.com/colum...#ixzz1PQuFDs2p
The elephant in the room
Anthony Gomes
Wednesday, June 15, 2011
THE "elephant in the room" is discussed only sotto voce in official circles but may well morph into "a bull in a china shop" if and when the issue is officially ventilated. With growing concern, involved private sector business leaders are making their voices heard much louder as they witness the continued erosion of their domestic market due mainly to the cost differential of electricity in Trinidad and Tobago.
When Jamaica signed the Revised Treaty of Chaguaramas on July 5, 2001 in Nassau, Bahamas, it was not intended to grant Trinidad and Tobago a waiver for their nationals to enjoy a preferential energy price unattainable by other states in the community, thus distorting regional competition. The issue was referred to the Caricom secretary general by Jamaica's then energy ambassador. The secretary general's response was reported to be favourable, supporting Jamaica's contention regarding the disparity in the cost of electricity in Trinidad and Tobago due to the national preferential price of energy.
Jamaican manufacturers and exporters continue to experience difficulty in competing with goods entering the Jamaican market duty-free, while enjoying lower production costs at home, with the national preferential energy price. Reports say Trinidadians pay US$0.3 cents per kilowatt hour for electricity, while Jamaicans pay US$0.30 cents per kilowatt hour. While it is accepted that other domestic factors also affect the manufacturing sector's precipitous decline, the loss trajectory is illustrated by the sector's contribution to GDP in 2002 which was 15.4 per cent, while in 2009 its contribution had fallen to 8.3 per cent! Concerning entitlement, Caricom's obligations are stated in the Preamble of the Revised Treaty of Chaguaramas, including the following:
"Resolved to establish conditions which would facilitate access by their nationals to the collective resources of the Region on a non-discriminatory basis.
"Mindful further that the benefits expected from the establishment of the CSME are not frustrated by anti-competitive business conduct whose objective or effect is to prevent, or distort competition."
According to a US Embassy cable on June 6, courtesy of Wikileaks, that refers to an agreement between T&T and Jamaica on LNG: "The US believed that the Trinidadian government might have pulled out of the deal because of a desire to ensure its manufacturers maintained a competitive advantage in the region. T&T firms enjoy significant competitive advantages in the region due to their low electricity costs." This reinforces the fact that the price differential on electricity in Trinidad is a significant advantage for T&T manufacturers, which their government has a keen interest in defending, given the substantial trade surplus accruing to Trinidad. The cable confirms that: "Favourable terms for Jamaica would erode these benefits and eventually allow Jamaican firms to replace some of the goods now being imported from T&T, thereby narrowing T&T's US$500-million trade surplus."
"Trinidad and Tobago signed a memorandum of understanding in 2004 to supply Jamaica with 1.1 million tonnes of LNG per year for 20 years, beginning in 2009, for use by the Jamalco refinery and the JPS's electric power plants. Trinidad later said it could not supply LNG to Jamaica because supplies were inadequate," the cable said. The negotiations were marred by public contention over what Jamaica said was a Caribbean price for LNG, and the Manning administration's insistence Kingston must pay the market value. Now the GOJ has decided to use LNG as one of its main national fuels, a third-country purchase price would probably be also at market value. The T&T price today, with an abundance of LNG on the world market, could well be the same as an extra-Caricom source, but that a T&T source should enter Jamaica duty-free with a transit time of approximately two days is a distinct advantage over sourcing from a third country with a longer transit time that should be dutiable unless a waiver is applied.
Business leaders had this to say about the issue: "Our farmers are being short-changed within the Caricom arrangement due to a subsidised agro-processing sector in oil-rich Trinidad, using raw materials imported extra-regionally, with unclear duty arrangements," said Minister Chris Tufton. Trinidad also imports oil due to an inadequate supply from its state-owned oil company.
According to Douglas Orane of GraceKennedy: "In Jamaica we are paying US$0.31 cents per kilowatt hour versus Barbados, which is in a similar position to ourselves as a small-island economy, and pays US$0.12 cents per kilowatt hour. Then we look at Trinidad & Tobago. Yes, they are oil and gas producers, but they are still part of Caricom and are paying US$0. 6 cents per kilowatt hour. When we compare these energy costs and the toll it takes on the progress of manufacturing, it is clear that we have taken far too long to make a decision as to which route to go in terms of reducing energy costs, particularly since there is such a wide array of choices available." This view has been repeated by other private sector leaders.
The consequences of inaction have been debated for many years, while Jamaica's industrial base, including agriculture, continues to be disadvantaged while ceding a larger share of its domestic market to Eastern Caribbean interests. To shrink from this adversarial challenge would ultimately result in Jamaica's domestic goods and agricultural market becoming more compromised. It is high time for consultations with T&T to take place on this national issue.
Read more: http://www.jamaicaobserver.com/colum...#ixzz1PQuFDs2p
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