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We are grateful to Antônio Furtado for his comments, Rolando Ossowski for useful discussions and guidance, and Sandra Racha for comments and help in obtaining information on Trinidad and Tobago. We also thank Andrea Aquino and Hildi Wicker Deady for taking care of all the word processing, and Takahiro Atsuta for help with the figures. Any remaining errors and omissions remain our own.
See Gelb and others (1988), and Azerbaijan Selected Issues, 2003, for a detailed description of the historical experience of other resource rich countries that experienced difficulties after the oil booms of the 1970–80 period, including Nigeria, Angola, Algeria, Venezuela, Ecuador, and Gabon.
The authors would like to emphasize that the discussion in the following section pertains to data, information, and the economic and financial environment as of end-2003, as a result, subsequent developments are not covered in this analysis.
One billion cubic feet of natural gas is equivalent to 0.18 million barrels of oil.
For comparison purposes, gas reserves have been converted to barrels of oil equivalents. Furthermore, the categories of oil and gas reserves presented have been risked according to industry standards. In the case of oil, proven reserves are associated with a 90 percent probability, probable reserves have a 50 percent probability, and possible reserves have a 10 percent probability. Proven gas reserves have a 100 percent probability, probable reserves have a 60 percent probability, and possible reserves have a 20 percent probability.
The following companies pay their taxes in U.S. dollars: British Petroleum, Petrotrin, Enron Oil and Gas Company, and Trintomar.
Of 10 percent on onshore oil sales and 12.5 percent of offshore sales.
Which is levied on sales on a complex formulaic basis related to production levels and retail prices, or at a rate of 3 percent (whichever is less).
Which is used to cover administrative expenses of the Ministry of Energy.
Levied at a 50 percent rate on profits from oil production.
Levied at a 5 percent rate on profits from oil production (this tax is not deductible against the profits tax).
The rate ranges from a low of 0 percent when the oil price is US$13 per barrel of oil or less, to a maximum of 38 percent for onshore activities and 45 percent for offshore activities (if these activities were licensed and development began prior to 1988) when the price was US$49.51 per barrel of oil or more. This tax is deductible from the petroleum profit tax.
The supplemental petroleum tax and the petroleum production levy do not apply to the gas producing companies.
The same caveat as in footnote 3 apply to the analysis and the results reported in this section.
Alternative assumptions about the government’s intergenerational discount rate will result in increasing or declining optimal consumption paths over time, depending on whether the discount rate is higher or lower than the real interest rate. Similarly, if population and technological growth (TFP) are assumed to be different from zero, sustainable wealth and consumption need to be calculated using an adjusted interest rate (equal to the real rate minus the rate of population growth and TFP).
The nonenergy sector is assumed to grow at a long-run rate of about 3.5 percent.
In the long run, energy revenues as a percent of energy GDP are held constant at a level of about 27 percent.
Oil price projections underlying this analysis are based on realized oil prices as of end-2004, that is US$38 per barrel, and thereafter it is assumed that over the long-run the oil prices increase by 3 percent on an annual basis.
The exchange rate used is 6.23 Trinidadian dollars per U.S. dollar.
The exploration activities of the international energy companies in Trinidad and Tobago continue to result in further discoveries. In addition to those already mentioned, which have been quantified, more recently there appear to have been a few more discoveries of gas reserves. For example, British Petroleum is reported to have discovered gas fields at Chachalaca (estimated at 2.0 tcf), Manatee (1.1 tcf), and Coconut (0.9 tcf). These new finds underscore the need for reassessing and reevaluating the fiscal policy stance on an ongoing basis in the context of a framework similar to the one suggested in the paper.
The IRSF was established in FY 1999–2000 to promote fiscal discipline during oil booms, cushion the effects of unexpected drops in oil prices, and encourage public savings. By end-2004, approximately TT$4 billion were transferred to the IRSF. Description of the features and modalities of the HSF given here are as of end-February 2005.
While the state of the National Insurance Scheme is currently healthy and projected to be sustainable over the next five decades, government pensions, which are unfunded and noncontributory, will place a significant burden on the budget once the large labor force starts to retire.
For a detailed description of international best practices see Davies, Ossowski, Daniel, and Barnett (2001).
The empirical evidence on the relationship between public spending on education and health care and social indicators is mixed. However, some recent studies (such as Gupta, Verhoeven, Tiongson, 1999) have shown that intrasectoral allocations matter, and that shifting expenditures toward primary care and primary and secondary education have a positive effect on reducing mortality rates and increasing school enrollment.