Multinationals, the state and the management of economic nationalism in minor mineral-producing countries


Material Information

Multinationals, the state and the management of economic nationalism in minor mineral-producing countries the case of Trinidad
Physical Description:
xi, 218 leaves : ; 28 cm.
Singh, Chaitram, 1949-
Publication Date:


Subjects / Keywords:
Petroleum industry and trade -- Trinidad and Tobago   ( lcsh )
International business enterprises -- Trinidad and Tobago   ( lcsh )
bibliography   ( marcgt )
non-fiction   ( marcgt )


Thesis (Ph. D.)--University of Florida, 1984.
Includes bibliographical references (leaves 209-217).
Statement of Responsibility:
by Chaitram Singh.
General Note:
General Note:

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Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 000460849
notis - ACM3890
oclc - 11545628
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Full Text







Copyright 1984

Chaitram Singh

My Parents, Ranjit and Anjani Singh,
My Brother, Anand


I would like to thank the members of my supervisory committee--

Dr. Eugene R. Wittkopf, Dr. Alfred B. Clubok, Dr. Terry L. McCoy,

Dr. Andres Suarez, Dr. Alfaro J. Damico, and Dr. Robert Lawless--

for their helpful advice and comments during the preparation of this

dissertation. I would especially like to thank my dissertation

adviser, Dr. Wittkopf, who was the intellectual inspiration behind

this work. His careful guidance, constant encouragement, and gentle

prodding helped tremendously in bringing this work to fruition.

Partial funding for the field research in Trinidad was provided

by the Department of Political Science and by the Center for Latin

American Studies at the University of Florida. I would like to

express my thanks and appreciation to these organizations for this

financial support. I would also like to thank the Institute of Social

and Economic Research of the University of the West Indies, St.

Augustine Campus, for sponsoring my field research in Trinidad.

Appendix II lists the names of those individuals in Trinidad, who

consented to be interviewed. I would like to thank each of them for

taking the time from his busy schedule to see me and to answer my

questions. I would also like to thank Pamela Benson, senior librarian

at the Ministry of Energy, for providing me with copies of public

documents relating to the oil industry.

Many people contributed to making our stay in Trinidad a

comfortable and successful one, and I would like to thank them all,

especially Seunarine and Drupatee Persad, Clement and Celina Sankat,

Fred and Pauline Hall, Lalchan Singh, and Lugard Layne.

I reserve


and for typing

very demanding


care in typing

special thanks to my wife, Kathy, for her patience,

encouragement, and support at every step of the way,

several drafts of the dissertation while holding down a

full-time job.

I would like to thank Lori Joye for her patience and

the final draft.



ACKNOWLEDGMENTS . .... .. ...... iv

LIST OF TABLES . . ... ix

ABSTRACT . . . x



Introduction . . 1
Purpose of the Study . .. 2
The Concessions Process .... . .. 3
The Case of the Small Mineral-Producing Country .. .. .19
Theoretical Significance of the Study . 27
Order of Presentation . . .. 28
Notes . . . 30


Introduction . . .. 33
A Brief Background on Trinidad ......34
Contribution of the Petroleum Sector to the Economy 36
State Contribution to Commercial Enterprise .. .39
Petroleum Contribution to the Resolution of Employment
and Social Welfare Problems .. . .43
Notes .... . ... .. 47


Introduction . . 48
Entry of Foreign Companies into the Trinidadian
Oil Industry . . .. .. 49
Organization of the Petroleum Industry . 51
Conclusion . .... .. .69
Notes . .... .. . 71


Introduction ......... . 72
Ethnic Composition of Trinidad ...... .74
Early Political Mobilization . ... 76
The Emergence of the Two-party System .. .80
The Federal Elections and the Intensification of
Racial Animosity ..... . 84
Leadership Problems within the D.L.P. .. .. 86

Fragmentation of the D.L.P. .... 89
Conclusion ..... . 92
Notes .... .................. 94

STRATEGY . . . 96

Introduction ...... . ...... 96
The Genesis of Political Unionism in Trinidad ...... 97
P.N.M. Courtship of Organized Labor . ... 100
The Industrialization Effort .. 103
The Labor Situation in the Early 1960s ... 105
The Industrial Stabilization Act .... ... 110
The Black Power Revolution ....... . 114
The Industrial Relations Act ... .. 119
The United Front Against the Multinationals ...... 121
The U.L.F. in Parliament .... ... 126
Conclusion .. . 129
Notes . .. 132


Introduction .... . 136
The Period of Innocence (1956-1967) .... .. 137
The Mustofi Commission .. .. 139
Government Acquisition of British Petroleum ....... 143
The Petroleum Act of 1969 .. 149
The Clamor for Reduced Foreign Economic Control ..... .151
The Nationalization of Shell .... 156
The 1974 Petroleum Taxes Act ... 159
The Nationalization of Caroni Ltd. . ... 164
The Government and Texaco ....... ... .. 165
The Government and Amoco .......... 169
M.N.C. Clamor for a Revision of the 1974 Petroleum
Taxes Act ....... .. *....... 171
Prospects for Nationalization of the Entire Industry 173
Conclusion .... ........ 177
Notes ....... ......... 179

VII. CONCLUSION .... ...... 183

A Summary of the Trinidadian Case Study . 183
Trinidad as a Minor Mineral-Producing Country ...... .191
Dependency, Bargaining, and the Trinidad Case Study 198
Wider Applicability of the Trinidadian Case Study .... .202




BIBLIOGRAPHY ..... ...... ... ... .. 209






(CONSTANT 1970 PRICES), 1960-1981 . .. 37

CURRENT FACTOR COST (1960-1981) .. .. 38




(1973-1981) . .... ... 45





111-5 REFINERY THROUGHPUT (BARRELS) 1967-1978 .. .. 63


TOBAGO (1962, 1970) . . 75

WORK (1950-1964) . ... 106

Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy




APRIL, 1984

Chairman: Eugene R. Wittkopf
Major Department: Department of Political Science

This study examines the opportunities and means available to a

small mineral-producing Third World country to improve its bargaining

position with the multinational corporations involved in the

extraction of its minerals. Trinidad, which is a small producer of

petroleum, is used as an illustrative case study. The data analyzed

in this study were obtained from historical documents, newspapers,

political party and labor literature, and elite interviews conducted

in Trinidad over the period January 15, 1982, to April 25, 1982.

This study finds that nationalization of the multinationals

involved in its mineral industry is not a feasible option for the

small mineral-producing Third World country. The small size of the

mineral reserves adversely affects the development of indigenous

expertise in the exploration, production and marketing aspects of the

mineral industry. The host country's initial dependence on the

foreign investor for technological, managerial and marketing expertise

is, therefore, likely to be maintained for the duration of the

concession agreement.

Nationalization as a host country option is also deterred by

the cost of compensation compared to the expected flow of profits from

the industry under conditions of local ownership and management, by

developmental pressures and the need for a steady stream of revenues

from the industry, and by the vulnerability of the host government to

sanctions from the foreign investor's home country, as well as from

the international investing community. However, given the dependence

of the host country on the foreign investor, the threat by the latter

to uproot its operations becomes a very potent bargaining mechanism.

Thus, in its bargaining with the foreign investor, the host government

will try not only to increase its share of the revenues but also to

keep the foreign investor operating in the country. The ability of

the host government to achieve these goals depends on its ability to

manage its domestic politics.




The role of multinational corporations (M.N.C.s) in developing

countries has been the subject of intense academic interest. Two

polar schools of thought are discernible.1 The first sees the M.N.C.

in very benevolent terms. The M.N.C. is seen as making enormous

contributions to the host country's economy by providing employment,

by contributing to government revenues through the payment of taxes,

and by providing a ready export for the country. Further, the M.N.C.

is presented as the most promising instrument for the transfer of

capital to the developing countries and as a transmission belt for the

diffusion of technological and managerial skills to these countries

The other school of thought sees the M.N.C. in exploitative

terms. The M.N.C. has acquired a bad reputation for tax evasion, for

stifling local enterprise by its sheer size and scope, and for failing

in its promise to diffuse technological and managerial skills to the

host country. Moreover, the M.N.C. seems capable of wielding a

tremendous amount of political influence within the host country and,

by so doing, aggravating internal tensions and stimulates nationalism.

It is not surprising that a central issue in the North-South

conflict is the multinational corporation. The developing countries

- i -

- 2 -

would like to impose an international code of conduct upon the

M.N.C.s, thereby acquiring for themselves some measure of control over

these economic giants. So far, this goal has proved to be highly

elusive and, at least in the short term, developing countries are

constrained to seek ways of improving their position vis-a-vis the

M.N.C.s, within the present international framework.2

Purpose of the Study

This study is concerned with the relations between mineral-

producing Third World countries and M.N.C.s involved in the extraction

of these mineral resources. The principal focus, however, is on the

small mineral producer whose economy depends critically on its

mineral-exporting sector. The study analyzes the opportunities

available to a developing country, with a limited natural resource

base, to improve its bargaining position with the M.N.C.s involved in

the extraction of its sub-soil resources. Trinidad-and-Tobago is

used as an illustrative case study.

Trinidad is a small petroleum producer. The petroleum industry

has always been dominated by multinationals. The study examines the

opportunities and the means that have been available to the

Trinidadian government to upgrade its bargaining position vis-a-vis

the oil M.N.C.s, within a domestic context in which the government

also seeks to placate its supporters and to disarm its critics. The

study utilizes a bargaining approach (elaborated below) to examine the

relationship between the Trinidadian government and the foreign

investors in the oil industry over the period 1956-1981.


Trinidad is a particularly interesting case. While the

government5 of that country has never committed itself to a program of

nationalization, it has, in fact, nationalized several foreign

enterprises. However, it has not nationalized its oil industry even

when international conditions seemed propitious for such action and

when domestic groups were clamoring for outright nationalization.

This study will also examine governmental responses to domestic

pressures for nationalization.

The Concessions Process

Two perspectives dominate the literature on host-foreign investor

relations: the dependency and the bargaining perspectives. In this

section we will present the basic arguments of these respective

schools as they relate to multinational corporations involved in

mineral extraction in developing countries.

As Ronald H. Chilcote points out, there is no unified theory of

dependency. What is called dependency theory is, in fact, a variety

of "theoretical tendencies," advanced to explain Latin American

underdevelopment.6 Dependency theory will be discussed within the

Latin American regional context, though it should be pointed out that

dependency theory has acquired much wider application.

Raul Prebisch is widely regarded as the father of dependency

theory. Prebisch, who headed the United Nations Economic Commission

for Latin America (E.C.L.A.) in the 1940s and early 1950s, presented

one of the earliest analyses of Latin American underdevelopment. The

E.C.L.A. model, as it became widely known, divided the world into two


groups of countries--an industrial center and a periphery consisting

of countries producing primary commodities. According to the model,

from the late 19th century until the late 1930s, the terms of

international trade ran against countries exporting primary products.

This stemmed from a low income elasticity of demand in center

countries for primary commodities and a high income elasticity of

demand in periphery countries for industrial goods. E.C.L.A.

recommended import-substitution industrialization as the way out of

the disadvantageous position in which primary exporting countries

found themselves. It was felt that the emergence of an industrial

bourgeoisie in periphery countries would weaken the traditional

oligarchies entrenched there. Import-substitution industrialization

and an agrarian reform program could effect income redistribution and

a greater incorporation of the lower classes into Latin American

economies. The E.C.L.A. analysis also stressed the necessity and

desirability of foreign investment and foreign aid because it was felt

that Latin American countries could not, on their own, generate the

magnitude of capital required to implement the industrialization


While the E.C.L.A. thesis has been seen as correctly linking

Latin American underdevelopment to the international economic system,

it has been criticized as being only a partial explanation of Latin

American underdevelopment. Susanne Bodenheimer has identified three

major shortcomings of the E.C.L.A. thesis. First, the E.C.L.A.

explanation relies too heavily on the nature of traditional Latin

American exports and fails to examine the conscious policies and

5 -

specific needs of the industrialized center countries. Second, the

E.C.L.A. explanation mistakenly attributes Latin America's retarded

industrialization to "traditional" or "feudal" oligarchies, when in

fact, Latin American society since the sixteenth century has been

mercantile. Also, the assumption that an indigenous industrial

bourgeoisie would be developmentalist, progressive, and nationalist

has not been borne out by historical experience. Third, import-

substitution industrialization has accentuated the dependence of Latin

American countries on the international system.8

The Marxist school of dependency theory emerged as a result of a

general dissatisfaction with the E.C.L.A. model. Andre Gunder Frank

was one of the earliest contributors of the Marxist school of

dependency. Frank was also responding to North American theories of

development, particularly the stage theory of W. W. Rostow.9 Rostow

had argued that economic development occurred in a succession of

stages and had delineated five stages from a traditional society to

one of high mass consumption.0

Frank rejected the stage theory of development and instead argued

that the same historical process, namely the development of

capitalism, that generated the development of the "metropolitan"

(center) countries also generated the underdevelopment of the

"satellite" (periphery) countries. Frank saw foreign investment as an

instrument for the extraction of capital from the underdeveloped

satellites rather than as a mechanism for stimulating development.

Frank suggested that economic development in the satellite countries

-6 -

could only occur if the existing structure of metropolis-satellite

relations were overthrown.1

Bodenheimer has criticized Frank's thesis for being uni-

dimensional in the sense that it ignores other aspects of the

metropolis-satellite relations such as the ideological hegemony of the

dominant nations and of the local clientele elites. She argues that

the international system also causes underdevelopment indirectly by

creating and reinforcing within periphery countries an "infrastructure

of dependency." The infrastructure of dependency consists of certain

institutions and social classes that function in a manner that serves

the interests and needs of the center countries. She identifies these

interests and needs as those of the center-based multinational

corporations which she sees as the main units of imperialism. She

also sees imperialism and dependency as two names for the same system

--a capitalist economic order. The dependency model provides a view

"from below" while the theory of imperialism provides a view "from

above." Bodenheimer argues that in order to break the chains of

dependency, not only must Latin American nations sever their ties to

the international system but they must also dismantle the internal

infrastructure of dependency by a socialist transformation of their

own socio-economic order.12

Dependency theorists also distinguish among the various

historical patterns of dependence. Dos Santos, for example,

identifies three patterns of dependency. The first is "colonial

dependence" in which commercial and financial capital in European

countries enjoyed a trade monopoly with their colonies. The colonies

- 7 -

provided foodstuffs and minerals to Europe and the colonial elite

provided a market for European manufactured goods. The second pattern

of dependence Dos Santos calls "financial-industrial dependence."

This is characterized by the domination of big capital in the center

countries and its expansion into the periphery through direct

investment in the production of raw materials and agricultural

products for consumption in the center countries. The third form of

dependence became consolidated in the post-World War II period. This

is the "technological-industrial dependence," based on the movement of

multinational corporations into the manufacturing sector of periphery

countries. The industries into which the multinational corporations

invest are geared to the internal market of periphery countries.13

The two current forms of dependence are the "financial-industrial

dependence" and the "technological-industrial dependence." In both

forms, the multinational corporations are the principal mechanisms for

perpetuating the dependence of the periphery. Financial-industrial

dependence involves multinationals with expertise in extractive

industries or in agro-business. Dependency theorists argue that when

the markets for the agricultural or mineral commodities disappear, the

periphery countries would be abandoned to their own devices.14 In the

case of technological-industrial dependence, in which multinational

corporations are involved in the manufacturing sector of the periphery

countries and produce for the internal market, dependency theorists

have begun to speak of dependent development.15 The argument is that

multinational corporations see their interests as linked with some

amount of development within the dependent country. They recognize


that a moderate amount of income distribution would create a larger

internal market as well as act as a safeguard against political

instability. Cardoso calls this process "associated-dependent

development16 while Bodenheimer agrees with O'Connor that such

development is a form of welfare imperialism. 1

In a similar vein, Wallerstein18 sees the more advanced cases of

"dependent development" as essential to the smooth running of the

capitalist world economy. In his tri-modal stratification of the

capitalist world economy, these countries form the semi-periphery, the

middle stratum between the core and the periphery. The semi-periphery

exploits the periphery but is itself exploited by the core. It is

essential to the smooth running of the capitalist world economy

because it deflects anger and political rebellion from the periphery,

and serves as an attractive investment site when wages are rising too

rapidly in core countries.19

Wallerstein sees the multinational corporation as a key mechanism

in the expropriation of surplus value by the core areas from the rest

of the world economy. However, the multinational corporation can also

play an important role in transforming a periphery country into a semi-

periphery one, or a semi-periphery country into a core country.

Wallerstein views the issue of nationalization in world-systemic

terms. Unlike dependency theorists, he does not see nationalization

of foreign enterprise in periphery and semi-periphery countries as

altering the essence of the capitalist world economy. He argues that

as long as these countries participate in the world market,

nationalization of a foreign enterprise in any one of them merely


creates a state-owned capitalist enterprise and the country remains a

part of the capitalist world-economy.20

We will now summarize the dependency view of the relationship

that exists between the host country and the foreign investor.

Dependency writers propound the inevitability of conflict between the

developing host country and the M.N.C. They see the M.N.C. as the

principal mechanism by which the advanced capitalist countries

penetrate and exploit the economies of Third World countries. A

direct result of this penetration is that the development of the Third

World host-countries becomes subordinate to the development of the

advanced capitalist countries.

The dependency approach does not admit that bargaining of any

importance occurs between the host country and the foreign investor.

Negotiations between the host country and the foreign investor, insofar

as these occur, dwell on marginal issues and do not usually address

the crux of the problem, which is that the decision-making centers of

the M.N.C.s are located outside of the host country. As a

consequence, decisions are made in corporate board-rooms overseas that

seriously affect the host country, but that do not take into

consideration the developmental priorities of the latter. The

prescription that emerges from the dependency perspective calls for

the nationalization of foreign enterprise by developing host-countries

as part of their overall effort to rupture the structure of


However, nationalizations are not occurring everywhere, and as

Paul Sigmund points out in the context of Latin America, even in those

- 10 -

countries where nationalizations have taken place, an equilibrium

position seems to have been reached, one that allows for the

operations of foreign investors. This equilibrium position is a mixed

economy and it seems to indicate that Latin American policy-makers do

not necessarily accept either the inevitability of conflict or the

automatic harmony of interests upheld by advocates of free

enterprise.21 Because of this situation, the dependency approach is

not very useful in shedding light on the interactions that continue to

take place between developing host countries and foreign investors.

It is not a useful predictor of the changes in the terms of exchange

that take place between the two principal parties and that are the

results of periodic renegotiations. Bargaining theory, as we will

see, fulfills these functions more adequately.

Bargaining models may be divided into two groups: static

bargaining models and dynamic bargaining models. Static bargaining

models emphasize the initial negotiations that take place between the

host government and the foreign investor, each of which exercises

control over resources that the other needs, while dynamic models

incorporate change over the life of the agreement.2

The model proposed by Robert L. Curry and Donald Rothchild fits

the genre of a static bargaining model. Based on an examination of

the experiences of African governments with multinational

corporations, Curry and Rothchild propose a bargaining model in which

"impatience" and "reciprocal demand intensity" are the key variables

used to explain host government-M.N.C. interactions. The authors

argue that a prospective host country's impatience to conclude a deal

- 11 -

with the M.N.C. usually results in an arrangement in which the

benefits to the government fall short of what they might have been if

the negotiations had been more protracted. The authors do not explain

the sources of the government's impatience. One is left with the

impression that the government is impatient or it is not, and that the

consequence of impatience is a contract that is unfavorable to the

government. The second explanatory variable in the model is called

"reciprocal demand intensity" and involves a comparison of the

relative intensity between the state's desire for what the foreign

firm has to offer and the firm's desire for what the state has to

offer. In a particular bargain, the greater demand intensity on the

part of the state arises from the absence of alternative firms, local

or foreign, with which the state can negotiate. The final contract

reflects the state's impatience for a deal as well as the relative

intensity with which it desires the resources at the disposal of the


The principal deficiency of the Curry-Rothchild model, as it

applies to mineral-exporting economies, is that while it might explain

some of the initial conditions surrounding the entry of the M.N.C.

into the developing country, it ignores the question of renegotiation

of the original contract. The concession agreement is usually for an

extended period of time, and as Smith and Wells point out, the initial

negotiation of the contract is merely one step in a process of

unfolding relationships. Smith and Wells suggest that the

"concession contract" should be seen as part of a "concessions

process" in which change is the principal characteristic.24 Because

- 12 -

Curry and Rothchild ignore the issue of renegotiation, they do not

consider the impact of the host country's domestic politics on the

bargaining process. Indeed, the model cannot explain why

nationalization occurs in several mineral-exporting economies where

concessional agreements for fairly extended periods are usually the

norm. What is needed to better understand the various facets of

renegotiation is an interactive bargaining model.

One such interactive bargaining model has been proposed by

Raymond Mikesell. According to Mikesell, the strength of bargaining

is initially on the side of the foreign investor and this is usually

reflected in the terms of the concession agreement that is initially

drawn up. The bargaining power of the foreign investor stems from the

fact that the foreign investor can bring in the requisite capital,

technology, management and organizational skills, and usually a world-

wide marketing and distribution system. There is also a risk element

involved. Before a shaft is sunk or a hole is drilled, there is no

certainty that minerals actually exist beneath the surface. The host

country is capital poor and is a risk avoider. The foreign investor,

on the other hand, is a risk taker and the concessions contract

contains terms that reward the foreign investor for its risks.25

Real conflict between the host government and the foreign

investor begins to emerge once the original concessionaire has

established the existence and size of the mineral reserves and begins

to develop the mineral on a commercial basis, thereby earning for

itself a high return on its investment. The original risks are

downplayed and the government.or its political opposition might begin

- 13 -

to feel that the original terms of the agreement were too generous and

that the national resource is begin given away. This sets the stage

for renegotiation. The government's position is usually strengthened

by burgeoning nationalism. As the foreign-controlled industry

increases in visibility, that is, as it becomes more important in the

national economy, it becomes the object of attack by domestic

opposition forces.26

Developments in other countries also affect the bargaining

positions of an M.N.C. and its host. Developing countries compare the

terms of their concession agreements with those recently negotiated in

other countries or even in the same country. Even though the

circumstances surrounding the other agreements might be different,

strong pressures are generated in the host country for a renegotiation

or updating of the terms of the original agreement.27

Mikesell also argues that as the developing host country grows in

wealth and economic capability, there is a corresponding increase in

its ability to take-over and operate technically advanced enterprises.

The fact that nationalization becomes a more feasible government

option increases its bargaining power.2

The model elaborated by Mikesell emphasizes the economic aspects

of bargaining between the foreign investor and the host government.

It does not accurately reflect the impact of the domestic politics of

the host country on the bargaining process. Domestic politics are an

especially important factor in the relations between the host country

and M.N.C.s involved in a mineral-extracting industry. The removal of

sub-soil resources from the host country exposes the companies to

- 14 -

charges of exploitation and provides domestic opposition groups with

ample opportunity for nationalistic mobilization.

Moran has proposed what he considers to be a more dynamic model

of host country-foreign investor relations. The model is based on

an analysis of the experience of the foreign copper companies in Chile

and is meant to account for the instability of concession agreements

and, in particular, to explain why developing host countries

nationalize foreign companies involved in the extraction of natural

resources. Moran calls his model a balance-of-power model. It is, in

fact, a bargaining model that concentrates on those developing

countries with rich endowments of raw materials.

The model employs two explanatory variables: (i) uncertainty

about whether the investment can be made a success; and (ii) a

host-country learning curve. Moran argues that initially the

preponderance of bargaining strength is on the side of the foreign

investor. The starting position is one of monopoly control over the

capacity to make a successful operation out of a potential ore-body.

Since the host government cannot supply the capital or the

technological and managerial services needed for the undertaking, and

since it would like to see its natural resource become a source of

revenue and employment, it must make the types of concessions that

would be attractive to the foreign investor. If the venture is

unsuccessful, other such ventures will require the same or greater


However, if the venture is successful, a drastic change takes

place in the foreign-host relationship. Old doubts are quickly

- 15 -

forgotten and the host country can bring on pressure for renegotiation

of the original terms of agreement. With proven reserves, the

government can exact better terms from other companies seeking to

invest there, and it can use these terms to pressure the original

concessionaire to revise its agreement in line with the newer

agreements. Therefore, once the uncertainty has been reduced,

bargaining power shifts from the foreign investor to the host

government.30 On this point, Moran is in agreement with Mikesell and


Moran argues further that successful ventures of this type would

now provide an incentive for the host country to develop the skills

and expertise appropriate to the industry, because it stands to

increase its benefits by so doing. However, as the host country moves

up the "learning curve" of negotiating skills and of direct operating

skills for the industry, there is a transfer of power from the foreign

investor to the host country, or, put differently, the balance of

power shifts in favor of the host country. This shift in bargaining

power is not oscillatory but cumulative; that is, as the host country

acquires more knowledge about the operations of that natural resource

industry, there is a cumulative shift in power away from the foreign

investor to the host country. A point will be reached when the host

country has developed the ability to replicate the functions of the

foreign investor and the burden falls on the foreign investor to

demonstrate what advantages its continued presence offers. National

ownership now becomes a possibility.32

- 16 -

Moran differentiates between short-run shifts in the balance of

power and a cumulative shift in the balance of power. He attributes

short run shifts to changes in the perception of uncertainty and

cumulative shifts to the national learning process, that is, the

domestic acquisition of skills and confidence appropriate to the


In Moran's model, economic nationalism34 plays a significant

role. In the case of Chile, it began as a struggle against

"dependencia," a term that was never clearly defined, but that

presumably evoked strong emotional reaction and served as a source of

inspiration for the development of the technological and managerial

competence to bring the foreign corporations under national control.

As the host country moved up the learning curve; that is, as its

confidence increased, economic nationalism increased. Economic

nationalism was also an outgrowth of domestic politics. Domestic

political parties tried to win support by attacking the foreign

companies. Eventually, the Chile government nationalized the foreign

copper companies when it felt that the country had the domestic

competence to run the copper industry and when other impetuses to

economic nationalism demanded such a course of action.

Like Moran, Franklin Tugwell agrees that the relationship between

the host country and the M.N.C. involved in the extractive sector is

unstable and degenerates over time. Based on the experience of the

foreign oil companies in Venezuela, however, Tugwell argues that the

"degenerative instability" of concession agreements is partly

explained by the shift in bargaining power to the host government, as

- 17 -

the M.N.C.s sink more and more capital into the industry and thereby

become vulnerable to pressures for renegotiation. However, the main

source of this instability is the mistrust and uncertainty that are

built into the concessionary system. The host country is never

comfortable with the profit calculations of the foreign companies and

is constantly in doubt about whether company decision-makers outside

of the country might not be employing a variety of mechanisms to

punish the host country for its assertiveness in seeking to maximize

its income. On the other hand, the companies grow insecure about the

longevity of any agreement with the host country. The insecurity on

the part of the M.N.C.s accounts for their attempts to influence

public policy by manipulating economic variables such as production

rates, prices, and reinvestment by playing producer countries off

against each other, and also by intervening directly in the domestic

political process of the host country. In the short term, the M.N.C.s

often get their way. But, in the long run, governmental and other

domestic leaders learn that the corporations cannot be trusted and

must be controlled.35

Both Moran and Tugwell have dealt with large natural resource-

producing countries. Both predict nationalization of the foreign

enterprise as the eventual outcome of the bargaining process between

the host government and the foreign investor. However, as we will

show in this study, the incentive structure for minor mineral-

producing countries is different from that of major resource producers

and nationalization of the foreign investor cannot as easily be

predicted. Bargaining power is not cumulative but oscillatory, and in

- 18 -

this regard, the Mikesell model has greater applicability than those

of Moran and Tugwell.

Although the emphasis varies among them, most writers on the

bargaining approach to host country-M.N.C. relations acknowledge

that economic nationalism is a factor that must be taken into account.

There does seem to be general agreement that expressions of

nationalism by domestic groups strengthen the host government's

bargaining position. Moran and Tugwell subscribe to this view. Both

emphasize the intersection of state-M.N.C. bargaining and the

domestic politics of the host country. Both explain how the M.N.C.

directly or indirectly inspires economic nationalism and how the host

government can capitalize on this to nationalize the M.N.C.

There are other contributors to the literature on M.N.C.s,

however, who alert us to the possibility that economic nationalism

could interfere with the host government's development goals and could

invite attempts by the government to control or manage it. Sylvia

Ann Hewlett for instance, has argued (with reference to Brazil) that

the willingness to subdue labor is part of the price that a late

developing country must pay in order to achieve industrial take-off.36

And Kenneth Mericle documents the corporatist controls that the

Brazilian government has imposed on labor in that country.37 Of

course, one of the principal beneficiaries of governmental control

over the more militant domestic groups is the foreign investor.

Norman Girvan argues this point in the specific case of mineral-

exporting countries. Girvan sees labor as one of the principal agents

of economic nationalism. He argues that in its attempt to increase

- 19 -

and stabilize its revenues from the M.N.C., the government will use

repressive measures against labor.38 Yet the Moran and Tugwell

studies show that this was not the case in large mineral-producing

countries. The present study examines how the government of a minor

mineral-producing country responds to economic nationalism.

Specifically, it shows how the intersection of domestic political

considerations and sensitivity to national dependence on mineral

resources shape a government's response to demands for the

nationalization of foreign-based mineral-extracting companies.

The Case of the Small Mineral-Producing Country

In this section, the key parameters that circumscribe the

bargaining position of small mineral producers are examined. The

essential argument is that the bargaining position of a state

dependent on small mineral reserves is markedly different from one

with larger reserves, and the ability of such a state to effectively

deal with the M.N.C.s depends on its ability to manage its domestic


Proposition 1

Whether a marginal source of raw materials is developed or not
depends on the essentiality of the commodity to the advanced
industrialized countries.

An important factor in the bargaining process is the attractiveness of

the particular raw material as an investment opportunity. The value

of a mineral is a function of its scarcity, the quality of the ore or

crude oil, and the comparative costs of developing the source.

- 20 -

However, it is also a function of the essentiality of the commodity to

the advanced industrialized countries. Essentiality is an assessment

of the relative significance of a raw material to a nation's security

and to its economic well-being and is a measure of the damage or the

dislocation that can be caused by a prolonged disruption of supplies

of that commodity.3 Since the industrialized countries provide the

primary market for Third World raw materials, essentiality of a

commodity features in the company's assessment of the profitability of

investing in its production.

Ruth and Uzi Arad have come up with a ranking of raw materials

based on essentiality (Table I-1). From the company's point of view,

investment in a commodity further up in the hierarchy would be more

lucrative than one lower down. Host-country bargaining strategies are

also affected by the commodity in question. In the case of a small

producer, the essentiality of the commodity could very well dictate

whether a marginal source is developed or not. In short, a country

with a small reserve of petroleum, copper, iron ore, or aluminum

(bauxite ore) stands a better chance of attracting a foreign investor

to develop its resource than a country with a small reserve of tin.

Proposition 2

Unlike the case of a country with large reserves, the foreign
investor in a small mineral-producing country can manipulate the
existence of risk in its operations to keep the host-government's
bargaining position weak.

As in the case of larger producers, the initial bargaining position of

the small producer is weak. While the host government needs the

- 21 -



(1) (2) (3) (4) (5) (6)

1 Iron Ore 8 10 9 8.96
2 Petroleum 8 9 8 8.32
3 Copper 6 6 7 6.32
4 Aluminum 6 6 5 5.65
5 Manganese 7 1 8 3.83
6 Nickel 4 2 4 3.17
7 Silver 8 1 4 3.17
8 Cobalt 7 1 4 3.04
9 Chromium 5 1 5 2.92
10 Platinum 8 1 3 2.88
11 Lead 5 1 4 2.71
12 Uranium 2 1 9 2.62
13 Mercury 7 1 2 2.41
14 Tin 3 1 3 2.08
15 Zinc 2 1 4 2.00

SOURCE: Reproduced from Ruth W. Arad and Uzi B.
Resources (New York: McGraw Hill Book Company,

Arad, Sharing Global
1979), p. 51.

revenues that could be generated from minerals believed to exist

beneath the surface, it lacks the technology, capital, and managerial

expertise to establish the size of its resources and to exploit these

resources. Unlike countries with large proven reserves, however, a

minor mineral-producing country cannot easily downplay the element of

risk in the foreign investor's operations, even after commercial

production begins. The host country's hopes for an expansion of its

reserves depend on the continuation of exploration activities by the

foreign company which is usually in possession of all of the seismic

- 22 -

data. Opportunities exist, therefore, for the foreign investor to

manipulate the continued existence of risk in its operations in order

to keep the host country's bargaining position weak.

Proposition 3

The small size of the mineral reserves adversely affects the
development of indigenous expertise in the exploration,
production, and marketing of the mineral.

Widespread knowledge of the smallness of the reserves adversely

affects the reservior of local expertise that would develop around that

commodity. People would be little inclined to commit careers in an

area of economic activity perceived to be of short duration. Even if

one were to discount the problem of attracting trainable skills, then,

operating on the Moran thesis, the rate of development of

technological and managerial expertise must keep sufficiently ahead of

the rate of depletion of the resource if the expertise is to impact

favorably on the bargaining position of the host government. And in

the case of the small producer, where there is no reason for the

foreign investor to practice conservation, the time span is too short

for an indigenous work force to acquire the sophisticated skills

necessary to run the enterprise.

Proposition 4

It follows from Proposition 3 that the host country's initial
dependence on the foreign investor's technological, managerial,
and marketing expertise is likely to be maintained for the
duration of the concession agreement and that nationalization of
foreign investor is not a feasible option.

This suggests that the Moran thesis is not applicable to the small

producer; that is, the "learning curve" of technological and

- 23 -

managerial skills is not a useful predictor of shifts in bargaining

strength between the foreign investor and the host government.

Proposition 5

Nationalization as a host-government option is also deterred by
the following considerations:
(i) the cost of compensation compared to the expected flow of
profits from the industry under conditions of local
ownership and management;
(ii) developmental pressures and the need for a steady stream
of revenues from the mineral industry;
(iii) the vulnerability of the host-government to sanctions from
the foreign investor's home country, as well as from the
international investing community.

As Paul Sigmund points out, the principle that some compensation must

be paid in the event of nationalization has been recognized even by

countries whose official ideology opposes private ownership of the

means of production.40 The cost of compensation is usually very high

and would pose a strain to many developing countries. Not only must

capital be diverted from other national development projects, but

revenues generated by the nationalized industry can be expected to

fall. State ownership runs the risk of a decline in efficiency in the

general management of the industry. Managerial appointments might

involve political as opposed to strictly business considerations.

Labor unions might accelerate their demands for wage increases which

the government would find politically difficult to deny. The state-

run industry can expect to face marketing difficulties. It may lose

the traditional customers and marketing channels of the multinational

corporation. It would have to develop a certain degree of marketing

expertise relevant to the commodity. It would then be competing with

experienced multinationals for markets in the developed countries.

- 24 -

Lack of knowledge of the markets and the smallness of its exports

relative to other producers would prove to be severe handicaps. The

ability of the government to diversify the destinations of its export

or simply to shift out of a particular market would be impaired by the

smallness of its supply. The country might simply become a supplier

of last resort. These considerations would militate against a

strategy of nationalization. Even if nationalization is contemplated

by the host government, its consummation might be forestalled by

resistance on the part of the M.N.C.s, frequently with the support of

their home governments, and also by the host government's fears of the

damage nationalization would do to the country's image as an

attractive investment site.

Proposition 6

The threat by the foreign company to uproot in the short-term is
much more potent against the small mineral-producing country than
it is against a major producer.

The same factors (Propositions 3, 4 and 5) which proscribe

nationalization as an effective strategy for the host-country greatly

strengthen the bargaining position of the M.N.C. The M.N.C. enters

the host-county with the knowledge that its stay there will be

relatively brief compared to its investments elsewhere. Uprooting in

the short term has, therefore, already entered the investment

calculus. This gives the M.N.C. a bargaining ace and imposes an upper

penalty on the bargaining position of the host country: the M.N.C.

can threaten to uproot whenever it decides that the host-government's

claims are excessive. In other words, the threat by the M.N.C. to

- 25 -

uproot in the short term is more potent against the small mineral-

producing country than it is for a major producer, and it

substantially enhances the M.N.C.'s bargaining position vis-a-vis the


This is not to say that the host-government is not under

pressure, and does not, in fact, try to renegotiate the terms of the

agreement. Pressures on the government for renegotiation usually

arise from (i) the need for revenues to achieve developmental goals,

(ii) the need to assuage domestic groups such as labor and opposition

parties, and (iii) external factors, primarily increases in the price

of the commodity on the world market. However, pressures for a

renegotiation can also arise from the M.N.C. in circumstances such as

a drop in the world market price of the commodity or unexpected

increases in the cost of production. Thus the bargaining between the

host government and the M.N.C. is fairly fluid, especially since

nationalization is not a credible option for the small mineral-


Proposition 7

In its bargaining with the multinational corporation, the host-
government of a small mineral-producing country is motivated by
two principal goals:
(i) to try to increase its share of the revenues generated by
the mineral industry;
(ii) to keep the multinational operating in the country.

When the pickings are good, the government must be strong enough to

press its claims for a greater share. When the going is rough, the

state must be prepared to provide the M.N.C. with inducements to

remain and produce. In short, for the duration of the investment,

- 26 -

there is always a quest for a win-win solution. This, of course,

requires a host-government with a great degree of flexibility.

Proposition 8

As the foreign-controlled industry increases in importance to the
economy, that is, as the size of its contribution to the economy
increases, it will become more and more of an issue of domestic
politics. The ability of the host government to achieve its
principal goals would depend on its ability to manage its
domestic politics.

In a large mineral-producing country, the existence of a radical

opposition party or of vocal nationalistic groups, demanding greater

state control over the industry, strengthens the bargaining position

of the host-government. The M.N.C.'s intransigence in its bargaining

with the host government could contribute to the opposition party

riding a nationalistic wave into government and probably nationalizing

the enterprise. The loss of a major mineral concession would be

considerable to the M.N.C. Hence, the M.N.C. is more likely to make

concessions. In the case of a small mineral-producing country,

however, the existence of a radical opposition party or of vocal

nationalistic groups only marginally strengthens the bargaining

position of the host government since voluntary relinquishment of this

mineral resource would not severely jeopardize the M.N.C.'s global

position. Since an early departure was envisioned anyway, on account

of the small size of the reserves, all that would happen is that this

departure would be accelerated when the M.N.C. views the host

country's demands as excessive. The greater loser would be the

government. The government is usually aware of this and must manage

- 27 -

economic nationalism within the country so that it does not scare away

the M.N.C.s.

Theoretical Significance of the Study

The literature on the dynamic relationship between extractive

multinational corporations and developing host countries draws largely

on case studies of large natural resource producing countries. Yet

the conclusions reached about host-M.N.C. relations in such settings

are not entirely generalizable to small resource producing countries.

This case study of Trinidad, a small petroleum producer, is an attempt

to remedy the omission in the literature.

There are numerous small producers of mineral resources. Take

the case of petroleum, for instance. In 1980, The World in Figures

listed sixty-one countries as the main producers of crude oil. Forty-

five of these countries had production figures in 1976 that were

smaller than one percent of the total world production. Of these,

twenty-eight were developing countries, and in thirteen of these

countries, petroleum and petroleum products accounted for over twenty

percent of total exports. In the case of eight of the developing

countries, petroleum and petroleum products accounted for over fifty

percent of their total exports for that year.41 From the point of

view of these countries, this commodity is essential to their economic

well-being. How these nation-states deal with the M.N.C.s involved in

the development of their resources is an important question. The

M.N.Cs are crucial to the achievement of development goals in these

countries. The M.N.C.s are one of the principal means by which

- 28 -

economically marginal states are integrated into the international

system. The questions that are pursued in this study allow us to

understand better some of what Robert Keohane refers to as the

Lilliputians' dilemmas.42

Order of Presentation

This is a case study of the relations between the oil

multinationals and Trinidad, a minor petroleum-producing country.

Chapter II examines the importance of the Trinidadian petroleum

industry to the economy of that country. The argument in this chapter

is that the petroleum sector has been the engine of growth of the

economy and petroleum revenues help to maintain the financial buoyancy

of a large number of state enterprises as well as to support a variety

of welfare state programs.

Chapter III examines the organization of the petroleum industry

in Trinidad. The chapter shows that Trinidad is a minor petroleum

producer with little impact on the international petroleum market. It

also shows that in all the major aspects of the oil industry, Trinidad

depends heavily on the foreign oil companies and that the Trinidadian

oil industry is likely to suffer if the government nationalizes the

industry. The data for this chapter were drawn from governmental

publications and from interviews with senior government officials in

the Ministry of Energy, the National Energy Corporation, the Ministry

of Finance, and also with executives of the following oil companies:

the Trinidad-Tesoro Oil Company, the Trinidad and Tobago Oil Company,

Texaco, and Amoco.43

- 29 -

Chapters IV and V together trace out the process whereby the

nationalization demand emerged as a domestic counter-mobilization

strategy. Chapter IV highlights the centrality of ethnicity as a

factor in Trinidadian politics and argues that the uninterrupted stay

in power of the rulling party has depended largely on its ability to

polarize the population along ethnic lines. It also shows how

internal organizational problems incapacitated the parliamentary

opposition and created a political vacuum which radical opposition

groups began to fill. Chapter V examines the efforts by these radical

groups to use the issue of foreign domination of the economy as the

basis for counter-mobilization. In particular, the chapter examines

their efforts to unite the major ethnic groups by appealing to their

common class interests and by demanding the nationalization of the

foreign companies in the oil and sugar industries. Data for these two

chapters were obtained from historical documents, newspapers,

political party and labor literature, and interviews with party and

labor leaders.

Chapter VI examines the efforts by the Trinidadian government to

exact better terms from the oil multinationals and to mollify its

critics at home. Chapter V and VI together explain the factors

underlying the government's success in managing economic nationalism

in Trinidad.

Chapter VII is an overall assessment of the bargaining between

the state and the oil companies, and a re-statement of the factors

impinging on the bargaining process.

- 30 -


1For a summary of the positions of the two schools, see John
Diebold, "Multinational Corporations Why be Scared of Them?"
Foreign Policy, No. 12 (Fall 1973), pp. 84-85.

2Some of the proposals for new economic order are discussed in
Jagdish N. Bhagwati, ed., The New International Economic Order: The
North-South Debate (Cambridge, Mass.: M.I.T. Press, 1977).

In this study, a small mineral-producing country is defined as
one whose mineral industry accounts for over fifty per cent of the
country's total exports but whose annual production of the mineral is
less than one per cent of total world production.

Hereafter referred to simply as Trinidad.

5The same political party has been in power since 1956.

6Ronald H. Chilcote, "A Question of Dependency," Latin American
Research Review 13 (1978), p. 55.

7Susanne Bodenheimer, "Dependency and Imperialism: The Roots of
Latin American Underdevelopment," Politics and Society 1 (May 1971),
p. 340. See also Daniel Chirot and Thomas D. Hall, "World-System
Theory," Annual Review of Sociology 8 (1982), pp. 90-91.

8Bodenheimer, "Dependency and Imperialism," pp. 340-342.

9Andre Gunder Frank, "The Development of Underdeveiopment," in
Charles W. Wilber, ed., The Political Economy of Development and
Underdevelopment (New York: Random House, 1979), p. 103.

10W. W. Rostow, The Stages of Economic Growth: A Non-Communist
Manifesto (Cambridge: Cambridge University Press, 1965), pp. 1-4.

IlFrank, "The Development of Underdevelopment," pp. 103-111.

12Bodenheimer, "Dependency and Imperialism," pp. 335-355.

13Theotonio Dos Santos, "The Structure of Dependence," in K. T.
Fann and Donald C. Hodges, eds., Readings in U.S. Imperialism (Boston,
Mass.: Porter Sargent Publisher, 1971), pp. 225-233.

14Frank, "The Development of Underdevelopment," pp. 110-111.

15For a case study employing the framework of dependent
development, see Peter Evans, Dependent Development: The Alliance of
Multinational, State, and Local Capital in Brazil (Princeton:
Princeton University Press, 1979).

- 31 -

16Fernando Henrique Cardoso, "Associated-Dependent Development:
Theoretical and Practical Implications," in Alfred Stepan, ed.,
Authoritarian Brazil: Origins, Policies and Future (New Haven: Yale
University Press, 1973), pp. 143-150.

17Bodenheimer, "Dependency and Imperialism," p. 350.

18Although Wallerstein is not a "dependentista," his world-system
theory draws heavily from dependency theory. See Immanuel Wallerstein,
The Capitalist World-Economy (Cambridge: Cambridge University Press,
1979), pp. 66-92; and Chirot and Hall, "World-System Theory," pp. 90-

19Wallerstein, The Capitalist World-Economy, pp. 21-23.

20Ibid., pp. 80-92.

21Paul E. Sigmund, Multinationals in Latin America: The Politics
of Nationalization (Madison: The University of Wisconsin Press,
1980), pp. 278-279.

22David N. Smith and Louis T. Wells, Jr., Negotiating Third-World
Mineral Agreements: Promises as Prologue (Cambridge, Mass.: Ballinger
Publishing Company, 1975), pp. 4-5.

23Robert L. Curry, Jr., and Donald Rothchild, "On Economic
Bargaining between African Governments and Multi-National Companies,"
The Journal of Modern African Studies 12 (February 1974), pp. 173-182.

24Smith and Wells, Jr., Negotiating Third-World Mineral
Agreements, p. 3.

25Raymond F. Mikesell, "Conflict in Foreign Investor-Host
Country Relations: A Preliminary Analysis," in Raymond F. Mikesell,
ed., Foreign Investment in The Petroleum and Mineral Industries: Case
Studies of Investor-Host Country Relations (Baltimore: The Johns
Hopkins Press, 1971), p. 38.

26Ibid., p. 39.

27Ibid., p. 39.

281bid., p. 39.

2Theodore H. Moran, Multinational Corporations and the Politics
of Dependence: Copper in Chile (Princeton: Princeton University
Press, 1974), pp. 159-160.

30Ibid., pp. 160-161.

- 32 -

31See, for example, Smith and Wells, Jr., Negotiating Third-World
Mineral Agreements, pp. 18-19.

32Moran, Multinational Corporations, pp. 162-166.

331bid., pp. 166-169.

34While Moran does not explicitly define the term economic
nationalism, the definition inferred from his discussion of
"dependencia" and used in the present study may be stated thus:
Economic nationalism in a developing country is a domestic reaction
against foreign influence in the political and economic life of the
country. It manifests itself in the domestic desire to reassert
sovereign control over its affairs. See Moran, Multinational
Corporations, pp. 3-15.

35Franklin Tugwell, The Politics of Oil in Venezuela (Stanford:
Stanford University Press, 1975), pp. 145-175.

6For an examination of the developmental dilemmas confronting a
late developing country, see Sylvia Ann Hewlett, The Cruel Dilemmas of
Development: Twentieth Century Brazil (New York: Basic Books, 1980).

37Kenneth S. Mericle, "Corporatist Control of the Working Class:
Authoritarian Brazil Since 1964," in James M. Malloy, ed.,
Authoritarianism and Corporatism in Latin America (Pittsburgh:
University of Pittsburgh Press, 1977), pp. 303-334.

38Norman Girvan, Corporate Imperialism: Conflict and
Expropriation (White Plains, New York: M. E. Sharpe, Inc., 1976), pp.

39Ruth W. Arad and Uzi B. Arad, Sharing Global Resources (New
York: McGraw Hill Book Company, 1979), pp. 48-51.

40Sigmund, Multinationals in Latin America, pp. 265-266.

41The Economist, The World in Figures (New York: Facts on File,
Inc., 1980), pp. 29-31.

42Robert Keohane, "Lilliputians' Dilemmas: Small States in
International Politics," International Organization 23 (Spring 1969),
pp. 291-311.

43Interviews with executives of the oil companies, government
officials, political and labor leaders, and other Trinidadian notables
were conducted in Trinidad over the period January 15, 1982 to April
25, 1982. Interviewees were granted anonymity by the author, but
notes of conversations have been available to the author's
dissertation committee in the Department of Political Science,
University of Florida.




The purpose of this chapter is to examine the importance of the

petroleum industry to Trinidad. We will show that the Trinidadian

economy is highly dependent on the petroleum sector. This dependence

is reflected in the following three major points:

(i) The petroleum sector has been the main engine of growth of the


(ii) Petroleum revenues have permitted the government to maintain a

number of state-run industries, some of which are operating at

a loss and require subsidization by the state. The sugar

industry is discussed in this context. The poor performance of

these industries accentuates the country's dependence on oil


(iii) There exists what Tugwell has called, in the case of Venezuela,

"an institutionalized addiction to rapidly expanding public

resources."' These resources originate from the oil industry

and support a variety of programs around which political

constituencies have developed.

Before we embark on a closer examination of the contribution of

petroleum to the economy, it is apposite that we present some

background information on Trinidad.

- 33 -

- 34 -

A Brief Background on Trinidad

The two-island state of Trinidad and Tobago has an area of about

2000 square miles and is situated close to Venezuela on the

continental shelf. Trinidad was sighted by Columbus in 1498 and was

named in honor of the Holy Trinity. The island experienced three

centuries of Spanish rule before it was captured by the British.

Tobago historically enjoyed greater strategic importance than Trinidad

and changed hands among European powers before finally remaining under

British control after 1803. In 1889, Tobago was linked to Trinidad

for easier administration and the town of Port-of-Spain served as the

administrative center. Trinidad-and-Tobago was a member of the short-

lived Federation of the West Indies (1958-1962), but withdrew after

Jamaica did so in 1961. The country became independent of Great

Britain on August 31, 1962, and a republic in 1975.2

The national government of Trinidad is organized as a

parliamentary democracy. Parliament is bicameral: the House of

Representatives consists of thirty-six elected members, and the Senate

consists of thirty-one seats which are divided among the political

parties in direct proportion to the number of elected seats that each

wins in the House of Representatives. National elections for the

House of Representatives are held every five years. The titular head

of state is the President who is elected by both Houses of Parliament.

However, the actual locus of power resides in the position of the

Prime Minister who heads the cabinet and is selected from the party

that commands the support of the majority of the members of the House

of Representatives.

- 35 -

Trinidad is the most prosperous of the independent countries of

the Caribbean. In 1979, the per capital G.N.P. of Trinidad was 3,390

dollars. This was the sixth highest of all middle income countries

and the sixth highest in Latin America.3 Table II-1 shows how

Trinidad compares with some selected countries on a few basic socio-

economic indicators. International lending agencies have ceased

ranking Trinidad as a developing country. However, although it

possesses some of the characteristics of a developed country, notably

a relatively high per capital G.N.P., a high literacy rate, and a high

life expectancy at birth, Trinidad remains, as will become clear in

this study, a developing country. Its relative prosperity is

accounted for by its petroleum industry.




DOLLARS) 1979 1960-1979 RATE (%) 1976 BIRTH (YRS) 1979

Trinidad 3,390 2.4 95 70
United States 10,630 2.4 99 74
United Kingdom 6,320 2.2 99 73
Singapore 3,830 7.4 71
Hong Kong 3,760 7.0 90 76
Venezuela 3,120 2.7 82 67
Brazil 1,780 4.8 76 63
Cuba 1,410 4.4 96 72
Jamaica 1,260 1.7 71

SOURCE: The World Bank, World Development Report, 1981 (New York: Oxford
University Press, 1982), pp. 134-135.

- 36 -

Contribution of the Petroleum Sector to the Economy

Trinidad is an open petroleum economy.5 The performance of the

economy mainly reflects developments in the petroleum sector, which in

turn is affected by conditions in the world market for petroleum.

Table 11-2 shows the gross domestic product (G.D.P.) at constant

factor cost over the period 1960-1981. The average annual rate of

growth in real terms over this period was five percent, which was a

comparatively good rate of growth. The G.D.P. at current factor cost

in 1981 was over five times what it was in 1973, showing the enormous

expansion of the economy as a result of the O.P.E.C. price regime (See

Table 11-3).

Table 11-3 shows the contribution of the petroleum sector to the

G.D.P. at current factor cost. Over the period of 1960-1981, the

average percent contribution of the petroleum sector to G.D.P. at

factor cost was 32.9. Over the brief boom years 1960-1962, the

average annual contribution of this sector to the G.D.P. was 32.4

percent, while over the period 1974-1981, under the prevailing

O.P.E.C. price regime, the petroleum sector's contribution to G.D.P.

averaged 43.1 percent annually.

Petroleum and petroleum products account for the greater

proportion of domestic exports (Table 11-4). Over the period 1962-

1981, these products accounted for an average of 84 percent annually.

Between 1974 and 1981, the contribution of the industry to total

exports averaged 90 percent annually. When the export figures are

disaggregated to reflect the separate contributions of crude oil and

refinery products, we find that Trinidad has been much more important

- 37

TABLE 11-2

(CONSTANT 1970 PRICES), 1960-1981


1960 1038 519
1961 1129.4 564.7 8.8
1962 1159.4 579.7 2.7
1963 1194.9 597.5 3.1
1964 1237.8 618.9 3.6
1965 1368.8 684.4 10.6
1966 1454.2 727.1 6.2
1967 1502.5 751.3 3.3
1968 1546.3 773.2 2.9
1969 1580.2 790.1 2.2
1970 1623.5 811.8 2.7
1971 1756.9 878.5 8.2
1972 1813.5 906.8 3.2
1973 1787.2 893.6 -1.5
1974 1820.2 910.1 1.8
1975 1876.7 938.4 3.1
1976 2033.6 1016.8 8.4
1977 2137.9 1069.0 5.1
1978 2565.1 1282.6 20.0
1979 2700.6 1350.3 5.3
1980 2737.0 1368.5 1.3
1981 2862.6 1431.3 4.6

SOURCE: Figures for 1960-1964 were obtained from the World Bank,
World Tables (Baltimore: The Johns Hopkins University Press, 1976),
pp. 230-231. Figures for 1965-1977 were obtained from the World Bank,
World Tables, 1980, pp. 198-199. Figures for 1978-1979 were obtained
from Republic of Trinidad and Tobago, Review of the Economy, 1981
(Trinidad and Tobago: The Central Statistical Office Printing Unit,
1982), p. 71. The 1980-1981 figures were obtained from Republic of
Trinidad and Tobago, Review of the Economy, 1982, p. 81.

- 38 -

TABLE 11-3



1960 466.4 154.0 33.0
1961 512.6 167.1 32.6
1962 541.6 170.5 31.5
1963 579.5 171.2 29.5
1964 605.3 176.0 29.1
1965 660.6 166.1 25.2
1966 729.6 189.8 26.0
1967 771.8 208.5 27.0
1968 761.9 221.9 29.1
1969 781.1 192.7 24.6
1970 811.8 180.6 22.2
1971 911.4 183.7 20.2
1972 1058.5 220.4 20.8
1973 1262.2 359.7 28.5
1974 1949.8 897.4 46.0
1975 2481.6 1215.2 49.0
1976 2552.6 1216.1 47.6
1977 2999.5 1519.6 49.6
1978 3929.0 1486.7 37.8
1979 4753.0 1697.0 35.7
1980 6403.0 2687.3 42.0
1981 7052.0 2625.8 37.2

SOURCE: G.D.P. figures for 1960-1977 were compiled from The World
Bank, World Tables (1976 and 1980. G.D.P. figures for 1978-1981 were
compiled from Republic of Trinidad and Tobago, Review of the Economy
(1981 and 1982). The petroleum sector's contribution to G.D.P. for
years 1960-1974 were compiled from The Central Statistical Office,
Annual Statistical Abstract (1962-1976); while the figures for 1975-
1981 were complied from Republic of Trinidad and Tobago, Review of the
Economy (1979, 1981 and 1982), All financial figures have been
converted from dollars (T.T.) to dollars (U.S.).

- 39 -

as a refining center than as an exporter of crude oil, and as column

(3) of Table 11-4 shows, between 1962 and 1972, crude oil exports

averaged 7.7 percent of total exports annually. However, over the

same period, refinery products accounted for an average of 72.5

percent of total exports annually (Column 5). With the quadrupling of

crude oil prices after 1973, the crude oil proportion of total annual

exports increased markedly but as a comparison between columns (3) and

(5) of Table 11-4 shows, the contribution of refinery products to

total exports has been consistently higher than for crude oil, and as

Chapter III will show, this largely accounts for the country's

dependence on the Texaco oil company.

A final indicator of the petroleum sector's dominant role in the

economy is the contribution of this sector to government revenues.

Between 1972 and 1981, for which data are available, the petroleum

sector's contribution to government revenues increased by about 4,400

percent. Over the same period, the sector's contribution to total

government revenues averaged 54 percent annually, but between 1974 and

1981, the petroleum sector's contribution to government revenues

averaged about 62 percent annually. Thus the petroleum sector is,

without a doubt, the "golden goose" of the Trinidadian economy.

State Contribution to Commercial Enterprises

Expanding state revenues, particularly after 1973, have given

rise to other types of dependencies on the oil sector. This can be

seen in the expanding public sector activities. In 1977, the

government had an equity interest in fifty companies. Twenty-three of

- 40 -

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- 41 -

these companies were wholly-owned by the government, while the

government held a majority interest in thirteen others and a minority

interest in the remaining fourteen.6 These companies, particularly

those that are completely state-owned, operate without the external

discipline of the market and with varying degrees of profitability and

yet continue to have access to government funds. Take the case of the

sugar industry, for instance. In 1975, the government nationalized

the foreign-owned sugar companies. Since 1976, the industry has been

suffering severe losses and requires annual bail-out by the

government. Despite the performance of the industry, wages in the

industry continue to rise rapidly. For example, in 1976, wage rates

for manual workers in the industry rose to about twice what they were

in 1973,7 despite the fact that the industry incurred a loss in 1976

of about eight to nine million dollars (U.S.).8 This is not peculiar

to the sugar industry. The state-owned airline, British West Indian

Airways, is nationally known to be a money loser.

Table 11-5 shows the amount the government has contributed over

the period 1973-1981 to companies in which the government has an

equity interest. On an annual basis, the government has contributed

an average of 12.8 percent of its total revenues to the support of

these industries. From a low of 15.9 million dollars (U.S.) in 1973,

the government's contribution to commercial enterprises reached a high

of 356.2 million dollars (U.S.) in 1980. This represents an increase

of over 2,200 percent. The government's ability to continue this

sizable support for these commercial enterprises stems largely from

the large revenues coming in from the petroleum sector. And within

- 42 -

TABLE 11-5



1972 41.2 176.4 217.6 18.9
1973 59.3 193.7 253.0 23.4
1974 470.0 205.9 675.9 69.5
1975 592.8 259.1 851.9 69.6
1976 576.3 368.7 945.0 61.0
1977 748.9 497.4 1246.3 60.0
1978 712.8 589.8 1302.6 54.7
1979 984.4 707.2 1691.6 58.2
1980 1733.5 973.1 2706.6 64.0
1981 1828.8 1085.6 2914.4 62.8

SOURCE: The figures for 1972-1974 were obtained from Republic of
Trinidad and Tobago, Report of the Committee to Review Government
Expenditure (Trinidad and Tobago: The Government Printery, 1978), p.
37. The figures for 1975-1981 were obtained from Republic of Trinidad
and Tobago, Review of the Economy, 1981 (Trinidad and Tobago: The
Central Statistical Office Printing Unit, 1982), p. 89. All financial
figures have been converted from dollars (T.T.) to dollars (U.S.)

the state and para-statal sector, there is enormous resistance to any

policy by the government that has the potential of disrupting the flow

of revenues from the petroleum industry. Hence, many of these

enterprises, purely out of self-interest, oppose the nationalization

of the oil industry.

- 43 -

TABLE 11-6


(1) (2) (3)

1973 15.9 253.0 6.2
1974 71.6 675.9 10.6
1975 68.3 851.9 8.0
1976 143.8 945.0 15.2
1977 199.9 1246.0 16.0
1978 229.0 1302.6 17.6
1979 304.4 1691.6 18.0
1980 356.2 2706.6 13.2
1981 314.3 2914.4 10.8

SOURCE: The figures for 1973-1979 were obtained from the Government
of Trinidad and Tobago, Accounting for the Petrodollar (Port-of-Spain,
Trinidad and Tobago: The Government Printery, 1980). The figures for
1980-81 were obtained from Republic of Trinidad and Tobago, Review of
the Economy (1980 and 1981). All financial figures have been
converted from dollars (T.T.) to dollars (U.S.).

Petroleum Contribution to the Resolution of Employment and
Social Welfare Problems

Although revenues from the oil industry have made the country

financially secure, the problem of unemployment still remains. The

oil industry is highly capital intensive and therefore provides

employment for only a few people. In 1977, for example, out of a

total labor force of 430,800, the oil industry provided employment to

about 17,000 people, or about 4 percent of the labor force.9 It

becomes a burden on the other sectors of the economy to absorb the

- 44 -

rest of the labor force. This has been done largely through the

agricultural sector, the public service sector, and the services


The agricultural sector accounted for the employment of about

54,400 people in 1977 or 12.6 percent of the total labor force.10 Of

that, the sugar industry accounted for the employment of about 20,000

people,11 making it the single largest employer of labor outside of

government service and the construction industry. And, as will be

discussed in Chapter IV, the sugar industry is protected by a very

strong political lobby.

The Government of Trinidad is the largest employer of labor in

the country. In 1979, administrative, professional, technical,

clerical and manual workers in the public service accounted for a

total of about 80,800 people, or about 18 percent of the total labor

force.12 However, this does not include the people employed in the

government's "special works" program. This program is organized under

the Development of Environmental Works Division (D.E.W.D.) and employs

people on a rotating basis, usually guaranteeing work for only two

weeks at a time. They are supposed to be employed in beautifying the

country but in practice do little work. Although the government's

officially published figure for people employed by D.E.W.D. is

10,500,1 this figure is highly suspect. Officials from the salaries

section of the Ministry of Works estimate this figure to be over

50,000. The program is a very controversial one particularly because

it is widely perceived as a program utilized to dispense patronage to

supporters of the ruling party. Given the controversial nature of the

- 45 -

program, the government does have an interest in understating the true

figure. If the 50,000 figure for D.E.W.D. is used, then the

government provides employment to about one-third of the labor force.

Again, the government can carry such a sizable number of people on its

payroll largely because of the revenues coming in from the petroleum


Further, in order to upgrade the standard of living of the

average Trinidadian citizen, the government spends an enormous amount

of money on a variety of subsidies. These include subsidies on basic

food items, agriculture, utilities, welfare, housing, petroleum

products and cement. Table 11-6 shows the subsidies provided by the

government over the period 1973-1980. The magnitude of these

TABLE 11-7



1973 14.4 253.0 5.7
1974 53.1 675.9 7.9
1975 69.6 851.9 8.2
1976 95.2 945.0 10.1
1977 125.2 1246.3 10.0
1978 172.5 1302.6 13.2
1979 291.7 1691.6 17.2
1980 418.8 2706.6 15.5

SOURCE: Government of the Republic of Trinidad and Tobago, Accounting
for the Petrodollar (Port-of-Spain, Trinidad and Tobago: The
Government Printery, 1980), p. 59.

- 46 -

subsidies has increased every year, from 14.4 million dollars (U.S.)

in 1973 to 418.8 million dollars in 1980, representing an increase of

over 2800 percent. These subsidies are politically difficult to

remove and their present level is sustained because of the revenues

arising from the petroleum industry.

The preceding sections emphasize the "essentiality" of petroleum

to the economy of Trinidad. The impact of a disruption of the

revenues from the oil industry would be enormous. The government

naturally recognizes this and formulates petroleum policy with

caution. The government has succeeded in insulating the petroleum

sector from domestic political forces. Before we look at how this was

achieved, let us examine the organization of the petroleum industry in

Trinidad to see the types of constraints that it imposes on the

government's bargaining position vis-a-vis the foreign investors.

- 47 -


1Tugwell, The Politics of Oil in Venezuela, p. 3.

2Jan Knippers Black et al., Area Handbook for Trinidad and
Tobago (Washington, D.C.: The American University, 1976), pp. 1, 35-
36. See also Eric E. Williams, History of the People of Trinidad and
Tobago (Port-of-Spain, Trinidad: P.N.M. Publishing Co., Ltd., 1962).

3The World Bank defines middle-income developing countries as
those with a per capital income of more than $370 (U.S.). See the
World Bank, World Development Report, 1981 (New York: Oxford
University Press, 1982), p. 133.

Black et al, Area Handbook of Trinidad and Tobago, p. 207.

5One of the principal features of an open economy is that the
long-term rate of growth is largely determined by one exogenous
variable (exports). For a further discussion, see Dudley Seers, "The
Stages of Economic Growth of a Primary Producer in the Middle of the
Twentieth Century," in Robert I. Rhodes, ed., Imperialism and
Underdevelopment: A Reader (New York: Monthly Review Press, 1970).

public Relations Division, Prime Minister's Office, Whitehall,
Trinidad, Facts on Trinidad and Tobago (Port-of-Spain, Trinidad: The
Government Printery, 1977), p. 30.

7Central Statistical Office, Annual Statistical Abstract, 1978
(Port-of-Spain, Trinidad: The Central Statistical Office Printing
Unit, 1979), p. 86.

8Caroni Limited, Directors' Report and Accounts (Port-of-Spain,
Trinidad: Caroni Limited, 1977).

Republic of Trinidad and Tobago, Review of the Economy, 1978
(Trinidad and Tobago: The Central Statistical Office Printing Unit,
1979), p. 12.

10Ibid., p. 67.

11Republic of Trinidad and Tobago, Report of Committee to
Consider the Rationalization of the Sugar Industry, Volumes I and II
(Trinidad and Tobago: The Government Printery, 1979), p. 15.

12Republic of Trinidad and Tobago, Review of the Economy, 1979
(Trinidad and Tobago: The Central Statistical Office Printing Unit,
1980), p. 16.





The purpose of this chapter is to examine the organization of the

petroleum industry in Trinidad. We will argue that although the

Trinidadian government has a significant presence in the oil industry,

the industry continues to be dominated by the foreign companies, and

Trinidad is much more dependent on these companies than they are on

Trinidad. This is reflected in the following four major points:

(i) The main producer of crude oil in Trinidad is Amoco Trinidad, a

subsidiary of Standard Oil of Indiana. The emergence of Amoco

as the main producer parallels the shift from land production

to offshore production in Trinidad. Offshore production

requires technology that has not yet been learned in Trinidad.

Thus there continues to be a "technological gap" in the

Trinidadian oil industry and the host country continues its

technology dependence on the foreign companies.

(ii) Trinidad has been much more important as a refining center than

as a producer of crude petroleum. In the refining sphere of

the industry in Trinidad, Texaco has always occupied the

dominant position. It has controlled more than 75 percent of

the country's total refining capacity, but more importantly, it

has been able to secure feedstocks for its Trinidadian refinery

from subsidiaries in other parts of the world and has been able

- 48 -

- 49 -

to market the refined products through its outlets in the

United States. This makes the government of Trinidad much more

dependent on Texaco than Texaco is on it.

(iii) In the area of marketing, the performance of the state-owned

oil company, Trintoc, has not been very impressive. This has

alerted the government of Trinidad to the magnitude of the

marketing difficulties it would encounter if it nationalized

the entire industry. The experience of the state-owned company

seems to counsel a retention of the status quo in the

Trinidadian oil industry.

(iv) Trinidad continues to rely on foreign companies to conduct

exploration for new oil fields because it can ill-afford the

enormous capital outlay such activity requires. However, since

1969 there has been no major commercial oil discovery in

Trinidad. This fact, coupled with the marginality of

Trinidadian oil production compared to the rest of the world,

has been a source of alarm to government officials concerned

with the oil industry and has increased their reluctance to

control, by way of nationalization, plant and equipment that

would be very costly to acquire and that would become obsolete

in a relatively short time when the oil runs out.

Entry of Foreign Companies into the Trinidadian Oil Industry

Trinidadian officials never tired of reminding me that Trinidad

is one of the oldest oil producers in the world. The first successful

oil well in the world was drilled in Trinidad in 1857.1 Sir Walter

- 50 -

Raleigh is known to have taken an interest in Trinidadian pitch.

Attempts at commercial production did not commence until the latter

part of the 19th century, however, and successful commercial

production did not start until the early 1900s.

The major boost to oil development in the island came in 1910,

when the British Admiralty decided to switch from coal to oil as fuel

for its ocean-going ships. Large orders were made for Trinidadian oil

and numerous companies became registered for the purpose of tapping

the island's oil resources, though only a few of these ever achieved

the possibility of commercial success. Some of the earliest companies

involved in oil exploration and production were (i) Trinidad

Leaseholds Limited; (ii) The United British Oilfields Limited,

supported by the Shell Group; (iii) Apex Trinidad Oilfields Limited;

(iv) Kern Trinidad Oilfields; and (v) Trinidad Petroleum Development


Some significant changes of ownership began to take place in the

industry just before the country became independent. In 1956, the

Trinidad Leaseholds Ltd. was acquired by Texaco Inc. and renamed

Texaco Trinidad Inc. In 1956, the United British Oilfields Limited

was renamed Shell Trinidad Ltd. During the same year, British

Petroleum came to Trinidad after it acquired the Trinidad Petroleum

Development Company. A few years later in 1961, the Pan American Oil

Company (later renamed Amoco Trinidad Oil Company), a subsidiary of

Standard Oil of Indiana, entered Trinidad and began exploring for oil.

In the same year also, British Petroleum acquired Kern Trinidad

Oilfields and Apex Trinidad Oilfields.3

- 51 -

Until 1969, all aspects of the oil industry were owned and

controlled by foreign companies. Since that time, the government of

Trinidad and Tobago has acquired substantial ownership interests in

the industry. However, it is still accurate to say that the petroleum

industry in Trinidad continues to be dominated by the foreign


Organization of the Petroleum Industry


Trinidad is a marginal producer of petroleum when compared with

overall world production. Production peaked in 1978 at about 83.8

million barrels (See Table III-1). This was only about 0.4 percent of

total world production for that year. And officials in the Ministry

of Energy openly acknowledge that the world would not suffer any

hardship as a result of a disruption of Trinidadian production.

Not only has Trinidad's annual production been small, but so also

have been its proven reserves. Table III-1 shows the reserves to

production ratios for the period 1962-1981. These ratios, in effect,

give the number of years that production could continue at its present

level before the reserves would be completely depleted, and have been

characteristically small in the case of Trinidad. They have also

generated a sense of insecurity within Trinidad about the duration of

the benefits arising from this industry. As a result, Trinidadians

are unwilling to undergo the lengthy training required to fill the

higher-level technical positions within the industry.

- 52




1962 425,000 48,876 8.7
1963 425,000 48,678 8.7
1964 425,000 49,731 8.5
1965 425,000 48,859 8.7
1966 425,000 56,603 8.1
1967 525,000 64,995 8.1
1968 525,000 66,904 7.8
1969 590,000 57,418 10.3
1970 605,000 51,048 11.9
1971 1,053,000* 47,147 22.3
1972 560,000 51,212 10.9
1973 500,000 60,670 8.2
1974 651,000 68,136 9.6
1975 651,000 78,621 8.3
1976 650,000 77,672 8.4
1977 650,000 83,620 7.8
1978 650,000 83,777 7.8
1979 655,000 78,247 8.4
1980 650,000 77,616 8.4
1981 561,000 69,114 8.1

SOURCE: Compiled from the Central Bank of Trinidad and Tobago,
Monthly Statistical Digest 14 (September 1981); The Central
Statistical Office, Annual Statistical Digest (1963-1978; and World
Oil (1963-1982).

*This figure was seriously disputed by officials in the Ministry of
Energy. Officials claimed that it was closer to 600,000.

This problem was addressed by several senior officials at the

Ministry of Energy. One official pointed out that the country lacks

a broad base in the sciences. It becomes difficult to cater for the

industries located at Point Lisas,4 as well as for the petroleum

industry. He pointed out that there was no oceanographic institute in

- 53 -

Trinidad even though the emphasis in production had shifted to marine

fields. It was only in 1975 that a petroleum engineering faculty was

set up at the University of the West Indies at St. Augustine,

Trinidad. A petroleum-testing laboratory was also set up. Research

and development are only now getting started. Addressing some of the

more specific deficiencies, he said, "There has never been enough

(petroleum) engineers. The condition of the industry does not

attract petroleum engineers."5 He added that the petroleum engineers

who do come into the industry are fresh out of school and have no

experience. He encouraged me to read the Mustofi Commission Report

which was published in 1964 and which was a comprehensive examination

of the petroleum industry at that time. He said that the report had a

tremendous impact not only on the way in which the government has

approached the industry but also on public attitudes towards the


The Mustofi Report (examined in greater detail in Chapter VI)

presented a very bleak picture of the long-term prospects of the

Trinidadian oil industry. It did not see Trinidad remaining a producer

beyond a decade unless newer oilfields were discovered. Since the

publication of the report, the local press, in its regular reporting

on the state of the oil industry, has kept the public attuned to the

paucity of proven oil reserves.

A senior reservoir engineer at the Ministry of Energy was more

specific in detailing the areas in which technical deficiencies exist.

He started out by looking at the Amoco marine operations. He felt

certain that Trinidadians could not handle Amoco's operations. Not

- 54 -

only did the country not have the expertise to operate in the deeper

parts of the ocean, it also did not have the experience with the type

of logistics that are an essential part of off-shore production. He

then turned to the area of exploration and said, "We can't do the

exploration. We do not have enough geophysicists. We do not have the

facilities in Trinidad to process geophysical data. This is done in

England by Western Geophysics (an Anglo-American consulting firm)."

This official also felt that the country needed more refinery

inspectors. At the present time, inspection is done by customs

officials who do not have extensive training in the chemical aspects

of refining. He related how Texaco may have been exploiting this

situation several years ago. He stated that officials at the Ministry

of Energy believed that Texaco used to introduce a dye into the lighter

and more valuable end products of its refinery and pass these off to

Trinidadian customs officials as lesser valued petroleum products.

These were then shipped to the United States where the dye was

removed by a relatively simple process.

The senior reservoir engineer also commented on the "brain drain"

from the Ministry of Energy. Every year, the Trinidadian government

awards scholarships to graduating high school students to enable them

to study overseas to become petroleum engineers, petroleum inspectors,

or geologists. At the completion of their training, these people are

required by contract to return to Trinidad to work for the government

for a period of five years. When the contract period is up, many of

these technical people typically leave government service to take up

employment with the foreign oil companies operating in Trinidad.

- 55 -

Salaries at these companies are usually higher than those paid by the

governments. So then, the prospect of working for the private oil

companies acted as an inducement for people on scholarship overseas to

return to Trinidad at the end of their training. However, the

previous Minister of Energy, Errol Mahabir, moved to prevent the oil

companies from hiring technical personnel serving with the government.

The result has been that people on scholarships rarely return home.

Most of them find lucrative jobs overseas and repay the government the

cost of their scholarships. This, of course, subverts the

government's efforts to increase the indigenous pool of technical

skills, and the government continues to depend on the technical

services offered by the foreign oil companies.

There is one other characteristic of the Trinidadian oil industry

that should be noted before we look at the various companies involved

in the area of production. From the point of view of oil production,

the geological structure in which Trinidad's oil is found is complex.

Unlike neighboring Venezuela, the petroleum in Trinidad is not found

in large reservoirs. Instead, because of sub-surface faulting, the

subterranean reservoirs are broken into small, non-continuous

reservoirs. Locating these reservoirs becomes a difficult and

expensive exercise, since a larger number of wells must be sunk, and

production per well is low. Production has shifted over the past

decade to offshore areas. The technology employed here is much more

sophisticated and operating conditions are much more difficult.

However, production from existing fields has been declining and

expensive enhanced-recovery methods are being used to coax the

- 56 -

remaining petroleum out of existing wells. One result of all of this

is that production costs in Trinidad are relatively high and, until

1973, the oil companies had used this fact to squeeze concessions from

the Trinidadian government.

There are five major producing companies in Trinidad. There are

some smaller companies such as Trinidad Canadian Oilfield and Premier

Consolidated, but their production levels are negligible and are

omitted from the general discussion. The five major companies are:

(i) Amoco Trinidad Oil Company, which has been the largest producer

in the country since 1972 and derives its crude oil from wells

off the east coast Trinidad.

(ii) Texaco Trinidad Inc., which used to be the largest land-

producing company, but its production has been on the decline

since 1970.

(iii) Trinidad-Tesoro Oil Company, a joint-venture between the

Trinidadian government and Tesoro of Texas, a hitherto obscure

company. Trinidad-Tesoro was established to acquire the

holdings of British Petroleum in 1969.

(iv) Trinidad and Tobago Oil Company (Trintoc), a fully-owned

company of the government of Trinidad and Tobago. Trintoc was

established in 1974, when the government acquired the holdings

of Shell Trinidad Ltd., a subsidiary of the Anglo-Dutch major,

Shell International.

(v) Trinidad Northern Areas (T.N.A.), a consortium in which Texaco,

Shell, and British Petroleum had equal shares. Trinidad-Tesoro

- 57 -

took over the British Petroleum shares in 1969, and Trintoc

took over the Shell shares in 1974.

Tables III-2 and 111-3 demonstrate that since 1973, Amoco has

been the single largest producer of crude oil in Trinidad. Over this

period, Amoco's production averaged 53 percent of the total annual

production. And Texaco with its shares of T.N.A.'s production




1967 29.5 4.2 9.6 20.4
1968 29.6 3.6 8.4 24.2
1969 20.6 3.3 7.4 25.3
1970 16.1 3.0 7.1 24.1
1971 13.7 3.2 7.5 22.0
1972 -
1973 10.0 2.6 8.2 18.9 20.6
1974 8.9 2.4 7.9 19.0 29.5
1975 6.8 2.2 6.5 17.5 45.5
1976 7.7 2.6 6.8 17.5 43.0
1977 7.2 3.0 6.9 16.9 49.4
1978 6.6 3.2 7.4 16.2 50.3
1979 6.8 3.3 7.9 16.1 44.8
1980 6.8 3.1 9.1 14.5 43.9
1981 5.9 2.8 8.8 13.6 37.7

SOURCE: Figures for 1967-1971 were obtained from T.M.A. Farrell, The
Multinational Corporations, The Petroleum Industry and Economic
Underdevelopment in Trinidad and Tobago, doctoral dissertation,
Department of Economics, Cornell University, 1974. Figures for
Trinidad and Tobago, Review of the Economy (1978 and 1982). Reliable
figures for 1972 are not available.

- 58 -

accounted for an average of 18 percent of total annual production.

Together, these two foreign-owned companies accounted for an annual

average of over 71 percent of total production.

TABLE 111-3



1967 45.4 6.5 15.0 31.4
1968 44.3 5.4 12.7 36.2
1969 35.9 5.8 13.0 44.1
1970 31.5 5.9 13.9 47.2
1971 29.1 6.8 15.9 46.7
1972 -
1973 17.0 4.3 13.5 31.1 33.9
1974 13.4 3.6 11.6 27.9 43.3
1975 8.6 2.8 8.3 22.2 57.9
1976 9.9 3.3 8.7 22.5 55.4
1977 8.6 3.6 8.3 20.2 59.1
1978 7.8 3.8 8.9 19.3 60.0
1979 8.7 4.2 10.0 20.7 56.3
1980 8.8 4.0 11.7 18.7 56.6
1981 8.6 4.0 12.8 19.7 54.6

SOURCE: Computed from Tables III-i and III-2. See also The Republic
of Trinidad and Tobago, Review of the Economy, 1982, p. 17.

What should also be clear, particularly after a perusal of Table

111-4, is that production is declining. Table III-4 shows the

breakdown of total production in terms of land production and marine

production for the period 1967-1981. While total production figures

prior to 1967 are available, reliable figures showing the method of

- 59 -

production are not available, though it may be assumed that the bulk

of the annual production came from land wells, since major marine

production did not begin until 1972. In any case, as shown in Table

III-4, the decline in land production has been dramatic. Between 1967

and 1981, land production decreased by 60 percent. Marine production,

on the other hand, was increasing until 1978. Marine production

overtook land production in 1972, when Amoco began production off the

east coast of Trinidad. Since that time, marine production has

accounted for the greater proportion of crude oil produced in

Trinidad. Over the period 1974-1981, marine production accounted for

an average of 77 percent of total production per year.

The shift in the production mix from land production to marine

production does have implications for the bargaining position of the

host country. Theodore Moran (See Chapter I) has argued that as the

host country moves up a learning curve of technological and managerial

skills, its bargaining position is strengthened relative to the

foreign investor. In Trinidad, those who advocate the nationalization

of the oil industry have justified their position partly on the

confidence that Trinidad now has the skills to run the refineries and

the land operations. They point to the facts that the work force in

the oil industry is made up predominantly of Trinidadians and that

Trintoc, which is government owned, and Trinidad Tesoro, in which the

government has majority ownership, have both operated successfully.

However, the shift in emphasis to off-shore production has involved a

change in technology which is controlled by a foreign company, Amoco.

- 60 -

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- 61 -

Thus it seems that just when the host country had reached a

sufficiently high point on the learning curve of technological skills,

it must re-start the climb on another technological learning curve.

Senior officials at the Ministry of Energy confessed that the state-

owned company, Trintoc, has conducted some off-shore exploration, but

that the maximum water depth in which it has worked is 547 feet. In

deeper acreages, the government must rely on the foreign companies

which have the technology. The result, of course, is that Trinidad

continues its technological dependence on the foreign companies and

nationalization of the marine fields does not make sense given the

lack of technical competence to operate them.


Trinidad has had the capacity of becoming a major refining

center. Since independence in 1962, the two major refineries have

been modernized and their respective capacity expanded. The Trintoc

refinery at Point Fortin now has a rated capacity of 100,000 barrels

per day. It was geared for crude oil with high sulphur content and

low API gravity. Efforts are now afoot to upgrade this refinery so

that it can produce lighter end products. The Trintoc refinery

handles the crude production from the Trintoc land wells and those of

Trinidad-Tesoro's land operations. Yet, according to Ministry of

Energy officials in Trinidad, this refinery has been operating below

65 percent of capacity over the past few years, largely because of

Trintoc's inability to get feedstocks from outside of the country.

The other major refinery is located at Pointe-a-Pierre and is operated

- 62 -

by Texaco Trinidad Inc. It has a rated capacity of 350,000 barrels

per day. Crude oil from Texaco's land operations is refined here.

Now the total refinery capacity available in Trinidad is 450,000

barrels per day. To keep the refineries operating at full capacity,

Trinidad needs about 164.3 million barrels of crude oil annually.

However, Trinidad's highest level of production occurred in 1978 and

totalled 83.8 million barrels, or only about one-half of what the

refineries would require to operate at full capacity. Trinidad must

therefore import crude oil from outside. What worsens the refinery

situation is that Amoco exports its crude oil directly to the U.S.,

that is, without utilizing the refining facilities in Trinidad. It

should be noted here that O.P.E.C. classifies Trinidad as a net

importer of crude oil and has denied Trinidad membership in the

organization on that basis.7

As Table III-5 shows, the refineries in Trinidad have rarely

operated close to full capacity, partly reflecting the difficulty of

getting crude oil feedstocks. The table also shows that the greater

proportion of refinery throughput is accounted for by imports from

other sources of crude oil. The imported crude oil is, of course,

refined for a fee and then re-exported. Over the period 1967-1978

imports accounted for over 63 percent of refinery throughput. These

are brought in by Texaco from its subsidiaries in other parts of the

world. The refined products are marketed through Texaco's outlets in

the United States. All of this makes the government of Trinidad much

more dependent on Texaco than Texaco is on it.

- 63 -

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- 64 -

A further look at Table III-5 reveals that since 1970, the total

refinery throughput has been falling. In 1978, almost 50 percent of

the total refinery capacity remained idle. There are several reasons

for this. First, domestic production of crude oil has been

declining, necessitating greater volumes of imports annually for the

refineries. Second, much of the windfall revenues collected by

producing countries, as a result of the OPEC price hike after 1973,

was invested in refineries, creating an excess of refinery capacity

worldwide. Finally, lower prices for refined products have also been

a contributing factor.8 This latter point will be fully discussed in

the next section. Nevertheless, under these prevailing circumstances,

government officials question the advisability of national ownership

of the Texaco refinery.


In the area of marketing, the foreign companies again hold a

commanding position. As Table 111-6 shows, the greater proportion of

exports from the oil sector consists of refined products. Now the

refineries in Trinidad, like many others in the Caribbean, had been

established as Offshore (U.S.) refineries. As a result, the product

mixes have been geared to meet the requirements of the owners and the

markets serviced. Table III-6 lists the principal products of the

Trinidadian refineries. Emphasis has been placed on producing the

heavier end products such as residual fuel oil, which are cheaper. In

fact, fuel oil accounts for nearly 60 percent of the total annual

output of the refineries. The market for this product is the

- 65 -

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- 66 -

northeastern United States where it is used for heating purposes

during the winter. There has been great domestic clamor for

increasing the proportion of lighter end products coming out of the

Texaco refinery since they would fetch higher prices, but the output

from the Texaco refinery continues to respond solely to the

requirements of the U.S. market. In fact, Texaco's installation of a

de-sulphurization plant (rated capacity of 100,000 barrels per day) at

its Pointe-a-Pierre refinery was a response to anti-pollution

legislation in the United States. Thus, Texaco's policies in Trinidad

respond to market conditions for petroleum and petroleum products in

the United States, even though these policies are not adjudged by the

Trinidadian government to be in the country's best interests.

Further, the marketing experience of the state-owned company,

Trintoc, has created doubts in the minds of government officials about

the country's ability to market its petroleum and petroleum products

if the entire industry came under state-ownership. Trintoc handles

the marketing of the refined products from its refinery at Point

Fortin. Crude oil for this refinery is supplied by the Trintoc oil

wells, but Trintoc also buys all the crude oil produced by Trinidad

Tesoro from its land operations. In its marketing operations, Trinidad

assumes the role of an independent. It markets petroleum products to

the Eastern Carribbean, South America (the Guianas, in particular) and

the United States. Trintoc has been sustaining severe losses in its

U.S. marketing operations since early 1981. This is largely due to

the fact that the price of its principal product, fuel oil, has been

hovering at about $25 (U.S.) a barrel, while the price of Trintoc's

- 67 -

crude oil is about $31 (U.S.) and Trintoc must also pay U.S. tariffs.

Also Trintoc has only been able to secure short-term contracts in the

United States. This has raised fears that Trinidad could acquire

control over its oil industry only to find itself as a supplier of

last resort. Thus the experience of Trintoc, particularly with regard

to marketing, has dampened enthusiasm among government officials to

acquire complete ownership of the industry, or of any other company

within the industry.

Trintoc's experience also accounts for the attitude of some

officials who laud the country's association with oil companies that

are integrated from the well-head to the gas pumps. Amoco seems to be

benefiting from this type of attitude in governmental circles.

Amoco, which is the single largest producer of crude oil in Trinidad,

exports all of its crude oil to the United States. Amoco's crude oil,

obtained from marine fields, is of very high quality--low sulphur

content and high API gravity. Amoco also buys the marine-produced

crude oil from Trinidad Tesoro and exports it to the United States.

The crude oil is refined in the United States and sold through Amoco's

outlets. Amoco's justification for its action, which is accepted by

the Trinidadian government, is that it is providing the government

with a secure market in the United States.

The domestic market for petroleum products, which was formerly

controlled by foreign companies, is now a government monopoly. The

state-owned National Petroleum Marketing Company (N.P.M.C.) handles

local demand for petroleum products, primarily gasoline. The

government owns all of the local gas stations and operates them

- 68 -

through the N.P.M.C. In 1969, when the government bought out British

Petroleum, it acquired the British Petroleum gas stations. Similarly,

in 1974, the government acquired control over all of the Shell gas

stations. With these gas stations under its control, the government

approached Texaco with a proposal to purchase the remaining gas

stations, owned by Texaco. Texaco refused to sell. However, the

government was selling gas at its stations at subsidized prices. This

resulted in a virtual boycott of the higher priced gas available at the

Texaco gas stations. Finally, in 1976, Texaco consented to sell its

gas stations to the government.


Exploration is the costliest aspect of the petroleum business.

It is also the area that carries the greatest risk. And as Edith

Penrose points out, in the case of a capital-poor, developing country,

exploration for oil is best left to the larger international

companies. The financial and technological resources at the disposal

of these companies make their chances of discovering the country's oil

reserves much greater than if the country undertook the task alone.10

The Trinidadian government seems to have accepted this reasoning.

Except for a limited exploration effort by the state-owned company,

Trintoc, the bulk of the oil exploration is carried out by foreign

companies. Exploration is currently being conducted by the following

foreign companies:

(i) Agip, incorporated in Italy;

(ii) Deminex, incorporated in Germany;

- 69 -

(iii) Tenneco, incorporated in the United States;

(iv) Occidental Petroleum Corporation, incorporated in the United


(v) Mobil Oil Corporation, incorporated in the United States.

Despite intense exploration activity, no major commercial oil

discovery has been made. The last major oil discovery was made off

the east coast of Trinidad in 1969 by Amoco, which has been producing

from those fields since 1972.

The more recent exploration activity has turned up natural gas.

Tenneco, in combination with Texaco, has found gas off the east coast

of Trinidad, and DATO, a joint-venture of Deminex, Agip, Tenneco, and

Occidental, has found gas off the north coast. These gas finds and

the huge gas reserves that have been discovered by Amoco, have

convinced the government that its future may lie in natural gas

production. Nevertheless, the currently high oil prices serve as an

incentive for continued exploration.


In the previous chapter, we discussed the essentiality of the

petroleum industry to the Trinidadian economy. Not only has the

petroleum industry been the principal engine of growth in the economy,

but oil revenues, particularly after 1973, have allowed the government

to engage in a massive subsidization program in industry and in social

welfare. Given the country's dependence on petroleum revenues, we

concluded that governmental policy affecting the oil industry needed

to be formulated with caution.

- 70 -

In the present chapter, we look at the realities of the

Trinidadian oil industry, which must weigh heavily on governmental

decision-making. While the revenues from oil have been enormous and

while the economy has grown enormously after 1973, Trinidad remains a

minor oil producer with very little impact on the international oil

industry. It continues to depend on foreign companies for technology,

both in production and continuing exploration, crude oil to keep its

refineries in operation, and most importantly, for markets for its

petroleum and petroleum products. The absence of any new oilfields

portends a bleak future for the Trinidadian oil industry. These

considerations alone would suggest that nationalization of the

industry has never been a realistic option for the government.

However, as Smith and Wells point out, governments may be forced

by domestic political pressures to make demands on foreign companies

that neither their bargaining strength nor their economic interests

warrant.11 In the next two chapters, we will look at the types of

domestic pressures that have been brought on the government to alter

its policies towards foreign investment, in general, and the oil

industry in particular.

- 71 -


1Jan Knippers Black, et al., Area Handbook for Trinidad and
Tobago (Washington, D.C., 1976), p. 221.

2Ministry of Energy, History of Oil in Trinidad (Appendix I),
(undated), p. 1.

3Trevor M. A. Farrell, The Multinational Corporations, The
Petroleum Industry and Economic Underdevelopment in Trinidad and
Tobago, Ph.D. Dissertation, Cornell University, 1974, pp. 99-100.

Pt. Lisas is the site of most of the newer industries.

5Interview, Ministry of Energy, Port-of-Spain, Trinidad,
February 16, 1982.

6Interview, Ministry of Energy, Port-of-Spain, Trinidad, March,
2, 1982.

7Interview, Ministry of Energy, Port-of-Spain, Trinidad, March 2,

8Ibid. For a government view of the trend the Trinidadian oil
industry is likely to take in the near future, see Trevor M.
Boopsingh, "The Petroleum Industry the Next Decade," Ministry of
Energy and Energy-Based Industries, Trinidad and Tobago, January 1,
1980; and the Conference Report on Best Uses of Our Petroleum
Resources (Volume I) (undated). The conference was held at
Chaguaramas from January 13 to January 15, 1975 and was sponsored by
the Government of Trinidad and Tobago.

9Interview, National Energy Corporation, Port-of-Spain,
Trinidad, February 19, 1982.

10Edith Penrose, The Large International Firm in Developing
Countries: The International Petroleum Industry (Cambridge, Mass.:
The M.I.T. Press, 1968), pp. 236-238.

IlSmith and Wells, Jr., Negotiating Third World Mineral
Agreements, p. 18.




A hypothesis that enjoys widespread acceptance among scholars who

study the relations between the multinational corporation and the

developing host country is that as the foreign-controlled industry

increases in importance to the economy of the developing country, the

foreign investors in that industry become an object of attack by

domestic groups opposed to the government. The increasing visibility

of the foreign companies causes domestic political and economic groups

to closely monitor and criticize the behavior of the foreign

companies. This is especially true if the foreign-controlled industry

dominates the economy of the developing country in the sense that it

determines the rate of growth of the economy, it is the principal

contributor to governmental revenues, and it is the largest earner of

foreign exchange in that country. Political groups will constantly be

vying with one another to squeeze more and more out of the companies

in the hope that their domestic support will increase in proportion to

the intensity of their demands.

In Chapters II and III, we demonstrated that the Trinidadian

economy is highly dependent on the oil industry, which is dominated by

the foreign oil companies. Chapters IV and V will now explain how the

foreign companies became a major issue of domestic politics. The

present chapter explains why, during the first decade of rule by the

People's National Movement (P.N.M.), the foreign companies were

72 -

- 73 -

insulated from domestic politics. This chapter explains the basis for

the P.N.M.'s continued stay in power. It also explains why the

opposition party was unwilling and unable to make political capital

out of the presence of the foreign companies operating in the country.

The analysis in this chapter will reveal the following major


(i) There has been no change of government since 1956, that is, the

same party, the P.N.M., has been in power since that time. This

uninterrupted stay in power can be explained by the fact that

voting behavior in Trinidad is primarily determined by ethnic

affiliation, and the P.N.M. has been able to secure continuity

in government by presenting itself as the champion of the

interests of the Negro majority.

(ii) Between 1956-1971, the parliamentary opposition party was the

Democratic Labor Party (D.L.P.). The party was decidedly pro-

business in its orientation. As a result, it gave the

impression that it was defending all foreign companies. The

P.N.M. by comparison appeared to be much more radical and

therefore much more attractive to nationalists within Trinidad.

(iii) The D.L.P. drew its support predominantly from the East Indian

population which resided in the sugar belt. Sugar became the

principal concern of the D.L.P. It is doubtful whether the

D.L.P. or its affiliated sugar union advanced the interests of

the sugar workers as much as they could, but the party

- 74 -

developed a competence in the sugar industry which it did not

develop in the oil industry.

(iv) Given the pattern of ethnic voting and the fact that the oil

belt was populated largely by the Negroes, the D.L.P. may not

have been as motivated to take as close an interest in the oil

belt as it did in the sugar belt. However, even as the

national opposition party, it failed to take advantage of its

position to question oil policy or to initiate changes in

policy. Consequently, the government was relieved of an

important source of domestic pressure aimed at the foreign-

controlled oil industry.

(v) After 1962, the D.L.P. became plagued by organizational

troubles. These consumed the energies and abilities of

opposition leaders, which in turn gave the government a free

hand to legislate and implement policies.

Ethnic Composition of Trinidad

Table VI-1 shows the ethnic composition of the Trinidadian

population. An examination of the table should give one an idea of

the cultural complexity of the population.

In large measure, the settlement pattern of Trinidad was

historically similar to the other Caribbean islands. Under Spanish

rule, Trinidad was virtually ignored since Spain was far more

interested in the mineral-rich areas of the New World. The

enslavement of the indigenous Indians on the island led to a rapid

decline in their numbers, and Africans were brought to the island as

- 75 -




NEGRO 358,588 43 398,765 43
EAST INDIAN 301,946 36 373,538 40
WHITE 15,718 2 11,383 1
CHINESE 8,361 1 7,962 1
MIXED 134,749 17 131,904 14
LEBANESE/ 6,714 1 7,519 1

TOTAL 826,076 100 931,071 100

SOURCE: The Central Statistical Office, Annual Statistical Digest
(1963 and 1978). The 1970 census figures are the most recent
published by the government.

slaves to boost the production of tobacco and coffee in the eighteenth

century. However, it was not until the last quarter of the century

that settlement and agricultural productivity showed dramatic

increases due to a change in Spanish colonial policy which opened up

the island to immigration. French planters and their slaves came in

large numbers from other Caribbean islands, and began sugarcane


With the emancipation of the slaves in 1834, a shortage of labor

for the sugar plantations developed. The problem was resolved by the

introduction of indentured labor from Hong Kong, Portuguese Madeira

and from India. When the indenture system was brought to an end in

- 76 -

1917, the Indians in Trinidad accounted for about one-third of the

total population. And as Table IV-1 shows, the Indians are the most

rapidly increasing ethnic group in the country.

The People's National Movement (P.M.N.) has been the party in

power since 1956. It has won every national election since that time,

so that its continuity in government has been acquired by democratic

means.1 Even so, what accounts for this consistent pattern of

successes at the polls is the ethnic voting pattern in Trinidad. As

one opposition leader put it, "This government does not depend on its

performance for political support. It falls back on race."2 To

understand fully how this pattern of voting developed, it is necessary

to retrace the development of party politics in the island.

Early Political Mobilization

Political consciousness among Afro-Trinidadians began to develop

after World War I. Negroes, who had left Trinidad to serve with the

British West India Regiment in Europe, had been told that theirs was a

crusade to make the world safe for democracy. The European experience

had shattered many of the myths that had served to buttress British

colonial rule and the Afro-Trinidadians returned home determined to

get a better deal from the system. Many returning servicemen became

associated with Captain Andrew Cipriani, the White officer who had

commanded their regiment and who had now entered active politics as a

champion of the underdog. He founded the Trinidad Labor Party in

1934. Although he drew the majority of his support from urban

Negroes, he had succeeded in forging a coalition between Negroes and

- 77 -

Indians. In fact, a number of prominent Indians, the most notable of

whom was Adrian Cola Rienzi, were closely identified with Cipriani.

Rienzi, a lawyer with socialist leanings, was in charge of organizing

trade union activity in South Trinidad.3

By 1935, there were signs that the Cipriani movement was

fragmenting. Cipriani was quite old. He seemed unable to control the

mass following he had created and was unwilling to share leadership or

to listen to the younger voices in his party. Also, Negro workers in

the oil belt were growing impatient with Cipriani's gradualist

policies. Eventually, two of his lieutenants, Adrian Cola Rienzi and

Tubal Uriah Butler, a Negro political agitator, broke away from the

Trinidad Labor Party and took a sizable proportion of the membership

with them.

In 1937, Butler called a general strike in the oil belt. The

strike and the accompanying violence resulted in the loss of fourteen

lives and in the injury of about fifty-nine others. The purpose of

the strike was to redress some long-standing grievances of Negro

workers in the oil belt. However, the strike also dramatized the need

for social, political and economic reforms in the colony.5

Two important consequences grew out of the 1937 disturbances.

The first was the recognition by the colonial authorities of the right

of the Trinidadian workers to unionize. Under Adrian Cola Rienzi, who

had been the workers' principal negotiator during the strike, two of

the most powerful unions in the country's history were established--

The Oilfields Workers Trade Union (O.W.T.U.) and the All Trinidad

Sugar Estates and Factory Workers Trade Union (A.T.S.E.F.W.T.U.). The

- 78 -

O.W.T.U. was recognized in 1938, but the A.T.S.E.F.W.T.U. was not

recognized until 1945. Rienzi was the President of both unions and a

great amount of cooperation existed between the unions. Like

Cipriani, Rienzi had succeeded in "mixing oil with sugar," that is,

forging a coalition between the Negro oil workers and the Indian sugar

workers. The second result of the 1937 strike was that it drew

British attention to the need to change the constitutional instruments

governing the colony, and this led to the granting of adult suffrage

to the colony.6

The first election under adult suffrage was held in 1946. The

constitution in force at the time allowed nine elected seats in a

legislature of eighteen members. The other nine members were

nominated by the British governor who exercised veto power over the

proceedings of the legislature. Among the numerous political groups

and independents that contested the election was the Trades Union

Congress, a group of labor unions.7 This is noteworthy because it

marked the beginning of a tradition of direct labor involvement in the

politics of Trinidad.

Bitter controversy developed over the constitutional arrangements

governing the colony and this led to constitutional reforms which were

instituted in 1950. Under the constitution of 1950, the legislature

was to be composed of eighteen elected members, four ex-officio

members and five nominated members, presided over by an appointed

speaker. For the first time, the elected members in the legislature

would outnumber the non-elected. The constitution also provided that

the Executive Council should become the principal instrument of policy

- 79 -

with a ministerial system in which the elected members of the

Executive Council would be responsible for the administration of

government departments. However, members of the Executive Council

were still to be selected by the Governor.8

The 1950 election was fiercely contested. One hundred and forty-

one candidates contested for the eighteen available seats. Ninety of

these candidates were independents and the other fifty-one carried a

party label of some sort. Six of the independent candidates were

successful in winning a seat each. The Caribbean Socialist Party, the

Trinidad Labor Party and the Political Progress Group each won two

seats, while the Butler Party, which was a Negro-Indian alliance, won

six seats, the largest number won by any party in the legislature.

However, when the members of the Executive Council were selected by

the governor, none of the Butlerites were chosen. The feeling was

that Butler did not have the administrative and intellectual

preparation to execute ministerial duties.

There are some common characteristics about the elections of

1946 and 1950. Ethnicity was not yet the dominant variable in

political life. Political parties mushroomed at election time and

faded soon afterwards. The parties tended to be a collection of

individuals around some central personality with little organizational

structure and no comprehensive program. In large measure, this was

due to the constitutional constraints which discouraged party cohesion

and which did not hand over executive decision-making to the majority


- 80 -

The Emergence of a Two-Party System

The election of 1956 was a dramatic shift from the two previous

ones. The Constitution introduced in 1956 promised full internal

self-government and gave impetus to the establishment of mass-based

parties in Trinidad. The new constitution increased the number of

elected members of the legislature to twenty-four. It also provided

for the election of a Chief Minister by the Legislative Council. The

Chief Minister would be the leader of both the Executive Council and

the Legislative Council. The Executive Council would consist of ten

members, including the Chief Minister. The number of nominated

members of the Executive Council was reduced to two--the Colonial

Secretary and the Attorney General, who were ex-officio members. The

Governor would allocate the ministerial portfolios, but only after

consultation with the Chief Minister. The framers of the 1956

constitution attempted to create a British type of cabinet

government.10 The conditions were now set for political parties to

compete for control of the Executive Council.

The People's National Movement (P.N.M.), which was victorious in

the 1956 national elections, began as the Political Education Group.

It was a group of predominantly Negro professionals who met regularly

to discuss the political problems facing Trinidad. The chief

spokesman for the group was Dr. Eric Eustace Williams. Williams

acquired a reputation in Trinidad as an educator. He had obtained a

D. Phil. degree in History from Oxford University, and had taught

Political Science at Howard University in Washington, D.C. In 1948,

he took up a research position with the Anglo-American Caribbean

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Economic Commission, which permitted him to return to the Caribbean.

He gave numerous public lectures in Trinidad, many of which dealt with

non-political subjects. As a result of these, he became very well

known in Trinidad and began to develop a following.1 He became

actively involved in politics in 1955 when his application was turned

down for the vacant position of Secretary-General of the Caribbean

Economic Commission.12 Williams used this issue to launch his

political career. As Selwyn Ryan put it: "His main strategy was to

get the masses to regard his personal struggle as their struggle--the

struggle of the qualified black West Indian for recognition and

advancement."13 In protraying himself as the restorer of Negro self-

respect, Williams was striking a very harmonious chord in the minds of

the Negroes. The issue of Negro self-respect had been central to the

struggle of Butler and his followers in the oil belt. Williams

appeared to be a new prophet who would take black consciousness to a

higher level.

At Woolford Square in Port-of-Spain, Williams lectured on the

origins and consequences of the slaves and on the nature of the slave

regime and economy. His lectures had a mesmerizing effect on the

Negro. As Oxaal observes, "For many lower class Negroes, particularly

Creole (Negro) women, Dr. Williams was nothing less than a messiah

come to lead the black children into the Promised Land."14 However,

Oxaal points out that the image of Williams as a racial messiah,

though strongest among the Black lower class, was by no means also

confined to this class. It could be found in the Negro middle


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The People's National Movement was inaugurated on January 15,

1956. It was well organized and presented a comprehensive political

program embodied in a party pamphlet called The People's Charter. The

Charter called for constitutional reform and outlined a program for

the achievement of a welfare state. However, the P.N.M. became

regarded as an instrument for the advancement of the Negro interests.

As Ryan put it: "Politically conservative Hindus, White settlers

and businessmen, the Catholic Church, the old-line trade unions,

and political leaders all feared its influence over the Negro

masses. .6 The P.N.M. became the target of attacks from both the

opposition parties as well as from the independent candidates. The

principal charge was that Williams was driving a racial wedge into the


The major threat to P.N.M. electoral success in 1956 came from

the People's Democratic Party (P.D.P.), a conservative party, founded

in 1953 by Bhadase Sagan Maraj, an Indian and one of the wealthiest

men on the island. Maraj has become a legendary figure in Trinidadian

politics. He was not a man with much formal education, but he was

tough and practical-minded. Maraj derived his political strength by

virtue of his control over the Sanatan Dharma Maha Sabha, the umbrella

organization of the Hindus, and from his control over the sugar union.

His style of politics was essentially clientelistic. He built schools

and temples in the Indian areas and gave liberally to the poor and

needy. As Maraj's political influence among the Indians grew, he was

joined by Ashford Sinanan and Mitra Sinanan, two top lawyers in

Trinidad who had already proved themselves as able parliamentarians,

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and by other politically ambitious Indians. Thus the Indian-dominated

P.D.P. prepared to confront the Negro-dominated P.N.M.18

There were four other major parties which contested the 1956

election. First, there was the Party of Political Progress Groups

(P.O.P.P.G.). It represented the local White upper and middle classes

and was identified with the Chamber of Commerce, the Catholic Church,

and the old colonial order. The party accused Williams of subtly

invoking Negro hostilities against Whites by periodic resurrections of

"slave history." Second, there was the Trinidad Labor Party (T.L.P.)

which claimed that as the party of Cipriani it was the true heir to

the leadership of the working class. Third, there was Butler Party

which argued that Butler was the only leader who had been successful

in bridging the gap between the Indians and the Negroes. Fourth,

there was the Caribbean National Labor Party (C.N.L.P.) the leadership

of which was drawn predominantly from labor unions. The party leader

was John Rojas who was also the President of the Oilfields Workers

Trade Union. The party advocated greater state control over the oil


When the results of the election were declared, the P.N.M. had

won a majority of the seats. Of the twenty-four elective seats

contested, the P.N.M. won thirteen but with only 39 percent of the

votes cast. The P.D.P. won five seats with 20.3 percent of the votes.

The T.L.P. and the Butler Party each won two seats. The remaining two

seats were won by independents. The P.O.P.P.G. failed to win any

seats in the legislature. The party performed well in areas where

Whites predominated but these were not enough to earn the party a

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seat. The P.N.M. won its seats from the predominantly black urban

areas. It failed to win any seats in areas where the Indians

predominated, especially in the sugar belt. In these areas, the

P.D.P. was triumphant. In fact, the P.D.P. only fielded candidates in

14 of the 24 constituencies. It did not put up candidates in any of

the areas where the Negroes had a majority such as San Fernando, Port-

of-Spain, and Laventille.20 Thus, while a two party system seemed to

have emerged, its basis was ethnic. This became even more evident

after the federal elections of 1958.

The Federal Elections and the Intensification of Racial Animosity

A federation of the British West Indian islands had been proposed

by the British government as the price for independence from Great

Britain. Trinidad was one of the ten colonies that opted to join the

federation. Port-of-Spain, Trinidad, was chosen as the federal

capital. The West Indies Federation came into effect in January 1958,

and elections for the federal parliament were scheduled for April of

that year.2

Two federal parties contested the election. The first was the

Federal Labor Party led by Norman Manley of Jamaica. Manley had

successfully persuaded the P.N.M. to join his federal party, so that

the P.N.M. became the Trinidad unit of the Federal Labor Party. The

other federal party was the Democratic Labor Party led by Sir

Alexander Bustamante, Manley's cousin and political rival. In an

effort to establish a Trinidad unit of the federal Democratic Labor

Party, Bustamante visited Trinidad on May 17, 1957 and held

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discussions on the subject with the executives of the P.D.P., the

T.L.P., the P.O.P.P.G., and the Butler Party. Of these parties, the

P.D.P, the T.L.P. and the P.O.P.P.G. agreed to become affiliated to

the federal Democratic Labor Party. In fact, on May 23, 1957, the

Trinidad unit of the Democratic Labor Party was launched, which was no

more than a loose coalition of the P.D.P., T.L.P., and the P.O.P.P.G.

However, the leaders of these three parties realized that it made

little sense to unite in federal politics and yet be opposing each

other in local politics. At a special conference of the three parties

held on July 18, 1957, a decision was taken to dissolve the three

parties and to form a single party to be called the Democratic Labor

Party (D.L.P.) of Trinidad and Tobago, and this party would also serve

as the Trinidad affiliate of the federal Democratic Labor Party. The

leader of Trinidad's D.L.P. was Bhadase Sagan Maraj, and the D.L.P.

became the official opposition in the Legislative Council of


The Federal Labor Party, to which the P.N.M. was affiliated,

portrayed itself as a socialist united front. The D.L.P. of Trinidad,

on the other hand, campaigned against the establishment of any form of

socialism in the West Indies. The deputy leader of the party, Ashford

Sinanan, stated: "We are inflexible in our advocacy at all times that

the only hope of the entire West Indies is the belief in private


The results of the 1958 elections shocked Williams and the

P.N.M. The D.L.P. had defeated the P.N.M. by winning six out of the

ten federal seats allocated to Trinidad. It was clear that the

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victory of the D.L.P. was made possible by the support of non-Indian

groups including Negroes who were disenchanted with Williams and the

P.N.M. Williams made his reaction to this defeat known a few days

after the elections. In an address before a predominantly Negro

audience, Williams accused the Indian community of voting on the basis

of race. He also chastised the Negro population for apathy and

lethargy and for apparently not rallying round the P.N.M. Williams

was criticized for this speech by the press and by the political

opposition because it seemed to lay the foundation for further ethnic

polarization in the colony.24 Thus, participation in the federal

election of 1958 had the effect of entrenching a two-party system in

Trinidad, but it also had the effect of intensifying racial animosity

on the island.

Leadership Problems Within the D.L.P.

The D.L.P. had been established by a coalition of three political

parties, united in their opposition to the P.N.M. The leader of the

party was Bhadase Sagan Maraj. Maraj was very successful not only in

mobilizing the support of the Indians, but also in manipulating the

discontented non-Indian elements in the country. The results of the

1958 federal elections had demonstrated this. However, the younger

Indians within the party were unhappy with Maraj's leadership. They

felt that he lacked education, his manners and methods were crude, and

that he was no intellectual match for Williams. They wished to see

Maraj replaced by someone of the intellectual stature of Williams.25

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In 1959, an opportunity for a change in leadership arose when

Maraj was kept out of active politics by protracted illness. Because

no one seemed capable of maintaining discipline within its ranks, the

party was in disarray. The search for another leader intensified and

the choice eventually fell on Dr. Rudranath N. Capildeo.26

Rudranath Capildeo had had a brilliant academic career. He had

earned his Ph.D. in Physics from London University. During 1958-59,

he was Principal of Trinidad Polytechnic and was therefore available

locally. Those who supported his candidacy for the party leadership

felt that such a move would enable the D.L.P. to woo back Indian

intellectuals and professionals, provide a hero figure for the rural

Indian masses, and at the same time present the non-Indians who were

alienated from the P.N.M. with a pole of intellectual caliber around

which they could settle. Although the selection was accompanied by

bitter factional struggles, the fear of another five years of Negro

rule if the P.N.M. prevailed in the forthcoming elections forced a

closing of ranks behind the new leader.27 However, as events would

reveal, Capildeo was ineffectual as a politician.

The 1961 election was held amidst intense racial lobbying and

opposition charges that the new electoral rules were formulated to

disadvantage them. As a former D.L.P. official pointed out, all

previous elections had been "ballot box" elections, including the 1958

federal elections which the P.N.M. lost. The P.N.M. government

proposed to introduce voting machines in the 1961 election. The

D.L.P. objected to this change on two grounds. First, the D.L.P.

argued that the voting machines would scare away many unsophisticated

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rural voters. Second, the D.L.P. voiced the suspicion that the voting

machines had been fixed to ensure a P.N.M. victory. They challenged

the government to have the machines independently examined and

suggested that the machines be used on an experimental basis in the

local government elections prior to the 1961 national election. The

P.N.M. government refused.28

The D.L.P. also objected to the manner in which voter

registration was being conducted as well as to the way in which the

electoral boundaries were being demarcated. The D.L.P. argued that

too many powers were granted to the registration officers who were

predominantly Negroes and therefore pro-P.N.M., and that they did not

expect free and impartial registration of voters, given the state of

race relations in the country. The D.L.P. also expressed its fears

about the fairness of electoral boundaries which were to be demarcated

by a P.N.M.-dominated commission. Of these boundaries, Selwyn Ryan

had this to say: "There is no doubt whatsoever in the writer's mind

that the constituencies were gerrymandered."29

Radical tempers flared in this election. "Programme and policy

were secondary questions in the election of 1961: it was primarily a

struggle between the two ethnic groups for political power.30 In a

campaign speech, Eric Williams suggested that a Negro who did not

identify with the P.N.M. was a traitor. And Capildeo in a fit of

anger issued a call to arms.31 When the results of the election were

declared, the P.N.M. had won 20 of the 30 seats with 57 percent of the

popular vote, and the D.L.P. won the remaining 10 seats with 42 percent

of the vote.32
of the vote.

- 89 -

Williams won another term in office. In fact, he was never

defeated at the polls. Opponents claim that he maintained political

power by subtly manipulating racial sentiments within the country. He

used the threat of domination by non-Negro groups to forge cohesion

within the Negro majority. He also used his control over the state

machinery to dispense patronage. He created a massive "special works"

program (see Chapter III). He bought over all of the public utilities

in the 1960s and turned all of these into employment agencies for

party members. He also manipulated the electoral boundaries.

According to opposition leaders, these continue to be the means

utilized by the P.N.M. to maintain itself in office.33

Fragmentation of the D.L.P.

On August 31, 1962, Trinidad became independent, and the P.N.M.

settled into the remaining four years of its rule. Within the D.L.P.,

however, a system of absentee leadership began to develop. Capildeo,

the D.L.P. leader, accepted a teaching position at the University of

London in 1963. However, Capildeo retained the leadership position in

the D.L.P., as well as in the parliamentary opposition. He only

attended a few sittings of this entire legislative term and did so

when the University recessed. This anomaly caused havoc within the

D.L.P. leadership. The P.O.P.P.G. and the T.L.P. elements of the

party broke away in 1964 and formed the Liberal Party under the

leadership of Peter Farquhar. What remained of the D.L.P. was

essentially the Indian component of the party.34