Hidden in Plain Sight: How T&T's Heritage Petroleum Became the Engine of a Shadow Fiscal State

In the world of state owned enterprises, few structures are as legally compliant and economically deceptive as Trinidad and Tobago's Heritage Petroleum Co Ltd. Beneath its polished audits and favorable credit ratings lies a sophisticated piece of financial engineering, one that has turned an upstream oil company into a quasi fiscal vehicle designed to absorb public liabilities, mask sovereign risk, and enable opaque political financing. This is the story of how Heritage, born from the ashes of the defunct Petrotrin, became the workhorse of a state structure that is as brilliant in design as it is precarious in execution.

The Genesis: From Petrotrin to TPHL-Heritage

In 2018, Petrotrin was effectively bankrupt. Saddled with over US$850mil in debt and mounting operational losses, the government opted for a clean slate restructuring. TPHL was created as a holding company. Under it, three subsidiaries emerged, Heritage (upstream oil), Paria (fuel trading), and Guaracara (refinery).

Source - TPHL

The brilliance of the design was in the functional bifurcation of risk and return:

Petrotrin's debt and legacy obligations, including bondholder liabilities, pension exposure, and environmental clean up costs, were isolated within TPHL. Meanwhile, the revenue generating assets, including upstream oil fields, drilling infrastructure, and production licenses, were vested into Heritage.

This allowed the T&T government to accomplish several critical macrofinancial goals,

1. Preserve T&Ts international credit credibility: By ensuring that Petrotrin’s technical default would not cascade into a sovereign downgrade, the restructuring signaled creditor responsibility while decoupling state credit metrics from SOE (state owned enterprise) failure.
   

2. Avoid cross default and reputational risk: Petrotrin's default would have potentially triggered cross default provisions across other state linked debt and worsen T&T's credit rating. To prevent this, TPHL was created to house the legacy debt obligations, while the new bond issuances (US$500M at 9% and US$475M at 10.46%) were technically structured as fresh debt instruments under TPHL’s name. However, Heritage’s projected cash flows were used to underpin repayment capacity, ensuring investor confidence, without triggering a formal default or requiring sovereign intervention. This maneuver maintained the country’s clean track record in capital markets and sidestepped ratings agency scrutiny.
   

3. Enable refinancing through market-friendly optics: When the government shut down Petrotrin, it needed to borrow new money to pay off Petrotrin’s old debt but no investor wanted to lend to a company that had just failed. So instead of borrowing in the name of Petrotrin or even the government (which would’ve raised concerns), they created a new company, Heritage.

   Heritage had no debt, no bad history, and valuable oil assets. So it looked financially “clean.” That made investors feel more comfortable. They thought, “This is a healthy oil company with good cash flow, it can repay us.” Even though the debt was legally issued by TPHL (the holding company), it was Heritage’s oil revenue that would actually make the payments. This trick allowed the government to borrow again without saying, “we are replacing Petrotrin’s bad debt.” It avoided panic, protected the country’s financial reputation, and helped keep interest rates from spiking
   

4. Maintain balance sheet transparency: By ensuring that TPHL remains legally separate from the central government, the state could exclude its debt from being counted in public sector debt aggregates. This allowed official debt/nGDP ratios to appear lower, helping T&T meet international fiscal benchmarks, including those monitored by the IMF and credit rating agencies. Even though Heritage is a state owned, cash generating entity, was effectively servicing this debt, the legal structure enabled the government to avoid consolidating TPHL’s liabilities in national accounts. As a result, the government maintained a cleaner fiscal image while still retaining full economic control over TPHL and Heritage’s operations.
   

In essence, the restructuring allowed the government to “offshore” fiscal risk into a domestic SOE vehicle, creating the perception of fiscal prudence while retaining full control over the economic flows.

Breaking Down The Engine Room: Heritage as the Hidden Debt Servicer.

What followed was a subtle but critical shift, Heritage, though never the issuer of Petrotrin's original debt, began servicing it. The mechanism? Heritage pays down billions in legacy debt, but instead of classifying it as an expense, it records it as a "receivable" from TPHL. As of 2024, this receivable sits at TT$10.2 billion, a staggering 58% of Heritage's non-current assets.

Source: TPHL Financials

What does it means simply? Heritage is carrying a TT$10.2Bil “receivable” on its balance sheet, which means it expects to be paid back by TPHL for covering old Petrotrin debt. But TPHL has no income or assets to repay it. This makes the receivable unrealistic and potentially worthless. By keeping it on the books, Heritage looks stronger than it really is. If this amount were removed or written off, Heritage’s true financial position would be much weaker, possibly cutting its net worth in half. But why a "receivable" and not a "dividend?" Heritage doesn’t call the money it gives TPHL a “dividend” because a dividend is final, it would lower Heritage’s equity and show clearly that it’s funding the government. Instead, it calls it a “receivable,” as if TPHL will pay it back. This makes Heritage look stronger on paper, even though the money is unlikely to return. It hides the loss, keeps the government’s debt numbers low, and helps maintain the illusion that Heritage is financially independent.

The accounting, however, is legal. Auditors (EY) sign off because the receivable follows international accounting standards since there is a formal agreement between Heritage and TPHL, and no default has technically occurred. Rating agencies (Fitch) assign a BB rating with a stable outlook, based on the assumption that the government will step in if needed. In other words, the structure meets the rules on paper, but in economic reality, it's hollow, there’s no repayment plan, no income at TPHL, and no enforceable guarantee.

The Masked Fragility

Source: TPHL Financials

This system gives the illusion of solvency. Heritage’s balance sheet is propped up by a TT$10.2bil receivable from its parent, TPHL, a non-performing, economically unrecoverable asset that artificially inflates equity and distorts leverage metrics. Meanwhile, the company continues to issue dividends, TT$1 billion paid between 2023 and 2024, not from sustainable free cash flow, but effectively from borrowed funds and delayed spending on critical infrastructure. These dividends, while politically expedient, erode the firm’s capacity to reinvest, maintain operating assets, or fund its long-term obligations. Especially since the government is already expected to receive monies from royalties, SP taxes and production levies. Combined with dividends and debt servicing, these payments make Heritage a de facto fiscal arm, one that allows the government to extract value while distancing itself from the balance sheet obligations

The largest of those obligations is a TT$4.75bil decommissioning liability, a future environmental cleanup cost tied to retiring oil and gas infrastructure. While this liability is large on paper, it is not an immediate cash concern. It remains entirely unfunded, and no money is set aside in escrow or trust. However, accounting rules still require Heritage to recognize the PV of this cost, which includes an annual non cash finance charge known as 'unwinding of the discount,' TT$334mil in 2024. This affects reported earnings but not cash flow. Importantly, this liability could be removed from Heritage’s books if the underlying asset is sold or transferred, since the obligation typically follows the asset. That’s why it's often seen as a 'paper liability,' material in the long term, but manageable in the short to medium term. Still, until resolved, it sits on the balance sheet, contributes to reported leverage, and factors into investor and credit risk analysis.

Heritage’s capital expenditure consistently exceeds TT$1bil annually, yet this spending does not translate into meaningful increases in production volume or proven reserves. Many projects are launched without a clearly defined return on investment (ROI) framework. Strategic initiatives are frequently revised, delayed, or shelved altogether suggesting poor investment discipline and political interference (see example of a few items below). Despite this, the system continues to move forward.

Source: TPHL Financials

Why? Because money is still moving, to international bondholders, to the government via dividends, and to a network of vendors, contractors, and advisors. Net finance costs in 2024 alone amounted to TT$484mil, according to the income statement. This figure includes TT$729mil in borrowing charges and TT$334mil in interest on decommissioning provisions, partially offset by TT$530mil in interest income from related parties, highlighting that the gross cost of capital is far higher than the net figure suggests. When combined with debt repayments and dividends, total outflows exceeded TT$1.5bil far surpassing the company’s actual FCF. This capital flow creates the appearance of financial normalcy and masks the fragility underneath. It is a form of fiscal choreography that satisfies short term political and budgetary needs at the expense of long-term financial health. In this environment, Heritage is not being operated as a capital efficient energy company but as a controlled liquidity channel serving broader fiscal objectives.

The 2025 Gazette Crisis: When Legal Form Met Political Reality

After a change in government, the official Gazette (a legal document that assigns state companies to specific ministries) was published without listing TPHL, Heritage, or Paria under the Ministry of Energy. This omission sounds minor, but in a structure like this, it has serious legal and financial implications, for instance,

• Bond covenants (the legal terms of the US$500M and US$475M bonds) require the companies to be under clear government oversight. This ensures creditors that the government stands behind them.
  

• Without a ministry formally responsible, investors feared the companies were "orphaned”, which could trigger bondholder lawsuits, accelerate repayments, cross entity defaults and other issues.

  
  

This incident showed that the entire debt structure depends on political will and procedural continuity, not enforceable legal guarantees. TPHL is legally the borrower, but only functions because the government quietly ensures Heritage pays the debt.

One missing line in a government document almost brought down a TT$11bil structure.

It revealed that the system’s strength is fictional, it relies on everyone continuing to play along. There are no automatic fallback mechanisms if the political environment changes or someone refuses to honor “the way things are done.” Simply put, the government uses Heritage to service debt quietly (without showing it as public debt), avoid sovereign borrowing limits and pay dividends and taxes back into the treasury in return, creditors believe the government will step in if anything goes wrong since the government controls the board, budget, and operations via TPHL.

Why This Matters: The Economics of Legal Deception

From an economic perspective, the structure is fraudulent in function, even if legal in form. It violates the accounting principle of "substance over form," inflates assets with unrecoverable receivables, and converts a productive SOE into a disguised fiscal arm. It conceals true public debt levels, bypasses parliamentary scrutiny, and erodes transparency.

Globally, similar structures have been used: Petrobras in Brazil, Eskom in South Africa, LGFVs in China, and SPVs in Greece. All followed the same logic, legal separation to achieve political insulation. Most ended in fiscal stress or credibility collapse.

Is the TPHL-Heritage structure brilliant financial engineering or a ticking time bomb? Perhaps both. It has delivered stability, refinancing, and avoided default. But it has also transferred economic risk to an SOE, inflated balance sheets, and centralized power away from public oversight.