LNG drama raises more questions than answers

BY AL EDWARDS

Sunday, June 27, 2010

Last week the Office of the Contractor General (OCG) took the unprecedented step of sending a Special Audit Team to the Petroleum Corporation of Jamaica (PCJ) and the Ministry of Energy and Mining to take into custody records associated with the procurement processes that led to last week's announcement that the Exmar Consortium was approved by Cabinet as the preferred bidder to establish a Liquefied Natural Gas (LNG) Regasification Terminal and Natural Gas Transportation System in Jamaica.

Copies of the computer e-mail files of several former and present senior PCJ and ministry officials have been requested by the OCG five-person Audit Team.

Controversy swirls around the bid process and questions are being asked of all concerned parties. The minister of energy and mining James Robertson has been on a quest to extol the virtues of LNG, claiming it will save the country somewhere in the region of US$900 million. However, he was not totally forthcoming in announcing that the former chairman of the PCJ Ian Moore is a major shareholder of Caribbean LNG (Jamaica), part of the Exmar Consortium.

This has led to questions of conflict of interest, thus sullying the bid process. Contractor General Greg Christie is determined to ascertain who else is connected to the bid process. What are their interests? Was there use of proprietary insider information and who stands to gain from fast-tracking this LNG project?

Focus should be placed on a national energy policy

Jamaica's oil bill is a major line on the Balance of Payments (BOP) and for the last few years it has cost the country around US$1.5 billion a year -- a considerable sum considering that the country's total GDP comes to US$12 billion. The question then is, how does the Government reduce its fuel bill in an effective manner? The PetroCaribe arrangement with Venezuela was an answer of sorts and the Government has entertained the notion of Exploration and Production (E&P) for oil and gas, offshore Jamaica.

Over the last few weeks, the minister of energy and mining has nailed his colours to the mast of LNG. But sector analysts and manufacturers have said they would like to see Jamaica adopt a diversified energy policy.

Brad Addington, formerly of LatAm Energy, speaking with Sunday Finance from Houston said: "I'm not familiar with Jamaica's energy policy. It is not a gas province like Trinidad & Tobago, and as far as I know, it does not have any upstream or downstream infrastructure. Speaking with Schlumberger executives it is very clear that Jamaica at this time does not have a clear discernible energy policy. For instance, what percentage of its energy use comes from renewable sources? Is it prepared to utilise indigenous energy supplies to offset its dependence on imported fuels? What and where are its energy reserves should a crisis befall the country? Can its electricity generating capacity be improved commensurate with the development of the country? You have to have a defined energy policy before you run ahead and declare you are going LNG. Before your minister can begin to opt for LNG, he has to have a national energy policy with LNG being one among different energy supplies. That's my opinion."

Robertson has said that LNG is cheaper than oil and he is right. He has also said that at this time it is a buyer's market and he is right again. But LNG is a commodity subject to the vagaries of price fluctuation.

Who could have foreseen that oil would hit US$140 a barrel two years ago? He is determining energy cost savings at today's prices, which cannot be a reason to stake the country's energy future on just LNG.

Rather than rushing to the bid process, he would be better served formulating and championing a diverse energy policy for the country which is cost-effective and helps both residential users and the productive sector.

Take lessons from Brazil

Umoe Oije of Smedvig Offshore said: "For a small island state such as Jamaica you have to factor in how best to utilise your natural resources. The question that has to be asked therefore is, what are Jamaica's natural resources? It is not natural gas, that's for sure. Brazil had to face a similar situation in the 70s when sky-rocketing oil prices threatened to wreck the economy. So what did it do? It looked to its natural resources to offset costs. Its Programa Nacional do Alcol (National Alcohol Programme) is a study for Jamaica's minister of energy. This was an exercise by the Government to phase out all vehicle fuels derived from fossil fuels in favour of ethanol. It reduced by 10 million the number of cars running on gasoline in Brazil, so reducing the country's dependence on oil imports. Brazil has the largest sugar cane crop in the world and is the largest exporter of ethanol. It makes sense to utilise what you have.

"Jamaica has plenty of sunshine and sugar cane, so they both must be factors in its energy policy. It cannot rely predominantly on LNG. Today Brazil, perhaps the world's premier emerging economy, employs oil, natural gas, wind energy, biofuels, coal, oil shale, solar power, hydro power and uranium in its energy usage. In fact, 50 per cent of its telecommunications systems and 50 per cent of its rural energy systems come from solar power."

The importance of transparency and a fair bidding process

The Exmar deal has left Minister Roberston with a few questions to answer.

Did he do his utmost to see to it that all protocols of transparency were observed? Did he put in place a due diligence exercise programme that would ensure that the bid process would not be tarnished? Has he identified a reliable source of gas that can serve the country for at least the next two decades and has he told the nation so?

So why did Minister Robertson have to suffer the ignominy of having his department raided by the OCG?

According to the OCG, it received an anonymous complaint, dated Wednesday 16, 2010, which alluded, among other things, to allegations of impropriety and irregularity in the selection of the Exmar Consortium as the "preferred bidder".

A prominent local retailer who requested anonymity said: "The minister and his minions have been aggressively pushing the merits of LNG, particularly in the Press. However, they have given very little details on the bid process and the parties involved. Who is Exmar? What experience does it have with LNG projects? What projects has it completed? Who is Caribbean LNG (Jamaica)? What experience does it have? If Jamaica's energy use is going to be placed in an operator's hands then it is vital that the country knows as much as possible about that operator.

Christie concerned about offshore company and its shareholders

Speaking with Sunday Finance, Contractor General Christie said that the move by the OCG was unprecedented and that a thorough investigation would now transpire. He said that with all Government contracts it was important that concerned parties declare their interests prior to the bid process and furthermore, transparency should prevail. He would not be drawn on how many parties bid for the contract but said that the results of the investigation would unfold in due course.

Christie, in his news release on the issue, said that the records of the Registrar of Companies of Jamaica have revealed that Caribbean LNG (Jamaica) Limited was incorporated in Jamaica on June 19, 2009, approximately seven months after Moore demitted office as the chairman of the PCJ in November 2008.

Moore and a Paul East are listed as directors of the company but they are not listed as shareholders," the contractor general said, adding that "a Mr Al Kerr and "Bogle, Andrew (Ceased)" are listed as the other directors of the company."

The OCG also said it had a concern about the possibility of 'bid-rigging', and that "because the majority shareholder of Caribbean LNG (Jamaica) Limited is an entity which is registered off-shore in the BVI and whose current human shareholders are unknown, there is a concern as to whether there are any Jamaican 'connected persons' or public officers who, by virtue of their being beneficial shareholders of Caribbean LNG (Jamaica) Limited, will improperly benefit from the contract which is to be awarded by the PCJ to the Exmar Consortium".

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LNG drama raises more questions than answers