Fuel price drop causes $269.5-m loss at Petrojam

BY ALPHEA SAUNDERS
Senior staff reporter
saundersa@jamaicaobserver.com

Wednesday, May 22, 2019

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THE State-owned oil refinery Petrojam suffered estimated losses of $269.5 million as a result of the $2.00 per litre it gave up in fuel prices on the local market between November 2016 and January 2017, Parliament's Public Accounts Committee (PAC) was told yesterday.

According to a submission by the oil refinery, the net results of the reduction during the week of November 24 - 30 alone caused the company to give up an estimated $42.5 million in revenue.

The reduction was implemented on instructions of the Percival Badahoo Singh-led board, which was effected by then General Manager Floyd Grindley without the consensus of the refinery's pricing committee, according to information presented to the PAC yesterday.

The price reduction was specifically for that week. However, a similar position to that of November 24-30, 2016 was also taken for the period December 8, 2016 to January 11, 2017, in respect to the pricing strategy, which resulted in additional revenue losses, according to a submission signed by Petrojam's general manager, Winston Watson.

Opposition PAC member Mikael Phillips, Manchester North West Member of Parliament, who highlighted the matter yesterday, sought answers for the rationale in implementing the $2.00 price reduction again on December 8,2016, saying that this decision could not have been taken in isolation by the former general manager.

Manager for logistics and marketing at Petrojam Michael Hewitt told the committee that it was not in keeping with the normal direction, but there was a decision-making process that was followed and that was the result. There was a sense that that was the direction that was desired, he said.

At a previous meeting of the PAC, Opposition member and St Mary Central MP Morais Guy questioned whether the pricing committee could be influenced by the board of directors, and was told by Watson that in theory it was possible, but that this was not the practice. Guy then presented an e-mail exchange between the former board chairman and Watson, over instructions issued by the board on November 23, 2016 to drop fuel prices by $2.00 per litre.

“The board of directors has carefully considered the present trends in the local fuel market. There has been much dialogue from marketing companies on the matter, as such there is a need to regain confidence with our customers. After detailed evaluation analysis, the board hereby instructs that a reduction in ex-refinery price of JMD $2.00 be placed on gasolene, diesel and ULSD. This should be put into effect for this week, should you need clarification please contact me,” the email, which was read into the records by PAC Chairman Mark Golding yesterday, stated.

Watson explained at a previous sitting that initially there was pushback against the instructions issued by Badahoo Singh. “We said you as an individual cannot instruct us to do that; we told him it couldn't be done unless the instructions came not from him but from the board and that is why he copied the directors, including the Venezuelans, because we were pushing back on that comment,” he said..

Hewitt also said the intervention was a “very unusual” one, stressing that ex-refinery prices were usually aligned with the market. “In this situation, where a move would have been recommended outside of that rule, it would have been extraordinary,” he said.

Since the issue came to light some weeks ago, it was alleged that the fuel prices were strategically dropped days before the November 2016 local government elections to influence outcomes at the polls.

In her findings on the comprehensive audit of Petrojam, Auditor General Pamela Monroe Ellis noted that in arriving at a final weekly ex-refinery price, Petrojam's pricing committee applied a market adjustment in its pricing formula. But she said that owing to the absence of minutes for meetings of the committee, her auditors were not able to determine whether the market adjustment was always determined in a transparent manner.


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