Holness' offer to Venezuela off the table today

Senior staff reporter

Friday, February 22, 2019

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THE Government's offer to withdraw the Bill to compulsorily acquire Venezuela's 49 per cent share in the Petrojam oil refinery if there is no agreement on the terms of the resale, ends today.

Prime Minister Andrew Holness had offered to withdraw the Bill from the House of Representatives on Tuesday, if the Venezuelan Government agreed to sell the shares in the refinery by the close of the Senate debate today.

Gordon House yesterday released an updated scheduled, which stated that the Senate will meet today to debate the Bill. The debate is one of only two items on the Senate's agenda for the day, the other being the Terrorism Prevention (Designated Reporting Entity) (Attorneys-at-law) Order Resolution, 2019.

With there being no response from the Venezuelan Government since the prime minister made the offer during his opening contribution to the debate on the Compulsory Acquisition (Shares in Petrojam Limited) Act, 2019 on Tuesday, there is every likelihood that the Government will carry through with its intention to compulsorily acquire the shares and place the proposed payment in escrow pending the completion of a deal.

Holness on Tuesday criticised Opposition Members of Parliament, who opposed the Bill, for behaving in a manner which, according to him, suggests that they are putting the interest of Venezuela and the Nicolás Maduro regime above the interest of Jamaica, in the debate in which it was eventually passed by the House.

He said that the hypocrisy of what was said in the debate by the Opposition MPs made him wonder which side they are defending.

The Government has insisted that an agreement between both countries had been delayed for approximately 10 years by a number of factors, including increases in the price of oil on the international market. It was eventually signed between former Minister of Science, Energy and Technology Dr Andrew Wheatley and his Venezuelan counterpart, Nelson Martinez, in Caracas on February 15, 2017.

PDV Caribe, an affiliate of the State-owned Petroleos de Venezuela S.A., and the Petroleum Corporation of Jamaica (PCJ) had entered into a joint venture agreement which resulted in the sale of the Petrojam shares in August 2006 and February 2007, respectively. The reasons for entering into the agreements included the upgrading and expansion of the refinery to improve its competitiveness and meet local and international market demands.

However, the Holness Administration now says that with the objectives still not being met and the international tensions facing the Maduro regime in Caracas, the Government must have full control of the facility in order to make urgent decisions.

One of the main items of the agreement is for joint investment in the development of a Vacuum Distillation Unit (VDU) designed to improve the profitability of the refinery, as the continued contraction of the market for heavy fuel oil (HFO) has emerged as a serious threat to the viability of the refinery.

Former group general manager of Petrojam's parent company, Petroleum Corporation of Jamaica (PCJ), Winston Watson, who now heads Petrojam, told a parliamentary committee recently that the refinery could be in serious trouble by as early as the end of 2019 due to the contraction, and suggested that the refinery could stave off the anticipated challenges by, among other things, fast-tracking the VDU project, which would enable Petrojam to convert HFO to asphalt and vacuum gas oil for export as well as seek new bunkering business.

On Tuesday, Prime Minister Holness was harsh in responding to a suggestion from Opposition spokesman on industry, investment and competitiveness, Peter Bunting, whom he accused of advocating that Venezuela could use the outcome of a 2017 valuation, which was based on the cash flow possibilities of the refinery after the proposed installation of the VDU, to increase its demand for reselling the shares to Jamaica.

Bunting had contended that a valuation done in February 2017 had shown that the refinery was valued at a cost of US$170 million, compared to a more recent valuation (2018) which had shown that the refinery is now worth approximately US$34 million.

But, Holness noted that the 2017 valuation was done at a time when the upgrading of the refinery and the installation of the VDU was being contemplated to evaluate the possible cash flow basis on which the VDU could improve the fortunes of Petrojam with an investment of US$100 million, that was loaned to the PCJ which was handed over by the Government but later withdrawn following Venezuela's failure to meet its end of the bargain.

He said that the US$34-million valuation, which resulted from a valuation done last year for the sale of the 49 per cent share, did not take into consideration the possible gains from the installation of the VDU.

Newly appointed Minister of Science, Energy and Technology Fayval Williams confirmed on Tuesday that Petrojam was valued at US$126 million by international oil and gas consultants, Muse Stancil, in 2006, when Jamaica signed the joint venture agreement with Petróleos de Venezuela S.A.

She also confirmed that the evaluation carried out last year by the same consultants showed Petrojam's market value at US$34 million. However, she agreed with Holness that the evaluations represented different options for the refinery.

Holness said that by advocating that it was right for Venezuela to use a valuation that was done at a time when the upgrading was no longer being contemplated, and considering that it really was done on a cash flow basis, was disingenuous.

“How could they then want to use a valuation in which they had no investment?” the prime minister asked.

“That member is not defending the interest of Jamaica, but would want to see the Jamaican taxpayers' money being used in an inappropriate way,” the prime minister accused Bunting.

Holness also accused the Opposition of finding “all kinds of ways to express issues that only result in clouding, misdirecting, misinforming, obfuscating, and misleading (the public)”.

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