Business

Government 'aggressive' on Petrojam refinery takeover

BY JOSIMAR SCOTT
Observer writer

Sunday, February 04, 2018

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Government plans to own the Petrojam refinery in its entirety by buying the 49 per cent stake currently owned by Petroleos de Venezuela (PDVSA), the Venezuela State-owned oil company, according to a Bloomberg report on Thursday.

“We are cognisant of the current situation in Venezuela and we know that they're not in a position to participate in the upgrade plan anymore,” Minister of Energy, Science and Technology Dr Andrew Wheatley told Bloomberg in a telephone interview.

“It's in our interest for Jamaica's energy security that we go forward with the upgrades as planned,” he continued, informing the news outlet that Government is “aggressively” in pursuit of the purchase.

PDVSA has yet to respond to the notice formally, the energy minister also said.

The Jamaica Observer made contact with Petroleum Corporation of Jamaica for a statement, but up to press time none was received.

The decision to buy comes almost a year after both countries signed an agreement to upgrade the refinery in Kingston and to improve its production capacity from 36,000 to 55,000 barrels per day.

At the time the upgrade was estimated to cost between US$850 million and US$1 billion, “depending on the technology that is employed”.

“We'll be able to satisfy all our domestic demand and have additional supplies to export to other Caribbean countries,” Wheatley said back in February last year. But he had also told Parliament – in a response to Opposition member Fitz Jackson – that had the Venezuela Government been unable to contribute to the project, Petrojam “would have to go to the market and seek another investor”.

However, economic circumstances have since worsened for Venezuela and the energy minister's position has also changed. Though Venezuela sits on the world's largest crude oil reserves, the country has seen its fair share of economic crisis since oil prices began falling in 2014, with hyperinflation, shortages of basic supplies, and mass migration of its citizens, as well as violent protests.

Just last November Wheatley told Jamaica's Lower House that sanctions issued by US President Donald Trump against Venezuela, via executive order in August, had placed the operation of Petrojam under the microscope of overseas financial institutions.

Payments to and from Petrojam were subjected to 'enhanced due diligence' by primary financiers/suppliers of lines of credit, as well as intermediary banks, pending clarification on whether the executive order was applicable to Jamaica.

Also, because of the due diligence, payments to Venezuela from Jamaica under the 2001 Caracas agreement, and other loan agreements which were due and payable to the South American country were withheld by the US Federal Reserve.

“Although those funds were ultimately released, explanations and proof of business transactions have now become the standard requirement for all transactions by the banks, occasioning significant process delays,” Wheatley said at the time.

In response the Government, through Foreign Affairs and Foreign Trade Minister Senator Kamina Johnson Smith, sought the intervention of the US State Department. In September last year, she informed the US Assistant Secretary of State that Petrojam – though part-owned by PDVSA – is in fact a Jamaican registered public company controlled by the Jamaican Government via its 51-per cent stake.

But the company continued to suffer as a result of due diligence from local and foreign institutions despite the US Office of Foreign Asset Control sympathising with the Government, according to an earlier Observer report.

Meanwhile, PDVSA – which bought its stake in Petrojam in 2008 with US$63.5 million – has defaulted on its financial obligations. In November, the oil company and Venezuela both failed to make US$237 million in payments on bonds due 2025 and 2026 – even after a 30-day grace period – resulting in the downgrade from rating agency Standard and Poor's (S&P). Around the same time PDVSA also lost its stake in a Cuban oil refinery and a storage tank lease in The Bahamas.

According to another Bloomberg report dated December 21, 2017, it is estimated that PDVSA owes about US$14 billion to bondholders with instruments maturing between 2018 and 2020.

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