THE PetroCaribe Development Fund which onlends billions for government projects expects its surplus to decline 29 per cent to $2 billion by March 2011 compared with the prior fiscal year due to a doubling of interest costs.

The fund manages the Petroleos de Venezuela (PDVSA) long-term concessionary loan, which is expected to increase 24 per cent to $116 billion by March 2011. It will result in a doubling of interest costs of $1.48 billion by March 2011 versus $660.8 million in fiscal year 2009/10 according to the Jamaica Estimates of Revenue and Expenditure for the fiscal year ending March 2011, published by the ministry of finance this month. Despite the annual decline in the growth of the surplus, the fund expects to grow its accumulated surplus by 51.2 per cent to $5.88 billion at March 2011 from $3.87 billion as at March 2010.

“The PDF is expected to employ strategies to strengthen the capacity of the fund. PDF will also continue to assist with national development,” stated the document.

Under the PetroCaribe agreement of 2005, the Governments of Jamaica and Venezuela agreed to convert a portion of each payment by Petrojam Limited for crude oil and petroleum products, into a long-term concessionary loan. As part of the agreement a special vehicle, the PetroCaribe Development Fund was created to manage the proceeds from the agreement.

The funds major project this fiscal year includes the partial financing of the Petrojam Limited Refinery Upgrade Project, which will result in the amounts “due from Petrojam” to the fund jumping from $1.8 billion at March 2010 to $5 billion by March 2011.

“(The fund) has committed to contributing to the development of the liquefied natural gas project. As a result the PetroCaribe will provide grant financing of $270 million to assist with the project. It is also expected that the fund will assist in financing the Petrojam Limited refinery Upgrade Project,” stated the Estimates of Revenue and Expenditure.

The Petrojam upgrade was originally estimated to cost Jamaica US$600 million ($53.7 billion) then revised to US$1.2 billion ($107.4 billion). The expansion is expected to lift the capacity of the 40-year-old refinery from 35,000 barrels to 50,000 barrels a day, and would be largely financed by the Venezuelan government that would take a 49 per cent stake in Petrojam. The Jamaican government in December 2009 announced that it would suspend the project due to the increased cost of the upgrade which would require a greater equity stake in Petrojam–a profitable Jamaican asset–by the Venezuelan government.

The fund expects its loan receivables to increase 12 per cent to $88.25 billion by March 2011 and also expects to boost its investment portfolio to $17.2 billion by March 2011 from $9.55 billion at March 2010. “This as inflows to the fund are projected at $20 billion from which $12 billion are projected for central government and public bodies,” stated the document. Also net current assets are projected at $33.9 billion by March 2011 versus $19.2 billion a year prior.

A board of management overseas the operations of the Fund, and is supported by a secretariat provided by the Development Bank of Jamaica (DBJ). In addition the fund has two support staff. Staff costs increased from just $100,000 in 2008/09 to $1 million in 2009/10 and is projected to hit $6.98 million in fiscal year 2010/11. However, DBJ management fees vacillate from $40 million in 2008/09 to $26.3 million in 2009/10 to a projected $30 million in 2010/11.

The Observer this week revealed that a forensic audit of the operations of the State-owned Petroleum Corporation of Jamaica (PCJ) and Petroleum Company of Jamaica uncovered contract irregularities, poor management of the PetroCaribe Development Fund (PCDF) and a cash-skimming scheme that “partly involved PCDF monies” which the auditors have recommended be referred to the police for further investigation.

The audit, which examined the fiscal year April 1, 2006 – March 31, 2007, found a lack of oversight and proper governance over the PCJ by the group managing director and the board of directors. The auditors also said that most of the problems identified were linked to areas under the responsibility of the PCJ’s former director of administration and the corporation’s former financial controller.

“PetroCaribe Development funds were improperly transferred into the PCJ canteen bank account and used in the cash-skimming scheme,” the auditors said. They also said that PetroCaribe Development funds were improperly transferred into the PCJ main bank account.

The audit team was comprised of the Canadian firm Papineau Consulting Inc, internal auditors from the Ministry of Energy and Mining and the Auditor General’s Department.