A decision to proceed with the financing arrangements for the expansion project for Petrojam refinery is said to be awaiting the Jamaican government’s decision to share the proceeds of commission paid to the Petroleum Corporation of Jamaica (PCJ) during the period February 2008 to March 2015.

The commission – amounting to one per cent of sales from the refinery – was used to fund the administrative needs of the PCJ which is the parent company of Petrojam.

Since April 2015, the commission has been converted to a Special Consumption Tax collection (SCT) on refined products which is funnelled through to the Consolidated Fund.

However, for the previous period, the GOJ’s Venezuelan partner in the refinery is stating that it wants its share of the proceeds collected since it signed for its 49 per cent interest in the refinery.

The Jamaica Observer has been reliably informed that a hold up in selecting one of two Chinese bidders who have offered 100 per cent financing in a mix of debt and equity for the expansion of the refinery is based on Venezuelans demanding their share of the commission.

The Government of Jamaica has a 51 per cent stake in Petrojam while the Government of Venezuela – the latter through Petróleos de Venezuela, SA (PDVSA), the Venezuelan state-owned oil and natural gas company — owns 49 per cent of the refinery.

The two countries became partners in the company in 2006 when Petrojam shares were transferred to PVDSA subsidiary PDV Caribe SA under an agreement intended to see Petrojam increase output by at least 50 per cent through expansion.

The expansion, however, has been put on hold for varied reasons, the most pressing being lack of funding and also Venezuela’s objection to one per cent of the refinery’s revenue being funnelled wholesale to the Petroleum Corporation of Jamaica to fund its administration over a seven-year period.

PVDSA has been holding out for the 49 per cent owed to Venezuela in commission. Estimates put that figure in the region of US$42 million in early 2015.

For Jamaica, the payment is thought to be a pre-condition of PDVSA’s agreement to financing arrangements for the long-planned expansion of the Petrojam refinery.

Petrojam sells about 50,000 barrels of refined products per day, some from sale of imports.

Products currently sold are liquefied petroleum gas (LPG), propane and butane, E-10 gasoline (87 and 90 RON), automotive diesel oil, jet/turbo fuel, kerosene, heavy fuel oil, sulphur, asphalt, marine fuels, intermediate fuel oil and marine diesel oil.

Currently, the refinery supplies 80 per cent of the local non-bauxite market and 70 per cent of the national market.

Expanding its capacity to refine greater amounts and a more varied range of products promises to make the company earn more and make it more competitive within the region. It could also earn additional revenue from greater levels of exports.

A by-product, petcoke, is projected to enable the generation of 100 megawatts of electricity at cheaper than current prices.

The Business Observer understands that recent feed studies have put the price of the project at between US$820 and US$940 million which is less than the estimate of US$1.2 billion suggested in a previous engineering study.

This is expected to underwrite expansion from a 35,000-barrel-a-day facility to 50,000 barrels from its own production, and re-engineer the plant to process heavier but cheaper crudes.

In 2014, the two partners took to their boards an offer from two Chinese companies of full financing for the refinery expansion programme based on a mix of debt and equity.

The Chinese private sector offer was considered to be better than one previously reviewed from the Chinese EXIM bank which called for the partners to provide 15 per cent of financing while the bank would provide the remaining 85 per cent.

The Business Observer understands that up to mid-year 2015, the Venezuelans were minded to give the go-ahead on the offer of 100 per cent financing, specifically because of the PetroCaribe buy-back debt payment and the promise to reimburse their half of the PCJ commission.

In 2015, the government of Jamaica paid to Venezuela US$1.5 billion for debt owed under the PetroCaribe oil trading arrangement at a 50 per cent discount. That deal represented savings to Jamaica of US$1.7 billion.

The stage was set for further cooperation when the Ministry of Finance indicated a willingness to pay over a share of money from previously collected commission.

However, a new political administration took over in February.

E-mails by the Business Observer to Petrojam via PDVSA directors on its board for an update were acknowledged, but not answered.

The placement of the Chinese offer to finance the expansion before Cabinet is expected to turn on whether the GOJ can make good on the previous offer to share proceeds from the one per cent commission.