Indications are that the Government doesn’t plan to act immediately upon the Petrojam Review Committee (PRC) recommendation to divest itself of the scandal-plagued State-owned oil refinery, Petrojam.

Rather, the Andrew Holness Administration has sought to position the entity for increased profitability and efficiency this fiscal year. Petrojam plans to ramp up expenditure on its aging plant earmarking US$18.82 million in the upcoming fiscal year compared to the estimated US$15.19 million for the current fiscal year, which ends next month.

From this expenditure Petrojam is projecting a net profit of US$15.86 million, which should more than double the US$7.50 million estimated for 2019/20. The company plans to retain its current staff complement of 250 permanent and 33 temporary employees.

Petrojam was incorporated in October 1982 as a wholly owned subsidiary of the Petroleum Corporation of Jamaica, which in 2006 sold 49 per cent of the company to Petroleos de Venezuela SA (PDVSA). However, the Government through the accountant general compulsively acquired the 49 per cent from PDVSA early last year.

FOCUSED ON EXPORT OF HFO IN 2020/2021

Given the change in its ownership and the unavailability of supplies from PDVSA, Petrojam has sought to secure comparable quality crude oil from other regional suppliers: Brazil, Ecuador and Colombia. Petrojam plans to focus on exporting its heavy fuel oil (HFO) due to the projected decrease in demand from the local energy market during the medium term.

To improve the operating efficiency of its aging plant and technology, Petrojam will pursue the refurbishing of its holding tanks and pipelines and the regeneration of its catalyst to maintain the quality of its fuel production.

The Jamaica Public Bodies Estimates of Revenue and Expenditure for the year ending March 2021, which was tabled in Parliament earlier this month, notes that these activities will be managed within a scheduled downtime at the plant.

Petrojam operates the only petroleum refinery in Jamaica which processes crude oil into various finished products including liquefied petroleum gas, auto diesel oil, turbo fuel, heavy fuel oil, asphalt, and unleaded gasoline.

Petrojam sources crude supplies primarily from Brazil, Ecuador, and Columbia, while finished products are imported mainly from the open market. There are two additional profit centres shipping and bunkering which are complementary to the refining operation of Petrojam.

PETROJAM PROJECTS STABLE OIL PRICES FOR 2020/2021

Petrojam is anticipating that there will be no significant upward movement in oil prices for the next year. Petrojam projects the sale price of petroleum to average US$80.45 per barrel (2019/20: US$75.08 per barrel).

This, as the global crude oil market is projected to remain fairly stable, with increased production by major oil producers and marginal increases in demand for petroleum products during the period. In recommending that the plant be divested the Christopher Zacca-led PRC pointed out that it is imperative that the refinery operates at over 80 per cent utilisation and stated that the committee is of the view that the Government was not necessarily the best fit to achieve this.

PRC 12-POINT RECOMMENDATION

Among its 12 recommendations, the PRC said an enterprise team should be established to manage the Government’s exit from the operational management of the refinery. That team would be tasked with engaging a transaction advisor, such as the International Financial Corporation.

The advisor would help the team to identify a suitable [lessee] with an appropriate public-private partnership transaction framework. Were there to be no takers, the Zacca-led team has suggested that the refinery be shuttered and thereafter run as a terminal-only operation.

The PRC has also recommended that the refinery’s upgrade project be abandoned. The PRC was established by Prime Minister Andrew Holness last September at the height of a corruption scandal that is still affecting staff morale at the country’s lone oil refinery.