KINGSTON, Jamaica- The Ministry of Finance and the Public Service (MFPS) says that local oil refinery Petrojam has settled payables at a higher interest rate than was projected, contributing to a net decline of $3.2 billion in its receivable/payables.

The ministry’s Fiscal Policy Paper (FPP) for 2024/25, tabled in Parliament last Thursday, noted that the oil refinery received a loan of $5 billion from the Government of Jamaica (GOJ) for working capital support in 2023/24, which led to the settlement of payments at an higher rate than was budgeted, and contributing to a net decline of $3.2 billion in receivables/payables.

However, notwithstanding the overall balance surplus for the fiscal year, which is projected to exceed the budget, Petrojam estimates that it will utilise more of its inventory, which was built up in response to supply risk, and hence net inflows from products held in its inventory should amount to US$67.26 million.

Several questions were raised last year when the media reported that the $5 billion Government loan was a “bad bet” for the refinery’s costly purchase decision. Opposition members of parliament took advantage of the situation by pressing the Government to explain why it had offered Petrojam a $5 billion loan, after local financiers refused to lend the money to the refinery.

General Manager of Petrojam, Telroy Morgan, told members of parliament’s Public Administration and Appropriations Committee (PAAC), recently, that the company was seeing a general fall in oil prices, and as such there was an impairment on its books, based on the inventory that it is carrying.

He also confirmed that, because of the impairment on the company’s books, Petrojam’s working capital financiers had suspended their usual quota of amounts to the refinery and, for a very short term, it had been moved to the Ministry of Finance to bridge that gap.

At the PAAC meeting held earlier, Delroy Brown, chief financial officer at Petrojam, said the state-owned oil refinery still had between 800,000 and one million barrels of oil that were purchased at US$120 per barrel in its inventory.

Opposition Leader, Mark Golding, intervened stating that Petrojam had “taken it upon itself to build up inventories to about one million barrels of oil as a precautionary measure at the onset of the war in Ukraine”. However, he told the House of Representatives’ Standing Finance Committee (SFC) that the supplementary budget was approving a loan to Petrojam, under the circumstances that gave rise to the loss to the company and necessitated the loan.

He said that Petrojam’s decision to purchase oil at US$120 per barrel was a gamble, which later saw the price of oil plunging, leaving the company with a huge loss of about $5 billion.

In a response to arguments, Petrojam issued a statement that it does not engage in speculative purchasing of crude oil or finished products. It also added that crude and finished products are purchased using a tender process that considers several factors including price and appropriateness of crude.

The refinery said that crude oil, which was purchased at approximately US$120 per barrel during the peak of the Russia/Ukraine war, has already been processed by the refinery to produce finished petroleum products for the Jamaican market.  It also stated that the average purchase price of the current crude inventory is approximately US$80 per barrel, hence the company has not suffered at a US$5 billion loss.

“Over its 40 years of existence, Petrojam has fulfilled its mandate to never run Jamaica out of fuel. This requires us to maintain strategic inventory reserves higher than would obtain in a purely commercial entity,” the refinery said.
Petrojam’s inventory comprises both crude oil and finished products. The current total inventory is approximately 2.3 million barrels. This represents nine weeks’ supply. Holding inventory for this purpose exposes the company to additional costs and the risks that are inherent in the petroleum industry, specifically, world market price fluctuations.

The refinery said that this means that when oil prices fall, there will be a corresponding impairment of the inventory values but that this situation is usually temporary.

“Petrojam does not engage in speculative purchasing of crude oil or finished products. Crude and finished products are purchased using a tender process that considers several factors including price and appropriateness of crude,” the refinery concluded.