Editorial | Whither Petrojam?

In the face of last week’s decision by the Organization of Petroleum Exporting Countries and its allies (OPEC+) to cut oil production by two million barrels a day (bpd), Phillip Paulwell, the shadow energy minister, has reprised his call for the Holness administration to seek help from Venezuela.

Jamaica, Mr Paulwell said, should ask Caracas to rekindle its Petrocaribe arrangement, under which several Caribbean and Latin American countries bought Venezuelan oil on concessionary terms.

Meanwhile, the Opposition appears to have gained a bit of private sector traction for its proposal for a price cap on the taxes the Government levies on petroleum products, or at least, that the Government returns more of the taxes to businesses and consumers in subsidies.

It is not clear that any of these ideas will go very far, if anywhere. And certainly not immediately.

With respect to the first proposal, assuming the Venezuelans were inclined to a deal, not only would it require a hard swallow from Prime Minister Andrew Holness, it is unlikely that he would act in the absence of a clear signal from the United States.

On the second, finance minister Nigel Clarke, having already paid for rebates on some people’s electricity bills, has signalled his disinclination to roll back the oil levy. He needs the revenue, Dr Clarke has argued, to ensure that the fiscal accounts remain healthy and the government sustains its ability to pay down its debt.

POLICY PURGATORY

But surprisingly, lost in all of the debate is the Government’s plan for its 38,000 bpd Petrojam oil refinery. More than 40 months after the Chris Zacca task force recommended the privatisation of the refinery, and that it would make more sense to run it as an oil terminal and storage facility, the administration apparently hasn’t made up its mind what to do.

Indeed, the last time the energy minister, Daryl Vaz, spoke publicly on the issue in May, it was to report that the matter was still “before the Cabinet for deliberations”. Petrojam remains in strategic limbo. Or perhaps policy purgatory.

In a way, Petrojam, Petrocaribe and whether Jamaica approaches Venezuela for oil are deeply mired in geopolitical considerations. With Petrocaribe, Jamaica received up to 23,000 bpd, for which, depending on the price of oil, it could convert up to half of the bill to long-term loans, at interest rates as low as one per cent.

The scheme provided a foreign exchange life-support to Jamaica. It, however, began to falter when Venezuela’s national oil company, PDVSA, confronting its management issues, exacerbated by the country’s economic and political crisis, couldn’t pump enough oil to meet its international obligations. Petrocaribe finally collapsed under the weight of American sanctions against the government of Nicolas Maduro.

For Jamaica, relations with Venezuela are complicated by the fact that it joined the United States in branding Venezuela’s 2018 election, in which Mr Maduro retained the presidency, as fraudulent and undemocratic. In 2019, Kingston tacitly backed the declaration of Juan Guaido, the head of the assembly, as Venezuela’s legitimate interim president.

At the same time, the Holness administration essentially nationalised PDVSA’s 49 per cent of Petrojam. Kingston put in escrow the money it intended to pay for the shares when Caracas baulked at the value. Jamaica insisted that it had no choice but to acquire Venezuela’s stake, given the potential impact on the refinery of the US sanctions on Venezuela.

As internal support for Mr Guaido dwindled and he made little headway in unseating Mr Maduro, global support for him has ebbed. Only last week at the Organization of American States (OAS), more than half the members (19) voted in favour of a debate on unseating Mr Guaido’s representative, although the number was four short of the two-thirds majority required for the process to be completed.

ENERGY POLICY

Meanwhile, in the United States, Joe Biden’s administration – confronting high inflation, an unstable oil market and the prospect of gas prices again rising at the pumps – has had back-channel talks with Venezuela on the possibility of easing sanctions, which would allow increased shipments of Caracas’ crude.

Last week’s decision by OPEC+ to snip two per cent from global oil production would have given impetus to those talks, although Mr Biden said that Venezuela would have “much to do’’ for sanctions to be lifted.

In the circumstances, even if Mr Holness is willing to engage in realpolitik or oil diplomacy with Venezuela, there is no certainty that Mr Biden will reach an accommodation with Mr Maduro, or if anything will happen before the OPEC+ cut kicks in, with the prospect of driving oil prices past the US$100 mark, or nearly twice what Dr Clarke projected when he crafted the budget.

None of this is easy for the Jamaican Government. It is also true that the degree of complexity was aggravated by the Russia-Ukraine war and the turmoil that it triggered in oil markets. Nonetheless, it remains inexplicable that after three years, the Government still flounders on what to do about Petrojam. Unless the administration knows more than it is letting on. Which isn’t transparency.

Jamaica has long been talking about its energy policy. While the situation has grown more difficult, nothing that has happened in recent months should be so surprising to drive policymaking to paralysis. At least, policymakers should be able to share some thinking of where Petrojam fits in the energy mix.