CRUDE CONTRACTS - Consultants question legality of multimillion- dollar deals signed by Petrojam
Published:Sunday | January 9, 2011 | 12:00 AM
January February March
Jamaica 3.51 3.43 3.54
Barbados 4.07 4.07 4.07
St Lucia 4.22 4.72 4.72
D Republic 4.59 4.63 4.92
Montserrat 4.49 4.49 4.81
Grenada 4.83 4.85 4.90
Antigua 4.26 4.26 4.26
Trinidad 1.65 1.65 1.65
January February March
Jamaica 2.54 2.45 2.40
Barbados 3.29 3.56 3.60
St Lucia 4.26 4.26 4.26
D Republic 3.07 3.15 3.17
Montserrat 2.81 2.94 3.17
Grenada 4.17 3.76 3.44
Antigua & Barbuda 4.06 3.69 3.52
Trinidad 1.65 1.65 1.65
Tyrone Reid, Sunday Gleaner Reporter
A comprehensive operations audit of Jamaica's state-owned oil refinery has questioned the legality and financial oversight of several mega contracts totalling hundreds of millions of US dollars per annum that are being entered into by Petrojam officials.
This is among a number of concerns contained in a "strictly confidential" report prepared by Centennial Group, a consulting firm from Washington, DC, which conducted a special operations audit of Petrojam Limited at the request of Finance Minister Audley Shaw.
The inspection was spawned by a massive $7.3 billion loss incurred by the company in the 2009 financial year.
The consultants, who stated that Petrojam could have substantially reduced its losses during a particular four-month period when the refinery was operating at high negative margins by increasing its reliance on imports to meet local demand, determined that several critical issues in the petroleum sector were too murky for comfort.
"High-value contracts for purchase of crude oil and petroleum products amounting to hundreds of millions of US dollars annually are being negotiated by a few Petrojam officials without any external oversight. Delegation of such responsibility needs to be established more carefully with proper oversight for better transparency," the consultants said.
No authority to sign
The report also stated: "The legality of some contracts seems questionable with the system of delegation of financial authority being not clear. Amendments and/or renewals of some very high-value contracts have been done by some officers who may not have the required financial authority to sign these contracts."
The consultants recommended that "a competent and authorised team of strong negotiators with skills in the oil trade with GOJ representation in the team should carry out these negotiations".
"This will get the best possible terms for the country and would ensure adequate transparency in the deals. Further, in cases where petroleum products are imported without competitive bidding, as in the case of imports from Petrotrin, increased oversight is necessary by the Ministry of Energy and Mining, PCJ and Petroleos de Venezuela (PDVSA)," the report stated.
Commenting on the report, Winston Watson, general manager of Petrojam Limited, insisted that no unauthorised personnel signed a contract on behalf of the company. "I haven't seen any document to substantiate that," he told The Sunday Gleaner. In an earlier response issued by Petrojam on Friday, the company said it had an internal governance policy that was detailed in its chart of accounts with signing authority and delegation clearly identified.
"This chart of account has been approved by the board of directors and is strictly adhered to. At no point in the audit did the Centennial team request documentation on proof of signing authority; nor is Petrojam aware of any particular contract, the legality of which could be in any doubt by virtue of its signatory," the Petrojam statement said.
The consultants also pointed out that the freight rates for product imports were unusually negotiated based on Petrojam's own assessment. "This lacks transparency and evaluation of freight rates should be based on international benchmark rates published by Worlds Scale and AFRA ," the consultants stated. AFRA, the average freight rate assessment, is one of the methods used to determine crude-oil freight rates.
In addition to those issues, the consultants highlighted that the demurrage - the charge for detention in port of a vessel by the ship owner beyond the time allowed or agreed upon - paid by Petrojam for vessels bringing in petroleum products appears to be excessive, running into millions of US dollars.
"Although Petrojam's explana-tion is that high demurrage is the result of the limited capacity of the terminal, the dock occupancy was only 78 per cent in 2006, 83 per cent in 2008 and 80 per cent in 2009 up to July. In this context, it is worth mentioning that in some countries there have been many instances of collusion of port personnel with vessel owners for collecting extra demurrage," the report stated.
Important issue
To further clean up the abysmal state of affairs in the country's petroleum sector, Petrojam can no longer appear to be operating as a law unto itself, Centennial Group, the US-based audit consultants, has warned the Government.
"One important issue for the Government to resolve is that currently Petrojam is functioning virtually without effective oversight by either PCJ or the Ministry of Energy and Mining.
"There is need to develop this capacity with competent personnel who have knowledge of the petroleum sector. The Government also has to develop a satisfactory regulatory framework for the sector. At present, Petrojam serves as a quasi-regulator," the consultants stated.
The consultants recommended that Petrojam, a joint-venture company with 49 per cent shares held by a foreign company - Petro Caribe S.A., an affiliate of Petroleos de Venezuela S.A., the national oil company of Venezuela - should not be doing the regulatory function by using the market price adjustment factor for social reasons. "It should be a considered decision of GOJ regarding how to mitigate world oil price shocks to consumers."
Monthly average regular gasolene prices - Caribbean
Prices are US per gallon
(2008)
(2009)
Prices for Jamaica were estimated by adding J$6.5/L to Petrojam's billing prices. This margin is taken from the gasolene price survey for April to May 2008.
Source: Petrojam