Petrojam upgrade in limbo
Published:Friday | March 4, 2011 | 12:00 AM
● No financing in place for project
● Caracas now lukewarm
Mark Titus, Business Reporter
A joint venture plan between Jamaica and Venezuela for the modernisation of the Petrojam refinery appears to be limbo, with neither the promised majority ownership being transferred to Caracas, nor a financing plan in place for the project.
And although there seems to be no timetable for these to happen, Jamaican energy officials insisted that the proposals remain alive.
A new deal under negotiation with Venezuela should have seen the transfer of an additional 2 per cent of Petrojam shares to state oil company PDVSA, which would give it majority control of the refinery.
"I cannot speak on the matter of the shares at this time, but financing options are being explored for the expansion of the refinery," said Nigel Logan, the acting managing director of Petroleum Corporation of Jamaica (PCJ), the parent company of Petrojam and the vehicle used by the Jamaican government for its energy projects.
"There is no agreed structure for financing, so there is not much that can happen until that is agreed on." Logan said.
Petrojam is a near half-century old 35,000-barrels-per-day refinery with limited crude-processing capacity and questionable efficiency.
Since 2008, Jamaica has spent just under J$4 billion on the refinery upgrade project, according to finance ministry data, but had nothing budgeted for the 2010-11 fiscal year.
Petrojam was projected to earn revenue of J$146 billion this year ending March 2011 - up from US$113b the year before and US$120b in 2008-09.
Its profitabilitty has similarly been volatile. Rising from a net loss of J$4.7b in 2008-09, the refinery made net profit of J$4.6b the next year and is projected to end this period with net profit of J$1.3b.
Jamaican governments have long harboured a wish to upgrade the facility and lift its capacity to at least 50,000 bpd.
That appeared a distinct possibility when in 2006 the former People's National Party administration sold 49 per cent of Petrojam to Venezuela's state oil company PDVSA.
Operating under the umbrella of the PetroCaribe oil facility that Venezuela operates for Latin American and Caribbean countries, the partners agreed to undertake the Petrojam upgrade with Kingston using the more than US$60 million it received for the 49 per cent equity acquired by PDVSA to finance its portion of the costs.
A number of developments have taken place since then, not least being the change of administration in Jamaica and the global economic recession that precipitated the country seeking a US$1.3-billion loan from the International Monetary Fund to help stabilise its economy.
Petrojam had projected adding debt of almost J$10 billion this period, finance ministry data shows.
But part of the requirement of the IMF agreement is that the Jamaican Government limit the growth of the country's debt and aggressively rein in a gaping public-sector deficit.
It was in that context that the new prime minister, Bruce Golding, explained that Jamaica would unlikely to be able to afford its share of the upgrading cost —US$1.2 billion for the overall project and US$200 million for the first phase of the expansion —and announced that the government would sell an additional two per cent stake in the refinery to the Venezuelans.
That would give Caracas lead responsibility for finding the financing for the project.
Additionally, Golding said his government would seek private investors to take up Jamaica's portion of the cost, but has never elaborated on how such a deal would be structured.
Although Jamaican officials have suggested that the Venezuelans would have no problems working with private partners supporting the Jamaican side of the deal, other energy sources, including the shadow energy minister, Phillip Paulwell, say that is unlikely.
"That is now how the Venezuelans tend to deal," said Paulwell, who started the negotiations with Caracas for the Petrojam expansion.
"We work solely with governments," Paulwell said. "That was how PetroCaribe was predicated. Concessions [in oil supplies] that were to be part of the deal were not to be for the private sector."
Another issue that might have impacted on Venezuela's wish and/or ability to proceed with the project is the ill-health of the country's economy, which has been Latin America's laggard.
It is only now showing the first hesitant signs of emerging from the recession of 2008, helped by rising oil prices, but is still faced with galloping inflation.
It is against this backdrop that Jamaican officials expected that Venezuela would be part of bankrolling the project.
"Any financial decision to be made, one would expect the Venezuelan authorities would take into account all factors," said PCJ's Logan.
"But we would hope that the Venezuelan authorities would be amenable to financing the projects."
However, Paulwell argued that if it's not dead, the project is comatose.
"My understanding is that there is little or no communication between the Government and Venezuela," said Paulwell.
"So, nothing is happening. A set of advice gaining sway in the Government is to shut down the refinery and allow its facilities to be used as terminal solely for the importation of petroleum."