Petrojam makes bad guess on earnings in unstable market
Published:Friday | April 29, 2011 | 12:00 AM
Forecast J$55b growth in revenue this year
Lavern Clarke, Business Editor
Jamaica's monopoly oil refinery may have overestimated its sales receipts by close to J$19 billion for the financial year that closed on March 31, but will make double the profit initially anticipated, early estimates of its yearly operation show.
Instead of revenue of J$147 billion, Petrojam Limited's sales amounted to an estimated J$128 billion, according to data provided to lawmakers by the finance ministry two weeks ago.
The publication of petroleum statistics typically lag financial data by a year or two, but gasolene retailers, for example, whose supplies come from Petrojam, have reported lower demand for gas at the pumps as prices climb - regular fuel is currently selling at or around J$110 per litre. And, reports from the planning institute indicate that production at the refinery in 2009 had fallen.
The available statistics, which are two years old, indicate that about half of the oil consumed by Jamaica goes into the production of Bunker C fuel used to power ships, while the second largest volume, amounting to 16 per cent in 2009, was used to manufacture gasolene.
Petrojam, however, imports less than nine million barrels of crude annually, and supplements supplies to its domestic markets from imports of finished products that come mainly from Trinidad and Tobago.
Managing Director Winston Watson had not up to press time responded to requests for comment, but PIOJ reports that Jamaica bought oil at US$57.58 per barrel on average in 2009, while one-year-old finance ministry information suggested that the refinery expected oil prices to perform at US$76/barrel for oil in 2010 and US$79/barrel this year.
"After three years of instability in oil prices and consequent demand for finished products, the future of the local petroleum industry hinges on the dynamics of the global economy for stable prices," said the most recent Jamaica Public Bodies report which offers outlooks on the 2011/12 performance of selected government agencies.
"Specifically, the geopolitical events in the first quarter of calendar year 2011 will continue to impact Petrojam's performance for the budget," the report said.
Petrojam sales receipts last year, however, still outperformed the 2009/10 audited intake of J$112 billion. The latter year's performance turned out to be a more accurate prediction of top-line income relative to the J$113 billion the refinery had projected for that year.
Petrojam was also 17 per cent off on its profit forecast for fiscal 2010, making J$3.8 billion instead of the targeted J$4.6 billion.
The refinery was even worse at projecting its profit outcome for the year just ended, which it underestimated by 103 per cent according to the preliminary figures from the finance ministry. If those estimates stand up to audit scrutiny, Petrojam would have made J$2.6 billion in fiscal 2011 instead of the J$1.29 billion it guessed at.
Its missed profit estimate flows from a bad call on its currency exposure. Petrojam expected to lose J$510 million on foreign exchange translations, but ended up gaining J$611 million instead.
The numbers indicate another trend line - as Petrojam's top-line revenue grows, its bottom-line income falls, leading to declining net profit margins.
So for this fiscal year ending March 2012, as petroleum product prices follow the trajectory of rising world oil, the refinery estimates that it will grow sales by a staggering J$55 billion to about J$182 billion; but also forecasts that net profit will drop to J$1.97 billion.
In other word, its profit retention per dollar of sales fell from about three and a half cents in fiscal 2010, to an estimated two cents in 2011, and a projected one cent in 2012.
The receipts from the special consumption tax, and more recent ad valorem tax on gasolene collected by but not counted in Petrojam's sales revenue figures. The two tax streams produced J$23 billion for the treasury last year, and after concessions to abate rising gas prices, collections will drop marginally to J$21 billion.
The ad valorem tax has brought a windfall of J$9-10 billion for the Government.
Petrojam buys oil from Venezuela at undisclosed concessionary prices and refines some 35,000 barrels per day into heavy fuel oil for bunkering and electricity generation and industrial use; two grades of gasolene blended with 10 per cent ethanol; diesel fuel; liquefied petroleum gas/cooking gas - butane and propane; kerosene; jet fuel for aircraft; and asphalt.
Products are supplemented with supplies mainly from Trinidad & Tobago.
An ongoing upgrade and modernisation project is projected to grow refining capacity to 50,000 bpd. Petrojam has invested J$1.47 billion in the project since 2008, and plans to spend about J$546 million more this year, according to the finance ministry's annual Jamaica Public Bodies report.
The Jamaican Government, which owns 51 per cent of the refinery, has been trying to sell another two per cent stake to sole partner PDV Caribe SA, a subsidiary of PDVSA - which bought 49 per cent of the asset back in February 2006 - and thereby shift control and a larger share of capital expenditure to the Venezuelans.
The final decision on the upgrade project "is awaited from the shareholders", the current public bodies report said.