#Kingston, February 20, 2019 – Jamaica – Legislation to retake ownership of the 49 per cent shares in Petrojam held by the Venezuelan State-owned oil and natural gas company, Petróleos de Venezuela (PDV) Caribe, was passed in the House of Representatives on February 19.
The
Compulsory Acquisition (Shares in Petrojam Limited) Act, 2019 was piloted by
Prime Minister, the Most. Hon. Andrew Holness.
In his address, the Prime Minister said the decision to move in the current
direction was not taken lightly, noting that Petrojam and Jamaica have been
left at risk due to years of inaction.
“Technical
assessments have found that refining operations will be negatively impacted by
2020 if Petrojam is not in a position to execute Phase 1 of the refinery
upgrade (Vacuum Distillation Unit Project),” Mr. Holness noted.
“This
is primarily due to the imminent international obligations as stipulated by the
International Maritime Organization regulations regarding sulphur, which will become
effective on January 1, 2020, and the transition by the Jamaica Public Service
Company Limited (JPS) to Liquefied Natural Gas for its 190 MW power plant by
June 2019, thereby reducing the need for heavy fuel oil produced by Petrojam,”
he added.
Mr.
Holness argued that without an upgrade,
Petrojam would be unable to further process heavy fuel oil (HFO) into high-value
products, and having lost a major customer in JPS, Petrojam would become
unprofitable.
The
Prime Minister also cited the United States Executive Order 13808 dated August
24, 2017, which essentially prohibits United States persons from entering into
specified transactions with the Government of Venezuela and any political
division, agency or instrumentality thereof, including PDVSA.
“While
Petrojam itself was not identified as a ‘sanctioned entity’ under the Executive
Order, the fact is that its banks and correspondent banks, which facilitate
basic transactions with suppliers and service providers, are considered US
persons, and were, therefore, at risk or at perceived risk of high fines for
breaching such sanctions, and accordingly, they were hesitant to continue
providing such services which were fundamental to the most basic operations of
Petrojam,” he said.
The
Prime Minister explained that the Government has no choice but to take action
in the interest of preserving the energy security of Jamaica.
“It
is important to understand that the Government of Jamaica does not see this as
a political issue… . I want to make it
absolutely clear that the decision to acquire the shares is an economic
decision,” Mr. Holness emphasised.
The
Prime Minister also highlighted that payments to and from Petrojam have been
subjected to increased due diligence by the primary suppliers of lines of
credit, as well as intermediary banks, and the disruption or delay of
transactions for Petrojam Limited has become a source of unease for Petrojam’s
suppliers.
“An
even more serious concern is the overseas suppliers of goods and services to
Petrojam. Owing to Petrojam’s continued association with Venezuelan entities,
some suppliers have advised Petrojam that they are no longer willing to take
the risk of supplying to Petrojam, and others have expressed grave concerns,”
Mr. Holness said.
The
need for an upgrade of the refinery was recognised from as early as the 1990s,
and Petrojam and the Petroleum Corporation of Jamaica (PCJ) have undertaken
several studies on the refinery upgrade.
“The
challenge has always been the cost of the upgrade, which can run into hundreds
of millions of dollars, with estimates as much as more than a billion dollars,
depending on the extent of the upgrade,” Mr. Holness said.
In
February 2005, a Letter of Intent was agreed between the Bolivarian Republic of
Venezuela, acting through its Ministry of Energy and Petroleum, and the
Government of Jamaica, acting through the Ministry of Commerce, Science and
Technology, confirming, in principle, that they would pursue feasible options
for the improvement of the refinery.
Additionally,
in June 2005, further to the Letter of Intent, a Memorandum of Understanding
was signed between the same parties, with a view to establishing a Joint
Venture.
On
August 14, 2006, a Joint Venture Agreement (JVA) was signed between the PCJ,
Petrojam and PDV Caribe SA (PDV Caribe) to cooperate in the ownership and
management of Petrojam and to undertake the refinery upgrade, which was recognised
as critically important for the energy security of Jamaica.
“It
stated that PDV Caribe SA and the PCJ agreed to embark on a Refinery Upgrade
Project (RUP) through the medium of Petrojam.
The JVA defines the RUP as a project that will be carried out to expand
the Kingston Refinery Processing capacity from 36 kilo barrels per day to 50
kilo barrels per day,” Mr. Holness said.
The
first phase of the RUP will include a revamp of the Atmospheric Distillation
Unit, and the installation of new units, including a Vacuum Distillation Unit,
Naphtha Reformer. Phase II will be evaluated aiming at incorporating a Deep
Conversion Unit in the Refinery.
“The
JVA also set out that in order to facilitate its purpose, the parties would
enter into a Share Sale and Purchase Agreement pursuant to which PCJ would
sell, and PDV Caribe would purchase, shares in Petrojam. The Share Sale and
Purchase Agreement was signed in August 2007, selling 49 per cent of the shares
in Petrojam for the sum of US$63.7 million, based on valuations by
internationally recognised consultants with expertise in valuing assets in the
energy sector,” the Prime Minister explained.
Mr.
Holness pointed out that despite discussions and negotiations, the RUP has not
been achieved.
Contact: Latonya Linton
Release: JIS
Photo Captions:
Header: Prime Minister, the Most Hon. Andrew Holness, addresses the House of Representatives on February 20. At right is Minister of State in the Office of the Prime Minister with responsibility for Works, Hon. Everald Warmington.
Insert: Prime Minister, the Most Hon. Andrew Holness, reacts to a comment during his address in the House of Representatives on February 20.
Mark Bell Photos