Be frank about Petrojam

SOMEONE IN the Government, perhaps the energy minister, Daryl Vaz, ought to take Jamaicans into their confidence about its policy for the state-owned oil refinery, Petrojam.

Nearly five years ago, in the aftermath of the scandals over alleged corruption and cronyism at the refinery, the Chris Zacca committee, set up by Prime Minister Andrew Holness to make recommendations for the refinery’s future, proposed the mothballing of its refining operations and using its terminal and tanks for importing and storing finished petroleum products.

The committee’s recommendation was premised on two primary considerations. One was that Petrojam’s refining operation wasn’t crucial to Jamaica’s energy security.

More importantly, the refinery was small, old, and inefficient. The survival and profitability of its refining operations rested on the wide differential in Customs administration fee (CUF) charged on crude and finished products.

Insofar as this newspaper is aware, there has been no serious public debate or analysis of the Zacca report. It was peremptorily tabled in Parliament but not sent to any committee for hearings. The House is yet to schedule a debate on it.

The last serious official, public statement on the report that this newspaper recalls was nearly two years ago, in May 2022, when Mr Vaz told Parliament that it was still being considered by the Cabinet.

“While recommendations concerning the privatisation and future of the refinery are still before the Cabinet for deliberations, those which concern the refinery’s operational efficiency have not been stymied,” he said.

NEW DIRECTORS

Mr Vaz did, however, say that subsequent to the report, new directors had been appointed, who set the company “on a path towards the implementation of improved terminal operations, pricing regime, costreduction strategies, and other recommendations as noted in the report”.

That remark was always in need of clarity – further and better particulars. Transparency is even more urgent in the face of recent remarks by Petrojam’s general manager, Telroy Morgan.

On Thursday, this newspaper reported that towards the end of January, Mr Morgan attended an energy conference in Panama City hosted by S&P Global Platts, a group that provides data, analyses, and price information on the hydrocarbons industry.

Mr Morgan suggested the need for expanded refining capacity in the Caribbean, where facilities were old, storage and transportation limited, and environmental concerns on the rise. Expansion, he seemed to suggest, would help to meet the region’s growing energy demand, improve energy security, create jobs, and help to drive economic growth.

Of Petrojam, he said this: “Petrojam is actively pursuing an expansion of its export portfolio, with a specific focus on heavy fuel oil (HFO), very low sulphur fuel oil (VLSFO), low sulphur diesel oil (LSDO), and asphalt. These insights reinforce Petrojam’s role as a critical player in the Caribbean energy landscape and its proactive approach to sustainable growth and development.”

Without any statement to the contrary, or a nuanced explanation of Mr Morgan’s remarks, it sounds like the Petrojam general manager announced policy decisions for the oil refinery that are mostly in opposition to the recommendations of the Zacca committee – a move that would demand substantial capital investment. Maybe this will be disclosed by the finance minister, Nigel Clarke, in the budget for public bodies during the 2o24-25 fiscal year, which begins in April.

LONG HANKERED FOR UPGRADING

The Petrojam refinery is rated at 36,000 barrels per day but generally produces significantly below that. Its managers have, however, long hankered for upgrading to at least 50,000 bpd. The package would include installing a vacuum distillation unit (VDU), which, among other things, would allow Petrojam to produce additional, second-go petroleum products from the heavier crudes that are its staple.

A full suite upgrade would cost more than US$1.2 billion. The bill for the VDU would be in the region of US$100 million. Implicit in Mr Morgan’s remarks is that the Government is firmly committed to the VDU.

But this is what the Zacca Committee said of the VDU project, which was frozen despite an earlier government approval: “The VDU project is inherently predicated on the consumption of ‘sour’ (high-sulphur) crude feedstocks such as those originating from Venezuela, a crude supply relationship that has continued for decades from the initial conception of the refinery in 1962. These highsulphur crudes tend to produce high-sulphur finished products, which are increasingly unattractive in the international market that is predominantly requiring light and not heavy fuels.

“There is no market in Jamaica for VGO (vacuum gas oil; used as a feedstock for fluid catalytic crackers used in making transportation fuels and by-products) and production would need to be exported to international markets such as other refineries on the USGC (US Gulf Coast) who could use this product. The volume of asphalt that would be produced would also far exceed local Jamaican demand, and thus a strategy to export asphalt would also be required, which is not an easy undertaking logistically and commercially. Both of these products would orient the refinery to supplying external markets and not the needs of the local Jamaican market.”

Further, the analyses and forecasts done by experts for the Zacca Committee found that both the expansion and VDU projects would have “significant negative returns on investment”.

The Government must, therefore, engage in a transparent discussion on its plans for Petrojam, including where, and how, the refinery fits in Jamaica’s broader energy strategy, a part of which is a policy to have half of the country’s electricity generated from renewables by 2030.