Jamaica parliament approves compulsory takeover of Venezuelan company shares in Petrojam

Jamaica oil refinery

KINGSTON, Jamaica, CMC – The Jamaica parliament has given the Andrew Holness government the green light in compulsory retaking the 49 per cent shares in the state-owned oil company, Petrojam that had been held by the Venezuelan state-owned oil and natural gas company, Petróleos de Venezuela (PDV) Caribe.

Prime Minister Holness, who tabled the Compulsory Acquisition (Shares in Petrojam Limited) Act, 2019, said the decision to move in the current direction was not taken lightly. He said 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),” Holness told legislators.

Petrojam’s inability

Holness said 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.

Opposition disagrees

Opposition Leader Dr Peter Phillips said the legislation is unprecedented and inappropriate. He said that the move to forcibly acquire the shares is politically motivated.

“If we yield to the mighty power always, we soon will not have the flexibility to operate by ourselves…” Phillips said.

PDV Caribe, an affiliate of the state-owned Petroleos de Venezuela S.A., and the Petroleum Corporation of Jamaica (PCJ) entered into a joint venture agreement which resulted in the sale of PetroJam shares in August 2006 and February 2007 respectively.

The agreement had called for the upgrading and expansion of the refinery to improve its competitiveness and meet local and international market demands, but Foreign Affairs and Foreign Trade Minister, Kamina Johnson Smith said last month that these objectives were not met and that this poses a risk to the economy.

Need for upgrade

The need for an upgrade of the refinery was recognized from as early as the 1990s, and Petrojam and the 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,” 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,”  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.

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