Petrojam, energy cost and security in Jamaica

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Prime Minister Andrew Holness (centre), engages with Petrojam Review Committee Chairman, Christopher Zacca (left), at a press conference to reveal the committee's findings at Jamaica House on June 27. At right is Minister of Science, Energy and Technology Fayval Williams. [Photo: Yhomo Hutchinson]

KINGSTON, Jamaica (JIS) – At a press conference at Jamaica House on June 27, Prime Minister of Jamaica Andrew Holness reveal that the findings of the Petrojam review committee report on the strategic review of the state-owned oil refinery [Petrojam] will be tabled and debated in parliament, and that Cabinet has considered the report but has not yet come to any conclusions. Meantime, the smart streetlight programme, energy cost as well as provide support in crime-fighting is a tense reality.

“The report will be made public… and we will gauge public opinion, engage the public in this conversation and make a decision,” adding, “This is not an unbounded period of engagements. We have some critical timeline on these things because the refinery is now not operating at its fullest. So we will allow for a period of public discourse, then the Cabinet will consider the ventilated matter and we will come to a decision.” 

The committee headed by Christopher Zacca was established in the wake of developments regarding the management of the refinery and was among interventions aimed at ensuring that the entity remains viable, thereby safeguarding jobs and Jamaica’s energy security.

The committee’s analysis Zacca noted indicates that for the Petrojam refinery to be commercially viable its operating efficiencies must improve, and investment of some US$78 million is needed.

He said it is recommended that the government exit active management of both the terminal and the refinery, through a long-term lease of Petrojam’s underlying assets.

“We are of the view that the transfer of active management of the refinery and terminal to the private sector provides the only credible opportunity to improve the operating performance of both entities, while also mitigating the operating and project execution risk to the government and people of Jamaica,” he pointed out.

Zacca continued, “It is proposed that a petroleum industry enterprise team be commissioned to chart a course for the government’s exit and that a transaction advisor, such as the International Finance Corporation, be engaged to assist in identifying a suitable lessor, within an appropriate Public-Private Partnership (PPP) transaction framework.”

“If the transaction advisors in their investigations and analysis of the market are unable to determine sufficient interest in the option to lease, then the refinery, in our view should be shut down and a terminal-only operation should be implemented,” he said. 

Zacca noting that the committee does not recommend that Petrojam continue to pursue a Vacuum Distillation Unit (VDU) project or refinery upgrade. However, the committee, in its report, further proposes that, with the exception of price adjustments related to terminal fees, rack fees and the Customs Administration Fee (CAF) margin, no other price adjustments should be applied by Petrojam, without the oversight of an independent authority.

“The government should immediately begin the process of establishing an appropriate regulatory framework for the petroleum industry, including oversight, with a maximum price at the terminal rack that incorporates; Cost, Insurance and Freight (CIF) (fees), terminal fees and taxes, but restricts or eliminates the use of other adjustments, which are to be approved only by the nominated regulator,” Zacca said.

Pointed to the need for regulations the committee also recommended that a fully functioning board for Petrojam be appointed as soon as possible, with an appropriate mix of private and public-sector individuals with the requisite skills.

“Pending legislation and implementation of a revised regulatory framework, we feel that in the interim, the government should appoint an independent expert to the current pricing committee at Petrojam. This independent expert should be mandated to ensure that the prices posted by Petrojam adhere to the government’s new pricing policy.” Zacca said.

In relation to energy cost and security, minister of science, energy and technology, Fayval Williams, speaking at the Development Bank of Jamaica (DBJ) 2019 Private Equity and Infrastructure Development Conference,  under the theme ‘Delivering Economic Growth through Partnership: Private Sector Participation in Infrastructure Development’ said, the smart streetlight programme will assist in reducing the country’s energy cost as well as provide support in crime-fighting.

“We are making bold moves towards the Smart Streetlight Programme in which we envision streetlights with the capability to dim when necessary, accommodate video surveillance and be metered so that the taxpayers are not paying for streetlights that are not functional. 

“Digital technologies are among the most important sources of growth for national economies. They change the way we work and communicate while reshaping traditional industries and transforming the way we do business.

“Our response and strategies are therefore integral to our progress, competitiveness and overall success in this new age,” she said.

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