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As world prices fall…Jamaica paying more cash upfront for PetroCaribe oil

Published:Wednesday | December 10, 2014 | 12:00 AM
Kingston Petrojam oil refinery, Marcus Garvey Drive, Kingston.
File Group General Manager of the Petroleum Corporation of Jamaica, Winston Watson.
File A section of Petrojam's oil refinery complex in Kignston.
FILE The Petrojam oil refinery in Kingston.

The dramatic fall in world crude prices has curtailed Jamaica's oil bill, but it also means that oil refinery Petrojam Limited has to pay a larger portion of the bill in cash.

Under the PetroCaribe arrangement with Venezuela, Jamaica is now paying for 50 per cent of oil imports upfront, up from 40 per cent, said Winston Watson, the group general manager for Petrojam's parent company, Petroleum Corporation of Jamaica.

Watson confirmed the shift to 50 per cent cash-50 per cent financing even while insisting Monday that "nothing has changed", but he declined to state the period when the increase took effect.

Petrojam has a 90-day credit facility for up to 23,500 barrels of oil per day with Petroleos de Venezuela SA (PDVSA), which itself is a 49 per cent minority owner of Petrojam through subsidiary PDVCaribe.

The balance of the refinery's needs are made up from cash purchases on the spot market. Petrojam can process up to 35,000 barrels per day.

The price that Jamaica pays for PetroCaribe oil has never been disclosed, but it has some association with world prices. Up to August, Jamaica's mineral fuels bill had fallen by US$48 million, or 3.3 per cent to about US$1.4 billion, according to Statin's most current trade data.

The PetroCaribe arrangement requires beneficiaries of the facility to pay for 40 per cent of the oil upfront when the price is above US$100 per barrel; 50 per cent when it falls within a range of US$80 to US$100 per barrel; 60 per cent at US$50 to US$80 per barrel.

On Jamaica's schedule, full payment kicks in only if the oil price falls below US$15 per barrel. The delayed portion of the payment is transferred to the PetroCaribe Development Fund as a long-term loan repayable at one per cent over 25 years, and the loan proceeds are used to fund development projects and budgetary support for the Government.

CEO of the PetroCaribe Fund Dr Wesley Hughes also confirmed to Wednesday Business that the flows to the fund had fallen by 10 per cent but said he would need a day to do research when the decline began.

Regarding the impact of the reduced flows on the fund, Hughes said: "We do not know how long this will last. We are doing a budget and it has specific projections. If that changes, we will have to change. Less resources means we will have to make adjustments to our plans and programmes."

adjust terms

Beneficiary countries are allowed to purchase a total, 185,000 barrels of oil per day under the current PetroCaribe terms. But Venezuela is widely, expected to adjust the terms of the facility and cut quota supplies following a 40 per cent decline in the price of oil since June.

Brent crude oil hit a fresh five-year low of US$65 on Tuesday before rebounding to near US$67 a barrel. PDVSA oil is reportedly selling at around US$63 per barrel, down from US$99 in June.

Jamaica is supplied with 80 per cent of its crude oil and refined petroleum product needs by Venezuela.

The total volume of crude processed by PCJ subsidiary and state refinery Petrojam averages nine million barrels per year, which it further refines to produce oil for power generation, transportation, and commercial use, which includes LPG and asphalt.

Oil accounts for 95 per cent of Venezuela's earnings. Following OPEC's decision last month to keep member production of oil unchanged at 30 million barrels per day, Venezuelan president Nicolas Maduro is reportedly considering ways to raise money, including plans to slash 20 per cent of 'unproductive' spending.

Speaking through PCJ's communications office, Watson said if there is a change in the agreement, new terms and conditions may be attached to the credit facility.

He said PCJ may look to purchase oil from other regional sources should Venezuela reduce the PetroCaribe supply quotas.

"We have not heard of any changes, but we do buy oil from other suppliers such as Mexico and Ecuador and we also buy on the spot market," the PCJ boss said Monday.

Jamaica joined the Petro-Caribe Accord in 2005, and since then, it has racked up US$2.9 billion in debt to Venezuela as of November 2014.

Energy Minister Phillip Paulwell said that on balance, the new payment schedule is good for Jamaica since the country will be racking up less oil debt. He did not address queries on whether the cash portion of the bill was expected to climb to 60 per cent.