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

Published:Wednesday | December 10, 2014 | 12:00 AM
Petrojam oil refinery, Marcus Garvey Drive, Kingston. - File

Avia Collinder, Business Reporter

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 oil 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
that the flows to the fund had fallen by 10 per cent,
but said he would need a day to research when they began to

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."


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

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

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'

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.

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

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