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Mahfood, Paulwell suggest lifting CET on petroleum products

Published:Tuesday | March 24, 2015 | 12:00 AM
President of the Private Sector Organisation of Jamaica William Mahfood.
Minister of Science Technology Energy and Mining Phillip Paulwell.

Energy Minister Phillip Paulwell has joined Private Sector Organisation of Jamaica (PSOJ) President William Mahfood in calling for a review of the pricing arrangements under which Jamaica imports refined petroleum products from Trinidad.

Both suggest that if the common external tariff (CET) on petroleum products were removed, then Trinidad may have to adjust its pricing policy to one more favourable to its CARICOM neighbours.

Petroleum products imported from markets outside of CARICOM are subject to 10 per cent CET.

Mahfood, who, up to last week, was one of two private sector representatives on the Electricity Sector Enterprise Team (ESET), said at a PSOJ forum on Tuesday that refined petroleum products brought in from Trinidad are priced at a premium by that country's refinery, Petrotrin. Mahfood was replaced by Christopher Zacca, who now joins Joseph M. Matalon on the ESET.

"We currently import about 50 per cent of our total needs as crude. The rest of it is imported as finished products," said Mahfood.

"Only very recently I found out that because we are in CARICOM and purchase our petroleum products from Petrotrin, which is a government state-owned entity in Trinidad, they have a pricing policy for CARICOM, which is 9.9 per cent above the Platz, or Gulf Coast, reference."

What this means, said the PSOJ president, is that Trinidad is selling to Jamaica at a premium - that is just below what it would cost at the extra-regional price, including CET - he charged.

"I have a serious problem with that as a CARICOM member. We should insist that Trinidad sells to Jamaica at the same price that they would sell to Aruba and other non-CARICOM countries," said Mahfood. "We are subsidising gas prices in Trinidad. We need to ensure going forward that that policy changes."

Paulwell, who was guest speaker at the PSOJ forum, agreed that prices out of Trinidad were high and that a review of the CET as it relates to energy should be considered.


import parity


The minister did not indicate whether he would be raising the issue at the CARICOM level, but well-placed sources, to whom Wednesday Business reached out for comment, said the ministry now holds the position that the removal of the CET would create a more level playing field for the productive sector and other consumers and that a concerted push should be made to have the tariff lifted.

However, some energy officials are said to be concerned that the removal would affect the profitability of Petrojam, which uses import-parity pricing. If the CET is removed, the oil refinery would be forced to compete on a more level playing field.

It's understood, however, that even among Petrojam's backers, there are elements within the Government who are now saying that the refinery has dithered too long on its upgrade project and that if the expansion fails to get off the ground in the near term, the Simpson Miller administration should seek the removal of the CET and leave Petrojam to manage as best it can.

Paulwell himself said at the PSOJ forum on Tuesday that Petrojam was becoming increasingly uncompetitive within the region and that if it is not expanded and upgraded soon, "we might have to shut it down".

He said the delayed expansion project to increase production capacity from 23,000 barrels per day to 50,000 barrels has to get under way this year.

Otherwise, the minister suggested that Petrojam prices were likely to be more favourable in a more competitive market.


pricing mechanism


PSOJ has an ongoing argument with the state refinery over its pricing mechanism. Paulwell said one way of getting around the problem is for businesses to invest in the energy market, particularly the infrastructure for storage and distribution of refined products.

"The market now is liberalised. As minister, I have about 18 or so market companies that I have issued licences to. If you want to get a licence from me to become a marketing company to import or purchase from Petrojam and distribute, I would be only too happy to help you do so, but you have to have the right infrastructure," said Paulwell.

"I know that many of the marketing companies are restricted from importing because they do not have that infrastructure of storage. What Petrojam does is to see what obtains in the global market so it can price imports that come to Jamaica."