Fri | Feb 22, 2019

Potential Petrojam buyer threatens legal action against expropriation

Published:Friday | January 18, 2019 | 12:00 AM
A section of the Petrojam refinery at Marcus Garvey Drive in Kingston.

Attorney-at-Law Arlene Gaynor, shareholder and legal counsel for A&A Lime Hall Development Limited, the company which has offered US$100 million for Venezuela's 41 per cent shareholding in the oil refinery Petrojam, said they intend to mount a constitutional challenge against legislation being put in place by the Government to retake the South American country's stake and which is expected to be unveiled in the House of Representatives next week.

The lawyer said the legal challenge would be undertaken on the premise that the proposed legislation would be in breach of the fundamental charter of freedoms of the Constitution dealing with property rights.

At the same time, she is calling on the Government to honour the joint-venture agreement between the Petroleum Corporation of Jamaica, PCJ, which holds the Jamaican Government's 51 per cent stake in Petrojam, and PDV Caribe SA, a subsidiary of Petroleos de Venezuela, PDVSA, which holds the remaining 49 per cent.

On Wednesday, Gaynor shared with the Financial Gleaner a letter written to Prime Minister Andrew Holness from Lime Hall, which expresses disapproval of the Government's intent to expropriate the shareholding in Petrojam by legislative means.

Unlawful legislation

The Government announced on Tuesday that special legislation is being crafted to sanction the decision to retake Venezuela's stake.

The letter from Gaynor, dated January 8 and addressed to Holness, who is also minister of energy, states that "any such purported legislation would, under the current set of facts, be deemed by a court of law unlawful," noting that sale of shares is governed by the existing joint-venture agreement.

PDV Caribe and the PCJ entered into a joint-venture agreement which resulted in the sale of Petrojam shares to the Venezuelan entity between August 2006 and February 2007.

A&A Lime Hall Development Limited, a company incorporated in 2004 and domiciled in St James, has offered PDV Caribe SA US$100 million for its stake in the Jamaican oil refinery.

However, the Jamaican Government has reiterated its intent to take legislative action to acquire Venezuela's shares in Petrojam, noting that its offer of US$40 million, followed by another for US$50 million, had been refused and urgent action needs to be taken to maintain the viability of the company and the country's energy security.

Gaynor said in her letter to Holness that "the relationship of the parties (PCJ and PDV Caribe) is governed by an existing joint-venture agreement which governs the sale of the shares. This agreement gives the Venezuelans the right to sell the shares and merely to give notice of the sale to the other joint-venture partner. This was done."

She further said: "No asset can be publicly acquired after sale to a third party for valuable consideration. There is no public interest that is being preserved ... by this purported public acquisition, and the reason behind this draconian action seems more to be that the purchaser is not the preferred buyer of the Government, since you yourself have on numerous occasions publicly indicated an intention to divest/sell the refinery."

Gaynor said that PDV Caribe "has no obligation or duty to accept the lowest offer in the face of multiple offers, and seemingly it is this high-handed approach to negotiations that has led the Government to this quagmire".

Oppressive in nature

She said that the Venezuelans "have sought to accept the best offer, which is our firm, and we intend to preserve our rights under contract. Consequently, we urge you not to pursue this unlawful course, as it will be vigorously opposed in a court of law with an application to strike out the legislation as being oppressive and in breach of the joint-venture agreement between the parties and public policy."

Gaynor claims that the Government is only seeking to deliver the asset to its preferred bidder since it has already declared its intention to divest Petrojam.

President of PDV Caribe Marcus Alejandro Rojas Marchena, in a letter to Petrojam Chairman Russell Hadeed, dated January 4, 2019, disclosed the offer for US$100 million from Lime Hall.

He also said that he was encouraging the third-party vendor to make a similar offer for the GOJ shares.

Gaynor confirmed that Lime Hall had made an offer for the 51 per cent shareholding held by the GOJ, alongside the offer made to PDV Caribe.

She did not disclose the amount offered for the Jamaican Government's holding.

Otherwise, she declined to provide details on the current principals in A &A Lime Hall Development Limited, its partners in the proposed venture to buy Petrojam - if any - and the nature of the business in which the company is currently engaged.

"Since the matter is now the subject of court action, I wish not to comment further, except to say we have made an offer to buy the 51 per cent stake held by the PCJ and secondly, we have every intention to upgrade the refinery when the acquisition is completed," the attorney said.

No further details could be provided on litigation she said, until it reaches a "certain stage."

Minister of Foreign Affairs and Foreign Trade, Kamina Johnson Smith, in seeking to justify the Government's decision, said the primary purpose of the partnership between the PCJ and PDV Caribe was to facilitate the upgrade and expansion of the Petrojam refinery, which, even from 2007, was seen as important to the island's energy security.

Twelve years later, it is even more so, as the upgrade of the refinery has not been undertaken, she said, noting that Venezuela is also now the subject of US sanctions that create international banking and operating risks for Petrojam. The status of the Petrojam refinery is now a risk for the economy and the country, she added.

Attempts by the Financial Gleaner to get an update on the Government's response to the offer were unsuccessful.

avia.collinder@gleanerjm.com