Tue | Jun 25, 2019

Howard Mollison | Petrojam's ugly underbelly

Published:Sunday | December 9, 2018 | 12:00 AM
Howard Mollison
Dr Perceval Bahado-Singh, former chairman of Petrojam, reportedly repaid travel expenses.
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The auditor general's report on Petrojam and the Petroleum Corporation of Jamaica (PCJ) simply confirmed and quantified what was known, and provided some salacious details.

Pamela Monroe Ellis and her staff should be thanked and congratulated for producing this very revealing report, though there are some other issues that were in the public domain that was not mentioned, e.g., the fraudulent travel claims by the former chairman.

I empathise with the staff of Petrojam who, I believe, continue to be traumatised by the relentless negative publicity that has engulfed their organisation with varying degrees of intensity over the past year.

Your readers should also be aware that it is simply not true that all the findings of the auditor general relate to the entire five years of the audit. There are issues very specific to the period post-July 2016.

There are a few areas in the auditor general's report, as well as some related issues, raised in various media on which I would like to share my comments:

 

OIL LOSS

 

The view expressed by some that based on the reported unaccountable losses of 600,684 barrels of oil valued at $5.2b translates to that value being stolen is not an accurate view. There is an industry benchmark of 0.4% of total output that is allowable due to evaporation, errors in measurement, leaks and spills, and losses associated with the process unit.

It is the variation from the 0.4% that should be of concern and requires explanation. Within that 0.4% should be any loss associated with nefarious activity.

The accompanying table shows that with the exception of 2015-16 when the out-turn was well within industry benchmark, the performance was alarming and was clearly at crisis stage in 2017-18.

It requires an investigation and explanation. At issue is that even the smallest point deviation in the figure represents significant sums of money.

 

PRICING

 

Petrojam's pricing mechanism has always been a good headline-grabbing issue given the sensitivity associated with oil prices and the perceived impact they have on economic activity.

During my tenure, a substantial amount of time was invested in explaining the pricing mechanism to key industry stakeholders, including the Montego Bay and Kingston chambers of Commerce (JCC) and the Private Sector Organisation of Jamaica (PSOJ). My recollection is that there was a clear understanding of the process, and it was deemed sufficiently transparent that the issue of the pricing mechanism was taken off the table.

My humble view is that there is nothing wrong with Petrojam's pricing mechanism, once it is followed fastidiously.

Approximately 38% of the price per litre at the pump is taxes, and this is unlikely to change.

Consumers need to demonstrate responsibility and seek to understand how the same litre of fuel can cost as much as $20 more, depending on whether you purchase it in Liguanea or Cross Roads.

The fundamental issue that sometimes impacts the pricing is when the little nameless, faceless and often brainless minions who attach themselves to ministers seek to insert themselves in the process and the gutless management fails to push back. Case in point, on November 23, 2016, the then chairman, by way of email, instructed the general manager to reduce the ex-refinery price by J$2.

On the very same day without evidence of challenge, it was passed on for implementation. The board of Petrojam has no role in the pricing of the product. It is the subject of a Cabinet decision and is consistent with how pricing is done for petroleum products internationally.

 

COST OVERRUNS

 

I fully support the call made by some for a forensic audit into the main docking facility and the new Petroleum Testing Laboratory. Both these projects spanned my tenure.

Petrojam's inability to deliver its projects on time, on budget, and to specification, the hallmark of good project management, is almost legendary.

The issue that arises is how much of these overruns are poor judgement, poor leadership, or other reasons. The other reasons, if any, is what the audit would uncover.

 

RESTITUTION

 

I fully support the view that the Ministry of Finance should take steps to force Petrojam to recover all the funds spent that were unrelated to its business. It is good that, as I understand it, the former chairman has made good and paid back the false travel claims. We just need to be very clear that restitution is an admission of guilt and does not grant absolution.

 

ACCOUNTABILITY

 

I am in full agreement with the call for MOCA and the Integrity Commission to accelerate their work and initiate the prosecutorial proceedings that, on the face of it, must exist, given the information available for some of the transactions.

Folks should not be allowed to plunder a company for the benefit of their friends and associates, simply resign, and walk away and leave the taxpayers holding the bag.

Petrojam can be a profitably, professionally run company. Let this episode be the real watershed in the life of the company.

The actions taken by the agencies charged with the responsibility to deal with matters of this nature should be such that it never happens again.

 

FUTURE OF PETROJAM

 

This is where great thought and analysis is required. I disagree with my friends who suggest that the refinery should be closed and the company transition to a terminalling operation. Who benefits if this should happen? We should not do this because it is easy and expedient. We have to develop the capacity to do difficult things that will redound to the benefit of our children and grandchildren.

Whereas the decline in fossil fuel use for transportation and energy is moving apace, where exactly on that curve are those industries at this point? My recollection is that the business case for the refinery upgrade is a very strong one. A critical benefit in addition to domestic fuel security is the collateral economic benefits that an upgraded modern refinery could produce.

A necessary condition for the upgrade to be done and concomitant with the acquisition of the shares from our Venezuelan partners must by a concrete plan to diminish the Governments stake to no more than 20% with the attendant management changes.

This would make the governance issues redundant as the shareholders and the market would take care of that.

- Howard P. Mollison is a former general manager of Petrojam (February 2015 to July 2016). Email feedback to column@ gleanerjm.com and howard.​mollison@cwjamaica.com.