Mon | Oct 21, 2019

Editorial | Wrong lesson being applied at PCJ?

Published:Tuesday | September 17, 2019 | 12:15 AM

We hope that the plan to dissolve the Petroleum Corporation of Jamaica (PCJ) isn’t a case of the Holness administration learning the wrong lessons from the Petrojam scandal and opting for a solution that might make it more difficult to identify, and ferret out, corruption. Cynics might even assume worse.

Should anyone be unaware, the PCJ, in the context of Jamaica, is a large and important entity. In its 2015-16 financial year, the latest period for which its accounts are publicly available, before this year’s spin-off of its Wigton Windfarm subsidiary, PCJ’s consolidated turnover was J$6.84 billion and it reported a net profit of J$3.8 billion. It had assets of J$31 billion, of which 77 per cent, or J$23.1 billion, represented shareholder equity.

PCJ was established 40 years ago under the Petroleum Act of 1979, which gives it the “exclusive right to explore and develop” Jamaica’s petroleum resources, which the act, at Section 3, vested in the Jamaican State. It could also be directed by the responsible minister to oversee the development of “energy resources other than petroleum” and, in carrying out its functions, can enter contracts and agreements with third parties or establish subsidiaries, as was the case with Wigton, as well as the Petrojam oil refinery after its purchase by the Government from Esso Standard Oil. Significantly, the Petroleum Act, and PCJ’s establishment, came in the immediate wake of the second oil shock, when prices doubled in the face of the Iranian revolution.

While PCJ has, in recent years, aggressively promoted the development of renewable energy sources to reduce Jamaica’s reliance on fossil fuels, in particularly imported petroleum, the agency, since its inception, has spearheaded an on- and offshore search for oil, of which, in recent times, there have been more positive signs in the island’s territorial waters.

MANAGEMENT AND POLICY FAILURES

But PCJ has not always covered itself in glory in how it conducts its business. In the first half of the 2000s, for instance, the Office of the Contractor General excoriated the agency for how it went about determining its preferred bidder for a liquefied natural gas storage and regasification facility, contributing to the eventual abandonment of that tender process.

Then, last year, was the case of Petrojam, where a probe by the island’s auditor general discovered instances of nepotism, cronyism, procurement breaches, overspending on projects, and general unaccountability. According to the report, the PCJ didn’t go a good job of being aware of what was taking place in its Petrojam subsidiary and was also lax with its internal affairs.

“Inadequate oversight and monitoring led to systemic breakdown in resource management practices at PCJ and Petrojam, resulting in material financial losses,” the report said in one of several instances in which it identified management and policy failures.

Although the auditor general’s report didn’t specifically say so, the problems identified as PCJ and Petrojam weren’t inherently structural but rested primarily with the people chosen to be their managers and directors. They were, it appeared, selected primarily because of political allegiance rather than technical or other skills. In one case, it emerged that the letter of request for a troublesome, poorly accounted-for sponsorship award by Petrojam for a project in the constituency of the portfolio minister had been forwarded/emailed by a PCJ board member, who later claimed he was simply being a courier.

The oversight weaknesses, however, weren’t only at PCJ. The Ministry of Mining, Science, Energy and Technology (MSET), to which it reported, also failed in its oversight. “Whereas PCJ’s board consistently submitted board minutes to MSET, we found no evidence that MSET was active in monitoring and overseeing PCJ’s operations,” the report said.

The decision to collapse PCJ’s operations into the central ministry is, in the circumstance, fraught, notwithstanding the expected argument that it is part of the Government’s long-standing, but little-acted-upon, public-sector rationalisation programme. Oil and energy are highly technical fields that demand highly skilled expertise, some of which now reside within the PCJ. The corporation also has oil exploration agreements with foreign entities. For all its weaknesses, the PCJ operates with greater dexterity than is the norm in the civil-service bureaucracy, where ministerial sway tends to run deep.

Moving the PCJ operation into Government is likely to be bothersome for its technical staff, as well as business partners unaccustomed to the opaque nether places of ministries, and it’s hard for transparency to shine through. It would be really easy to put good, accountable board members in place at PCJ.