Thu | Aug 22, 2019

Gordon Robinson | Why did Jamaica expropriate Venezuela’s shares?

Published:Sunday | July 28, 2019 | 12:17 AM

At a January 8 press briefing to announce Jamaica’s expropriation of Venezuela/PDV-Caribe’s Petrojam shares, Jamaica’s foreign affairs minister traced the Jamaica-Venezuela Petrojam-PCJ partnership’s history:

“The primary purpose of the [Petrojam-PDV-Caribe] partnership and related agreements was to facilitate the upgrade and expansion of the Petrojam refinery, which ... was seen as important to Jamaica’s energy security.

12 years later, it’s even more so.

12 years later, the upgrade of the refinery hasn’t been undertaken.

12 years later ... PDV-Caribe hasn’t fulfilled its commitments in that regard.”

Almost as an afterthought, Minister mentioned “12 years later, Venezuela is also now [the] subject of US sanctions, which create international banking and operating risks for Petrojam.” Was that secondary? Or very primary?

In commenting (March 31; Afghanistan and Venezuela: Parallel lessons), I pointed to historical parallels evident between CIA attempts to destabilise Afghanistan (early 1980s) and Jamaica (late 1970s) on the one hand and the effects of what appeared a similar current ­strategy in Venezuela. I outlined recent USA foreign policy history towards Venezuela disguised as an OAS vote for “new presidential elections” but exposed as regime change tactics by Juan Guaidó’s USA-backed ­unilateral declaration that he was interim Venezuelan president.

I wrote:

“USA imposes sanctions. Jamaica passes legislation to compulsorily acquire Venezuela’s Petrojam shares, saying they’re urgently needed to avoid USA sanctions (but Petrojam is NOT a company sanctioned by USA) and for long-needed refinery upgrade (for continued viability) that Venezuela won’t approve. But Petrojam has been unprofitable for decades, with no change (or upgrade) in sight.”

I believed the upgrade was an excuse used to obfuscate the Government’s real reason for expropriating Venezuela’s shares, namely, kowtowing to Big Bully from the North (BBN).

But Minister kept insisting that the move was “purely economic” and kept referring to Jamaica’s “energy security”.

When the PM opened Parliamentary debate on the expropriation Bill, he doubled down, citing Venezuela’s extreme tardiness at agreeing to the upgrade: “We cannot wait until Petrojam is run to the ground.” He repeated the mantra that Jamaica’s energy security was “compromised” because of Venezuela’s inaction and delays in implementing the agreed upgrade.

After hearing all this robotic chanting, I had a vision of government ministers protesting in front of TV cameras with placards shouting “We waaaaaaan’ UPGRADE!” But most industry insiders have long known that this “upgrade” was illusory.

HOLE IN THE HEAD

Jamaica needs an oil refinery like a hole in the head. Convoluted, inefficient, cost-creating refining processes and rampant corruption result in petrol reaching consumers at much higher prices than would be the case if Jamaica imported refined product.

So those of us accustomed to translating politician-speak into English believed that the expropriation was nothing more than pandering to Washington’s wants as seemingly instructed at an infamous Maralago meeting among Trump and select, obsequious Caribbean countries.

In his April 16 Sectoral Debate presentation, Philip Paulwell (I know, I know, even alleged devils must be given their due) hinted that Venezuela might have good reason to block the ballyhooed upgrade:

“The actions by [GOJ] to acquire Venezuela’s 49 per cent stake in the plant are seen as mean-spirited and opportunistic. It’s to be noted the Venezuelans themselves conducted an audit of the Petrojam Refinery and came back with many adverse findings.”

He pointed out: “How could a Jamaican government bun bad lamp for one of our nearest and dearest friends? We’ve always understood you don’t step on your friends when they’re down. Venezuela will rise again, and it’s our hope that for the sake of our country, the mistakes of this government won’t permanently damage our friendship.

There’s great uncertainty about [Petrojam’s] future. We’re now told the Zacca report will be available in June. I hope the report will be open to public scrutiny.”

He was greeted with a hail of abuse for suggesting that expropriation awaits the report. Chris Zacca himself told Nationwide in January that shutting down Petrojam wasn’t an option. He argued then that a reconfigured Petrojam would be of immense value to national development. Zacca pooh-poohed the idea that expropriation should await his committee’s report, noting that any of its recommendations would require government having full ownership.

Well, the long-anticipated report is here and it recommends that either Petrojam be divested by way of long lease or shut down as a refinery.

Oops! I guess shutting down, far from not being an option, has turned out to be Plan B.

Let’s not beat around the oil tank. Petrojam was conceived as a refinery. Its importance to Jamaica was touted as a refinery. Any other purpose didn’t require a PCJ-Petrojam white elephant. So “shutting down the refinery” IS shutting down Petrojam!

Plan A (long lease) is something that can be done whether the Government is majority shareholder or 100 per cent shareholder and has NOTHING to do with any need for expropriation.

It’s obvious to all but the incurably sycophantic that Venezuela objected to the expensive upgrade because it was a phantom option. As it turns out, upgrade isn’t the Review Committee’s Plan A, B or C. Venezuela’s blocking of that route to the award of huge government contracts and a deeper fiscal hole in which to bury Petrojam is vindicated.

WHY DID JAMAICA EXPROPRIATE VENEZUELA’S SHARES?

The report establishes that Petrojam has no future as a refinery :

“The Petrojam refinery is of low complexity… Worldwide-petroleum refineries are increasingly becoming more complex and of larger scale to support higher levels of conversion of crude feedstocks to ‘light-clean’ products. In many cases, refining capacity will be integrated to produce high-value petrochemicals rather than simple fuels. Refineries are increasingly being built in the Middle East, Asia & Pacific ... Africa and Russia. In contrast, a large number of refineries in the Caribbean and Central American region have shut down, and refinery production for the region is increasingly dominated by US Gulf Coast refineries exporting fuels to these regions.”

Nineteen refineries are listed in many regional territories. Only five, including Petrojam, are still operating (one producing ‘Special Fuel Oil’).

THE MAGIC PHRASE

This is what the report says about “Jamaica’s energy security”, that magic phrase so obediently repeated by BBN’s Gordon House lackeys:

“The importance of the respective roles of the Petrojam refinery and terminal were considered in the context of the security of Jamaica’s energy supply. The terminal can exist and operate independently of the refinery solely on imports of finished petroleum projects, in supplying Jamaica’s energy needs. In their international petroleum market overview, GCA also opined that adequate supplies of finished product would be available should a decision be taken to cease refining in Jamaica. Based on the foregoing, the PRC concluded that the existence of local refinery operations is not essential to ensuring Jamaica’s energy security.”

Oops! What about the upgrade?

“Petrojam has championed the long-conceived Refinery Upgrade Project (RUP) ... estimated to cost in excess of US$1.2B and would expand the refinery’s capacity to 50 mbd and allow the processing of very heavy crude oils….. The VDU project is a subset of the wider RUP project designed to mitigate the challenges associated with the declining need for high-sulphur HFO products.

Approval for VDU has been granted by GoJ, and provisions have been included in the national budget for 2019-20 for execution of the VDU project. This … is projected to cost US$102m and would enable the refinery to process streams originally intended to produce HFO to produce two other petroleum products ... a new product ‘vacuum gas oil’ (VGO), and ... asphalt, an existing product, which would be produced in higher volumes …

The VDU project is predicated on the consumption of ‘sour’ (high-sulphur) crude feedstocks such as those originating from Venezuela, a crude supply relationship that has continued for decades from the [refinery’s] initial conception in 1962. These high-sulphur crudes tend to produce high-sulphur finished products, which are increasingly unattractive in the international market that’s predominantly requiring light not heavy fuels. There’s no market in Jamaica for VGO …

The volume of asphalt that would be produced would also far exceed local Jamaican demand, and thus a strategy to export asphalt would also be required, which isn’t an easy undertaking logistically and commercially. Both these products would orient the refinery to supplying external markets and not the needs of the Jamaican market. The committee evaluated the financial projections of VDU and RUP … and found that the proposed projects have significant negative returns on investment … with significantly worse results for the RUP project compared to the VDU project. The financial projections in VDU feasibility studies have also assumed a refinery availability rate of 90 per cent, far exceeding past and current capabilities and significantly improving the economics.”

So the energy minister’s avoidance technique “discussions can’t take forever” is dismissed out of hand. Where’s the urgency? NO UPGRADE necessary!

Sigh. One more picture. Hold it!

WHY DID JAMAICA EXPROPRIATE VENEZUELA’S SHARES?

Peace and love!

- Gordon Robinson is an attorney-at-law. Email feedback to columns@gleanerjm.com.