Editorial | Be forthright about Petrojam

A year ago, almost, this newspaper urged the government to speak frankly about its plans for the state-owned Petrojam oil refinery in the context of the Zacca report’s recommendations for the entity.

The request remains relevant and is worth repeating. For up to this week, five and a half years after Christopher Zacca presented his findings to the administration, there has been no serious public debate on its proposals, and opacity still surrounds the refinery.

Indeed, to put it bluntly, Energy Minister Daryl Vaz’s pronouncement on Petrojam on Tuesday was at best obfuscatory.

Mr Vaz said that the government has not settled on a position on the refinery and suggested that unsolicited proposals were on the table. All this may indeed be true, it doesn’t clarify a statement by Petrojam’s general manager, Telroy Morgan, at an oil conference in Panama City, in January 2024 in which he suggested that the facility would proceed with expensive upgrading to more efficiently refine heavy crudes and produce by-products for export.

Such a decision would be directly counter to the recommendations of Mr Zacca’s task force, which argued that going that route would be expensive, and in Jamaica’s current circumstances, of little real economic value.

MET WITH SILENCE

The Gleaner’s call then for additional information was met with official silence.

Petrojam has a rated capacity of 35,000 barrels per day (bpd), but for many years its output has been significantly below that.

However, for more than two decades there have been on-and-off discussions on expanding and modernising the refinery to at least 50,000 bpd. Another floated proposal has been for the installation of a new vacuum distillation unit (VDU), allowing the refinery to more efficiently produce additional, second-go petroleum products from of the heavier crudes it was designed to handle.

No final decision was ever taken on any of these suggestions, largely because of costs and questions over the economic viability of the required big investment in a plant that is small, old and likely more difficult and expensive to upgrade than building a greenfield facility.

Mr Zacca, a business executive, who now leads the financial conglomerate, Sagicor Jamaica, was asked by Prime Minister Andrew Holness to review the refinery and make recommendations for its future in the face of the 2018 scandal over alleged corruption, cronyism and nepotism at Petrojam.

The Zacca task force arrived at two major conclusions:

• that Petrojam’s refining operations should be mothballed; and

• that its terminal and tanks be privatised and used for the importation and storage of finished petroleum products.

Mr Zacca premised the recommendation on two planks, one that the refinery was critical to Jamaica’s energy security and that any proposed upgrade would be costly (US$100 million for the VDU installation and US$1.2 billion billion for a full-suite expansion and modernisation) and likely to deliver negative financial returns.

WIDE DIFFERENTIAL

In fact, they argued that Petrojam’s refinery operation was only profitable because of the wide differential between the Customs User Fee (CFU) charged on imported refined products and crude.

This is how Zacca report assessed the VDU proposal: “The VDU project is inherently 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 initial conception of the refinery in 1962. These high-sulphur crudes tend to produce high-sulphur finished products which are increasingly unattractive in the international market that is predominantly requiring light and not heavy fuels.

“There is no market in Jamaica for VGO ( vacuum gas oil, which is used as a feedstock for fluid catalytic crackers in making transportation fuels and by-product) and production would need to be exported to international markets such as other refineries on the USGC (US Gulf Coast) who could use this product. 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 is not an easy undertaking logistically and commercially. Both of these products would orient the refinery to supplying external markets and not the needs of the local Jamaican market.”

However, at that Panama City conference, according to an uncontradicted report of his speech by this newspaper, Mr Morgan, the Petrojam GM, was explicit that the company was clear about its future.

He said, “Petrojam is actively pursuing an expansion of its export portfolio, with a specific focus on heavy fuel oil (HFO), very low sulphur fuel oil (VLSFO), low sulphur diesel oil (LSDO), and asphalt. These insights reinforce Petrojam’s role as a critical player in the Caribbean energy landscape and its proactive approach to sustainable growth and development.”

This might very well be the right path for the refinery, cost notwithstanding. Or perhaps the government has had good reason to shift its position.

In any scenario the matter deserves serious public debate, not merely as an end in itself, but as part of Jamaica’s largely energy strategy, including the government’s policy that renewables should deliver at least half of Jamaica’s power needs by 2030. Indeed, the cost at which power is delivered will be important to developing a competitive economy, with export-led growth as its driver.