Editorial | The Petrojam question

At least once each year since the release of the Christopher Zacca report in 2019, this newspaper has asked for clarity on, or a least serious public discussion of, the Government’s intention for the Petrojam oil refinery.

But anything about the facility has come mostly in dribs and drabs, seemingly intending to ensure opacity. It was as though the Government wanted the public to read between the lines of its action.

Happily, after nearly eight years, the administration has come close to revealing what has long been on its mind although it says it has commissioned a new study to tell it what to do. It is inclined not only to keep the refinery operating but to invest, perhaps with private partners, in its expansion and modernisation. Which is an old idea!

This newspaper, at this stage, offers no position on the strategic direction the Government should follow. However, any strategy relating to the status of the refinery ought to be arrived at not in isolation. It should be within the context of a larger energy policy, including accelerating the use of renewables in Jamaica as well as the economy and the place of the future of the Jamaica Public Service (JPS), the monopoly electricity transmission and distribution company, in the economy.

The JPS’s operating licence expires in July 2027. The Government has said that it won’t be renewed on the existing terms. If they can reach an agreement, it means, based on the clause the administration used to trigger the negotiations, that the Government will have to buy the operation then, maybe, sell it to a new operator.

NATIONAL DIALOGUE

Given these and other factors, including the current war in the Middle East, that will impact the Government’s decisions, The Gleaner repeats its suggestion for a broad-based national dialogue on the future of energy in Jamaica. The issues are too profound, and the complexities too great, for policy action to be arrived at by the Government and its consultants.

With respect to what is to be done with Petrojam, it is to be recalled that it is a small refinery, with a rated capacity of 35,000 bpd, with old technology. The plant was opened in 1964. There has been back-and-forth debate about the refinery, including the possibility of its expansion and modernisation, since the Government acquired the facility from its previous owner - Esso Standard Oil, in 1982 – 44 years ago.

When there was last a public and reasonably transparent review of the Government’s options – the review by a committee chaired by engineer and businessman Christopher Zacca – the suggestion was that the Government shutter the refinery, privatise its storage and receiving distribution facilities. Jamaica would then go fully to importing refined petroleum products unless, perhaps, private investors were willing to embrace all the risks of building a new, efficient refinery.

Zacca’s case against the refinery was its inherent inefficiencies and that its refining operations were profitable primarily because of a steep differential in the customs administration fee (CAF) the government applied to crude oil imports (lower), and finished petroleum products (higher).

Additionally, upgrading the refinery would be expensive. For example, the installation of a Vacuum Distillation Unit (VDU), which would allow the extraction of heavier products from the crude Petrojam refines, would require investing US$100 million. A full-suite upgrade and expansion of the refinery, to 50,000bpd, would be US$1.2 billion. Zacca had also argued that demand for some of the products that a VDU would open for Jamaica were likely to face declining demand.

LACK OF CLARITY

Two years ago, Petrojam’s General Manager, Telroy Morgan, suggested at an oil industry conference in Panama that the company planned, under some investments, to produce heavy products, Zacca’s committee advised against, but there was a lack of clarity on whether that project would be advanced.

A year ago, the energy minister, Daryl Vaz, said that despite unsolicited proposals about the refinery, the Government was yet to arrive at a decision on Petrojam.

However, while he told Parliament’s finance committee last week that “nothing has changed in the position of the Government” with respect to the Zacca report, Mr Vaz stressed that international consultants had been hired to help determine the refinery’s future.

Mr Vaz also indicated his congruence with the opposition’s shadow minister for energy, Phillip Paulwell, about the strategic value of the refinery despite its annual loss of around J$4 billion over the last four years.

“What I can say is with what is happening in recent times, the strategic use of the refinery in this region has great opportunities,” Mr Vaz said. “...There is a heightened interest, especially, especially in the past few weeks, in terms of persons contacting Petrojam.”

Mr Vaz also suggested that Petrojam’s ability to refine Venezuela’s heavy crude was a potential advantage for refinery and Jamaica with the reopening of the South American country’s oil export since the United States removed its president, Nicolás Maduro, and imposed something just short of suzerainty over the industry. Venezuela’s state oil company, PDVESA, used to own 49 per cent of Petrojam until the shares were renationalised.

There was always an intersection between geopolitics and oil and energy, but the situation is particularly acute at this time. The Petrojam issue provides another opening for Jamaica to discuss the matters and arrive at a national consensus on them.