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Review committee rejects refinery’s upgrade proposal

Published:Friday | June 28, 2019 | 12:34 AMNickoy Wilson/Gleaner Writer

The plan by the Andrew Holness-led administration to commence the upgrade of the Petrojam by constructing a vacuum distillation unit (VDU) to diversify its operations into the production of asphalt has been rejected by the Petrojam Review Committee (PRC) in its strategic analysis of state-owned oil refinery.

The PRC was appointed by Cabinet last September to chart a strategic plan for the future of Petrojam.

Touted by the Government as the first stage in the Refinery Upgrade Project (RUP), a total of US$20 million was budgeted in the 2019-2020 Jamaica Public Bodies estimates of revenue and expenditure towards the construction of the VDU.

But in the 39-page report, the PRC, headed by businessman Christopher Zacca, said that the RUP would have significant negative returns on investment.

This as the VDU uses high-sulphur crudes to produce high-sulphur finished products, which the committee said are increasingly unattractive in the international market that is predominantly requiring light and not heavy fuels.

Consequently, the committee recommended that Petrojam utilise low sulphur crude stock to produce low-sulphur fuel products which have a distinct market advantage to the current products being produced.

The PRC indicated that this would require no or minimal investment but requires a major change in the traditional sourcing of crude feedstock.

The committee also recommended that the active management of the refinery and terminal should be transferred to the private sector with the view that this move is the only credible opportunity to improve the operating performance of both entities while also mitigating the operating and project execution risks to the Jamaican Government.

In February, the Government passed legislation to retake ownership of the 49 per cent shares in Petrojam held by the Venezuelan state-owned oil and natural gas company, Petróleos de Venezuela (PDV) Caribe.

PDV Caribe, an affiliate of the state-owned Petroleos de Venezuela S.A., and the Petroleum Corporation of Jamaica entered into a joint-venture agreement which resulted in the sale of Petrojam shares in August 2006 and February 2007, respectively.

The reasons for entering into the agreements included the upgrading and expansion of the refinery to improve its competitiveness and meet local and international market demands.

The Government said that the failure of the Venezuelans to complete this task prompted their action to retake the shares to ensure the future of the oil refinery.