Sat | Nov 27, 2021

Johnson Smith explains Petrojam valuations

Published:Sunday | February 24, 2019 | 12:22 AM

The Petrojam oil refinery in Kingston.
The Petrojam oil refinery in Kingston.

Livern Barrett

Senior Parliamentary Reporter

The Andrew Holness administration has sought to explain the US$136-million difference between two valuations of Petrojam, the country’s sole oil refinery, that were done a year apart by the same international consultant, using the same method.

Energy Minister Fayval Williams disclosed in the House of Representatives on Tuesday that an evaluation undertaken last February by international consultants Muse, Stancil placed the refinery’s market value at US$34 million.

But questions were immediately raised about that figure after Opposition Member of Parliament Peter Bunting released the findings of another valuation report, done by Muse, Stancil in 2017, which placed the value of the refinery at US$170 million.

Finance Minister Dr Nigel Clarke insisted at the time that “there is no 2017 valuation”.

However, Kamina Johnson Smith, leader of government business in the Senate, explained on Friday that the 2017 valuation was done “for the purposes of securing the loan or investments” that were required to finance the proposed upgrade of Petrojam, which was set out in the revised joint-venture agreement signed by Jamaica and Venezuela.

“It is being done in the context that the refinery was going to be upgraded now. And what does that mean? [It means] that in 2020, there will be in place a vacuum distillation unit (VDU),” said Johnson Smith, who is also the minister of foreign affairs and foreign trade, during the debate in the Senate on the proposed legislation that will allow the Government to forcibly retake Venezuela’s 49 per cent stake in Petrojam.

“The vacuum distillation unit would allow Petrojam to comply with the IMO (International Maritime Organisation) regulation,” said Johnson Smith, making reference to changes in the sulphur content in heavy fuel oil come January 1 next year.

She said this would allow the state-owned refinery to expand its capacity, thereby offsetting the expected losses from the new IMO regulation and the Jamaica Public Service Company’s switch to liquefied natural gas later this year.

Johnson Smith said a year later when it became clear that the upgrade “was not on the horizon” and then energy minister Dr Andrew Wheatley had began negotiations with Venezuela to reacquire the 49 per cent shares, Muse, Stancil was asked to “update that valuation report”.

“They were asked to do it on an as is/no-major-upgrade basis, because that’s what you would now take as the presumptions. So that’s how we account for the difference between 2017 and 2018. One says there is a VDU in place, one says there is no VDU in place,” she explained, while insisting that the 2017 valuation was not relevant for the acquisition of the Petrojam shares.