(Jamaica Observer) A blocked shipment of crude from Venezuela to Jamaica in the first quarter of the current financial year has contributed significantly to a J$4.6-billion deficit among public sector bodies, which was twice the budgeted target for the quarter.
The Ministry of Finance and Planning has confirmed that the shipment was blocked during the April-June quarter because it would have surpassed Jamaica’s monthly quota under the PetroCaribe agreement with Venezuela.
The result was that Petrojam had to increase purchases on the spot market to meet local needs which, although were priced at roughly the same figure as the crude from Venezuela, created a cash-flow problem for the refinery which has a credit facility with its 49 per cent part-owner, PDVCaribe, a subsidiary of Petróleos de Venezuela (PDVSA).
Financial secretary, Devon Rowe, told last Wednesday’s meeting of the Public Administration and Appropriations Committee (PAAC) that Petrojam is among a number of public bodies (government-owned companies) that are facing challenges impacting their deficit out-turn, including the National Water Commission, and Clarendon Alumina Partners (CAP), as well.
According to Rowe, Petrojam’s challenges are with the timing of its purchase and payments, as well as with the collection of its receivables. NWC has been experiencing difficulties with collection of receivables, he said, and CAP continues to experience high production costs and low selling prices.
Deputy financial secretary in charge of the public enterprises division of the ministry, Ann Marie Rhoden, said that a significant portion of Petrojam’s contribution to the missed target was due to a blocked shipment from Caracas.
Rhoden explained that the excess contributed to the public bodies exceeding its J$2.3 billion deficit target for the quarter by 100 per cent, ending up at J$4.6-billion in deficits.
“Petrojam had some challenges, and Petrojam contributed some J$9 billion to the deficit in the first quarter. Now, fortunately other public bodies’ performance were able to mitigate that significant deficit,” she said.
Asked by PAAC member Mikael Phillips what were the challenges at Petrojam which led to the increased deficit, she explained that the shipment from Venezuela was blocked, because it would have breached Jamaica’s monthly quota under the PetroCaribe arrangements.
“One shipment alone is some US$30-$40 million. Having missed that, they still needed to supply the country, so they had to purchase on the spot market and so utilising cash in cases where they would have used suppliers credit to make payment,” she explained.
Finance Ministry spokesman Lenworth Taylor said that, based on the arrangements between Petrojam and Petróleos de Venezuela (PDVSA), the crude is shipped to Jamaica on the basis of a monthly quota.
“Even though you have an annual target, on a monthly basis you might exceed. So, where you might be planning for two or three shipments for this quarter or this month, if you are running ahead of schedule, they might draw back on one ship for you for this month; as well as there are times when, based on what Petroleos does, it seems as if there is not a one-to-one relationship and a shipment can be pulled,” Taylor told the PAAC.
“But, J$9 billion?” PAAC Chairman Edmund Bartlett asked.
“It doesn’t happen often, but it happens,” Taylor told him.
“But, the real issue here is, what would have been the price that you paid on the spot market and the value of that against what the Venezuelan shipment would have cost?” the PAAC chairman added.
Taylor said that the price would not be a significant factor, as the real difference lies in the fact that the shipment from Venezuela would be against supplier’s credit.
“The real issue is supplier’s credit, as against actual utilisation of cash,” Rhoden queried.
“So, Mr Chairman, the real issue is that, because we had to utilise cash it impacts the operating balance, which is the thing we measure, as compared to using financing, which is actually below the measurement of the operating balance. So even though it may end up being the same amount, it might end up being an unfair balance of the (expenditure),” Rowe added.
The committee also learnt that a huge portion of Petrojam’s receivables is also tied up with energy-producing companies, including the Jamaica Public Service Company Limited.
The quota remains at 23,500 barrels per day, which amounts to approximately 700,000 barrels per month. The PetroCaribe quota of 23,500 barrels per day represents less than 50 per cent of Jamaica’s oil requirements and, with Petrojam processing about 30,000 barrels of crude oil per day, the gap is filled by purchasing crude oil from other parties on the spot market.
Jamaica’s PetroCaribe Development Fund (PDF),which is chaired by Rowe, owes PDVSA — the Venezuelan state-owned oil and natural gas company — some J$350 billion under the PetroCaribe programme. Thirteen Caribbean countries, including Jamaica, benefit from the agreement by purchasing oil on preferential terms that allow them to convert 40 per cent of payments annually to a loan repayable over 25 years.
The funds flowing from the arrangement are managed by the PDF, which earns from loans packaged for the public sector and from investment returns.
