JIS News

The House of Representatives has approved a Bill to amend the Petroleum Act.Minister of Finance and Planning, Dr. Omar Davies, who piloted the Bill on November 28, explained that the amendment would provide for the Government to establish a “special Fund to receive proceeds which flow to the Government of Jamaica on concessionary terms as a result of the PetroCaribe agreement” between Jamaica and Venezuela.
He pointed out that the agreement codified the enhanced benefits to Jamaica from the oil trade with Venezuela, stating that these would be based on the principles set out in the loan agreement.
Based on what the Minister termed the “unique features of the agreement”, which would “have important implications for how the resources are managed and utilised in the public sector”, it was important that alternative energy sources be developed.
Accordingly, Dr. Davies said Cabinet decided that the proceeds from this special Fund, which would be exempt from income tax, would be “utilised to upgrade, primarily, the social and physical infrastructure of Jamaica and to facilitate the development of natural energy resources”.
He emphasized that projects with high profit or income saving potential would be deemed “high priority for financing”.
The Minister also noted that proceeds from the Fund would go towards debt servicing under the agreement as well as support alternative energy projects, which were aimed at reducing the nation’s reliance on oil, social intervention projects and the retooling of the industry sector.
Dr. Davies proposed, along with the formal establishment of the Fund, “a Board of Management, under the chairmanship of the Financial Secretary, to have oversight of its operations”. Annual reports would be tabled in Parliament on a yearly basis.
But the Opposition, through its Finance Spokesman, Audley Shaw, said it would evade transparency if Parliament was updated on the use of the PetroCaribe funds only on an annual basis. Instead, he believed disbursement of the funds should only come after parliamentary scrutiny.
The Finance Minister, however, maintained that this was not necessary, as the fund was unlikely to create additional debt on the part of the Government. He said that the Opposition’s call for a Select Committee to approve these disbursements could not be supported solely on the need for transparency, especially since there would be regular consultations and oversight from the Auditor General.
Dr. Davies explained that “the financing terms [of the loan from Venezuela] depend on the prevailing oil price per barrel of oil and at the existing level, 40 per cent of each [loan] payment is converted to a loan for 25 years, which includes a grace period of two years at an interest at 1 per cent per annum.” This condition, he said, would hold only when per barrel oil prices were more than US$50 and below US$100.The Minister said that when the per barrel price for oil was below US$50, the loan terms would change. Instead of the usual 40 per cent over a 25-year period, there would be a deferred payment between 5 and 30 per cent over a 17-year reduced period at an increased interest rate of 2 per cent per year.
A further condition would be that when oil prices rise to more than US$100 per barrel, the deferred amount would be 50 per cent of each payment over a period of 25 years.
Dr. Davies said that despite the generosity of these concessionary terms, the Government would prefer if nothing flowed into the loan Fund. This, he said, only reflected the high prices of oil and this would negatively affect the nation’s balance of payments profile.
“There is no concession to Jamaica in terms of the price of petroleum products. The price of petroleum products to Petrojam reflects prevailing conditions in the international market and full payments for the products become due after a 90-day grace period,” the Finance Minister informed.

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