JIS News

Commerce, Science and Technology Minister, Phillip Paulwell announced today (July 5), that the Jamaican and Venezuelan governments have signed two agreements, one to significantly boost the country’s accessibility to petroleum, and the other, to undertake a major expansion of the Petrojam oil refinery through a joint partnership.
Minister Paulwell made the disclosure at a press conference, held at the Ministry’s offices on Trafalgar Road in Kingston.
The signing of the two agreements took place during an official working visit of Prime Minister P.J. Patterson and Minister Paulwell to Venezuela last week.
Mr. Paulwell told journalists that the signing of the Energy Co-operation Agreement (PetroCaribe), should realise several benefits for Jamaica, some of which are expected to “have the immediate effect of easing the burden on the economy caused by the rising price of oil on the international market, which recently peaked at US$60 per barrel”.
The benefits, he informed, included the establishment of a Fund for social and economic programmes, with the Venezuelan government already committing US$60 million to the Fund. “Additional contributions will flow into the Fund from savings accrued as a result of direct trade or contributions from the financed portion of oil purchases,” the Minister explained.
Under the agreement, the payment for petroleum supplies has also been improved, with the short-term credit period being extended from 30 to 90 days to pay for oil shipments from Venezuela.
Highlighting other financial advantages of the agreement, Minister Paulwell said in the event of the barrel price of oil hitting the US$100 mark, there were terms in the contract that allowed Jamaica to pay up to 50 per cent of the value of its oil purchases. He added that using US$40 barrel as a benchmark, the agreement also extended Jamaica’s payment period from the current 17 years to 25 years and the interest rate has been reduced from 2 to 1 per cent.
Benefits of the agreement also include savings on freight costs. To this end, the Minister told journalists that in order to kick start the agreement, the Venezuelan state-owned oil company, PDVSA, has created a special purpose company to acquire adequate shipping capacity to honour all the supply obligations. “Freight expenses will be charged at cost and the company will be responsible for organising shipping logistics,” he noted.
Continuing, he explained that an essential feature of the agreement would be the addition of energy saving programmes to the supply-related agreements. “In this regard,” Minister Paulwell said, “PetroCaribe will arrange credits and exchange technologies to enable beneficiary countries to develop energy efficiency programmes and systems as well as other measures to reduce oil consumption,” he added.
PetroCaribe is an initiative of the Bolivarian Republic of Venezuela, launched at a meeting of Energy Ministers in July 2004. It is intended to benefit the Caribbean region through lower energy costs as well as the development of supply infrastructure, joint refining and co-ordination of hydrocarbon supply and distribution.
PetroCaribe is a component of Venezuela’s overall PetroAmerican concept, which targets the larger Latin American Region and includes PetroSur and PetroAndina.
Turning to the agreement to upgrade Petrojam, the Minister said while in Venezuela, he signed a Memorandum of Understanding (MOU) with the Venezuelan Minister of Energy and Petroleum. The two governments, through the Petroleum Corporation of Jamaica locally, and the PDVSA in Venezuela, have committed to partner on a US$500 million expansion project, with each party investing an equal 50 per cent stake.
“The end result of the upgrade will be to expand the capacity of the refinery by about 42 per cent to 50,000 barrels per day and through the introduction of new processing technology, to increase the proportion of higher quality fuel produced from the crude supplies,” the Minister pointed out.
The partnership between the two countries should also lead to the formation of a joint venture company. He said negotiations would begin shortly “to structure the ownership, based on business valuations derived from the net present value calculations of future cash flows and the valuation of assets to be included in the joint venture”.
Minister Paulwell also revealed that PDVSA was contemplating the possibility of entering into an equal partnership with the Jamaican government to run the state-owned PETCOM service stations.
“PDVSA has also agreed to carry out a study on the operation of PETCOM with a view to considering a 50/50 participation in the ownership of the service station network.which could see expansion within Jamaica and the Caribbean,” he further informed.