Petrojam Defends Projected Profit for 2011/2012

KINGSTON — General Manager of the state run oil refinery, Petrojam, Winston Watson, is stoutly defending the refinery's projected ability to increase profits in 2011/12.

Reacting to questions at an energy seminar put on by the Petroleum Corporation of Jamaica (PCJ), at their Trafalgar Road head office, Kingston, on Wednesday September 21; Mr. Watson insisted there is nothing wrong with the refinery making a profit, if it operates efficiently.

“You think that because the company is owned by the Government it should not be profitable?  The Government companies that have not been profitable, you know where they are. Air Jamaica, we sold it because it wasn’t profitable; JPS, we sold it because it wasn’t profitable. You must run them like a business, and they must make money,” he responded.

Mr. Watson cited 2009, as an example when oil price collapsed and Petrojam made a significant loss. He said the company didn’t go back to shareholders asking to be subsidized, but went to the government, explained that it was a ‘market’ that would turn around, eventually, and committed to cutting costs and riding out the rough patch.

“We used that same basis: We rode it out and we made back a profit. Why should we apologise for that? There’s nothing wrong with that,” he stated, emphatically. 

Mr. Watson pointed out that, because of the free market, anyone can import oil if there is a good market. However, he said everyone is buying from Petrojam, because it offers the best value for money.

“When they run the numbers we have the best prices. We just signed a contract with JPS this year; it is not because we’re uncompetitive. TOTAL buys from us, (although) they have a choice. Shell buys from us (although) they have a choice. So our prices are competitive,” he said.

Petrojam, Jamaica’s sole oil refinery, doubled expectations for profit amidst high gas prices this fiscal year. In a mid-year revision of estimates of revenue and costs, the refinery upped projections for net profit from $2.8 billion to $5.6 billion for year ending March 31, 2012.

The improved profit performance reflects lower revenues — $166.5 billion compared to $82.7 billion estimated in April, but much higher reduction to cost of sales, which is expected will be $20 billion lower than originally projected for the current fiscal year, 2011/12.

Gas prices have been rising steadily since the start of the year and, as at September 8, stood at 31 per cent higher than a year before.

Petrojam maintains, however, that the pricing mechanism it uses reflects a practice used by its main oil trading counterparts — Mexico, Venezuela and Trinidad. The main input into the pricing formula is the US Gulf Coast (USGC) Reference Price for the appropriate product.

By O. Rodger Hutchinson, JIS Information Officer