This morning, Minister of Foreign Affairs and Foreign Trade Senator Kamina Johnson Smith held a press briefing updating journalists on the current situation regarding the Jamaican Government’s planned repurchase of the 49 per cent shareholding in Petrojam held by Venezuela’s PDV Caribe. This move, which the Minister stressed was a purely economic one to safeguard the island’s energy security, was announced on January 8, 2019. Nevertheless, the Opposition People’s National Party reacted strongly, seeing this as a betrayal of Jamaica’s close friendship with Venezuela and a kowtowing to U.S. policy towards that country.
Here is the full text of Minister Johnson Smith’s statement today (Tuesday, February 12):
I have convened this Press conference in my capacity as the lead of the negotiating team for the re-purchase of the 49% shareholding in Petrojam held by PDV Caribe. I want to welcome my colleague team members Minister Fayval Williams and Paul Scott, Chairman of Development Bank of Jamaica (DBJ) as well as the representatives of the Petroleum Corporation of Jamaica (PCJ) and Petrojam present today.
The last press briefing sought to clarify misinformation that had been placed in the public domain and to provide further information to ensure that the public would have a better understanding of the facts surrounding the decision of the Government of Jamaica to pass a law to allow it to take ownership of the 49% shareholding in Petrojam held by PDV Caribe. As you would recall, the shares were sold in 2007 in order to facilitate an upgrade to the refinery, one that had been acknowledged as important government policy from as far back as 2004.
So at the last briefing, we explained that Jamaica found itself in circumstances where:
(i) changes in the international regulatory environment for fuel which were anticipated years ago were less than 12 months away. More particularly, the International Maritime Organization’s regulations setting new fuel specifications will take effect so that as of Jan 1, 2020, Petrojam will not be permitted to refine and sell HFO in the way it is currently produced.
(ii) changes in the Jamaica Public Service Company’s (JPS’) fuel choice, which were signalled 3 / 4 years ago, will now take place in a few months. JPS comprises 50% of Petrojam’s market.
(iii) Petrojam has banking and operational risks due to domestic and hemispheric challenges being experienced by Venezuela – including sanctions flowing from an Executive Order issued by the USA.
Regretfully today we cannot say that these circumstances have improved. As things stand, the ownership structure of the Petrojam refinery now poses a risk for Jamaica’s energy security and for our economy, and accordingly for the Jamaican people. The first two issues I mentioned, require decisions to be taken about the future of the refinery, and in particular, its upgrade which was determined 10 to 12 years ago, to be of fundamental importance to its ability to adjust to such market changes. Such decisions are being considered by the Petrojam Review Commission appointed by Prime Minister the Most Hon Andrew Holness. They have retained an international consultant to support them in their technical analyses and will issue their report and recommendations in a few months.
As we have previously explained, the governance structure established pursuant to the Joint Venture Agreement and under Petrojam’s Articles of Incorporation, requires an equal number of Jamaican and Venezuelan Board members and decisions require both the Jamaican and Venezuelan directors to agree. There is no casting vote carried by the Chairman, so major decisions at the Board level can be stymied simply by non-attendance by the Venezuelan Board members, their deferral of matters or their refusal to agree. This has been an issue on and off over the past few years, was an issue in implementing Phase 1 of the upgrade which was to take place last year, and a matter recognized as a potential challenge to implementing recommendations of the Review Commission.
Jamaicans will recall that in August 2017, A U.S. Executive Order 13808 imposed sanctions against the Government of the Bolivarian Republic of Venezuela, its various state-owned entities and any other person owned or controlled or acting on behalf of the government.
When the EO was issued and Petrojam’s banks and suppliers started to take their precautionary measures to ensure that they were not in breach of the sanctions by doing business with Petrojam – and by this we mean for example, funds being held by banks placing transactions with suppliers at risk, and therefore placing Jamaica’s oil supplies at risk – the Jamaican government through its relevant ministries and Embassy in Washington worked hard with the U.S. Authorities to protect Jamaica’s energy security by obtaining cover letters to assure these suppliers and banks that ordinary business with Petrojam would not put them in breach of the sanctions. Operations, therefore, were preserved. Additional Executive Orders were also issued including 13850 in November 2018, but our letters of cover obtained in 2017 have continued to provide sufficient protection.
As we signalled last month, however, it was clear to the government and in fact, to anyone monitoring geopolitical developments in the region, that things have not been getting better.
On or around January 25th 2019, a new Executive Order was issued which broadened the definition of the Government of Venezuela to include “any political subdivision, agency or instrumentality thereof, including the central bank of Venezuela and PDVSA or any person owned or controlled by or acting for or on behalf of the Government of Venezuela” to include “any person owned or controlled directly or indirectly by the foregoing and any person who has acted or purported to act directly or indirectly for or on behalf of any of the foregoing, including as a member of the Maduro regime.”
Furthermore, on January 28, 2019, the U.S. OFAC (Office of Foreign Asset Control) designated PDVSA on the Specially Designated Nationals and Blocked Persons (SND) List. This designation means that all property and interests in property of PDVSA or its affiliated entities in the U.S., are blocked and may not be transferred paid exported withdrawn or otherwise dealt with, so payments made by or to PDVSA or any entity owned or controlled by PDVSA will be held by U.S. financial institutions pending instructions from the U.S. Department of Treasury.
Unsurprisingly, therefore, serious concerns have once again been triggered by Petrojam’s banks and suppliers, who have now not only started posing questions about the impact of the new Executive Order but in some respects have requested indemnities of the company as a basis of continued services. To be clear, at least one bank has asked Petrojam to sign an agreement stating that if they are fined as a result of processing transactions for Petrojam, that Petrojam will cover the cost of those fines – which can run into millions of United States
dollars. Furthermore, they want Petrojam to sign agreements that allow them to stop providing services at any time or to delay payments at any time. Clearly, this would add another layer of operational risk to Petrojam’s operations.
Let me be clear that thus far, our advice is that Petrojam is NOT a sanctioned entity under these Executive Orders. PDV Caribe, and its parent PDVSA, however, are. And representatives of the Maduro regime are. BUT THIS IS HOW BANKING RISK OPERATES. It is a function of perceived risk and the organization’s assessment of risk. We, therefore, have to be careful. It should be noted that General Licences have provided some immediate level of comfort to Petrojam’s service providers, but one thought to be relevant will expire on February 27.
Furthermore, sanctions have also now been issued against the Government of Venezuela by the Government of Canada, and their language is very broad. Their scope and implications are still being analysed.
The reality is, that as a responsible government, it is important that we act to protect Jamaica’s energy security. We do not have the luxury of hoping that banks and suppliers will not assess the risk of doing business with Petrojam as just too high for them.
Regardless of any of the different perspectives on what the future of Petrojam should be, whether it should continue to operate, be fully owned by the government, divested or wound up, RIGHT NOW, it is THE sole refinery in Jamaica. It is the principal provider of oil to JPS which provides most of the electricity to Jamaica, and it is the principal provider of fuel to the domestic market which fuels our buses and taxis, our homes and cars, also significantly fuel for our factories and businesses which provide employment for people. If Petrojam were unable to purchase oil to sell the relevant types of fuel to JPS, JAMALCO and JUTC, the entire economy would topple. And we are not even speaking yet about the taxes they pay to the revenue and the direct and indirect employment. We are only speaking about the ability to supply energy to keep Jamaican wheels of industry turning. The uninterrupted production of goods and services is critical to the attainment of our economic development agenda and critical to the well-being of our people.
The government, therefore, has to protect Jamaica from the risks presently posed by the ownership structure.
As you know, we have always indicated our belief that a negotiated settlement was better than a legislative process. This continues to be our position. We have over the last few weeks in fact been engaged in serious discussions with PDV Caribe and I am able to report that we made good progress. They had in fact accepted the last settlement price we offered. To date, however, we have not been able to reach agreement on the terms.
I know in the earlier stage of public discourse persons were asking questions such as “but haven’t they agreed to sell? Isn’t the only issue price?” But for those who are not aware, the price is, in fact, a huge part of an agreement to sell. AND even more so, while the price is a huge part of reaching an agreement to sell, it is only ONE element of an agreement for sale. If you can’t agree how you are going to receive the thing you are purchasing and how payment is to be made, not to mention IF in fact payment can be made – you quite simply do not have an agreement.
The work towards a negotiated settlement continues, but as I have said before, the reality is that if we do nothing, if we do not have access to the shares, if we do not reach an agreement, nothing changes for the Venezuelan people, while for the Jamaican people our supply of electricity and energy would be at risk. As a responsible government, we, therefore, have to act in the interests of the Jamaican people.
It is in this context, that this afternoon, Prime Minister the Most Honourable Andrew Holness will table the Bill to compulsorily acquire the 49% shareholding in Petrojam Limited which was sold to PDV Caribe by PCJ in 2007.
The Bill will not be debated today, but as you know Bills must be passed in two houses and this takes time, so in the interests of the Jamaican people, our energy security and our economic stability, the government will start that process today. With the reality of imminent tightening of sanctions and the risk they pose to Jamaica’s energy security, we must take action, even if it is a parallel process to a negotiated settlement.
We have therefore written to PDV Caribe to advise them that we remain open to reaching a negotiated agreement and to expressly state once more that this step is not a hostile step, but an assertive one taken in the Jamaican public interest.