Fri | Aug 23, 2019

Kamina Johnson Smith | Compelling case for takeover

Published:Sunday | January 20, 2019 | 12:00 AM
Kamina Johnson Smith
The Petrojam oil refinery in Kingston.
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Since January 12, there have been a few Gleaner articles presenting a curious mix of information about the Government's expressed intention to pass a law to take ownership of the 49 per cent shares held by PDV Caribe since 2007 when the Petroleum Corporation of Jamaica (PCJ) sold them.

I say curious because the articles have been a mix of unverified information, unfounded opinions, and matters not known to the Government of Jamaica, positioned as if they are otherwise. Furthermore, even where the Government has corrected, contextualised or questioned this information, that information and those perspectives have not been included or even referenced.

First, the decision to pass a new law using powers provided for in the Constitution of Jamaica was recognised as a strong action. It was, however, an economic decision driven by the interest of Jamaica and the Jamaican people, and was not a decision that should have taken our counterparts by surprise.

The Government had been indicating for some months that if we were unable to reach a reasonable and amicable agreement, we would have to take unilateral action. All our discussions were cordial and conducted with respect.

Second, we remain of the opinion that an amicable agreement remains the best solution. For this reason, we have indicated our openness to same until the new bill passes.

 

SHARES COMPENSATION

 

Third, the proposed action by the Government of Jamaica will be accompanied by compensation - we will pay for the shares. Furthermore, in the negotiations, our offer prices have been based on fair market value established by the same global consulting firm that took part in the valuation based on which PDV Caribe purchased the shares in 2007. The same firm also prepared the valuation done in 2017 to enable Petrojam to seek additional financing for the upgrade project, which both sides agreed to undertake. Petrojam also used the same methodology by which the sale price was determined in 2007.

It, therefore, took not only an independent approach to determining fair market value, but used both a firm and a method with which PDV Caribe was familiar. The Government of Jamaica then offered in excess of that amount with a view to amicable agreement. The counterproposals were more than 10 multiples of fair market value.

Fourth, context is everything. PCJ's entry into a joint venture and its sale of shares in 2006 and 2007, respectively, were done in order to upgrade the Petrojam refinery. The upgrade was not just contemplated, it was deemed necessary. This position started in 2004 and continued across administrations.

It is known that during the global financial crisis, Jamaica was unable to do the upgrade (most countries in the world had a financial crunch), but it is an inescapable fact that the intention otherwise has still not been met.

Fifth, if the refinery were to be unable to operate tomorrow, not one Venezuelan would lose a job or be affected in any way. PDV Caribe can, therefore, prolong discussions and any process for as long as it would like.

The Government of Jamaica did not start discussing the desire to purchase the shares in March 2018. Under this administration, we started in September 2017, shortly after the US issued Executive Order 13808 and we were in the heaviest throes of initial efforts to ensure that Petrojam could continue to operate because of banks' perception of the risks of doing business with Petrojam.

 

OFFERS ON THE TABLE

 

It is clear that PDV Caribe explored sale of their shares in or around June 2014 - a fact which the then minister of energy, Phillip Paulwell, in February 2015, advised that he would provide a definitive report to the Jamaican people within 30 days. No such report appears to ever have been provided and today the shares remain owned by PDV Caribe.

Offers have been made and assurances given by the same opposition spokesperson before - even as minister of government - and nothing has resulted therefrom.

We have since, however, become aware that at least one current spokesperson, one communications director and one former officer of the Opposition People's National Party (PNP) have been aware of other offers made and purportedly made to PDV Caribe and PCJ. It has also become clear that they have been aware of these matters before the Government of Jamaica. This obviously raises questions in the minds of many. Again, at this time, I will not say more on this.

Yes, an offer was made to the PCJ for its 51% shareholding in Petrojam (or any portion thereof) for US$60m. As it is entitled, the PCJ has written to reject the sole offer made to it to date, for several reasons. It has, however, indicated in its response that there is no intention of the Government to sell at this time, and any such decision would follow the due process applicable to divestment of a government asset.

It was brought to our attention that the same company made an offer to PDV Caribe of US$100m for its 49% shares. Not only does this purported offer raise questions when compared to the offer made for PCJ's shares, no information was provided based on which the PCJ could determine the offer to be a bona fide one.

As at the time of writing, neither the PCJ nor Petrojam has received any other offer or notice of any other offer or purported offer.

There is evidence to establish the following facts:

The decision of JPS to convert to LNG was anticipated years ago and will now happen in May 2019 (JPS makes up 50% of Petrojam's market).

It was anticipated more than a decade ago that there would be new international regulations which would make Petrojam unable to sell heavy fuel oil as it now produces it. This will now happen on January 1, 2020.

After meetings by Prime Minister Holness and President Maduro, in May 2016 and January 2017, PCJ and PDVSA entered into a new agreement in February 2017 for the upgrade project. Although the Government of Jamaica performed all its obligations, our counterparts did not, and the agreement expired in February 2018.

Five years ago, then Minister Paulwell stated that if the upgrade was not done, the refinery will have to be shut down, and yet he took no decisive action. It is clear that many assurances have been given, and meetings and discussions held, as well as statements of intention to sell and to upgrade. Notwithstanding, the results are clear.

The Opposition themselves have said that nothing happens in Venezuela without the say-so of the political directorate, and yet after all our discussions with the political directorate and outreach even to heads of government with friendly relations with the Venezuelan president, somehow results in the PNP labelling the action as premature.

We note that Cuba took back PDV's shares recently in exchange for debt, and the Dominican Republic is now seeking so to do. These countries are both strong friends, not only of Venezuela, but President Maduro himself. They recognise the risks and the importance of energy security. The reasoning behind recovery of control from Venezuela at this time seems to be lost only on a few.

After 12 years of discussions and more than two years of recent negotiations, including having had no less than three heads of government with friendly relations with Venezuela to intervene on our behalf, it can be objectively concluded that Jamaica is right in its current stance.

n Kamina Johnson Smith is the minister of foreign affairs and

foreign trade. Email feedback to columns@gleanerjm.com.