Jamaica:
Oil lift contract expired Dec 2005
Jamaica Gleaner
Kingston
Petroleumworldtt.com
10 15 06
The
Petroleum Corporation of Jamaica (PCJ) board will
pronounce today on whether it will continue to retain
Trafigura as agent to lift oil purchased from Nigeria
as reports swirl of a possible investigation of
the $31 million transaction between the trader and
politicians aligned to the ruling party.
But
PCJ consultant Dr. Raymond Wright suggested that
a decision to drop the Dutch company was unlikely,
saying selection of a new agent would likely have
to go to tender, delaying execution of the renewed
arrangement with Nigeria.
"We
would have to do international bids if - and I said
if we were going to other companies," Wright
said Wednesday.
It
emerged yesterday that PCJ has had no formal agreement
with Trafigura since December 2005, when the last
contract expired, but the company has continued
to lift oil for Jamaica into April 2006 under an
informal agreement.
It
also co-signed the September 20 Nigerian contract
renewal with Jamaica as agent to lift the crude.
"In
order to sign the contract with Nigeria, one has
to name the agent," said Wright, who was head
of the PCJ up to last year but quit the post largely
for health reasons, and is now a consultant.
Trafigura
also posted the US$1 million bond required by Nigeria
to secure the contract.
The
PCJ board, chaired by John Cook, reviews and approves
the terms of the Trafigura contract, after the negotiations
with National Nigerian Petroleum Company (NNPC)
renewing the oil facility are sealed.
To
retain the Nigerian arrangement, Jamaica has to
have an agent that already does business in Nigeria.
Asked
whether PCJ's hands were tied in relation to the
Trafigura arrangement, Wright said it was up to
the PCJ board to assess.
In
fact, as news of the political imbroglio in which
Trafigura is embroiled spreads across Europe, other
oil traders have been making enquiries of PCJ about
securing the lift contract.
Wright
confirmed that among the companies is Vitol SA,
the agent originally contracted by Jamaica in the
earlier phase of the Nigerian deal.
But
Cook and the PCJ board has more than a willing replacement
to consider in their decision today, including whether
Jamaica can hang on to the Nigerian oil facility
if it delays its lifts, which already are only about
40 per cent of the contracted volume.
According
to Wright, the delays could extend into 2007, if
PCJ decided that Trafigura's troubles in Jamaica
and the Ivory Coast where it is linked to a taxic
waste scandal, was too much of a public relations
nightmare.
"If
we go to open tender, it would take time,"
the consultant said. "Maybe we won't be able
to lift before next March."
PCJ
had dropped Vitol as agent after a seven-year break
in the contract with Nigeria, largely because it
was dissatisfied with the profit sharing deal that
was not always profitable for the island.
In
fact, in 15 years between 1979 and 1993 Ñ
the first phase of the agreement Jamaica made US$2.2
million off 93 million barrels lifted even though
world oil prices would climb to their highest historical
peak of over US$89 per barrel in 1980, but also
swung as low as US$23 per barrel in 1993.
Compared,
the second phase of the agreement reestablished
in 2000 produced earnings of US$2.44 million on
lifts on 34.35 million barrels in less than six
years to April 2006, with Trafigura as its agent.
In
other words, the Nigerian oil facility earned Jamaica
US$146,600 per year in the first phase, and $407,230,
almost three times more, in phase two, an outcome
that appears to explain Wright's comment that PCJ
has been "very happy" with the deal it
has with Trafigura.
The
company has always been quick with its payments,
which are made consistently "within seven days",
as stipulated in the contract, of being invoiced
by PCJ, Wright told the Financial Gleaner.
The
arrangement the state petroleum agency had with
the oil trader was initially a profit sharing deal
under which Jamaica got US5 cents on every barrel
of oil sold, and 60 per cent of every US7.5 cents
thereafter.
Any
income above US15 cents was Trafigura's.
Wright
said that deal earned Jamaica US8 cents on every
barrel of oil lifted.
But
PCJ eventually negotiated a new deal with the Dutch
company switching to a straight "earnings based"
contract, saying that even after bringing in a consultant
to audit Trafigura's books, PCJ could not determine
what portion of its total oil lifts from Nigeria
related to the Jamaican facility.
"So
we decided to move away from the profit sharing,"
said Wright, former group managing director of PCJ.
The
new arrangement made still required Trafigura to
front the cost of the crude, which it continued
to fiancthrough letters of credit opened with Banque
Paribas of Paris, France each time it lifted crude,
Wright said.
PCJ
also asked for two cents more to earn US10 cents
per barrel lifted, and for the first time was better
able to predict its earnings, having arranged with
NNPC to provide information on oil lifted by Trafigura
for Jamaica.
PCJ
would then invoice the company based on the information
provided by NNPC.
In
December 2004, when oil prices had reached highs
last seen 20 years before - eventually averaging
US$39 per barrel that year - PCJ renegotiated its
earnings from the Nigerian oil facility at US12.5
cents per barrel lifted.
It
is that arrangement that remains in place.
The
new rate applied to the first eight liftings of
crude for the year, after which Trafigura would
pay PCJ US11 cents per barrel for the last four
liftings within the one year contract. However,
Trafigura has never done more than eight lifts for
Jamaica in any one year, reaching that level one
in October 2004-September 2005 lift year.
Up
to April 2006, it had only done two.
World
oil prices are now averaging about US$60, having
peaked US$78 per barrel at one stage, but it was
unclear whether Jamaica would be seeking an increase
in its take from the deal ahead of today's board
meeting.
On
Wednesday, Wright said he could not make a call
on whether Jamaica would lose access to the Nigerian
oil if the lifts are delayed over an extended period.
"We
would have to see," he said.
Jamaica
Gleaner
Friday | October 13, 2006
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