Jamaica:
Ministry
paper gives reasons for contracting Trafigura
By Balford Henryl
Business
Observer writer
The
Jamaica Observer
Kingston
Petroleumworldtt.com
10 29 06
Nigeria's insistence on the posting of a US$1-million
bond and for Jamaica to invest in that African country's
economy in order to lift its crude oil were among
the reasons that oil trader Trafigura Beheer was
contracted, according to Ministry Paper (number
77) which was tabled in the House of Representatives
on October 17 by minister of industry, technology,
energy and commerce, Phillip Paulwell.
The
minister did not participate in the debate on the
no-confidence motion against the Government brought
by the Opposition, which was defeated in the House,
but tabled the Ministry Paper titled 'Background
Information on Nigerian Oil Facility'.
According
to the ministry paper, there were four reasons why
oil traders were needed to fulfil the agreement:
(1)
Nigerian crude (other than a shipment to Petrojam
Limited to determine sustainability for refining
in Jamaica) was never used in Jamaica;
(2)
The logistics of lifting, shipping, delivering and
selling crude was beyond the capability of PCJ (Petroleum
Corporation of Jamaica) at that time;
(3)
Nigeria required that any trader of Nigerian crude
products had to post a bond of US$1 million (an
amount the PCJ could not afford); and
(4)
As a prerequiste for entering into the arrangement
for the purchase of Nigerian crude oil, the PCJ
was required to make investments in the Nigerian
economy. (The PCJ could find no affordable opportunity).
The
ministry paper noted that, because of the small
volumes and the uncertainty of availability of crude
oil to be traded by PCJ, the lifter/trader had to
be already operating as a trader with the Nigerian
National Petroleum Corporation (NNPC) with the requisite
infrastructure in place.
Since
1984, the PCJ sought assistance from oil liaison
agents in renegotiating and securing the contract.
Their duties included, but were not limited to:
continuous communications with NNPC on behalf of
PCJ to ensure continuity of trading activities,
in accordance with the contract; advice on trading
details, including the use of tankers; and advice
on preferred crude to be lifted, in order to maximise
PCJ's profits.
There
were two breaks in the contract, according to the
ministry paper: the first in January-April 1983
when PCJ was in negotiations with NNPC in regard
to Letter of Credit guarantees; and January-October
1985, a period when PCJ would have sustained severe
losses in trading had it lifted cargoes, due to
the pricing terms of the contract. This led to a
change in the pricing terms and cargo lifting commenced
again.
In February 1987, the NNPC reduced the PCJ's credit
period to the standard 30 days and from then, the
contract has been operated on a fully commercial
basis.
An Evergreen Contract was signed between the NNPC
and the PCJ in August 1993. In October 1993, notice
was given by the NNPC to PCJ of the termination
of the contract, effective December 1993. This was
against the background that all contracts held by
the NNPC with all countries, for crude oil sales
and petroleum imports and exports, were to be cancelled,
the result of a directive from the new Nigerian
head of state, Chief Ernest Shonekan.
The
Nigerian government invited companies, whose contracts
were cancelled, to resubmit applications by November
1993. The PCJ duly submitted its application for
renewal of its oil trading contract.
Between
December 1993 and October 1, 2000 all efforts by
the Government of Jamaica and the PCJ to re-establish
the trading agreement between NNPC and PCJ failed.
As a result, no oil trading was carried out by PCJ
for seven years.
The ministry paper pointed out that the cancellation
of the contract was primarily the result of a political
decision.
It
said that in May 1999, on the return to power of
President Olusegun Obasanjo, efforts to renew the
agreement began, including a visit to Nigeria by
former Prime Minister PJ Patterson and former minister
of mining and energy Robert Pickersgill.
"At
the same time," the ministry paper went on,
"Mr Carl Masters, a Jamaican who was an oil
agent for Chevron, noted the difficulty that Jamaica
was having in renegotiating its contract with the
NNPC. He offered his services to the PCJ. This resulted
in the resumption of the trading arrangement and
the renewal of the contract. Crude oil cargo uplifts
commenced again on October 1, 2000."
"Mr
Masters, who is affiliated to Goodworks International,
was appointed oil liaison agent for PCJ and has
continued in this role since then. Under contractual
agreement, Goodworks is paid 15 per cent of the
PCJ earnings for their services," the ministry
paper added.
Thirty-two
crude oil uplifts were made during the six contract
periods between October 2000 and April 2006. A total
volume of 37,202,334 barrels were lifted which earned
the PCJ US$2,799,340.
The
ministry paper said that among the projects funded
by the oil facility were: the purchase of the Petrojam
oil refinery; construction of an energy-efficient
building at 36 Trafalgar Road; oil exploration programme;
research on peat as fuel; acquisition and development
of Font Hill property; LNG prefeasibility study;
retrofit government hospitals; schools energy conservation
programme; and pay profit tax on net income.
The Jamaica Observer
Tuesday | October 25, 2006
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©2006 Jamaica Observer. All Rights Reserved.
