Audit fuels more questions about Petrojam's ex-refinery pricing
The recent audit of Petrojam has fueled more questions about its ex-refinery pricing mechanism for petroleum products, in particular gasoline, which has long been controversial.
According to the Auditor General’s department, in its findings, it is unclear whether the price adjustments are made in a transparent manner.
Petrojam’s pricing committee reviews the change in the US Gulf Coast reference price and other pricing elements in order to determine the ex-refinery price.
“In deriving the final published weekly ex-refinery price," the AG department said "the committee applies a market adjustment in its pricing formula.
"We note that the market adjustment is a discretionary value that Petrojam’s pricing committee determines. However, owing to the absence of minutes for meetings we could not determine whether the market adjustment was always determined in a transparent manner,” the AG department said in its report which has been tabled in the parliament.
Opposition spokesman on Energy, Phillips Paulwell, as well as the Jamaica Gasoline Retailers Association (JGRA), have been urging Petrojam to make its pricing mechanism public in the interest of transparency.
Meantime, the AG has sounded the warning that while Petrojam struggles to implement its refinery upgrade project to create greater efficiency, high levels of oil losses became a major risk to its operations.
According to the report, over the last five years, Petrojam reported that it used 1.5 million Bbls of oil, valuing approximately $12.8 billion, during normal refinery production. However it could not account for 600,684 Bbls valuing $5.2 billion.
The AG’s findings show that reported unaccountable losses increased over the period by 60 per cent to 184,951 Bbls in 2017-18 from 115,793 Bbls in 2013-14, the period of the audit. Petrojam’s average annual unaccountable oil loss of 0.75 per cent was almost two times its own Key Performance Indicator (KPI) of 0.4 per cent
“Whereas Petrojam (has) put in place security measures to reduce the levels of unaccountable oil losses, more decisive actions needed to be taken to address the problem,” the report said.
It said Petrojam indicated that inventory inaccuracies, underestimated flaring and fuel consumption, vapour losses from slopping, unreported/uncaptured shutdown, and leaks and losses between product transfers were some of the factors contributing to oil losses.
Petrojam further identified oil loss sources to include product transfers from ships at the docks and Kingston Storage tanks, transfers between the Kingston Refinery and Kingston Loading Rack, and loss on sales from the Montego-Bay, New Port West, Asphalt Loading Rack (tank-meter).
However, the refinery did not provide evidence that it analysed these factors and sources of the unaccountable oil loss with a view to better assess and address the problem, according to the AG department.
“Our analysis of the data revealed that of the total unaccountable loss, Petrojam was unaware of the source for 226,470 Bbls (37 per cent). The data also showed that losses, which occurred during processing accounted for 261,701 Bbls (44 per cent), while 45,794 Bbls (8 per cent) were attributable to leaks. The remaining losses of 66,719 Bbls (11 per cent) occurred during product sales and transfers,” it said in the report.
The auditors found that, in August, Petrojam appointed an internal oil loss task force mandated to spearhead the implementation of the oil loss reduction measures. The task force was to complete eight deliverables between October 2017 and February 2018; however, it achieved only one.
Consequently, despite spending nearly US$1 million on four loss reduction measures, Petrojam was not able to curtail the problem of oil loss.