$5B bad bet
Parliamentary committees raise alarm over Petrojam’s costly oil purchase decision
Published:Thursday | July 20, 2023 | 12:11 AM
Tough questions were posed to Finance and the Public Service Minister Dr Nigel Clarke yesterday in Gordon House as opposition lawmakers pressed for details on why the Government was offering a $5 billion loan to Petrojam after local financiers refused to lend the state-owned oil refinery money.
Telroy Morgan, general manager of Petrojam, told members of Parliament’s Public Administration and Appropriations Committee (PAAC) earlier yesterday that the company was seeing a general fall in oil prices, and as such, “there is an impairment on our books based on the inventory that we are carrying”.
He admitted that because of this impairment on the company’s books, Petrojam’s working capital financiers “have suspended their usual quota of amounts to us, and hence, for the very short term, we have moved to the Ministry of Finance to bridge that gap”.
During a meeting of the Standing Finance Committee of Parliament, which examined the First Supplementary Estimates yesterday afternoon, Leader of the Opposition Mark Golding said that Petrojam had “taken it upon itself to build up inventories to about one million barrels of oil as a precautionary measure at the onset of the war in Ukraine”.
He argued that the supplementary budget is approving a loan of $5 billion to Petrojam but that the circumstances that gave rise to the loss in the company that necessitated the loan “don’t appear to be known”.
“I am a little perplexed that we could be here today (yesterday) being asked to approve financing of this magnitude to Petrojam with so much unknown as to the circumstances which gave rise to it,” Golding added.
He said Petrojam’s decision to purchase oil at US$120 per barrel was a gamble, which later saw the price of oil plunging, leaving the company with a huge loss of about $5 billion.
“I would like to know who they bought that oil from,” Golding asked. He also wanted to know who approved the transaction, which he said was outside the ordinary course of business.
He said Petrojam took a huge pricing exposure on inventory, which was a massive bet at the expense of taxpayers.
“It is a major issue. What the report is saying is that the private-sector lenders were reluctant to continue supporting Petrojam because of the impairment in their accounts due to this massive loss. So this is a transaction that needs to be scrutinised extremely carefully,” he added.
Clarke said, however: “I am reading the same report that you are, and it’s a report that I am not pleased with, but before we jump off on it at this point, it may be second or third hand.”
The finance minister urged caution, noting that the information had come from a committee report.
“Before we jump all in on the way the report is worded, I would sort of caution on that,” Clarke said.
He said the sum in the supplementary budget was a loan and not a subvention that taxpayers are giving Petrojam without the amount being repaid.
“This is a working capital loan to Petrojam, which will be repaid over the next 18 months,” Clarke said.
However, Golding insisted that it was a loan to cover a loss. He argued that if the loss was not made, sums earned from Petrojam would have ended up in the Consolidated Fund.
At the PAAC meeting held earlier on Wednesday, Delroy Brown, chief financial officer at Petrojam, said the state-owned oil refinery still had between 800,000 and one million barrels of oil that were purchased at US$120 per barrel in its inventory.