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.
lavern.clarke@gleanerjm.com
