Petrojam Partner Knocks Contract Process

(Jamaica Gleaner, 27.Jun.2018) – Petrojam, the beleaguered government-controlled oil refinery, spent over $14 billion or 74 per cent of its domestic expenditure over a two-year period to last October via direct and emergency sourcing, rather than competitive bidding contracts, an internal audit by Jamaica’s partner in the refinery revealed.

The audit report, a copy of which was obtained by the Financial Gleaner, was completed in February and forwarded by PDVSA’s internal audit corporate manager Juan Rodriguez to Petrojam chairman Percival Percival Bahado-Singh, who, with the two other Jamaican directors, were forced to resign last week in the face of deepening allegations of widespread corruption at the refinery.

PDVSA, the state-owned Venezuelan oil company, owns 49 per cent of Petrojam.

While its report concluded that most of these direct-source contracts may have been necessary to solve urgent operational and other problems, the auditors complained that “there were items that could have been awarded under a competitive method” – an observation that is likely embolden critics of the refinery’s management in the belief that the excessive use of sole-source contracts opens the way to corruption.

These concerns will be further exacerbated by the report’s tone, which suggests less-than-robust record-keeping and data analysis that made audit verification, in many instances, difficult.

Petrojam’s parent, the Petroleum Corporation of Jamaica, redirected requests for comment on the report to Petrojam, but the refinery’s boss did not respond.

Phillip Paulwell, the shadow energy minister, said he was aware of the report and its contents, but was still studying it before arriving at firm conclusions.

“It does have some glaring matters of concern,” he told the Financial Gleaner. “I am taking my time to ensure that I understand all the issues and their implications,” he said.

With regard to the direct sourcing contracts, the Jamaican Government’s procurement rules allow for these up to a maximum of $1.5 million – it used to be $500,000 up to 2016 – except in circumstances such as emergencies, the goods or services are available only from a single contractor, or for national interest considerations.

Over the period covered by the audit, from January 2015 to October 2017, Petrojam awarded 3,583 contracts, of which 2,263, or 63 per cent, were via direct awards – although 325 of these, or 14 per cent, were to its subsidiary, Petrojam Ethanol Limited. Twenty-five per cent of the direct sourcing contracts exceeded the threshold for such award and six per cent of the contracts were deemed to have been triggered by emergencies.

The audit tests of 14 awarded by direct sourcing found that nine presented reasonable justification, while in five cases, the auditors found no “written justification”. Those cases, however, related to the repair and cleaning storage tanks, and all were approved by the general manager.

The auditors, concerned that competitive bidding accounted for only 25 per cent of Petrojam’s domestic contracts, called for an improvement in the “utilisation rate of the limited bidding and competitive bidding methodologies”.

CLOUDY AREA

The spot purchase of oil was an area in where the auditors could not always ascertain that Petrojam received the volumes for which it paid. Part of the problem has to do with the less-than-optimal functionality of the refinery’s storage tanks and other systems to ensure an absolute correlation between the returns in processed products and the expectations from the declared volumes of crude, based on simulations.

But it also appears that records of spot purchases, such as from the commodities trader, Vitol, were rigorously maintained to ensure that price calculations supported purchase invoices.

For instance, PDVSA auditors noted that the list of purchases of crude and finished products, which they were provided by designated officials, didn’t come from the Systems Application and Products, or SAP systems management software, which is widely used in the oil industry.

Further, they said: “Seventeen of 23 invoices (74 per cent) did not have the verification of the price calculation in the support of the purchase invoices the validation of the reasonableness of the amounts invoiced …”.

In other case, five of nine deliveries, purchased on the condition of delivery at terminal, or DAT, indicated gross volume rather than net volume at the discharge port, “increasing the risk of inconsistencies between the volume record in SAP” and the refinery stats on which monthly losses at the refinery are estimated.

Additionally, two of the 23 reviewed purchases showed volume difference of over 139,000 barrels “between the figures indicated on the commercial invoices provided by the customer (Vitol) and reflected in the independent inspector’s discharge reports”.

There were also significant differences on the price per barrel of oil, the auditors noted, “between the invoices reported in SAP by the accounting department”.

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Author: Energy Analytics Institute (EAI)

Energy Analytics Institute (EAI) is a Houston-based independent think-tank providing unbiased research, analysis, commentaries, opinions and breaking news related to the petroleum sectors in the Latin American and the Caribbean regions.

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