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Govt tables bill for acquisition of Venezuela’s shares in Petrojam

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Govt tables bill for acquisition of Venezuela’s shares in Petrojam

BY BALFORD HENRY
Senior staff reporter
balfordh@jamaicaobserver.com

Wednesday, February 13, 2019

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THE Government yesterday tabled a bill for the compulsory acquisition of Petrleos de Venezuela’s (PDVSA) 49 per cent shareholding in the local oil refinery Petrojam Limited.

The bill, which was tabled by Prime Minister Andrew Holness during yesterday’s final sitting of the House of Representatives for parliamentary year 2018/19, provides for: Ownership of the applicable property to be vested in the Accountant General, in trust for the Government; and for compensation, to be paid to persons having an interest in the applicable property, in accordance with specified rules.

The bill’s “memorandum of objects and reasons” notes that the current ownership structure of Petrojam exposes the country to serious risks, which threaten its energy security and economic stability.

“These risks have exacerbated and made more imminent by sanctions imposed by third-party countries. As a result, a decision has been taken to enact legislation to provide for the compulsory acquisition of the shares held by the Petrojam Corporation of Jamaica,” the bill noted.

It also notes that the fair market value of the applicable property shall be taken to be the 49 per cent of the fair market value of Petrojam Limited, based on the income approach recognised in the valuation referred to in sub-section 2(a) of the bill, which says that the term applicable property covers all shares in Petrojam Limited held by persons other than the PCJ immediately before the new bill comes into operation.

This will be the most important method of estimating the value of any revenue producing assets that represent the present value of the sum of the projected future cash flows received from the assets and which was the basis of the sale of the shares to PDV Caribe. PDV Caribe is the company tasked with organising and coordinating Petrocaribe’s hydrocarbon transportation network, including its vessels, storage facilities, and port terminals, as well as refining and distribution capacity.

The bill also notes that, in assessing the compensation, no allowance will be made on account of a number of issues, including: the acquisition being compulsory; any disinclination on the part of any interested party to part with the applicable property; or, any offer made by any person to purchase the property.

Where the applicable property is compulsorily acquired under the bill, when it becomes law, compensation for the property shall be paid in accordance with the Act – out of escrow account; and, where compensation to be paid under the serving of a notice or pursuant to any order of the Court exceeds the amount in the escrow account, the excess shall be paid out of the Consolidated Fund (budget), government loan funds, “or any other source of funds available to the government…”

The Government had announced in the second week of January that it would take legislative action for ownership of Venezuela’s 49 per cent share in the refinery, that would allow it to forcibly retake the stake.

“It will not be a general piece of legislation which allows for acquisition of property rights, other than land, beyond the scope of the transfer of ownership of the 49 per cent shares in PetroJam currently held by PDV Caribe,” Foreign Affairs and Foreign Trade Minister Senator Kamina Johnson Smith said then.

The Government said that the decision was triggered by uncertainties, in addition to failed attempts by the Government to get PDV Caribe to hold up its end of a joint-venture agreement, which resulted in the sale of the Petrojam shares in August 2006 and February 2007, respectively.

The agreement had called for the upgrading and expansion of the refinery to improve its competitiveness and meet local and international market demands, but the Jamaican Government said that these objectives were never met and that it posed a risk to the Jamaican economy.

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