The state owned oil refinery, Petrojam Limited, has responded in detail to the findings of an audit of its operations carried out by the US Firm Centennial Group.
In its assessment Centennial expressed concern about the pricing mechanism used by Petrojam.
However, in a lengthy response published in the Sunday Gleaner newspaper, Petrojam argued that the recommendation was not feasible.
In its audit, Centennial recommended Petrojam use a Caribbean pricing system instead of the US Gulf Reference mechanism it now employs.
It said this would allow the refinery to "arrive at the most economic import parity price" and mean cheaper petrol for Jamaicans.
While not dismissing the audit entirely Petrojam pointed out what it said were flaws in the methodology and findings.
The refinery stoutly defended using the US Gulf reference system and rubbished claims that the Caribbean pricing system would be more effective.
The refinery said its pricing mechanism is based on a formula that seeks to derive prices that would correspond to the least-cost alternative based on the importation of all products.
Gap in buying & selling prices
In addition, Petrojam pointed to several shortcomings in using the Caribbean Cargo prices.
The refinery explained that its current arrangement for buying crude oil is through term contracts indexed to the US Gulf reference prices.
Petrojam said adopting the index the audit proposes, would create a gap in buying and selling prices.
The refinery contends that unlike the US Gulf reference system the Caribbean pricing assessment lacks transparency and has no basis for setting gasoline prices.
The State owned oil refinery further argued that no one at the regional level uses the mechanism as a means of determining prices anyway.
Petrojam summed up its defence by saying the irregularity and unreliability of the Caribbean prices makes it unsuitable for ex-refinery prices which are issued on a regular schedule every Wednesday.
And it said it still is not clear how shifting the pricing mechanism would mean lower prices for Jamaican consumers anyway.
"Common carrier" recommendation impractical
Petrojam Limited has also responded to Centennial's recommendation that the terminal facility in Kingston be opened as a "common carrier" infrastructure to all market participants.
According to Centennial, this would allow the other marketing companies or new operators who want to enter the market to import products freely using this facility.
However, Petrojam has rejected this as impractical and would require significant capital expenditure to construct several new tanks and pipelines to facilitate those who may want to use the facility.
Centennial Group also recommended that the Petrojam improve the scheduling of shipments to the Kingston terminal in order to reduce
storage costs.
Petrojam said these plans were already underway at the time of the audit.
It said the creation of additional berthing facility was completed in June 2010 and has resulted in over 50% reduction in storage expenses.
Petrojam added that is also actively evaluating options to upgrade the primary berthing facility which will serve to further reduce storage costs.
Doubt over signatory
Petrojam also responded to Centennial's questions in its audit about the legality of some of the contracts which it claims have been signed by unauthorised management personnel on behalf of the company.
Petrojam rebuffed the audit claims pointing out that at no time during the audit did the Centennial team request documentation on proof of signing authority.
The refinery denied being aware of any particular contract of which the legality could be in doubt because of the signatory.
According to Petrojam, it has a very strong internal governance policy through which signing authority and delegation are clearly identified.
It said all of this is outlined in its chart of Account which has been approved by the Board of Directors and is strictly adhered to.
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