Statement to Parliament on Petrojam By the Most Honourable Andrew Holness

Jamaica News: Mr. Speaker, this Honourable House will recall that I made a preliminary statement on Petrojam on 26 June, 2018 giving Parliament an account of Cabinet’s actions on Petrojam, including an update on the administrative report we had received from the Permanent Secretary.

A Press Release was issued on July 2, 2018 updating the public on the decisions of Cabinet after further deliberation of the facts placed before us in the report of the Permanent Secretary, including the decision that Minister Wheatley would no longer have Ministerial responsibility for the Energy Portfolio effective July 4, 2018.

Minister Wheatley responded to questions on July 3, 2018, and I gave a commitment to Parliament on that day to bring a statement today to update the house on the transfer of the Energy Portfolio to the Office of the Prime Minister and other relevant matters to address the governance, management and operational weaknesses affecting Petrojam.

Mister Speaker, after reviewing the report of the Permanent Secretary and interviewing the senior management of Petrojam, the Cabinet arrived at several conclusions and made certain decisions.
The need to strengthen the oversight powers and governance control of Public Bodies.

In the instant case with Petrojam, assertions have been made which seem to assume that Permanent Secretaries have significant authority over operations of statutory bodies. Those of us who have in the past or who currently hold Ministerial responsibilities should be fully aware of the limits to the potential for Permanent Secretaries to intervene in the operations of entities, such as self-financing statutory bodies.

In this regard, consideration has been given to this situation, and I have given directions for the Minister of Finance and the Public Service to bring to Cabinet proposals for amendments to the Public Bodies Management and Accountability Act (PBMA Act), in order to bring clarity to the current accountability architecture.

It was clear from interviewing the Acting Permanent Secretary and the officers of the Energy Division that the central ministry was not aware, or was made aware after the fact, of most of the instances of maladministration. Petrojam is a self-financing public body, in the form of a limited liability company jointly owned by PDV Caribe of Venezuela and the PCJ, a statutory body owned by the Government of Jamaica. It has a board that is responsible for the good governance and management of the operations of the country in keeping with the Public Bodies Management and Accountability Act, and is required to conform with all policy guidelines as may be set by the government from time to time.

The board reports directly to the Minister, not the Permanent Secretary and takes policy directions from the Minister. The Cabinet is satisfied that there are indications where the previous board may have departed from policy, and where certain actions, such as personally making travel arrangements, would be in breach of policy guidelines.

To this end, the Cabinet has acted to reconstitute the board with the appointment of:

1.Mr. Paul Hoo, former Chairman of Supreme Ventures, one of the largest companies in Jamaica, as Chairman of Petrojam,
2.Rosie Pilner, former Vice President of a major Bank,
3.Wayne Powell, former Vice President of a major Bank,
as directors.

The new Board has had their orientation with the Petrojam Staff and has started to give oversight and direction to governance and management of the company. In light of great public concerns and the issues which have affected the staff I have given the board general directions:

1.To settle industrial relations environment at the company and ensure that the management of the company is efficient and effective.

  1. To return the Refinery to full operations in the shortest possible time as a matter of urgency. The Refinery is now in routine maintenance mode, almost two weeks beyond the projected timeline.

We are aware that this has created some supply disruption, mainly in bitumen for asphalt.

  1. To examine the management systems, including accounting, administrative, procurement, and human resource management, for weakness and make the necessary, changes both in systems and personnel to ensure the effective operations of the company in the short term.

Mr. Speaker, earlier today, the General Manager of Petrojam agreed to separate from the company. New arrangements will shortly be announced for the management and leadership of the entity.

Mr. Speaker, our review of the PS’s report and interview of senior personnel in the Energy Division and Petrojam, revealed that the process of approval of travel by board members needs greater oversight. All official travel of public officials, which would include Board members must be recommended by the Permanent Secretary for the Cabinet Secretary’s approval.

However, it is not always the case that Ministers, who appoint board members, are aware of travel requests.

Cabinet has therefore refined the procedure for travel to mandate that all board travel, whether it is from Jamaica to attend a conference, or from elsewhere to attend a board meeting in Jamaica, must have the approval of the Minister, through the Permanent Secretary, and then on to the Cabinet Secretary.

Another weakness identified from our examination was that Cabinet, in approving board members were not always aware of the residential status of proposed members. Approving board membership of persons who live overseas could implicitly impose a cost of travel on the public purse.

The Cabinet felt that this should be a conscious decision on their part recognizing the value that Jamaicans or other persons overseas could bring to the governance of our boards. The intention is not to cut off this avenue of service for our diaspora but to have Cabinet carefully weigh the decision to avoid potential abuse.

Cabinet has therefore further refined the procedures to require the disclosure of residency status in future Submissions for board approvals.

The area of Donations and Corporate Social Responsibility was a glaring weakness in the Petrojam matter, and potentially could be an area of systemic weakness. The policy guidelines for corporate social responsibility does call for the drafting of specific regulations and guidelines to create a more robust frame.

The House will recall that Principle 20 of the Corporate Governance Framework for Public Bodies provided for the development of a policy concerning CSR, inclusive of donations and sponsorships. This was not yet done and Cabinet has since given direction to the Minister of Finance as to the details of those guidelines:

i. The Ministry of Finance must establish ceilings for donations under which the board can approve

ii. The Ministry must establish the number of time a single applicant may benefit.

iii. Establish a uniformed application and approval process which includes, requirement for disclosure of connected party relations.

iv. The specific disclosure in the audited financial statements of all donations including connected party information.

v. If the entity wishes to make donations above the ceiling then such donations should be channeled to a grant making agency of the government, whose core mandates supports the evaluation, approval, monitoring and securing value for purpose from the funds granted. An entity, in keeping with its corporate social responsibility mandate, that would like to assist with major works to a basic school for example, would now be required to pass those funds to an agency like NET, or CHASE, or the TEF in keeping with the mandate of the particular granting agency. This we believe will streamline public bodies donation, secure value for public funds, and ensure that government entities are focused on their core mandate.

vi. All Self-financing agencies must specifically included their donations and CSR programme in the draft budget estimates prepared for submission to MOPFS and eventual approval by Parliament. The MOPFS will set limits in terms of what percentage of the entities overall budget can be allocated to donations.

vii. After deep consideration it was also decided that entities that are funded from the consolidated fund, will no longer be allowed to allocate a budget for CSR and donations, except for matters dealing with HR and staff welfare.

Mr. Speaker another area of concern is that of Retainer Contracts. After careful consideration, all sole source retainer contracts will require prior approval by Cabinet. All other retainer contracts must be brought to the attention of the Cabinet. In either case, declarations regarding connected persons (Board or management) are to be included in the relevant submissions to Cabinet. In addition, all retainer contracts must be included in the Annual Reports. The MoFPS will also need to incorporate these requirements into the Procurement Policy and filtered into legislation as appropriate

Mr. Speaker, let me state that on transferring the energy portfolio to OPM, I have had intensive briefings on the energy portfolio in relation to policy matters and general administration of the Portfolio. Generally speaking, based on my briefing and questioning; I am not seeing a general policy or administrative failure in the energy division but clearly there are specific issues at Petrojam. These point to failures in corporate governance and breakdown in accountability.

In terms of the energy division, activities are on stream to continue to implement the Energy Policy and to create a more transparent infrastructure through changes to the legislative framework such as the Electricity Act.

Mr. Speaker, even while I have outlined these policy changes, I must emphasize that more fundamentally the future of Petrojam has to be the subject of urgent critical strategic review particularly in light of the changing energy landscape for example transition from HFO to LNG; changes in quality requirements; use of renewables, among other factors.

Petrojam requires strategic review of both its management and operations, as well as its long-term commercial viability and role in Jamaica’s energy security. Among the factors that give rise to the need for this review are the non-cooperation of our Venezuelan partners to enable the start of the infrastructural upgrade; the effect of sanctions imposed by the United States on those who trade with Venezuela; the quest for advantages to be had from the penetration of renewables. It makes sense to review whether it still makes sound business sense to proceed with the upgrade in the face of changing variables.

The Cabinet has therefore noted the need to put in place a team to assist government and the board to determine the strategic directions of the organization, as well as to assist in organizational restructuring to enable the entity to realize the plans cast. I have already had discussions with Mr. Christopher Zacca who has agreed to Chair this team and consultations are underway with a view to the appointment of other qualified professionals to serve on the team. The terms of reference will be finalized in short order and I expect to be in a position to announce the full members of this committee by the next sitting of Parliament.

The Government by its actions, is showing that its concerned about the serious allegations made and has engaged a process that designed to establish facts in the haystack of allegations. Whatever we are able to verify with our limited powers of investigation and discovery, we have acted upon them and we have kept the public informed of our actions. This government is serious about building a culture of accountability. Accountability is a spectrum of actions starting with an agent (the Cabinet, the main agent of policy) reporting to a principal of authority (the Parliament from which government is drawn).

The report to Parliament must be on facts. We have engaged that process and where the facts have pointed out weaknesses we have acted. I am told that the Auditor General in short order will deliver her report, thereby making it unnecessary at this point to mobilize the Public Accountability Inspectorate. Whatever, issues are raised in those reports will also be addressed. This Government has nothing to hide, we are shielding no one and are not covering up anything.

We want to get at the truth.

The government has acted proportionately and appropriately to what is manifest and evident.


Source: JIS News

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