Petrojam’s outstanding debt has ballooned by a staggering 769-percent over the past five years.
That’s one of several revelations in the report of the Auditor General, tabled in Parliament yesterday. The report also reveals that the State-owned oil refinery’s profit margin has declined dramatically.
According to the Auditor General’s report, Petrojam recorded net losses of more than USD$3-million in 2013, which rose to over $13-million in the following year, 2014.
There was a big turn around in 2015, when the state-owned oil refinery recorded net profits of $35-million. But it’s been downhill from there, with Petrojam netting just USD$18-million last year.
According to the Auditor General, Petrojam is making just 2-cents profit out of every dollar in income it receives.
The company has blamed its loss-making years on low oil prices at the time, which made their margins for refining oil, weak.
Additionally, many of its large industrial customers, such as JPS, started switching to Liquefied Natural Gas, so they were no longer buying large amounts of automotive diesel oil and heavy fuel oil from Petrojam. But those are the surface explanations.
A deeper reading of the Auditor General’s report reveals other issues that contributed heavily to the losses. For example, in 2014, one of the loss-making years, the gross profit margin fell in response to a sharp increase in imported finished products.
The Auditor General finds that Petrojam is much more profitable when it’s refining its own finished products, rather than importing them already refined. The following year, 2015, Petrojam’s profit margins turned around after it increased its production from crude oil.
One of the reasons Petrojam has given for not refining as much as it should, is that the refinery is aging, and not as efficient as it should be. But the Auditor General finds that even with its aged infrastructure, Petrojam is still more profitable when its refining its own products.
The state-owned company has also incurred significant debt over the period. The report finds that Petrojam’s outstanding debt grew a staggering 769-percent over the period – from $23-million to $202-million.
And it finds that Petrojam would now need 41-percent of its assets to meet its debt obligations, compared to just 4-percent five years ago. That’s because they’ve changed their financing strategy.
The company used to purchase directly from the Petrocaribe Development Fund. Now, they’ve started acquiring trade loans to make their purchases.
Troublingly, the report finds that Petrojam doesn’t have the cash flow to cover its interest and principal payments, without drawing on outside sources. They have enough to meet only 14-percent of those obligations.
The report says Petrojam remains dependent on constant access to financing to maintain its operations, given the insufficient cash flow generation.