- Post 28 September 2012
- Last Updated on 28 September 2012
- By Dr Gary K. Busch
Yesterday (26 September 2012) the Jamaican ‘Daily Gleaner’ ran an editorial entitled “Trafigura, transparency and party financing” which raised, once again the public perception in Jamaica that the Dutch-based company, Trafigura Beheer, had interfered in the internal politics of Jamaica by sending money to a corporate bank account which was later shown to have belonged to some leaders of a Jamaican political party. This was alleged to have been some sort of refund or ‘kickback’ from an oil trading agreement between Trafigura and the Petroleum Corporation of Jamaica (‘PCJ’).
This allegation has been shown to be untrue for over seven years. It was used as a ploy by the rival Jamaican politicians to discredit the leadership of the then ruling PNP political party - its leader, Portia Simpson Miller, and its chairman, Robert Pickersgill. It has now been made part of a legal proceeding by a Dutch Court which is investigating whether the firm was paying bribes. The Dutch authorities appealed under the Mutual Legal Assistance Treaty in asking Jamaica to get statements from the PNP officials. These officials have refused to give evidence and the incident is gaining prominence again in the political debate in Jamaica.
Trafigura has repeatedly stated that the money it sent to Jamaica was part of its contractual obligations under a contract with the PCJ to deliver quantities of Nigerian oil to Jamaica. [i]
Under that agreement it was obliged to pay US$0.12 (twelve cents) to the PCJ for every barrel it delivered from Nigeria. The PCJ designated the account to which the monies were sent and Trafigura acted under these directions. In 2006, Trafigura transferred the equivalent of J$31 million to the designated bank account that was effectively controlled by then PNP General Secretary Colin Campbell and other party colleagues. When questions were raised about this transfer by opposition political parties, the PNP insisted that that money was a gift to help finance its conference. Trafigura said it was no gift but that it was payment for services described in the contract with the PCJ.
What is not part of the Jamaican public debate are the origins and the conduct of the PCJ with the source of the oil, Obasanjo’s Nigeria, and with Jamaica’s chief international fixer Carl Masters. In the late 1970s Jamaica found it was having difficulties in obtaining a steady supply of petroleum as a result of the 1973 oil boycott and the slow adjustment of the market to the newly-formed OPEC. It wasn’t only a factor of price, security of supply was difficult to assure in an internationally-competitive market. At a Commonwealth Heads of Government meeting Jamaica’s Michael Manley started discussions with Obasanjo, the Nigerian President, about agreeing a long-term supply agreement with Nigeria. A deal, part political and part economic was agreed.
In December 1978, two months after Manley started his discussions with Obasanjo, Jamaica secured an agreement to lift 5.475 million barrels of Nigerian light crude, or 15,000 barrels per day, at prices set by Nigeria. The very next year, 1979, a second oil crisis would erupt, largely linked to troubles in oil-producing Iran, and volatility in the market would push crude prices up to US$38 per barrel.[ii]
The 'evergreen' contract secured with Nigeria was renewable annually. Eventually, supplies were boosted to 20,000 barrels per day in 1990, and the subsequent arrangement levelled at 10.95 million barrels per year or 30,000 barrels per day. Despite some problems with pricing the arrangement worked well until 2005 when the money from the oil sales was moved from the PCJ to a direct payment to the Jamaican Treasury.
Over the 30-odd years of the arrangement, the PCJ has done business with two oil brokers who have traded the oil for Jamaica on the open market - first, Vitol SA, and later, Trafigura. The PCJ also worked with 'liaisons' Froyle and Bentley Oil Associates of Bermuda, Consolidated Petroleum Purchasing Company, WELBECK Petroleum Limited, and GoodWorks International of Atlanta, more specifically its president Carl Masters, a Jamaican who was also oil agent for Chevron. The role of Carl Masters is very important to understanding the Jamaican scene.
Carlton Masters is of Jamaican origin but has moved to the United States. His main business is as a partner in Goodworks International (GWI) LLC. Goodworks is an Atlanta based lobbying firm founded by Obasanjo's long-time friend and former United States Ambassador to the United Nations, Andrew Young, and Carlton Masters. Masters main claim to fame is that he married the daughter of leading Afro-American civil rights activist and philanthropist Leon Sullivan. This opened many doors for him in the U.S. and led him to Andy Young. Together they formed a political lobbying company for Obasanjo in the US for which they were paid US$100,000 a month.
The firm, GWI, founded by Andrew Young and Carlton Masters in 1997, lobbies the United States government on behalf of Nigeria. The relationship between this company and Obasanjo's government has made many Nigerians concerned about the dealings of GWI. In addition to the lobbying the two partners, Young and Masters, formed several companies to trade oil, invest in telecommunications and buy land for Obasanjo as a ‘secret’ partner (as he was a serving President). On his return to power in 1999 Obasanjo, despite a constitutional prohibition, was also Nigeria’s Oil Minister. When Obasanjo was reaching the end of his second term Masters and Young were employed by Obasanjo to collect money from companies dealing with Nigeria to provide funds for a “Presidential Library”. Their methods of collection lacked a certain subtlety and annoyed many who were not interested in contributing enough cash for the pair’s satisfaction. When the Nigerian press asked for clarification of the role of GWI, Masters threatened law suits against the journalists. He was supported in his efforts against the press by the U.S. ambassador. The retiring U.S. Ambassador to Nigeria, Howard Jeter, was hired by GWI and went to work for them when he left his post in Abuja. Masters made a name for himself as a defendant in two sexual harassment suits brought by Canadian officials against him while serving as a Deputy Trade Minister of the Ontario Government in Washington D.C. in 1992.
The oil deal with Nigeria was, initially, profitable for Jamaica, largely because the Jamaicans had a ninety-day credit window with Nigeria which allowed them to use petroleum before payment. Wright[iii] explained that to facilitate the Nigerian oil arrangement, Kingston decided to create a legal vehicle, the PCJ, to act as official contractor for oil, and manage the trading of crude for Jamaica. PCJ, which was created in 1979, also had another function - to explore for commercial deposits of oil and gas inland and offshore Jamaica.
In fact, the monies made from the sale of Nigerian crude in the first two years of the agreement financed the US$14 million purchase in 1982 of the Esso refinery on Marcus Garvey Drive in the capital Kingston, which was renamed Petrojam, and also built the energy-efficient five-storey corporate headquarters of the PCJ at Trafalgar Road, New Kingston. Over the years, those profits have financed large and small-scale energy-related research.
During the same period it has also made "contributions to government", financed trips to Nigeria for contract negotiations, and paid for receptions held for the President of Nigeria. PCJ works directly with the state-owned Nigerian National Petroleum Corporation (NNPC) on the refinement and execution of the contracts. The deal's main drawback for Jamaica was that NNPC reserved the right to adjust volume uplifts based on production. In fact, PCJ has only lifted 40 per cent of earmarked volumes over the years. The very first lift was in May 1979, which was sent to the Shell Refinery in Curaçao for processing.
The problem arose with the Nigerian crude in that it was a sweeter and lighter crude than Jamaica was equipped to refine at the Shell facility. To process the Nigerian oil, Petrojam had to blend it with other crudes in a cocktail for refining. In 1984, the arrangement with Shell was terminated.
Jamaica then turned to international traders and liaisons, saying the logistics of lifting and shipping the product to market was beyond the technical capabilities of PCJ. The Nigerians had also required the posting of a US$1 million bond to secure the oil facility, which PCJ did not have, and had mandated that its trading partner invest in the Nigerian economy, which Jamaica could not afford. PCJ turned to Vitol SA as its primary agent to trade the crude on the open market. [iv]
The PCJ determined that the problem was linked to the pricing structure of the Nigerian contract, which it renegotiated. The PCJ made a profit-sharing deal with Vitol under "variable" terms, but essentially the profit split was 50:50; but no one was sure of the actual cash flows or splits. In fact, Jamaica has never been able to get a fix on how much the Nigerian oil has grossed over the life of the facility. But PCJ has reported net income of US$2.2 million on 93 million barrels lifted during phase one of the arrangement, 1979-1993, and US$2.44 million on 32.35 million barrels lifted between October 2000 and April 2006, the second phase of the arrangement. In the first phase, Nigeria twice adjusted the credit window down to 60 days and then to 30 days in February 1987. This contract with Nigeria ended in December 1993.
However, in 1999, with the return of Obasanjo as President and Oil Minister of Nigeria and the efforts of Carl Masters, negotiations began for a renewed deal with Jamaica. PCJ then sought out a new oil trader, securing expressions of interest from five, all with offices in London - including Chevron, Trafigura, Vitol, and Mayfield. The PCJ chose Trafigura, mainly because Trafigura was able to provide credit facilities and a cash backup to the deal. The deal with Trafigura was different than the deal with Vitol. Jamaica had long been unhappy with the profit-share deal, largely because it had no way of determining whether it was getting all it was due from the sales. The PCJ opted for a ‘fixed-fee’ deal. The initial deal with Trafigura was for $US 0.075 cents commission paid on each barrel of crude it lifted. PCJ later revised this to $US 0.12 cents per barrel from the margin it makes on the crude. Trafigura pays up front the money to the NNPC for the shipments from Nigeria, and passes on Jamaica's share of earnings based on number of barrels delivered to Jamaica or sold on the world market.
Trafigura’s role in this business was crucial for its success. At the time of the deal, it was required that for any company to embark on such business in Nigeria, it must have logistics for lifting, shipping, delivery and sale of the products and must be able to post a bond of at least US$1.0 million. The PCJ could not do this; still less could it pay the NNPC on delivery of the oil. Trafigura, which had all these facilities and was a world trader in oil, was able to do this for the PCJ and Jamaica.
Although the actual purchase price from the NNPC was between US$12 and US$13 a barrel FOB (despite a world price of between US$ 80 and $US 104 a barrel) the price paid by Jamaica included a commission to be paid to Goodworks of 15 per cent of the total earnings from PCJ, and. additionally, Obasanjo would get 20 per cent through proxy companies acting as oil traders. Trafigura paid the PCJ its twelve cents a barrel. These oil profits previously flowed directly to PCJ, but since April 2005, the funds were directed to the Consolidated Fund on the directives of the cash-strapped Jamaican government. The PCJ, however, retained five- ten per cent of the flows to finance its oversight of the facility and the oil trader. [v]
In mid-2006, Bruce Golding, the leader of the then Opposition Party, the Jamaica Labour Party, raised the question of Trafigura’s payment of its required twelve cents a barrel into the Consolidated Fund for the PCJ. The PNP, when the funds were shown not to have reached the Treasury said that these funds were for assistance in running their conference in preparation for the coming election. Trafigura denied this and stated that it had been obligated to make the payment on the instruction of the PCJ and had operated completely openly and transparently in the business. If the funds were diverted by Colin Campbell of the PNP it was nothing to do with them. Bruce Golding, the then Leader of the Opposition (and later Prime Minister) wrote to the Dutch authorities asking them to investigate the $31 million donation to the PNP by Dutch company Trafigura Beheer in 2006. These investigations continue, despite legal objections of the Jamaican parties.
Trafigura finds itself in the invidious position of having acted properly and transparently in a transaction between two sovereign states whose politicians and middle-men vied with each other to skim off as much as possible of the profits. Not one extra cent went to Trafigura which provided the finance, the credibility, the logistics, the marketing and the expertise which made this transaction possible. To treat Trafigura as if it were responsible for the excesses of Third World politicians and American hustlers is not right or fair. If the Dutch legal system is anything to go by, its history of awkward and incomprehensible verdicts on Trafigura’s activities elsewhere, do not bode well for reason, fairness or equity.
[i] Contract analysis
[ii] Testimony of Raymond Wright, consultant to PCJ 9/06