Fuel plant folly - Production stopped at $800m ethanol facility in favour of imports

The Auditor General's Department, in a case study of the operational performance of Petrojam Ethanol Limited (PEL), has said that it was not assured that value for money was obtained from investment amounting to more than $800 million in the local ethanol plant.

In 2005, PEL and a Brazilian company established a partnership to secure feedstock from the South American country for processing ethanol in a newly constructed 40-million US gallon plant in Kingston. The local company became the sole owner of the plant in 2008 when the partnership agreement expired. At that time, the plant had a value of US$9.3 million (J$823 million).

The case study of PEL formed part of a performance audit conducted by the Auditor General's Department, which reviewed the Government of Jamaica's progress towards Vision 2030 National Development Plan (NDP) with particular emphasis on diversification of energy supply and sustainable development goal.

In its report, which was tabled in the Upper House last Friday, Auditor General Pamela Monroe Ellis said that the PEL's status and Vision 2030 NDP objective for locally produced ethanol were misaligned.

The company shifted from the production to the importation of ethanol in 2013. It indicated that challenges such as unfavourable prices of raw material (feedstock) made it uneconomic to produce the renewable fuel.

Since August 2013, PEL's dehydration plant, with a rated capacity of 40 million US gallons per year, has remained unutilised.

"The cessation of production not only highlights a lack of clarity regarding the Government's posture towards renewable energy as it relates to ethanol, but it is also contrary to the intent of Vision 2030 NDP National Outcome to produce ethanol locally," Monroe Ellis asserted.

Responding to the issue on October 24, this year, the Ministry of Science, Energy and Technology said that the rationale for the shift from production of ethanol to importation was based on an economic assessment that revealed that importation of the fuel would be cheaper than production from feedstock.

PEL informed the ministry that it plans to resume the production of ethanol. It said this is reflected in its draft corporate plan for 2015 to 2018, which contemplates the inclusion of locally produced ethanol.

However, Monroe Ellis said that PEL did not provide approved corporate and operational plans for 2015-2018 to her department for review, despite requests.

Further, PEL did not provide evidence to the Auditor General's Department that it conducted a feasibility study to inform plans to resume the production of ethanol, including identification of feedstock source, since its plant closed in 2013.

However, in 2016, PEL carried out a preliminary assessment of the plant to determine the level of repairs needed to get the plant operational but did not provide an estimate of the cost.

Contaminated fuel being stored

Auditor General Pamela Monroe Ellis is reporting that three of the Petrojam Ethanol Limited's (PEL) five storage tanks were being used to store approximately 4,000 barrels of contaminated ethanol since 2016, with an estimated cost of $62 million.

In October this year, PEL advised that it is exploring options to dispose of the tainted ethanol, in accordance with safety and environmental standards.

Attempts to reach general manager of PEL, Sadia Mahabeer, for a comment were unsuccessful, as his extension rang without answer.

Monroe Ellis has also stated that despite the shift to importation, PEL has maintained its complement of nine production staff. She said in 2015, the board of directors of the company approved a recommendation for the employees' contract status to be changed to permanent employment. In addition, PEL is seeking to employ production/operations staff to replace two workers who resigned in March 2017.