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Document of
The World Bank FEE COPYFOR OFFICIAL USE ONLY
Report No. P-3010-JM
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
TO
THE PETROLEUM CORPORATION OF JAMAICA
WITH THE GUARANTEE OF JAMAICA
FOR A
PETROLEUM EXPLORATION PROJECT
May 28, 1981
This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank autborization.
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CURRENCY EQUIVALENT
Currency Unit = Jamaican Dollar (J$)
Through April 1977 US$1.000 = J$0.909 J$1.000 = US$1.000April 1977 - May 1978 - Dual exchange rate system -May 1978 US$1.000 = J$1.550 J$1.000 = US$0.645December 1978 US$1.000 = J$1.695 J$1.000 = US$0.590May 1979 - Present US$1.000 = J$1.783 J$1.000 = US$0.561
WEIGHTS AND MEASURES
Metric British/ US
1 meter (m) = 3.28 feet (ft)
1 kilometer (km) 2 = 0.68 mile (mi)I square kilometer (km ) 0.386 square mile (sq mi)1 kilogram (kg) = 2.2 pounds (lb)1 metric ton (m ton) 2,204 pounds (lb)1 liter (1) 3 0.22 US gallon (gal)i cubic meter (m ) 6.3 barrels (b)
ABBREVIATIONS AND ACRONYMS
PCJ = Petroleum Corporation of JamaicaIDB = Inter-American Development BankMME = Ministry of Mines and EnergyJPSC = Jamaica Public Service CompanyUNDP = United Nations Development Programme
FISCAL YEAR
Government: April 1 - March 31Petroleum Corporationof Jamaica: January 1 - December 31
FOR OFFICIAL USE ONLY
JAMAICA
PETROLEUM EXPLORATION PROJECT
LOAN AND PROJECT SUMMARY
Borrower : The Petroleum Corporation of Jamaica (PCJ)
Guarantor : Jamaica
Amount US$7.5 Million
Terms Payable in 17 years, including four years of grace at9.6% interest. PCJ would pay the Government a guar-antee fee of 1.0%, raising the cost to PCJ to 10.6%.
Project Description The project is directed at promoting explorationof the country's hydrocarbon potential by helpingmaximize the effectiveness of PCJ as a partner ofprivate international companies and as an independentinvestor. It includes:
(a) Exploration: Exploration by PCJ of the offshorePedro Bank as an equity partner of private oilcompanies (i. e., the financing of its carriedequity interest after a commercial discovery ismade) or, under certain circumstances, byexercising a sole risk option for activitiessuch as well sidetracking, deepening, testingand shooting of seismic lines.
(b) Technical Assistance, Training and Equipment:Provision of laboratory equipment and consultingexpertise in geophysics, geology, micropaleon-tology, petroleum economics and engineering, totrain staff, to monitor exploration work under-taken by companies and to advise PCJ on otherresponsibilities including the import anddistribution of petroleum products in Jamaica.
(c) Offshore Seismic Survey: Acquisition andprocessing of about 2,300 line-km of seismicdata covering the shelf between Jamaica'ssouthern coast and the 200 m water depth line.
(d) Lubricating Oil Recovery Study: Feasibilitystudy for a project to recycle imported lubric-ating oil.
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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Project Risks The exploration risk associated with the explora-tion component will be borne by the international oilcompanies, except when under certain circumstancesPCJ decides to invest in exploration at its sole riskand expense. These costs would be incremental tothose borne by the private companies and the riskwill be assessed by the Bank at the time of theinvestment decision in relation to benefits thatwould accrue to Jamaica if an exploitable find ismade. The risk associated with the off-shore seismicsurvey is that the data may not be attractiveenough to private companies for them to enter intoexploration contracts. This risk is acceptable whenviewed against the potential benefits from additionalexploration by the private sector.
Estimated Cost The total cost of the project is estimated at US$8.4million equivalent, of which US$7.5 million (about89 percent) would be foreign exchange. 1/ Theproject would be exempted from identifiable taxes andduties. A summary cost table is shown below:
1/ Total estimated cost of the project does not include costs borne byprivate oil companies for exploration.
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Foreign Local Total…_------ (US '000) …
Exploration
PCJ's Equity Participation or 2,800 300 3,100 1/
Sole RiskSub-total 2,800 300 3,100
Technical Assistance
Consultant Services 500 75 575Equipment 335 25 360
Sub-total 835 100 935
Offshore Seismic Survey
Sub-contract 1,900 200 2,100
Sub-total 1,900 200 2,100
Lubrication Oil Pecovery Study
Consultant Services 115 50 165
Sub-total 115 50 165
Baseline Cost 5,650 650 6,300
Physical Contingencies 560 70 630Price Contingencies 1,290 180 1,470
Total Contingencies 1,850 250 2,100
TOTAL FSTIMATF,D COST 7,500 900 8,400
1/ Assumes reimbursement by PCJ to partners of 10% of the investment in adiscovery well and two delineation wells.
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Foreign Local Total__------- (US$ '000) -
Financing Plan: 1/
Bank 7,500 - 7,500PCJ _ 900 900
Total 7,500 900 8,400
Estimated Disbursements:
FY 82 FY 83 FY 84 FY 85
Bank - Annual 500 2,000 1,500 3,500Cumulative 500 2,500 4,000 7,500
Rate of Return: N.A.
Staff Appraisal Report: N.A.
Map: IBRD 15576
1/ Does not include financing by private oil companies of exploration.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTREPORT AND RECOMMENDATION OF THE PRESIDENT TO THE
EXECUTIVE DIRECTORS ON A PROPOSED LOANTO THE PETROLEUM CORPORATION OF JAMAICA FOR
A PETROLEUM EXPLORATION PROJECT
1. I submit the following report and recommendation on a proposedloan to the Petroleum Corporation of Jamaica (PCJ) with the guarantee ofJamaica for the equivalent of US$7.5 million to help finance a proposedpetroleum exploration project. The loan would have a term of 17 yearsincluding four years of grace, with interest at 9.6% per annum. PCJ wouldpay the Government a guarantee fee of 1% per annum.
PART I - THE ECONOMY I/
Introduction
2. An Economic Memorandum entitled "Jamaica's Short-Term EconomicProgram" was distributed to the Executive Directors in June 1980. An EconomicMission visited Jamaica in March 1981 and is preparing its report. The mate-rial below is based on the mission's findings.
3. After almost a decade of sustained economic decline, the Jamaicaneconomy appears to be ready to resume a normal pace of growth and development.While the reasons for this decline were both economic as well as political,a new government, elected in October 1980, is attempting to reverse previouspolicies so as to bring the economy out of its long depression. While it isyet too early to see statistical evidence o support this conclusion, policiesalready implemented or currently under discussion provide indications that asignificant recovery is about to take place.
4. The fact that Jamaica has experienced sustained economic declinefor nearly a decade is particularly striking as the country is endowed withnatural resources, has well-educated and skilled manpower, enjoys the advan-tage of proximity to the lucrative North American markets, and possesses adeveloped financial system. By the same token, however, its advantages arealso its disadvantages. The openness of the economy makes it highly sensitiveto international prices and demand changes; particularly, given the lack ofexploited energy resources, the economy is very vulnerable to increases in theprices of oil, since imports of this fuel provide for about 99% of Jamaica'scommercial energy consumption. Its labor and capital have proved inter-nationally mobile, and massive outflows of capital and emigration of skilledlabor have occurred. Recently, the larger burden of the external debt atvariable rates has also made the economy more vulnerable to increases in theinterest rates in international capital markets. The careful management ofits resources in the face of these external pressures is the central challengeto the new Government.
1/ Parts I and II are substantially the same as Parts I and II of thePresident's Report on the Second Export Development Fund Project(Report No: P-3019-JM dated April 9, 1981).
A. Jamaica in the 1970s
Output, Unemployment and Inflation
5. Jamaica's per capita real GDP peaked in 1972. It has decreasedevery year thereafter and the accumulated decline reached 26% by 1980.The performance of agriculture was uneven and, overall, showed no growthbetween 1973 and 1980. The important, foreign exchange earning, miningsector, that had led growth in the early 70s experienced an accumulateddecline of 38% in 1975 and 1976, when the international mining companiesreacted to the bauxite levy introduced in 1974 by diversifying their opera-tions away from Jamaica, and by 1980, output levels were still 21% belowthe 1974 maximum. Manufacturing production declined every year exceptin 1975, bringing the 1980 level 26% below the 1973 peak. Constructionin 1980 was 55% below the 1973 level. The services-producing sectors,on thewhole, also tended to decline in spite of a substantial increase in Governmentservices; real value added by the conglomerate of services-producing sectorswas 12% lower in 1980 than in 1973.
6. The decline in economic activity has intensified unemployment, whichrose from 22% in 1973 to 31% in 1979 and an estimated 35% in 1980. Unemploy-ment has been considerably more acute for certain social groups; in 1978, forexample, for youths aged 14 to 19 the unemployment rate was 58%, while theunemployment rate for women was 38%.
7. Inflation rates rose sharply in the early 70s and then declinedduring 1974-1976. In 1978, the December to December inflation rate jumped to50%, reflecting the impact of the devaluation of the Jamaican dollar and theelimination of subsidies to certain consumption goods. In 1980 it was stillabove 30%.
Public Finances
8. The financial performance of the Jamaican Central Government hasbeen weak during FY73/74 - FY80/81. The financial position of the CentralGovernment deteriorated sharply between FY73/74 and FY76/77 and led toincreased reliance on domestic financing, mostly from the banking system.Large increases in expenditure--both current and capital--outpaced the growthin revenue. As a result, the current account, which registered a smallsurplus in FY73/74, deteriorated to a deficit of 6.1% of GDP in FY76/77, andthe overall deficit increased from 5.5% of GDP in FY73/74 to 19.3% of GDP inFY76/77. During FY77/78 and FY78/79 the Government sought to correct thefiscal imbalance by introducing measures designed to make the personal incometax more progressive, increasing consumption and import taxes, and reinforcingexpenditure controls. By FY78/79 the fiscal current account deficit haddecreased to 5.5% of GDP, and the overall deficit to 14.8% of GDP.
9. The original fiscal program for FY79/80 aimed at further improvingthe performance of the Central Government. The current account was targetedto register a small surplus. The overall deficit was targeted to decrease.
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However, the fiscal situation deteriorated in that year. The current accountshowed a deficit of 3.7% of GDP and the overall deficit increased to 16.9%of GDP. Overall revenue fell short of the estimates, total expendituresexceeded the estimates. Current expenditures exceeded the target levelby 8.7%; half of the current expenditure increase was related to increasedinterest payments, but the other half was mainly accounted for by larger thananticipated wage increases and expenditures on goods and services, includingthose made necessary by the flood damages. Capital expenditures exceededthe estimates by 7%.
10. Fiscal performance has deteriorated further in FY80/81 (fiscalyear ending March 31). Preliminary estimates indicate that although thegrowth of current expenditures will be limited to 18.0%, revenues willgrow only 11.0% and the current account deficit of the Central Governmentwill increase to 5.1% of GDP against 3.7% in FY79/80. The overall deficitwould remain at about 15% of GDP.
External Sector
II. During the 1973-1980 period Jamaica's balance of payments hasbeen under continuous pressure. Poor export performance, a sharply risingoil bill, mounting debt service pressures, and net private capital outflows,led to a precarious foreign exchange situation by 1976. In 1977 and 1978,the stablization program and the refinancing of commercial debt amelioratedthe situation, which continued to be serious. In 1979 and 1980 the balance ofpayments position deteriorated even further.
12. The current account of the balance of payments showed a substantialdeficit every year from 1973 to 1978. The deficit increased up to 1976, whenit reached its maximum value, around US$300 million, or 11% of GDP. In 1977and 1978 the deficit was lower, around 3 to 4% of GDP. The major exportcommodities experienced declines in volume. By 1976, the export volume ofbauxite and alumina--two commodities that in 1973 had accounted for abouttwo-thirds of the value of exports--had dropped nearly one-third below thatyear's level, primarily as a result of the producing firms' reaction to theintroduction of the bauxite levy. In 1977 and 1978 export volumes of bauxiteand alumina recovered, but still remained substantially below the 1973 levels.The volume of sugar exports--a commodity that in 1973 accounted for 10% of thevalue of exports--declined continously, and in 1978 was one-fourth below the1973 level. The volume of banana exports only increased marginally. Importsrose rapidly in 1974 and 1975, nearly doubling in value from their 1973 level.This was partly due to the 1973-74 oil price increases which tripled Jamaica'sfuel bill to US$215 million by 1975. The implementation of increasingly tightcontrols, made necessary by the acute foreign exchange shortage, resulted in asharp decline in imports after 1975. By 1978 the US$ value of imports wasnearly one-third below the level reached in 1975.
13. In 1979 and 1980 the balance of payments continued to deteriorate.In 1979 the deficit in the current account increased to US$171 million, or6.8% of GDP. Overall export performance was sluggish and the value of commo-dity exports increased only 5%, reaching US$775 million. Only non-traditional
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exports performed reasonably well and their value increased 17% to US$158million. Commodity imports increased 16%, reaching US$1,003 million. Theincrement--about US$140 million--was approximately equal to the increase inthe fuels bill, that totalled US$335 million. Non-oil imports remainedstationary around US$670 million, thus experiencing a decline in real terms.In 1980 the deficit in current account increased to US$275 million, or 8.9%of GDP. The value of commodity exports increased nearly 12%, reaching US$867million. The increment in the proceeds from bauxite and alumina (US$90million) was roughly equal to the increment in total commodity exports, andreflects, by and large, an increase in alumina shipments of about 300,000 longtons. The volume of sugar exported declined by about one-third, reflectingunfavorable weather conditions that compounded the sector's structural prob-lems. The volume of banana exports fell more than 50%, reflecting the impactof Hurricane Allen that aggravated the industry's problems. The value ofother exports increased 10%. The value of commodity imports increased about17%, reaching US$1,170 million. lmports of fuels, that increased by US$105million, once again accounted for most (63%) of this increase. Non-fuelimports increased from US$670 million to US$730 million, or 9%.
14. The large and sustained deficits in the current account of thebalance of payments have been partially offset by inflows of official capital.As a result, Jamaica's external debt has increased from US$181 millionat the end of 1973, to an estimated US$1,183 million at the end of 1979, ofwhich the Bank held 10.7%. Expressed as a ratio to GDP, the external debtof Jamaica has increased from 9.5% in 1973, to 47.0% in 1979. The othermajor source of financing has been the decrease in net international reserves;at the end of 1973, these stood at US$37 million;by the end of 1980 theyhad reached US$-590 million, including US$112 million of commercial arrears.
B. The Program
15. In October 1980, a general election was held in Jamaica. Theopposition Jamaica Labor Party obtained 52 of 60 seats in Parliament. Thenew Government has negotiated an Extended Agreement with the InternationalMonetary Fund, that was approved by the Board of Directors on April 13, 1981.This agreement focuses on the stabilization and recovery of the Jamaicaneconomy over the next three years. The new Government has also begun todefine its position with respect to longer term policy issues; the dialoguewith the Bank has been active and fruitful, but the process will still takesome time to be completed.
Overall Strategy
16. The Government's objectives are to promote economic activity andreduce the level of unemployment; also, to return existing utility servicesand social and economic infrastructure to levels of efficiency which willsupport economic growth. The strategy falls into two parts: firstly, to putinutilized capacity to work with the emphasis on those sectors that willproduce quick and substantial incremental foreign exchange earnings; secondly,to initiate adjustments in industrial and agricultural policies and so providea basis for expansion of productive capacity with concomitant increases inemployment opportunities.
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17. The Government anticipates that it will take at least three yearsto get the Jamaican economy back on a path of self-sustaining growth. Withthe plant and equipment now in place, real growth of 3% can be achievedin 1981. For 1982 and 1983, the growth targets of 4% and 5%, respectively,will require adequate incremental capital formation. The Government wishesto make the private sector the main engine of growth, creating an environmentin which private initiative can prosper. Consequently, steps will be taken toremove progressively all controls that inhibit such an environment. TheGovernment will promote private domestic and foreign investment. The Governmentwishes to decrease the degree of state regulation of the economy and to bringabout the divestment of a number of companies that were once private, but aretoday in the Government's hands. To this effect, the Government has createda Divestment Committee that will seek the orderly transfer to the privatesector of a number of Government-run operations.
Production and Investment
18. The dominant task is the implementation of an export-oriented produc-tion program to generate early incremental flows of foreign exchange. Tourismcan make a major contribution since this sector has substantial underutilizedcapacity. In the first year of the program, hotel occupancy is projected at48% of capacity generating more than US$200 million. The objective is toattain 70% occupancy by the third year, which should yield US$375 million attoday's prices.
19. Agreements reached with the bauxite/alumina companies in 1980 haverestored the competitiveness of that industry. Further, the Government andthe companies are pursuing, in cooperation vith the appropriate US agency, theacceptance of levy payments to Jamaica as a tax credit against US income taxwithin double taxation arrangements. The companies are undertaking upgradingprograms for attaining rated capacity which will increase the volume ofproduction and export of bauxite/alumina by 10%. One company is doublingplant capacity on a joint venture basis with the Government of Jamaica andprivate Norwegian interests. In addition the Government has initiated discus-sions with the companies to increase exports of bauxite from existing miningoperations by up to 6 million tons per annum during the program period, andalso to embark on a program for further expansion of alumina capacity.
20. The sugar industry has a potential market within the EEC regimeand an ISA quota of up to 255,000 tons, but current exports are only 160,000tons. In the recent past cane cultivation was ravaged by smut and rustdisease, and in 1980 a program for replanting existing acreage with diseaseresistent cane varieties was implemented. The objective is to lift theproduction of sugar from 260,000 tons to 330,000 tons and exports to 230,000in 1983.
21. The already depressed banana industry was devastated by HurricaneAllen in 1980. Programs for its rehabilitation supported by bilateral andmultilateral external financial sources are in place. There is a guaranteedmarket of 150,000 tons in the United Kingdom, but in 1980 exports attainedonly 33,000 tons, and the objective is to reach 120,000 tons in 1983. Therehabilitation program includes the expansion of cultivation, the improvementof yields, and the participation of the private sector, including foreigninvestment.
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22. Exports of manufactured goods are already supported by World Bankresources channeled through an Export Development Fund (EDF). During theprogram period a basis will be provided for production expansion to generateincremental employment opportunities and foreign exchange earnings. The firststep will be an examination and evaluation of Jamaica's industrial and agricul-tural policies to identify desirable modifications and structural adjustmentswhich may be necessary to support efficient production and provide incentivesfor investment.
23. Private foreign investment flows, particularly on a joint venturebasis, will be an important factor in the economic recovery of Jamaica.Already, steps have been taken to bring together groups of North Americanbusinessmen to examine opportunities for foreign investment. The Governmentplans to expand the Kingston Free Zone, and some 15 companies have expressedinterest in establishing new enterprises in lines such as textiles, elec-tronics, chemicals, warehousing, and food processing. Outside the Free Zonearea, about 70 investment inquiries are being processed, covering agricultureand agrobusiness, manufacturing, mining, and tourism.
Fiscal Policy
24. As part of its agreement with the IMF, the Government is committedto prudent financial management, which will be geared to achieving surpluseson current account for financing capital expenditure. The objective over theprogram period is the continued reduction of Central Government overallexpenditures to a level of not more than 30% of GDP; a turnaround of currentaccount performance from a deficit of 5% of GDP to a surplus of at least1% by FY83/84; and a narrowing of the overall deficit to around 10% of GDP.The Government will implement, not later than October 1, 1981, aspects of acomprehensive tax reform program to attain an increase of not less than 1/2%of GDP on estimated tax revenues for FY81/82. With the prospective increasesin resources through fiscal measures and incremental bauxite levy collections,the current account deficit estimated at 3-1/2% of GDP for FY81/82 shouldimprove to a surplus of not less than 1% of GDP by FY83/84. The incrementalreceipts by FY83/84 are estimated at some J$475 million (the equivalentof US$266 million) and would assist in offsetting the expected decline overthe period in emergency concessionary budgetary support from donor countriesand multilateral agencies.
25. Special attention will be paid to public debt management. Theexisting stock of external commercial debt is to be refinanced and externalborrowing, other than on concessionary terms, will be limited to a reasonableproportion of the financing program and related, by and large, to the externalcosts of the public investment program.
26. The level of government expenditure in FY81/82 will be held to 33%of GDP. On reasonable expectations about the revenue performance, such anexpenditure level would yield a current account deficit of 3-1/2% of GDP.The overall cash deficit of the Central Government (excluding debt amortization)in FY81/82 will, therefore, be held to J$945 million, which would representabout 13-1/2% of GDP. Compensation to employees represented 76% of tax
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revenue in FY80/81, and 61% of current expenditure excluding interest. Anypolicy for constraining consumption expenditure must come to grips with thisreality. The Government will however develop a three-year pay plan aimed atmoderation in civil service pay awards subject to the need to attract andretain skilled personnel. For FY81/82 budget resources for the pay plan willbe limited to about J$65 million. In addition, while the Government considersthat a cutback of staff would be unacceptable with the existing level of un-employment; the number of employees at March 31, 1981, will not be increased;subject to the maintenance of operational efficiency, existing vacancies andthose arising from future resignations and retirements will not be filled.
Monetary Policy
27. During the program period, monetary policy will be directed towardmobilizing savings and ensuring that sufficient bank credit is made availableto priority sectors. The Treasury Bill discount rate will be the primeinstrument for influencing changes in the interest rate structure. Domesticbank credit requirements of the Government will be met substantially from theissue of such bills, and their yield will be determined by market forces. Thebank rate will be set at a level not lower than the Treasury Bill rate. Inorder that building societies can maintain their competitiveness in attractingdeposits with the minimum impact on their mortgage rates, the current taxconcessions to their depositors will be enhanced.
Balance of Payments Policy
28. The major obstacle to economic recovery is the acute shortage offoreign exchange. In the early years of the program, balance of paymentssupport from external sources on a large scale will be needed. The Governmenthas approached donor countries and multilateral financial institutions forspecial balance of payments assistance of a concessionary nature. Foreigncommercial banks are considering a deferral/refinancing of the bulk ofgovernment and government-guaranteed debt to them maturing in FY81/82 andFY82/83, as well as the provision of incremental credits.
29. An enduring solution to the foreign exchange shortage must rest on arestoration of confidence in the economy and a quantum increase in earningsfrom exports and tourism. The action program for export-oriented productionwill provide rising foreign exchange earnings over the program period, andthus reduce the reliance on emergency balance of payments assistance. Withthe elimination of payments arrears, renewed confidence and economic buoyancy,trade credits should be restored to normal levels and assist in supporting thelevel of imports required for economic growth. Direct foreign investment is toprovide additional resources, given the current arrangements for encouragingsuch flows and the interest already shown by foreign investors.
30. The Government considers Jamaica's export to be competitive atthe present exchange rate and has therefore decided to maintain the officialexchange rate at its present level. The Government intends, however, toreview exchange rate policy and, if needed, take action in case excessivedomestic price increases and a departure from wage moderation would causean erosion of this competitiveness.
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Support of the International Monetary Fund
31. The program described is supported by resources to be provided bythe International Monetary Fund. The Agreement between the Government ofJamaica and the International Monetary Fund envisages the purchase ofSDR 477.7 million (approximately US$584.8 million) under a new extendedarrangement, SDR 21.8 million (approximately US$26.7 million) correspondingto the balance available in the first credit tranche, and SDR 37.0 million(approximately US$45.3 million) under the compensatory financing facility.Total support from the IMF would total SDR 536.5 million (approximatelyUS$656.8 million).
32. The performance criteria agreed between the IMF and the Governmentof Jamaica are: (i) a set of ceilings on net domestic bank credit to thepublic sector (defined as the Central Government, local government, and aspecified group of public entities); (ii) a set of ceilings on the netdomestic assets of the Bank of Jamaica; (iii) a set of balance of paymentstargets, framed in terms of changes in the net international reserve positionof the Bank of Jamaica (including the external payments arrearage among itsinternational liabilities); (iv) a guideline for the portfolio management ofthe international assets and liabilities of the Bank of Jamaica, embodied ina set of ceilings on its gross international reserve holdings; (v) a limit onthe contracting of new external debt by the public sector and the Bank ofJamaica and by the private sector covered by a Government guarantee, in amaturity range from one year to twelve years, with a subceiling for thematurity range from one year to five years; and (vi) an injunction againstthe introduction of any multiple currency practice, the imposition of any newor intensification of any existing restriction on payments and transfers forcurrent international transactions, and the introduction of any new orintensification of any existing restriction on imports for balance of paymentsreasons. Besides, the agreement contains provisions and review clauses inconnection with policies for FY82/83 and FY83/84.
Creditworthiness
33. Jamaica's economy has been subject to nearly a decade of continuousdeterioration and decline. The new Government has defined a program tointerrupt these trends and initiate a process of economic recovery. To thiseffect, a three-year agreement with the IMF has been put in place. TheGovernment is also in the process of defining policies concerning publicinvestments and incentives for the private sector in close consultation withthe Bank. On this basis, provided Jamaica successfully carries out itseconomic stabilization and recovery program and continues to make progress indefining a viable longer term economic program, it should be consideredcreditworthy for continued external assistance, subject to continued closemonitoring of the application and the success of such policies.
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PART II - BANK GROUP OPERATIONS IN JAMAICA
34. The Bank has made 24 loans 1/ in Jamaica totalling US$322.7 millionafter cancellations. Of this amount, US$117.4 million (36%) has been forinfrastructure investments in transportation, electric power, water supplyand sewerage; the remainder has gone into a revolving fund for financingof inputs for export industries (21%), agriculture and agroindustry (13%);program lending (19%) (out of which 10% to the revolving fund for exportindustries), education (8%), sites and services (5%), forestry (4%), popula-tion and nutrition (3%), and small-scale enterprises (2%). At the end of1980, Jamaica's debt to the Bank stood at US$171 million, or 13% of externaldebt outstanding and disbursed; debt service to the Bank during the yearamounted to US$16.7 million, or 10% total debt service. The undisbursedamount of Bank loans as of March 31, 1981 amounted to US$68.5 million.There have been three IFC investments in Jamaica; a loan in 1961 to a pre-mixconcrete company, an equity/loan investment in 1968 in a hotel project, and aloan in 1980 to a glass container company.
35. Bank lending in Jamaica has covered a wide range of sectors anddevelopment problems. Initially, the Bank lending program emphasized infra-structure investment. Although financing for this purpose continued, theemphasis of the lending program in the early and middle 1970s moved to thesocial sectors, with projects in education, population and nutrition, housingand employment for the urban poor and rural development. In response tochanging economic forces, a further shift in Bank lending has taken place inJamaica in the late 1970s. The priority needs of this most recent period havebeen the country's critical short-to-medium-term balance of payments and pro-duction requirements. Thus, the FY78 lending program contained a US$30million program loan and an US$18 million loan for the rehabilitation of sugarfactories. The FY79 forestry project and US$30 million second program loanare directed at similar needs. Other FY79 lending operations included afourth highway loan of US$16.0 million and a small-scale-industry loan ofUS$7.0 million. No loans were made in FY80 due to the absence of a medium-term economic program. In FY81, the Bank made a second loan to the ExportDevelopment Fund.
36. Project implementation difficulties have been endemic to Bank andother internationally financed projects. These difficulties have had fourprincipal causes: (i) shortage of key personnel; (ii) inadequacies in thesystems of management used in planning and controlling projects; (iii) organ-izational and structural problems in the public sector; and (iv) budgetingrestraints resulting in shortages of local financing. The difficult economicconditions of the last several years have affected and intensified the problemin all four areas. The Government, the Bank and the other internationalagencies are taking steps to deal with it in existing projects and the designof new projects, but it is too early to assess the impact of these steps.
37. Future Bank lending to Jamaica is predicated on an acceptableeconomic program, an export-oriented overall economic policy and a satisfac-tory public sector investment program. The lending program for the next threeyears emphasizes loans designed to contribute to a rapid improvement in thebalance of payments situation. Loans under preparation include a loan to
1/ Including a telecommunications loan made in 1967 to the Jamaican TelephoneCompany and cancelled in the same year, and the Second Export DevelopmentFund loan signed on May 15, 1981.
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expand the Kingston Free Zone aimed at encouraging additional foreign invest-ment for export industries, and a loan for technical assistance. The Govern-ment has also requested a structural adjustment loan to finance imports ofnecessary inputs to expand industrial and agricultural production. Otherprojects which have been identified for consideration in future years includetwo projects in agriculture related to sugar and banana rehabilitation and anexport industries project to provide long-term credits for capital investmentby export industries.
38. Coordination with other external lenders and assistance agencieshas been given particular attention in formulating the Bank's lending strategy.The Bank has taken a lead role in an international aid effort for the Caribbeancalled the Caribbean Group for Cooperation in Economic Development. The Grouphas met annually in Washington since 1978. The Group has brought together thedonor agencies and countries for the Caribbean and the recipient countries.Within the framework of the Group, individual country subgroup meetings,similar to Bank consultative group meetings, have been held. The subgroupmeetings for Jamaica have provided an opportunity to present a country projectlist and to coordinate assistance efforts. As a result of the Caribbean Groupand subgroup meetings, and of related donor activities, Jamaica has receivedcommitments, exclusive of Bank and IMF assistance, for additional balance ofpayments and project local cost financing of US$225 million in FY81 from severalbilateral and multilateral donors. Local cost financing provided in thismanner financed the local cost requirements of several Bank-assisted projectsin FY80. The Caribbean Group has also provided a basis for cofinancingforeign exchange costs with the OPEC Special Fund in the Bank-assisted SecondPower Project. In addition to the close relationship established with the IMFand the UNDP in dealing with Jamaican problems, the Bank has worked intimatelywith other sponsoring agencies of the Caribbean Group--the Inter-AmericanDevelopment Bank and the Caribbean Development Bank--as well as with bilateralaid agencies in several major donor countries.
PART III - THE ENERGY SECTOR
Energy Resources, Supply and Demand
39. With the decline in the importance of agriculture in Jamaica and thegrowth in the mining and manufacturing sectors, the country became one of themore energy intensive economies in the region. Between 1961 and 1973, the percapita commercial energy consumption of Jamaica rose from 3.8 barrels of fueloil equivalent to a high of 10. By contrast, the country's known indigenousenergy resources are few and limited to some peat deposits, agriculturalresidues and a small hydro potential. Of total energy consumption at present,about one percent is derived from hydropower and 9 percent from the use ofbagasse in the sugar industry. The balance is accounted for by importedpetroleum which supplies 90% of Jamaica's energy needs.
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40. As a result of this dependence on petroleum, the oil price increases
of 1973/74 caused widespread disruptions in the economy. The country's oil
import bill rose from about US$60 million in 1973 or 15% of total exports to
US$305 million in 1979 or over 45% of total exports. At the same time,
commercial per capita consumption decreased from 10 barrels of fuel oil
equivalent in 1973 to 7.6 barrels in 1979, with petroleum consumption decreas-
ing from 20.5 million barrels in 1973 to 16.8 million in 1979. This was due
not only to the slowing down of the economy, but also to conservation efforts,
including the enforcement of allocation measures provoked by the growing lack
of foreign exchange. In 1980, it is estimated that although total consumption
of petroleum products was 7.2% lower than in 1979, the oil import bill was
some 40% higher (US$425 million).
41. Petroleum demand in Jamaica is met partly by imported refined pro-
ducts and partly by imported crude oil which is refined in a small refinery
owned and operated by Exxon. The refinery, built in 1964, has an ultimate
rated capacity of 32,600 b/d. This compares with total sales of oil products
of about 45,000 b/d in 1979, of which the bauxite/ alumina industry accounts
for about 50%, international bunkers (maritime and aviation) for 8% and the
internal market for 42% or about 20,000 b/d.
42. The refinery is free to import feedstocks (crude petroleum, blended
crude or finished products) to meet part of the demand of the internal market.
Other marketing companies that are established in Jamaica, such as Texaco
and Shell, are also entitled to import finished products and to distribute
them at prices fixed by the Government. The right to import by the refinery
applies only to the needs of the internal market and does not extend to the
import and sale of petroleum products to the international shipping and
aviation industry or the bauxite/alumina sector. The bauxite/ alumina
industry in the past has imported its own fuel requirements, particularly when
the domestic refinery was unable to match international prices. Indeed, due
to the small size of the local refinery and low throughput, the cost of
refining in Jamaica is comparatively high. Because of this factor, and of the
existence of large refineries with excess capacity in nearby Curacao and
Aruba, the Government has decided to study the alternatives available to it as
regards the future of the refinery.
Government Plans and Policies
43. Jamaica recognized early the potentially damaging effects of the
1973-74 oil price increase and initiated measures to minimize the impact
on the economy, including developing by 1977 a comprehensive energy sector
plan, with the following objectives: (a) to search for and develop domestic
energy resources; (b) to improve energy efficiency, and (c) to upgrade techno-
logical and institutional capability.
44. Although no properly structured energy investment program has either
been developed or approved by the Government, a number of projects are moving
ahead directed at meeting the objectives of the plan. Efforts to identify and
develop energy resources in Jamaica include feasibility and environmental
studies for the recovery of peat deposits found in Negril and the Black River
basin which are scheduled to be completed in 1981. The Government is also
studying the feasibility of a major multi-purpose hydro project (Blue Moun-
tain), as well as small run-of-the river hydro projects in western and central
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Jamaica and a system of mini-hydro projects. Furthermore, onshore and offshoreexploration for hydrocarbons has been initiated. The onshore program (para.60) is being implemented by the Government with an Inter-American DevelopmentBank (IDB) loan approved in December 1980. The offshore program is being leftto private international oil companies, with the exception of some seismicwork that the Government intends to carry out itself in order to be able toattract private investment. The offshore program would be supported by theproposed loan and is discussed in paras. 61-64.
45. Renewable sources of energy are also receiving increased attentionincluding solar energy applications, increased use of wood and bagasse, windpower and ocean thermal energy conversion. Implementation of a project thatwould re-refine used lubricating oils is being seriously considered, so thatscarce foreign exchange earnings could be saved. A study of the economics ofsuch a project is also being financed by the proposed loan. Finally, andalthough there may have been some duplication of efforts, studies have beencommissioned to evaluate the feasibility of using imported coal rather thanpetroleum to meet the future energy needs of the bauxite industry as well asthose of the electric power generating company which in 1979 accounted forover 17% of petroleum sales.
46. The Government is also aware of the need for conservation. Work hasbeen initiated on the development of an energy accounting system and energyend-use surveys. US AID is considering a US$4 million conservation projectthat would assist in these efforts as well as provide the training and thehardware to help curtail energy consumption by industrial and commercialestablishments.
47. In addition, prices of petroleum products are no longer subsidizedon balance, although products intended for household use are sold at pricesslightly below cost at present. Wholesale and retail distributors' marginsfor the internal market are controlled, but basic prices for petroleumproducts are adjusted periodically to reflect changes in internationalpetroleum prices. The January 1981 price structure is shown below (Ji perImperial Gallon):
Whole- LiquidPremium Regular Kerosene Retail Sale PetroleumGasoline Gasoline (Rural) Diesel Diesel Gas
Refinery Cost 245.8 239.1 251.8 235.7 235.7 244.1Tax 170.0 170.0 - 30.0 30.0 -Stabilization Factor 1/ (1.5) (2.8) (27.2) (12.9) (1.9) (39.1)
Refinery Billing Price 414.3 406.3 224.6 252.8 263.8 205.0
Marketing Expensesand Dealers Margin 50.7 48.7 32.4 37.2 18.2 -
Consumer Price 465.0 455.0 257.0 290.0 282.0 205.0Consumer Price inUS$ per US gallon 2.22 2.17 1.23 1.39 1.34 0.98
17 The stabilization factor has only recently turned negative (para 50).
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48. As can be noted from the table above, taxes are imposed on gasolineand diesel. Until June 1979, kerosene and diesel oils received subsidieswhich were eliminated by mid-1979 for diesel and by the end of the year forkerosene. This resulted in considerable increases in prices to the finalconsumer. Also, the privately owned refinery received a small "refinerydifferential" as an incentive granted to Exxon for constructing the refineryin Jamaica. This incentive was discontinued in 1980. The prices of fuel oil,asphalt, and other specialty products, are not directly monitored by theGovernment as are prices of products mentioned above, and they reflectinternational quotations.
49. In order to shield the consumer from too frequent price changes, astabilization factor has been introduced. This factor is generally added tothe tax on petroleum products, yielding a revenue which is paid into a spe-cially created stabilization fund. The initial level of the stabilizationfactor for each product is based on a forecast of probable increases inproduct prices at the Caribbean export refineries during the price fixationperiod. The factor used is equal to half of the expected increase, so thatthe revenues generated by the adjustment factor when international prices arelow, can be used to compensate for temporary increases of international priceswithout increasing the final consumer prices immediately. New prices mustbe fixed once the resources in the stabilization' fund are fully utilized,indicating that the higher level of international prices reflects a long termtrend.
50. The total amount accumulated in the stabilization fund now amountsto US$19.1 million, because until 1980 international prices have remained atlower levels than those projected by the government, so that the stabilizationfactor has been consistently positive. Only recently has the stabilizationfactor become negative and, in the absence of price adjustments, would belikely to remain negative in the foreseeable future. Hence it is necessaryfor the government to monitor international price trends closely and not touse resources accumulated in the fund to excessively delay adjusting consumerprices to current price increases. The Government is now conducting a compre-hensive study of the flows of energy resources to the various sectors of theeconomy for the purpose, among others, of establishing economical and rationalfuels policies, including pricing policies. Upon completion of the study,expected by mid-1982, the Government would discuss its conclusions and theirimplementation with the Bank, and exchange views with the Bank on pricingpolicies at least yearly thereafter. Until the proposed project is completed,the Government would not allow the total cost of petroleum products to theconsumer, net of taxes currently being levied on their sale, fall below thetotal cost of importing such products (Section 3.02 of the draft GuaranteeAgreement).
Sector Institutions
51. The three main institutions concerned with energy in Jamaica arethe Ministry of Mines and Energy (energy policy, pricing, conservation andstudies), the Jamaica Public Service Company (electric power generation anddistribution), and the Petroleum Corporation of Jamaica (exploration, develop-ment and marketing of petroleum and other energy sources). The Energy Depart-ment of the Ministry of Mines and Energy has been focusing on energy sectorplanning through end-use surveys, studies of energy alternatives, and energy
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conservation. It was also responsible for preparing the comprehensive energyplan covering the 1978-83 period. Although the lack of trained manpower tocarry out the necessary planning work is serious, the situation will improvewith the technical assistance being provided by US AID, UNDP and other donors.
52. The Jamaica Public Service Company (JPSC) is a wholly owned Govern-ment corporation and is the sole public service supplier of electricity inJamaica. Of the total installed capacity of about 705 MW, approximately 471MW (67%) are part of the public service system owned by JPSC. The remainderare captive plants owned principally by aluminum, sugar and cement industries.Of the electric energy generated by JPSC in 1980, approximately 84% was bysteam plants, 5% by gas turbines, 1% by diesel plants and only 10% by hydroplants. Fuel costs are thus a very large component of JPSC's operating costs(approximately 60% in 1980). A component of a bank financed project approvedin 1978 and aimed at rehabilitating the steam plants is expected to resultin a reduction in JPSC's fuel consumption.
53. The third institution dealing with energy matters is the PetroleumCorporation of Jamaica (PCJ) which is described in greater detail in Annex V.PCJ, which would be the implementing agency for the proposed Bank project andthe Borrower of the proposed loan, was established as an autonomous Govern-ment-owned corporation in June 1979 to become the Government's arm in allmatters concerning petroleum. PCJ has a staff of 55 employees, including37 professionals, and is effectively managed. Until now, however, PCJ'sactivities have mostly consisted of trading crude oil and petroleum productsunder Government agreements, which have generated a large share of its income.PCJ's long-term objective is to shift from its trading activities to thedevelopment of the country's energy resources. This would require long-termfunding and a strengthening of PCJ's technical staff, including staff thatwould supervise private sector petroleum exploration activity.
54. PCJ's financial statements (Annex V), which are audited by indepen-dent external auditors, indicate that PCJ is in a solid financial position.As of December 1980, PCJ's total assets amounted to the equivalent ofUS$51.2 million, of which 98% represented current assets. Net workingcapital was US$16.3 million, with a current ratio of 1.5:1. The only out-standing long-term liability consisted of a pre-investment loan from theInter-American Development Bank (IDB) (US$0.9 million). This has now beenconsolidated with IDB's 35 year loan of US$23.5 million at soft terms whichthe Government is passing on to PCJ. Equity, equivalent to US$16.2 million,was entirely accounted for by retained earnings.
55. PCJ expects its annual income from the trading of crude oil and ofprocessed products to yield at least US$9 million per year in the foreseeablefuture. In addition, PCJ expects to continue earning about US$5 million peryear from interest on short-term investments of cash surpluses. Administrativeexpenses are expected to stabilize at about US$1.2 million per year. Thiswould generate an adequate cash flow, which is expected to remain sufficientto service the proposed Bank loan, as well as the IDB soft-terms loan, evenin the event that no oil discovery is made either onshore or offshore, aslong as the Government permits PCJ to operate in the petroleum trading busi-ness and does not require PCJ to pay large dividends. PCJ expects to begindistributing dividends to the Government only after hydrocarbons are found
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in commercial quantities and their production has started. UJntil then, anydividend declared by PCJ's board would be automatically converted into capital
(Section 5.04 of the draft Loan Agreement). Nevertheless, in order to maintainPCJ's financial position, the following covenants are included in the LoanAgreement (a) PCJ shall maintain on a year-to-year basis, a total debt servicecoverage ratio of not less than 2:1; (b) PCJ shall maintain at all times aquick ratio (current assets minus inventories over current liabilities) of notless than 1:1; (c) PCJ will not incur any term debt if it would cause its debtto equity ratio to rise above 1:1; and (d) the investments in oil and gasexploration projects which PCJ may carry as assets in its balance sheet shallnot exceed, at any time, 70% of PCJ's equity 1/ (Sections 5.05, 5.06, 5.07 and5.08 of the draft Loan Agreement). Furthermore, a covenant in the Guarantee
Agreement would commit the Government not to require PCJ to distribute dividendsif by doing so the above financial covenants are breached, and to inject freshcapital in PCJ if this proves necessary for PCJ to abide by those covenants(Section 2.02 of the draft Guarantee Agreement).
Petroleum Legislation
56. Jamaica's petroleum legislation is contained in the Petroleum Act of1979 (Act No. 12) which defines the way petroleum rights are handled. It
authorizes PCJ (a) either alone or in association with contractors to explore,develop and manage the country's petroleum resources, and (b) to enter intoagreements or arrangements providing for the participation, assistance orcooperation of contractors in connection with (a) above. Based on thisauthorization, PCJ has designed a Model Contract which has a duration of 25years, but may terminate sooner if no hydrocarbons are found. The contractrecquires a minimum amount of work commitments during a six-year period.If an oil discovery is made, the Government would be paid a royalty of12.5% and a tax on income of 45%. After deduction of the royalty, tax andexpenditures, PCJ is entitled to a portion of the oil (not less than 30%)without having to bear any of the costs or risks. Also, half the acreageunder that contract would be returned to PCJ after specific phases of theexploration period.
Geology, Exploration to Date and Current Activities
57. Annex IV provides a description of Jamaica's geology and2geologicalprospects. In2summary, Jamaica's prospective area totals 9,000 km onshoreand 200,000 km offshore. Only limited exploration has been undertaken since themid-1950s. Seven wells drilled through 1977 (six onshore and one offshore)were dry, with only one producing gas. A comprehensive study of Jamaica's
1/ For purposes of calculating the debt service coverage ratio and thedebt/equity ratio, the following adjustments will be made to PCJ'sofficial accounting data: (a) exploration costs, which PCJ fully chargesas expenses the year they are incurred in compliance with Jamaica's taxlaws, will be treated as investments and capitalized according toacounting practices generally accepted in the oil industry; and (b)in the case of a commercial discovery, PCJ's equity will be adjustedupward to include the net present value of proven recoverable oilreserves, to the extent that this is not reflected in the balance sheet.
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petroleum potential, completed in 1977 by a US consulting firm, concluded thattihese early wells were poorly located and recommended further exploratorydrilling after additional seismic data had been obtained. Based on thisrecommendation, a new program of acquiring, processing, and interpreting bothon- and off-shore geological, geochemical and geophysical data was initiatedin 1978 with financial assistance from the Norwegian and IJK Governments.
58. This program has now been completed. Integration of new data withinformation gathered previously and recent laboratory analysis have resultedin: (i) identification of several structures onshore, albeit small; (ii) iden-tification offshore of thick sedimentary sections, several basinal areas, anda large number of sizeable structures with apparent good closures on PedroBank, an area only slightly smaller than Jamaica itself located 80 km southwestof the island, and (iii) identification offshore of a large shelf area betweenJamaica's southern coast and the 200 m water depth line (see map).
59. While recent geological and geophysical studies have thus concludedthat Jamaica may have oil and gas, additional seismic work and exploration isrequired to gain firmer knowledge of these resources. In terms of risk andsize of potential discoveries, exploration of the onshore structures is likelyto be more difficult than those offshore. Although also risky, the offshorestructures on the Pedro Bank -- if explored to look for hydrocarbons in theupper Cretaceous to lower Eocene Section, a newer concept than those previouslyused -- would be worth drilling, and would be the only practical step towardmaking a discovery. With respect to the southern shelf, information obtainedthrough magnetic and gravity surveys, as well as some shallow-water seismiclines, indicates that the shelf has been subjected to only moderately severetectonic action and, as a consequence, may contain large oil-bearing struc-tures. Additional seismic information for the shelf area needs to be acquired,which would provide the data needed to help interest private investors inexploring the area.
60. PCJ is exploring the onshore area by drilling seven wells in atleast three of the five prospective areas identified on the island. Explora-tory drilling would be undertaken in two phases: Phase 1 would consist ofdrilling three known prospects in the west, on the north coast, and in theeastern part of the country. If the results of these wells are sufficientlyencouraging, Phase 2 would then be implemented and four more wells drilled.The cost of this onshore exploration program, including additional geophysicalslrveys, geological studies and geochemical analyses' is currently estimatedat about US$30 million. Of this amount, the IDB has recently made a loantotalling US$23.5 million, 1/ with the balance to be covered by PCJ from itsown local currency resources. The project being financed by IDB covers onlyexploration work. Should a commercial discovery be made, large amounts wouldhive to be invested to develop the field.
1/ Tne loan was made from the IDB's Fund for Special Operations (FSO).The loan is for 35 years, including 8-1/2 years of grace, at 2 percentinterest. If the project results in a commercial discovery, the loanterms would be converted to 15 years at the interest rate prevailing forIDB ordinary capital loans.
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61. With respect to the offshore areas, Jamaica offered five offshoreblocks on the Pedro Bank to the international 2oil industry for exploration(areas ranging in size from 2,000 to 6,000 km ). Of the blocks offered, anexploration/production contract covering Block C (see map) on Pedro Bank wassigned in May 1980 with a consortium consisting of Union of Texas, a USsubsidiary of Allied Chemical and Agip, the exploration subsidiary of Italy'snational oil company (ENI). Each of the companies has an initial 50% interestin the contract. Union of Texas, which is the operating partner, completeddetailed seismic work late last year.
62. Under the contract with Union of Texas/Agip, the companies arefirmly committed to only one well and to a maximum expenditure of US$5million within 24 months. If any acreage is retained beyond 36 months,the contractors are obligated to drill a second well, within 42 monthsof the effective date of the contract. Fifty percent of the contract areamust be relinquished at the end of the fourth year. Retention of acreage fora fifth or sixth year would obligate the contractors to drill one well eachyear. Under this contract, all risks and expenses are borne by the privateparties during the exploration phase. However, in the event of a commercialdiscovery, PCJ may elect to assume a 10% equity interest.
63. Exercising the equity participation option after a discovery isdeclared commercial will not only be almost certainly in Jamaica's financialinterest, but will also strengthen PCJ by providing it with a cash flowindependent of the country's general revenues and with practical experiencetypically not available to a national company or state agency which choosesto play only a monitoring or oversight role. The actual mechanics of theparticipation option as negotiated, require that PCJ, for exercising thatoption, reimburses the private companies for part of the exploration expendi-tures corresponding to PCJ's share. Reimbursement must be effected within90 days of the declaration of commerciality. To meet its commitment, PCJ hasto have enough foreign exchange available to reimburse the private contractorswhile financing is being arranged for the appraisal/development program.
64. The Union of Texas/Agip group also intends to sign a second explora-tion/production contract covering either Blocks A or D by the middle of 1981.The same arrangements as under the contract on Block C will apply, except that(a) the equity participation option will be applicable to a 20 percent interest,and (b) unlike the contract on Block C, the new contract will provide PCJ witha "sole risk" option 1/ which allows PCJ to accelerate exploration if this isdeemed justified, taking advantage of seismic boats, drilling rigs or workcrews which have already been mobilized at considerable expense. This addi-tional exploration, if turned down by the private partners, could still be
1/ The means by which one company in a group engages, on its own, in explor-ation work beyond the contract commitment of the group. Such additionalexploration might range from extra seismic lines through well sidetrack-ing, deepening or testing, to the drilling of an additional well. In theevent of a discovery, the abstaining company normally pays to the solerisk operator a penalty of 2-10 times the expenditure required for theadditional exploration to remain a partner in the project.
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economical for Jamaica, even when adjusted for risk, taking into account that
the objectives of the Covernment and the private company could be different
(e.g. discovery of a small oil field or a gas field may not be of interest to
IJnion of Texas/Agip, yet important for Jamaica). The availability of foreign
exchange to PCJ would not only accelerate exploration with a relatively
small incremental investment, but it would also encourage PCJ's foreign
partners to perform additional exploration to avoid penalties, given PCJ's
capacity to participate on terms that would shift the profit split more
favorably to Jamaica; i.e. should a discovery be made under this option, the
terms of the contract would be reversed and PCJ would obtain most of the
production of that field. In such sole risk cases, PCJ may have to act
quickly to take advantage of crew and equipment already mobilized.
Role of the Bank
65. In summary, PCJ has been able within a short period to build a
relatively strong organization with a solid financial position. Its current
plans call for it to expand its activities from trading to investing in pro-
jects that would develop the country's energy resources. For this, PCJ would
require long-term funding. PCJ has utilized all sources of assistance avail-
able to it to develop from scratch an onshore and offshore petroleum explora-
tion program. The onshore activities are being implemented by PCJ itself
and being financed with a loan from IDB. On the Wlorld Bank's advice, PCJ
negotiated with Union of Texas/Agip an agreement on the exploration of the
offshore Pedro Bank area (Block C) with a carried equity interest where all
risks and expenses are borne by the private parties during the exploration
phase (thus minimizing PCJ's risk) until a commercial discovery is made. At
that moment, PCJ may elect to assume a 10% equity interest and maximize the
benefits to the country of a commercial find. To enable PCJ to exercise its
equity interest option, foreign exchange resources must be readily available
to it. It has accordingly requested the Bank to include funds in the proposed
project for this purpose and for carried equity participation in other off-
shore blocks now being negotiated. It has also asked the Bank to finance
technical assistance that would enable PCJ to monitor the activities of the
private companies.
66. Although the response from the private sector has been favorable,
the expected minimum commitments in Blocks A and D now under discussion with
Union of Texas/Agip are not sufficient for a thorough evaluation of petroleum
prospects. Should the consortium limit itself to their minimum commitment,
PCJ wishes to have foreign exchange funds available, if justified with the
information at that time, to go beyond the exploration work programs of the
companies by utilizing its sole risk option (see para 64). PCJ would do so
essentially to complete exploration work initiated by the consortium but which
the consortium might decide to leave unfinished. Typical examples of this
type of exploration investments include the side tracking or the deepening of
one or more wells, further testing of wells, or the shooting of more seismic
lines. In all of these circumstances, the proceeds of the proposed loan which
are allocated to the exploration component of the project, while insufficient
to finance a full fledged exploration program under a sole risk option, would
be sufficient for PCJ to complete work left unfinished by the consortium, so
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as to arrive at conclusive results. If such results warrant, PCJ would then
be in a position to induce the return of the consortium partners, seek other
partners, or proceed with the project under service contracts for which
additional financing would be sought. It would not be possible, however, to
know in advance the need for additional exploration. Since the notice of need
is likely to be short, foreign exchange funds would have to be made available
promptly to allow PCJ to undertake the work. PCJ therefore requested the Bank
to include funds in the proposed project for exploration that might otherwise
be unduly postponed.
67. Civen the burden of petroleum imports on Jamaica's economy, and the
country's generally untested geological prospects, the Government's plans to
promote exploration are reasonable and urgent. In addition to the technical
and financial support that the Bank could provide, its involvement could lead
to improvements in the energy sector as a whole and result in further interest
in oil and gas investment in Jamaica on the part of foreign private investors.
PART IV - THE PROJECT
Introduction
68. The proposed project was identified during the visit of a Bank
mission to Jamaica in February 1980 and appraised in January 1981. Loan
negotiations were held in Washington, D.C. in May 1981. The Jamaican delega-
tion was headed by Mr. W. Saunders, Managing Director of PCJ. A loan and
project summary appears at the beginning of this report, and a supplementary
project data sheet is given in Annex III. Since this is an engineering/tech-
nical assistance loan, no Staff Appraisal Report has been prepared, but
Annex IV provides details on Jamaica's geology and Annex V on the Borrower.
Project Objectives
69. The ftmdamental objective of the project is to reduce the increasing
cost of petroleum imports to the Jamaican economy through promotion of explora-
tion of the country's hydrocarbon potential. Within the next two years, it is
expected that exploration work will take place in Jamaica after an interruption
of more than eight years. The exploration program should provide for at least
seven wells onshore and two wells offshore with private sector involvement.
Exploration offshore would require the continuous involvement of PCJ in
monitoring exploration work and in assessing the results to decide whether
they should exercise their right to participate financially (paras 65-67) or
to accelerate exploration under the sole risk option. The objectives of the
proposed project are primarily to provide the technical and financial means
required to enable PCJ to play a meaningful role in a program which should
provide a comprehensive evaluation of Jamaica's hydrocarbon potential. The
project will also provide technical assistance to PCJ for its other activities.
Project Description
70. The proposed project would include the following:
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(a) Exploration: Exploration by PCJ of the offshore Pedro Bankas an equity partner of private oil companies (i.e., thefinancing of its carried equity interest), or, under certaincircumstances, by exercising a sole risk option for activitiessuch as well sidetracking, deepening, testing and shooting ofseismic lines (paras. 62-65).
(b) Technical Assistance, Training and Equipment: PCJ wouldacquire laboratory equipment and hire needed consulting exper-tise in geophysics, geology, micropaleontology, petroleumeconomics and engineering, to train its staff, to monitorexploration work undertaken by companies and to undertake itsother responsibilities including the import and distribution ofpetroleum products in Jamaica.
(c) Offshore Seismic Survey: About 2,300 line-km of seismic datawould be acquired and processed covering the shelf betweenJamaica's southern coast and 200 m water depth line, an areathat is less known geologically.
(d) Oil Recovery Study: Feasibility study for a project to recycleimported lubricating oil.
Cost Estimates and Financing Plan
71. PCJ's share of the proposed project is estimated at US$8.4 mil-lion, of which US$7.5 million, or about 80 percent, is foreign exchange. 1/About 50% of this amount is accounted for by technical assistance and aseismic survey; the other 50% would finance PCJ's share of exploration underconditions described in paras 56 and 61-64. An allowance of 10 percent ofthe baseline costs has been made to cover physical contingencies and isconsidered reasonable. Price contingencies take into account the projectedimplementation schedule as well as any likely increases in price levels whichire projected to increase by 9% for 1981, 8.5% for 1982, and 7.5% thereafter.Because of the nature of this component, the provisions for contingenciesinore the uncertainties connected with drilling. The decision as to theextent of exploration investments will be taken in the course of projectinplementation, taking into account the information and budget available.Itie total provision for contingencies represents 33 percent of baseline costsor 25 percent of total project costs. The cost of the 50 man-months ofconsulting services required for the technical assistance component and forthe lubricating oil recovery study has been estimated at US$15,000 per man-month including travel, subsistence and overhead. This amount is acceptable,taking into account the high level of specialized expertise involved and-.alaries prevailing in the industry.
72. The proposed loan of US$7.5 million would be made to PCJ with thegiarantee of the Government of Jamaica and would finance the foreign exchangecosts of the project. The loan would be repayable in 17 years, including four-:ars. of grace at 9.6% interest per annum. PCJ would pay the Government a
guarantee fee of 1% per annum. The local costs would be financed by PCJ. TheGovernment intends to exempt the project from taxes and duties.
I Th;e total costs do not include drilling and other costs borne by theforeign oil companies.
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Project Implementation
73. Foreign oil companies would be responsible for executing the explora-tion component of the project, under the supervision of PCJ, except in theevent PCJ decides to exercise its sole risk option. In the latter instance,PCJ would be expected to employ the same contractors used by the oil companiesto carry out the work. Before committing funds for the financing of anequity participation or an exercise of th sole risk option, PCJ would haveto seek the Bank's approval (Section 2.02(b) of the draft Loan Agreement).Such approval would be granted if the Bank is satisfied that the oil revenues(to PCJ and to the economy as a whole) which can be reasonably expected fromPCJ's proposed investment, would yield financial and economic rates of returnof at least 20%, after adjusting reserve and production estimates by applyingsuch risk factors as are generally accepted in the industry under the specificcircumstances prevailing at the time of the decision. To this end, theproposed project includes funds to finance the services of exploration anddrilling consultants whose expertise would be relied upon, by PCJ and bythe Bank as well, to assess the comparative merits of (i) taking up an equityparticipation; (ii) conducting additional exploration, or (iii) developinga field of little interest to the international companies. The consultants'terms of reference would specify that their assessment would be based onthe above mentioned rate-of-return criteria and that they would providePCJ and the Bank with all the supporting evidence underlying their conclusion.The consultants would also assist PCJ in co-ordinating and supervising thework of the contractors. All consultants would be acceptable to PCJ and theBank and employed on terms and conditions satisfactory to PCJ and the Bank.
74. PCJ would be responsible for the seismic survey, the acquisition oflaboratory and other equipment and the lubricating oil recovery study which itwould carry out with the assistance of consultants and private contractors.
75. Whether the lubricating oil recovery project should be implementedby PCJ or left to the private sector can only be determined after the proposedstudy has been completed, particularly in view of the present Government'sstated intention to reduce the scope of activities of public sector enterprises.Accordingly, assurances would be sought during negotiations that on completionof the study the Bank would be consulted regarding the implementation of itsrecommendations (Section 3.05 of the draft Loan Agreement).
Procurement and Disbursement
76. The international oil companies have their own procedures in procur-ing goods and services. Since it is not possible at this time to determinewhether PCJ will participate financially in exploration activities using Bankfunds, it would be impractical to ask the private oil companies involved tofollow the Bank's formal procurement procedures. Nevertheless, in their owninterest, these companies procure goods and services that are competitive inprice and quality, and appropriate for the purposes in view. Therefore, forthe exploration component, the procurement procedures of the oil companieswould be used. Prior to commitment of Bank funds for this component, however,the Bank would confirm that the procedures followed were competitive, inaccordance with industry practice and efficient. This is most likely to bethe case since there are two foreign companies involved that would be monitoring
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each other's practices in their own self-interest. In addition, the companieswould be required to provide PCJ with sufficient evidence that the consortiumdid follow proper procedures before allocating these expenses to PCJ or charging
them against a hydrocarbon discovery.
77. Contracting for the seismic survey by PCJ will follow international
competitive bidding in accordance with the Bank's guidelines. Because of the
specialized nature of the equipment for the technical assistance component andthe small amount involved ($400,000), equipment would be procured on the basis
of limited international tendering.
78. The proposed Bank loan would be disbursed under normal documentationon the following basis:
(a) PCJ's equity share (10% of the exploration expenditures
on Block C and 20% of the expenditures on Blocks A or D,up to a maximum of US$3.8 million);
(b) 100 percent of the foreign expenditures on exploration byPCJ on the sole risk option;
(c) 100 percent of foreign expenditures for the offshore seismicsurvey and for the equipment; and
(d) 100% of expenditures for consultant services.
79. The project is expected to be completed by the end of 1984, andthe proceeds of the Bank loan fully disbursed by mid-1985, assuming the loanis made effective by September 30, 1981. Should funds allocated to financeexploration not be used for those purposes within three years of effectiveness,
they would be cancelled.
Accounting, Auditing and Reporting
80. PCJ would keep separate accounts for the project to be financed bythe Bank. These accounts as well as those of PCJ as a whole would be auditedby external auditors acceptable to PCJ and the Bank. PCJ would submit audit
reports to the Bank not later than four months after the close of the fiscalyear. PCJ will submit quarterly progress reports in a format acceptable to
the Bank and prepare a project completion report.
Project Benefits and Risk
81. Given the burden of petroleum imports on Jamaica's economy, the
Government's plans to promote exploration are reasonable and urgent. The riskassociated with the exploration component would be borne by the internationalprivate oil companies. Once a commercial discovery is made PCJ would benefitto the extent of its 10% carried equity interest and share some of the limitedrisk associated with a development project. The main risk to PCJ is if itshould exercise its sole risk option and no hydrocarbons are found. However,the risks to PCJ, and to Jamaica, would not be as great as the initial risk to
- 23 -
the oil companies, since a decision to exercise the "sole risk" option wouldhe made at a time when much more and better information would be available.M4oreover, the "sole risk" option would enable Jamaica to take advantage of aneventual opportunity for making investments that may be highly justifiable --an opportunity that may be lost if foreign exchange is not readily available.Furthermore, as discussed in para. 64, the availability of funds to PCJ forthe sole risk component would not only accelerate exploration with a relativelysmall incremental investment, but it would also encourage PCJ's foreign part-ners to perform additional exploration to maximize their potential profit,given PCJ's capacity to participate on terms that would shift the profit splitmore favorably to Jamaica. (The probable savings in mobilization costs alonefar outweigh the cost to PCJ of the Bank's commitment fee).
82. The benefit from the seismic survey is that information obtainedmight attract further private investment and put the Government in a positionto negotiate additional exploration contracts with work commitments in linewith the country's potential. Any ensuing hydrocarbon discovery would havea significant positive impact on the country's economy. The risk associatedwith this component is that the data presented to the oil companies may not beattractive enough for them to enter into exploration contracts. This risk isconsidered acceptable because of the large benefits that would accrue to thecountry if an exploitable find were made.
83. The technical assistance component would strengthen PCJ institution-ally and permit it to carry out its day to day responsibilities even if theseare not extended to cover offshore exploration of hydrocarbons. The lubrica-ting oil recovery study would confirm the best and most efficient method torecover used oil. There are no special risks and the economic benefits interms of foreign exchange saved, if an ensuing project is carried out, arelikely to be substantial.
PART V - LEGAL INSTRUMENTS AND AIUTHORITY
84. The draft Loan Agreement between the Bank and the Petroleum Corpora-tion of Jamaica, the draft Guarantee Agreement between Jamaica and the Bank,and the Report of the Committee provided for in Article III, Section 4 (iii),of the Articles of Agreement of the Bank are being distributed to the Execu-tive Directors separately. The draft Loan Agreement conforms to the usualpattern of agreements on petroleum exploration projects. Special conditionsof the project are listed in Section 3 of Annex III to this report.
85. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.
- 24 -
PART VI - RECOMMENDATION
86. I recommend that the Executive Directors approve the proposedloan.
Robert S. McNamaraPresident
Attachments
Washington, D.C.
May 28, 1981
-25- ANNEX IPage 1 of 6
JAMAICA - SOCIAL INDICATORS DATA SHEET
JAMAICA REFERENCE GROUPS (UEICHTED AVE7ACESLAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)-
TOTAL 11.0AGRICULTURAL 4. 8 MOST RECENT MIDDLE INCOME MIDDLE INCOME
1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CAPIBBFAN EUROPE
GNP PER CAPITA (US$) 470.0 830.0 1240.0 1562.9 2749.5
ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 426.0 1325.0 1823.0 1055.9 1641.4
POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR (MILLIONS) 1.6 1. 9 2.1URBAN POPULATION (PERCENT OF TOTAL) 34.0 41.4 48.2 - 63.4 53.9
POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MILLIONS) 3.0STATIONARY POPULATION (MILLIONS) 5.0
YEAR STATIONARY POPULATION IS REACHED 2065
POPULATION DENS ITYPER SQ. KM. 145.0 173.0 191.0 28. 1 77.2
PER SQ. 1K4. AGRICULTURAL LAND 327.0 392.0 438.0 81. 7 129.5
POPULATION AGE STRUCTURE (PERCENT)0-14 YRS. 41.7 45.9 42.7 41.4 30.6
15-64 YRS. 54.0 48.5 51.4 54.7 61.1
65 YRS. AND ABOVE 4.3 5.6 5.9 3.9 8.2
POPULATION GROWTH RATE (PERCENT)TOTAL 1.5/c 1.4/c 1. 7/c 2.7 1.6
URBAN 3.8 3.5 3.8 4.1 3. 3
CRUDE BIRTH RATE (PER THOUSAND) 39.0 35.0 29.0 34.8 22.8
CRUDE DEATH RATE (PER THOUSAND) 9.0 8.0 6.0 3.9 8.q
GROSS REPRODUCTION RATE 3.4 2.7 2.2 2.5 1.5
PAMILY PLANNINGACCEPTORS, ANNUAL (THOUSANDS) .. 19.3 27.0USERS (PERCENT OF MARRIED WOMEN) .. .. 40.0
FOOD AND NUTRITIONINDEX OF FOOD PRODUCTION
PER CAPITA (1969-71-10O) 98.0 99.0 95.0 106.9 113.1
PER CAPITA SUPPLY OFCALORIES (PERCENT OF
REQUIREMENTS) 91.0 111.0 119.0 107.4 125.3
PROTEINS (GRAMS PER DAY) 56.0 67.0 70.0 65.6 91.0
OF WHICH ANIMAL AND PULSE 28.0 33.0 35.0 33. 7 39.6
CHILD (AGES 1-4) MORTALITY RATE 7.0 4.0 3.0 8.4 4.3
HEALTHLIFE EXPECTANCY AT BIRTH (YEARS) 64.0 67.8 70.0 63.1 67.8
INFANT MORTALITY RATE (PERTHOUSAND) 63.0 36.0 20.0 66.5 55.9
ACCESS TO SAFE WATER (PERCENT OFPOPULATION)
TOTAL .. 62.0 86.0 65.9URBAN .. 100.0 100.0 80.4
RURAL .. 48.0 79.0 44.0
ACCESS TO EXCRETA DISPOSAL (PERCENTOF POPULATION)
TOTAL .. 94.0 94.0 62.3
URBAN 100.0 100.0 79.6
RURAL .. 92.0 91.0 29.6
POPULATION PER PHYSICIAN 2600.0 2630.0 3523.0 1849.2 1030. 1
POPULATION PER NURSING PERSON 1990.Ojd 1710.0 547.0 1227.5 929.4POPULATION PER HOSPITAL BED
TOTAL 241. 0/d 243.0 263.0 4F0.3 2P9.7
URBAN .. ..
RURAL .. .. ..
ADMISSIONS PER HOSPITAL BED .. .. 19.0 17.0
HOU S INGAVERAGE' SIZE OF HOUSEHOLD
TOTAL 3. 9 4.3URBAN 2. 7 ..
RURAL 4. 8 ..
AVERAGE NUMBER OF PERSONS PER ROOMTOTAL 1.9 1.6URBAN 1.6 ..
RURAL 2.0 ..
ACCESS TO ELECTRICITY (PERCENTOP DWELLINGS)
TOTAL .. 27.0
URBAN .. .. ..
RURAL .. .. ..
-26- ANNEX IPage 2 of 6
JAMAICA - SOCIAL INDICATORS DATA SHEET
JAMAICA REFERENCE GROUPS (WEIGHTED AVERAFES- MOST RECENT ESTIHATE) -
MOST RECENT MIDDLE INCOME MIDDLE INCOME1960 lb 1970 /b ESTIMATE lb LATIN AMERICA & CARIBBEAN EUROPE
EDUCATIONADJUSTED ENROLL4ENT RATIOS
PRDIARY: TOTAL 92.0 118.0 97.0 99.7 105.9MALE 92.0 118.0 96.0 101.0 109.3FEHALE 93.0 118.0 98.0 99.4 103.0
SECONDARY: TOTAL 45.0 45.0 58.0 34.4 64.0HALE 44.0 45.0 54.0 33.5 71.1FEIALE 46.0 45.0 62.0 34.7 56.9
VOCATIONAL ENROL. (X OF SECONDARY) 9.0 5.5 4.0 38.2 28.8
PUPIL-TEACHER RATIOPRIMARY 55.0 47.0 39.0 30.5 29.4SECONDARY 21.0 26.0 28.0 14.5 26.1
ADnLT LITERACY RATE (PERCENT) 82.0 85.4 86.0 76.3
CONSUMPTIONPASSENGER CARS PER THOUSAND
POPULATION 20.0 39.0 45.0 43.0 84.6RADIO RECEIVERS PER THOUSAND
POPULATION 90.0 266.0 270.0 245.3 192.2TV RECEIVERS PER THOUSAND
POPULATION 7.0 37.0 54.0 84.2 118.5NEWSPAPER ("DAILY GENERALINTEREST") CIRCULATION PERTHOUSAND POPULATION 63.0 114.0 90.0 63.3 93.0CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. 0.2 .. 5. 7
LABOR FORCETOTAL LABOR FORCE (THOUSANDS) 606.9 631.5 714.8
FEHALE (PERCENT) 37.2 39.0 39.2 22.2 30.4AGRICULTURE (PERCENT) 39.0 29.0 28.0 37.1 37.0INDUSTRY (PERCENT) 25.0 26.0 17.0 23.5 29.3
PARTICIPATION RATE (PERCENT)TOTAL 37.3 33.8 33.1 31.5 40.9MALE 48.8 42.3 41.2 48.9 55.9FEMALE 26.7 25.7 25.2 14.0 26.2
ECONOMIC DEPENDENCY RATIO 1.2 1.5 1.4 1.4 1.0
INCOME DISTRIBUTIONPERCENT OF PRIVATE INCOMERECEIVED BY
HIGHEST 5 PERCENT OF HOUSEHOLDS 30.2/eHIGHEST 20 PERCENT OF HOUSEHOLDS 61.2/eLOWEST 20 PERCENT OF HOUSEHOLDS 2. 2.eLOWEST 40 PERCENT OF HOUSEHOLDS 8. 2*e
POVERTY TARGET GROUPSESTIMATED ABSOLUTE POVERTY INCOMELEVEL (US$ PER CAPITA)
URBAN .. .. 501.0RURAL .. .. 439.0 190.8
ESTIMATED RELATIVE POVERTY INCOMELEVEL (US$ PER CAPITA)
URBAN .. .. 585.0 474.0RURAL .. .. 509.0 332.5 385.8
ESTIMATED POPULATION BELOW ABSOLUTEPOVERTY INCOME LEVEL (PERCENT)
URBAN ..RURAL .. .. 80.0
Not availableHot applicable.
NOTES
/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countriesamong the indicators depends on availability of data and is not uniform.
/b Unless othervise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969and 1971; and for Most Recent Estimate, between 1974 and 1978.
/c Due to emigration population growth rate is lower than rate of natural increase; L 1963; /e 1958.
Most recent estimate of GNP per capita is for 1979, all other data are as of April, 1980.
October, 1980
-27- ANNEX IT g e 3 7of 6
Nones: Although the data are dranc ee soutce generaYllyjugedtesa uhrr eudrhul,i shold uobenoed that they may net he inner-eateely- omparabl because- of the loch of stadard.e Ieiutoscd concept nee ho1 ~different .. cotor ltesin cleno h dora. The dote are, none-thels,ueuIodesrboodtso .aotue tldInn trenAl, ur.d chrott- ecetanreodferene- eteonsntfe
of one ndtcano eta tie osongthe coutry 0P raeOnce Egroope.'m-r9 -- h. hf.n .,
Toa oa uf oct area thoelln hodaraa nls eaer..ican q Aliie dfo a medicl schoo a th . beinersta leve.
d.t. for e~~onltinco BsiniBe roeh once.t andtrural- onpleth- (totlCOPFI CPIA Ci) -lO pr oyte tnaenatcuren mrkr ries,cc- rhn,an ro 're)dted by dhi respcien mbredcpia bd
culanod hy ane converLco -monb t be go -id-oh ta (1917-Pg baie ihy, avilbl Th ybli an-rvt, eea s peilsdhsie e
loRNCI9CItII fi APT -o deohu -coosumptio o.f- cr calorg (01 rreaenn nldd Rua hosptls, bosestli he-lede hath. -1-sedo
endI lignte, psrfieu natura. ligot an ydo,nuland d enbro rc- etrsnnpemortystfe by, ay phanciotad (hu by a mdcl easl-" ieteh r,
A,,i,,I,,,:l - E-ti..te of g'i- "' illld -t--lsi.,nlade 1ified prnialgnra n sotls opiasdsdmaO PiPIT.ATIiNfo dli ITl ITtINIIhoptasdoalorrra hsit aed med .icadstemn etrs
dote, from heepines dIvided by th nuberof bede.J
GPoPul AtIon it Un yea NPOl orc pon-i-n Pro ection are hrieed Os 199 anbhi-an .Ahare rlde nay orsa e be Isnldedt in1tnl peuetnb g n eadtermraiyed enlm as, nchueodfra aia purpat I
197e nsl an7d.d lcl ieepcac ebliga P1yas h aa dsblIrg--I reapeotd1ive dy. twllicgs teeP-tludso-pormfahoe tstmctobad.
ant friloytens o proe ds hupoe . ofttlrrbn nJ ueldehcerepcieyl kanieea .. p ulanof-lnaenan.i_nayd p...u..anic I cho e in o gowt tintsd.R 1h,t. - di.ld .lt -i
saInt osnatant. Thin in achieved nelyn after.fdrfel lop)rate ahdecline to tA)tsted inretieestdtoiletPPLTIeN rpaceetlvlo nt e eodci as bmon geuITtln Pimaryd achogl of tal,d sale e ml re otl aeedCe
Tear eta"tloaypplne i9ece h year. whndmiimsp opltinionesom puilsIB ar heT ... Ihont th dfioti..a t sce age.dh
tetleeoc ussityet 1 I 17ldl byer ofe ab. g o; coeepod ee 5 5aegess
Jeir;191 1960,an 19709 .da. Pnu-ere ai omr.adseodr oe tet noldi
populaton; 199, 19PC aed " 9PCPdata. . r.dm..tlA ...iiTlCRh.d)1ed et to11ts Iee byhnsand( - Asnua dhearh peJhuodo i-er Pnaercr prtome oaaie a ae recmrs ae
Pt IeltIyPatraulyfv-er rgno ig in, 1980 1f70, ond 1970 brod cthos Ili enerll~ public, per thenuand y P p hplteseoldsa -
of -i.-c ..c dovine undr.. eupco f olae tcl planiocprthu.sa In. holdet daafoor ce rant may nono. he nom othl s.ince.d mee
fog .721 -t bit I Ao-g~~~~~~~~~~en coannie end inyaswe-ogsrn o Vnt ast teIneso t sdPodcrs peTh.a(9h-711 tdso e np.lraanal moo "du_i Peota_ "Isteme roeppso",defI edeappidclub
yfsdntilit of all t food osemodinies h. Prdelesecoef sdan edan-aano eeltedpimarly srcriggnel w.R sc se
teah sor . Isned h. Agegt _jRedso _o nehoiunr 11is based on ticket mold dop g h ea,ictds amsiosi dn_:'' iv."t-ietnremasd
per day, bailable eupplien os... dnci pouto,ipre eu Otl1av Porve(thoaaide -1 toosoiral ciepres nldqamntnis usd t fod prcesing,andbesti- h on ioeoIdor esqolth lfinitione to-b ta iotyie are no lioompa s- 98,t 17ten
nthspl ffe e a.Snepl ffoo tint tsir as above. te- ae lorrn,etrodgsepretg lttllbrfre 91qofrnents d for all o ..e.s entali h.edt by .liA ie mreniu P an_ 99 aealloe'ndr0of 60 grems ef nhen noei per1 dayn end 11 gmofanalcd Pri-lptien tote(ere -1 nea.d sale. ea-frda- atiip 1eee
ends ar lowertime tose ofph rm of~t htoialpro.tein and th5 grams of.1 . o W - h rit -t&.o l..
Pe nia roensry I00 ronacma and eus-Pronlt supyoffo.tg-o nctn of.-'g ohspepulttie, endlsn ninale thild.. A .fe 6et-1
lot IM". Pri-~~~~~~~~~~~~~mtes arIho.ntonl orosrivedt from animalst end pal hs i grm Ton dy;rle 19 t1-85, 190 .n 19)7 ctI I .o.mi tereedth aro -.. a... c pultonfee 5ed5adee
Chld(geo-) Mid-y..lnyRatsd(peythhosadl -tAnoal_de`ne.perdbkutetd In no the etal labr foensage group 1- pes Pe, Pno c idre inr thIs .g ilgoup; on 0 nonhevtelopingf ed..eua-Ptd--b..
tenet data derived teem hg 5 iebles; 1960 1971tand71977 dataf gftIiNt"lItTsIiffIO
isto" pecincy-t Brth(.es-) Avragenonen o pers o lie onolnog f henebldeat girt; -160 1970 co 197R data. .b frgj_ . e -
of ag pe hnadlv its o imetd AboesPvet om evl(9leep ie nebm nd rual hee.s te op tno (perce -t of oChlatde- tonal. arhas E, 1, andki enrol - Abenldet poetyb d1 incomelevlis tha imen level helen sio at ti.i.
Nube tf eol (tonal ar.n, and Prrl)wt remnel ao -a topafe nutritionally adeqate.. dietf plus dll semia nstit rquiemntsisrewaerl euppl (;nin9Oludee 97 teed marl -c aeeo ntreate bet snoostaminaned affordahie.. in.p,water sach as that lees protected boreholee sprigt, redl sntary erle as itimtedclt Poveom ncdm leve.11ro anl- endin ae
perentge ofterosenv uuelm. na ra ropbi e eltv oet eelvli on-thr Tef. aver te per .a its
notisenoGble h ocet sen-deimply than I th hA-Jif or nebet- of thehoscd lvl iha)mnn.frhge oto living- in-dinam areas.th
do son I hoet1 pn9 aderpminaepn fc6 e oftblnteadrua ,son of9peynlerie (aias and eael she ar abena ee"uternedn tehLte ulees da ( 7rs fsenale-onlubatn
ruaD ube fpol (tonal,urban ad-h rpalerve .. d ofscrie-- OSMTO
CPposatl mylelud60 the970 ecuo e nd198dt: dipoal it o ebd ceemctho oemcnelpised Prpojetmoescpepartmen-t.of. Rbumacticrna Re at-ater. .. 9 byro eae-b htv cys ens :rilb use.inh lgt of'Iiebe lBRO ..pierplean Iia if.ealgnitin
ANNEX I-28- Page 4 of 6
JAMAICA: ECONOMIC DEVELOPMENT DATA
JAMAICA
Population: 2.2 million (mid-1979)GNP Per Capita: US$1,240 (1979)
Amount(million US$ at
Indicators current prices) Actual1979 1975 1976 1977 1978 1979 1980
PRICESGDP deflator (1974-100) 121.2 134.9 150.9 190.2 218.9 294.3
Exchange rate (J$ per US$) 0.91 0.91 1.25 1.48 1.77 1.78
Share of GDP at market prices (%) Average Annual Increase (%)
(at current prices) (at constant 1974 prices)
a/ 1975 1978 1980 1975/78 1978/80NATIONAL ACCOUNTS-Gross Domestic Product 2,521 100.0 100.0 100.0 -2.9 -3.0
Agriculture 177 7.7 9.5 8.6 4.3 -7.8
Industry 953 36.4 32.6 30.9 -6.4 -5.6
Services 1,264 55.9 57.9 60.5 -1.8 -0.8
Consumption 2,163 84.8 83.6 90.0 -1.3 -2.5
Gross Domestic Investment 396 26.0 15.0 15.4 -21.0 -0.9
Exports GNFS 1,169 34.6 42.1 39.0 10.4 2.3
Imports GNFS 1,207 45.4 40.7 44.4 2.7 2.6
Gross National Savings 225 16.7 11.2 6.5 -17.3 -29.7
As Z of GDP1975/76 1977/78 1980/81 -t
PUBLIC FINANCE -/
Current Reven e 24.5 21.4 22.8
Current Expenditure 24.1 27.9 27.9
Surplus (+) or deficit (-) 0.4 -6.4 -5.1
Capital Expenditure 11.7 11.1 9.8
Foreign Finance (net) 3.8 0.7 6.0
a/ At market prices; components are earesus at factor cost and will not add due to exclusion of net
indirect taxes and subsidies.b/ Fiscal year - April l/March 31.c/ Estimated.
ANNEX I-29- Page 5 of 6
1975-78 1978-80
OTHER INDICATORS
GNP growth rate (%) -3.3 -5.2
GrP per capita growth rate t%) -4.5 -5.4
ICOR -15.4 -14.5
N8aginal savings rate n.a. n.a.
Import elasticity 5.0 1.6
Amount Annual Growth Rates (E)
(million US$ at- (at constant 1974 prices)current prices) Actual
1980 1976 1977 1978 1979 1980
EXTERNAL TRADE
Merchandise exports 858 -12.8 7.2 2.3 2.2 -1.5Traditional 693 -18.7 12.3 -0.8 -0.6 -1.3Nontraditional 165 27.5 -15.3 20.1 15.2 -2.6
Merchandise imports 1,170 -22.5 -28.6 9.8 -5.3 -4.3
Food 90 -35.5 -50.8 42.2 -13.6 -6.8Fuels 440 -9.8 7.1 -21.8 41.1 8.0
Machinery & Equipment 190 -35.4 -43.5 23.8 -24.6 -14.7
Other 450 -14.6 -30.0 21.6 16.7 -9.3
PRICES (1974=100)
Export price index 121.3 132.3 130.6 134.6 153.0Import price index 121.0 138.7 146.3 179.1 218.1
Terms of trade index 100.2 95.4 89.2 75.2 70.1
Composition of Merchandise Trade (%) Average Annual Increase (%)(at current price_) (at constant 1974 prices)
1975 1978 1980 1975-78 1978-80
Exports 100.0 100.0 100.0 -1.5 0.3Traditional 87.3 82.8 80.8 -3.2 -0.9
Nontraditional 12.7 17.2 19.2 9.1 5.9
Imports 100.0 100.0 100.0 -15.0 -4.8Food 11.6 8.6 7.7 -23.3 -10.3Fuel 19.1 22.4 37.6 -10.8 23.5
Machinery and equipment 30.8 22.9 16.2 -23.3 -19.8
Other 38.5 46.1 38.5 -10.1 -13.1
-30- ANNEX I
Page 6 of 6
BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT
(US$ millions at current prices)
Actual b'Indicator 1976 1977 1978 1979 1980-
BALANCE OF PAYMENTS
Exports of goods and services 881 916 972 1159 1258Of which: Merchandise f.o.b. 617 721 728 767 858
Imports of goods and services 1203 1016 1094 1410 1633Of which: Merchandise c.i.f. 913 747 865 1003 1170
Net transfers 6 20 26 80 100
Current account balance -316 -80 -96 -171 -275
Private direct investment - - - - -Public capital 102 -3 139 17 95Other capital -30 -5 -150 6 62Allocation of SDRs - - - 10 10Change in reservesa/ -244 -88 -107 -138 -108
Gross International reserves (end year) 29 39 59 62 93
Reserves as months imports 0.38 0.63 0.82 0.74 0.95
EXTERNAL CAPITAL AND DEBT
Gross disbursements 198 118 225 227 181
Extertnal IIeot
Debt outstanding and disbursed 880 942 1055 1183 1295Official (end year)O/W IBRD 59 A- 112 127 171
Undisbursed debt (end year) 252 308 385 381 3870/W Ifl f, 68 101 99 139 a9
Debt servicePublic service payments 109 151 192 208 169
Interest 53 61 71 96 95Payments as % of exports 12.4 16.5 19.8 17.9 1 .4
a/ Includes commercial arrears.h/ Preliminary.
April 3, 1981
- 31- ANNEX IIPage 1 of 4
STATUS OF BANTK GROUP OPERATIONS IN JAMAICA
A. Statement of Bank Loans (As of March 31, 1981)
---- US$ million----Amount
Loan Fiscal (less cancellation)No. Year Borrower Purpose Bank Undisbursed
10 loans fully disbursed a/ 89.9
727 1971 Jamaica Education 13.5 .51003 1974 Jamaica Sites & Services 15.0 5.21032 1975 Jamaica H.ighways 13.5 1.91043 1975 Jamaica Airports 12.5 0.11146 1975 The Water Commission Sewerage/Water 15.0 4.112R4 1976 Jamaica Population 6.8 3.71464 1977 Jamaica Rural Development 15.0 9.71516 1978 Jamaica Public Service Power 20.0 10.1
Company Ltd.1517 1978 Sugar Industry Authority Agriculture 18.0 8.11609 1979 Jamaica Small Scale Industry 7.0 2.61715 1979 Jamaica Second Program Loan 31.5 0.91716 1979 Jamaica Forestry 12.0 8.91740 1979 Jamaica Highways 16.0 12.7
Total (net cancellations) 285.7of which has been repaid 29.1
Total now outstanding 256.6
Amount sold 1.6of which has been repaid 1.6 0.0
Total now held by Bank 256.6
Total undisbursed 68.5
a/ Including a telecommunications loan made in 1967 to the Jamaican TelephoneCompany and cancelled in the same year.
- 32 - ANNEX IIPage 2 of 4
B. Statement of IFC Investments as of March 31, 1981
Type of US$ millionDate Borrower Business Loan Equity Total
1961 Jamaica Pre-Mix Ltd. Pre-mix concrete 0.2 - 0.21969 Pegasus Hotel of
Jamaica Ltd. Tourism 2.2 0.7 2.91980 West Indies Glass
Company Ltd. Glass containers 2.3 - 2.3
4.7 0.7 5.4
Less cancellations, terminations,participations, sales and repayments 1.8 - 1.8
Total commitments now held by IFC 2.9 0.7 3.6
Total Undisbursed 2.3 - 2.3
C. Projects in Execution
Ln. No. 1003-JM: Sites and Services Project: US$15.0 millionLoan of June 13, 1974; Effective date: September 9, 1974;Closing date: June 30, 1982.
Project implementation is about 4-1/2 years behind schedule due todelays in establishing and staffing the project unit and problems with con-tractors. These delays resulted in a cost overrun of the original projectof about 25%. In view of the Government's budgetary constraints the projecthas therefore been restructured to allow for some reduction in the number oflots to be developed and for a significant reduction in housing standards.The revised project is expected to be completed by mid-1982.
Ln. No. 1032-JM: Third Highway Project: US$13.5 millionLoan of July 26, 1974; Effective date: September 27, 1974;Closing date: September 30, 1981.
Construction has been delayed due to shortages of engineeringstaff, reliable equipment, cement and asphalt. The project is now scheduledfor completion in mid 1981, about four years later than the appraisal estimate,and the closing date has been extended to September 30, 1981.
- 33 - ANNEX IIPage 3 ot 4
Ln. No. 1146-JN: Kingston Sewerage and Water Supply Project: US$15 million
Loan of July 23, 1975; Effective date: June 24, 1976;Closing date: June 30, 1981.
Project implementation is more than 3 years behind the appraisalschedule but is now proceeding satisfactorily. The Borrower's financialposition has, however, continuously deteriorated. A 35% tariff increase willtake effect June 1, 1981 but additional measures will be required of theBorrower in order to comply with the Loan Agreement.
Ln. No. 1284-JM: Second Population Project: US$6.8 millionLoan of June 12, 1976; Effective date: August 30, 1976;Closing date: December 31, 1981.
Project implementation has progressed reasonably well. The civilworks on health center facilities are expected to be completed by mid 1981.Disbursements are however lagging behind. Completion of other project compo-nents is expected to be delayed until early 1982.
Ln. No. 1464-JM: Rural Development Project: US$15 millionLoan of June 29, 1977; Effective date: October 14, 1977;Closing date: December 31, 1982.
Project implementation had initially been slow due to shortage offunds, manpower problems and the difficult general economic situation.Recent progress has however been encouraging; most project components arenow under implementation and are advancing satisfactorily. The first groupof settlers have been placed and farm home construction initiated.
Ln. No. 1516-JM: Second Power Project: IJS$20 millionLoan of March 6, 1978; Effective date: June 1, 1978;Closing date: September 30, 1982.
Project implementation is proceeding satisfactorily after consider-able delays during the initial phase of project implementation, and most ofthe loan proceeds have been committed. JPSC's operations have been seriouslyaffected by the limited availability of its most fuel efficient generatingunits due to poor maintenance and operating procedures and a lack of spareparts. The Government has requested a Bank loan for the rehabilitation ofthese units, for improvements to JPSC's system and for the development ofhydro resources. Although JPSC's financial position has improved, an increasein tariffs will be required to meet the agreed covenant.
Ln. No. 1517-J?: Sugar Rehabilitation Project: US$18 millionLoan of March 6, 1978; Effective date: June 1, 1978;Closing date: June 30, 1983.
Although progress in the rehabilitation of factories is satisfactory,the financial position of the National Sugar Company, executor of the project,remains difficult. Favorable developments of world sugar prices and theavailability of harvesting and transportation equipment to be financed frompreviously unallocated loan proceeds are expected to result in an increase incane production and have a positive effect on NSC's financial position.
ANNEX II- 34 - Page 4 of 4
Ln. No. 1609-JM: Small Scale Enterprise Development Project: US$7 millionLoan of August 2, 1978; Effective date: December 27, 1978;Closing date: June 30, 1982.
Implementation of the program for modern small scale enterprisesexecuted by the Premier Investment Corporation (PIC) is ahead of schedule.Implementation of the program for very small scale enterprises has beenadversely affected by the uncertainty concerning the institutional arrange-ments, but is expected to improve with the merger between two agencies intoa new institution--Small Industry Finance Company (SIFCO).
Ln. No. 1715-JM: Second Program Loan: US$31.5 millionLoan of June 8, 1979; Effective date: August 27, 1979;Closing date: December 31, 1982.
Loan proceeds allocated to the Export Development Fund to financeimports of raw materials and components for expansion of nontraditionalexports have been fully disbursed. Implementation of the technical assis-tance components financed with loan proceeds is proceeding satisfactorily.
Ln. No. 1716-JM: Forestry Project: US$12 millionLoan of June 8, 1979; Effective date: December 11, 1979;Closing date: June 30, 1985.
Project implementation is behind schedule but is proceeding satis-factorily. Actual planting and clearing remained below targets due toinadequate planning, late arrival of equipment and poor weather conditions.
Ln. No. 1740-JM: Fourth Highway Project: US$16 millionLoan of July 10, 1979; Effective date: September 20, 1979;Closing date: March 31, 1983.
The project has encountered serious delays caused primarily byextraordinary rains and floods in 1979, a hurricane in 1980, shortages ofkey staff and of budget resources. In view of the Government's difficultbudgetary position and the need for urgent rehabilitation, the project hasbeen restructured to allow utilization of loan funds for essential maintenancework by reducing targets for more expensive types of periodic maintenance.
Ln. No. 1978-JM: Second Export Development Project: US$37 millionLoan of May 15, 1981; Effective date: , 1981;Closing date: December 31, 1983.
The loan includes an additional US$22 million for financing ofimports of raw materials and spare parts for expansion of nontraditionalexports. In addition US$10 million are allocated to provide medium-termfinancing to exporters and their suppliers for capital equipment and workingcapital. US$4 million are to be used for financing inputs of imports forthe banana industry and US$1 million is for technical assistance to JECICand JNEC. This loan is not yet effective.
- 35 -
ANNEX IIIPage 1 of 1
Jamaica
Section I: Timetable of Key Events
(a) Time taken to prepare project: 12 months
(b) Project prepared by: Government/Consultants
(c) Identification Mission: February 1980
(d) Appraisal Mission: January 1981
(e) Negotiations: May 1981
(f) Planned date of effectiveness: September 30, 1980
Section II: Special Bank Implementation Action: None
Section III: Special Conditions
(a) The domestic prices of petroleum products should reflectinternational prices for such products (para. 50).
(b) PCJ shall maintain on a year-to-year basis, a total debtservice coverage ratio of not less than 2:1; a quickratio (current assets minus inventories over currentliabilities) of not less than 1:1; a term debt to equityratio of less than 1:1, and capitalized expenditures inoil and gas exploration projects which shall not exceed,at any time 70% of PCJ's equity (para. 55).
(c) the Government will not require PCJ to distributedividends if by doing so the above financial covenantsare breached, and to inject fresh capital in PCJ ifthis proves necessary for PCJ to abide by those covenants(para. 55).
(d) Before committing funds to equity participation or any "solerisk" activity, PCJ will seek the Bank's prior approval(paras. 73 and 76).
(e) The Bank will be consulted regarding the implementationof the recommendations of the lubricating oil recovery study(para. 75).
- 36 -
ANNEX IVPage lof 12
JAMAICA
Hydrocarbon Geology and Status of Exploration
1. The following paragraphs first discuss Jamaica's petroleum geology
for the country as a whole and then specifically that of the Pedro Bank area.
I. Jamaica's Petroleum Geology
A. Stratigraphy
(i) Cretaceous
2. Rocks of this age are present across the entire island, extending
particularly from the Central Inlier to the West, and belonging to an eugeo-
synclinal facies. Effective or economic basement for hydrocarbon exploration,
both onshore Jamaica and beneath Pedro Bank, can probably be considered the
mildly metamorphosed pre-Late Campanian sediments. Silicic plutons are known
to intrude all pre-Late Campanian rocks and, on Pedro Bank and at the Above
Rocks area, possibly the post-Late Campanian sediments. Campanian and
Maestrichtian rocks are more abundant than older Cretaceous rocks, and becomeless volcanic from east to west. In general, the upper Cretaceous rocks of
Jamaica show considerable variations in thicknesses and facies, with a large
portion of the section being typified by lenticular beds which pinch out or
change facies laterally. The Maestrichtian limestone beds are predominantly
patch reefs which pinch out rapidly, making correlations very difficult. The
general pattern of facies changes is a westward thickening wedge of sedimentsin which deltaic conditions fluctuated with shallow, open marine conditions,
where rudistid patch reefs were formed. Recurrent uplift of the basin margins
caused influxes of marine, lagoonal, brackish and non-marine conditions with
complex interdigitating facies. The Late Maestrichtian is typified by a more
general westward regression and spread of continental red-bed deposition.
Eastern Jamaica was at the same time subject to greater instability, thick
marine deposits were alternating with extensive volcanic lava flows and
volcanic clastics.
(ii) Tertiary
3. Onshore Jamaica, Late Paleocene to Early Eocene strata are known
from the northern flank of the Blue Mountains, the Wagwater Belt and the Saint
Ann Inlier. Partially equivalent rocks were most probably penetrated by some
of the wells drilled onshore (such as Content No. 1, West Negril No. 1 and
Negril Spots No. 1). The stratigraphic relationships of these rocks are very
complex and as yet imperfectly understood. However, it is known that several
thousand feet of unmetamorphosed sedimentary rocks of post-Cretaceous age
occur beneath the Yellow Limestone Group. These sediments include continental
red-beds, marine shales, sandstones and conglomerates, plus thick reefallimestone masses and locally volcanic lava flows. A proper juxtaposition of
marine shales with porous reefal limestones and/or porous sandstones will makean attractive prospect within this interval.
- 37 -ANNEX IVPage Z of 12
4. The Yellow Limestone Group has a widespread distribution onshoreJamaica, and derives its name from the oxidized, yellow-brownish terrigenous
detrital-matter contained by the otherwise pure white limestone beds. The
Yellow Limestone Group grades vertically and laterally onto the White Lime-stone Group, as the terrigenous matter-content decreases. It is probably that
a similar diachronous boundary will also occur in the Pedro Bank area.Onshore, the Yellow Limestone Group has two distinct facies: (a) A shallow-
water limestone facies, that includes interbedded terrigenous clastics,lignites and anhydrite stringers, and which may also include conglomerates andcoarse conglomeratic feldspathic sandstones, interbedded with lignite seams,
lignitic shales and calcarenites; (b) A deep-water facies, normally consisting
of an impure, argillaceous, planktonic foraminiferal marl with interbeds ofcalcarenite and calcirudite (the latter formed by terrigenous debris derived
from the shallow-water facies). In outcrop areas of eastern Jamaica, the
deep-water facies of the Yellow Limestone Group is conformable with and grades
downward into the Wagwater Group of Late Paleocene - Early Eocene age.However, away from the deep trough areas, the shallow-water facies oversteps
older rocks and lies unconformably on the Cretaceous. It is worth noting that
the Yellow Limestone Group complex of facies includes potential reservoirrocks, both clastics and carbonates, potential gas source rocks in the form of
lignites, and potential cover rocks in its shaley and marley developments.
5. The White Limestone Group is present over 60% to 70% of Jamaica, and
only locally is overlain by younger sediments (Coastal Group), but in severalareas has been eroded off to expose inliers of the underlying Yellow Limestone
Group and older rocks. Prior to the uplift and faulting of Jamaica during the
Caribbean Orogeny, the White Limestone Group probably extended as a continuouscover over the entire island, and also over Pedro Bank, since Pedro Bank was
not subject to post-Middle Miocene uplift, and therefore it retained a contin-uous cover of rocks equivalent to the White Limestone Group. However, seismicdata indicate that these rocks have considerable variations in thickness,mainly due to progressive burrying of underlying beds caused by structuralmovements rather than to post depositional uplift and erosion. The WhiteLimestone Group exhibits a number of different facies, ranging from shallow
water carbonate banks to deep-water limestones in the trough areas. Similar
variations can be expected on Pedro Bank, where the seismic data indicate that
there is a similar pattern of structural blocks separated by fault troughs.On Pedro Bank, the White Limestone Group is expected to grade upwards into the
Coastal Group or equivalent beds, without a marked break as a result ofcontinuous deposition.
6. The Coastal Group rocks of Jamaica are mainly thin continentalclastics and marine limestones of uppermost Miocene to Plio-Pleistocene inage, which form a discontinuous fringe around the island. Their thickness isnot significant onshore, but almost certainly they thicken offshore. Onshore,
the Coastal Group sediments are strongly unconformable upon the older rocksindicating that considerable uplift and faulting occurred since the Middle
Miocene. Assoicated with these tectonic movements, submarine basaltic lavas
erupted in Late Miocene-Early Pliocene times on the northeastern coast of
- 38 -
ANNEX IVPage 3 of 12
Jamaica. These tectonic movements constitute the so-called Caribbean Orogeny.However, the seismic data on Pedro Bank show no clear evidence of a shallowunconformity, and it would appear that actually little or no post-MiddleMiocene uplift or faulting occurred. A few faults do penetrate the entiresedimentary sequence to reach the Bank surface but the majority fail to do so.It is possible that the deformation caused by the Caribbean Orogeny wasintense only close to the Cayman Trench and that southwards there is little orno effect. The presence of a continuous sediment cover is considered toenhance the prospectiveness of Pedro Bank, although the shallow Pliocene-Pleistocene limestones cannot by themselves be considered as objectives.
B. Structure
7. Rocks older than the Late Cretaceous which are varyingly faulted,intruded and mildly metamorphosed, can be regarded as economic basementfor oil and gas exploration in Jamaica.
8. Late Campanian-Maestrichtian to Paleocene rocks are considered to beprospective in Jamaica. However, rocks of these ages are strongly deformed ineastern Jamaica, in the Blue Mountains and Wagwater Belt, but westward, wherethey form a prograding deltaic sequence they are much less deformed. Theentire section thickens from less than 1,000 m (3,280 ft) in the Central Blockto possibly 8,000 m (26,250 ft) in Western Jamaica. A similar situation mayoccur beneath Pedro Bank. In the east the gravity and magnetic data, supportedby the seismic reflection data, indicate that there is relatively shallowbasement including volcanics. These may well correspond with deformed andintruded Late Cretaceous and early Tertiary rocks of eastern Jamaica. Westward,on Pedro Bank, there is a varying thickness of probable Late Cretaceous-EarlyTertiary rocks. These sediments, apparently little deformed, probably exceed4,000 m (13,120 ft) in thickness in three distinct depocentres, two south ofthe granodiorite stocks and one in the Central northern portion of the Bank.It is considered probable that these are shallow marine to deltaic sediments,similar to those found at outcrop in Central and Western Jamaica. The possi-bility of marine shales interbedded with porous limestones and sandstonesrenders this sequence of primary interest for hydrocarbon exploration.Granodioritic intrusions were emplaced both onshore and offshore in the LateCretaceous-Early Tertiary, but their effect appears to have been localized andit is not considered that they have destroyed the petroleum possibilities ofJamaica. Locally increased heat flows may have been beneficial in the genera-tion of hydrocarbons from the overlying and surrounding sediments.
9. Onshore Jamaica, in the Wagwater Belt, strong deformation, especiallyfaulting, occurred in the Late Paleocene to Early Eocene, and was accompaniedby the outpouring of thick sequences of volcanic lava. There is no directevidence for a similar situation beneath Pedro Bank unless rocks of this typeare present beneath the shallow eastern portion of the bank. It is probable,however, that important fault movements took place on Pedro Bank at this time.The stratigraphic evidence is insufficient as yet to indicate whether thegreat thicknesses variations noted on Pedro Bank below the Yellow Limestonesare due to: (a) post depositional faulting and erosion, (b) deposition
- 39 -ANNEX IVPage 4 of 12
infilling existing fault-block topography, and (c) synorogenic deposition withsedimentation accompanied by intermittent faulting. It is considered that thelatter case is the most likely, but only after a number of wells have beendrilled can the question be answered with certainty.
10. Evidence from onshore Jamaica shows that no important volcanism ororogeny took place during deposition of the Late Middle Eocene to MiddleMiocene Yellow and White Limestone Group rocks. On Pedro Bank, the situationappears to be the same. The seismic data indicate that faulting progressivelydecreased in intensity during this period. Many faults show a decreased throwin the shallow section and a few penetrate to the present Bank surface. TheLate Middle Eocene to Middle Miocene epoch was one of continued subsidence ofboth the present island and Pedro Bank. Onshore, the Tertiary Limestones reacha thickness of 6,000 to 8,000 ft and similar thicknesses are probably presentbeneath Pedro Bank as indicated by the seismic.
11. The first major difference between the structural history of Jamaicaand Pedro Bank appears in the period from the Middle Miocene to the present.Jamaica was strongly faulted and uplifted during this period leading to theemergence of the present island. These movements are known as the CaribbeanOrogeny. Pedro Bank, in contrast shows very little deformation in the sedi-ments deposited during that epoch. A few faults do penetrate to the Banksurface, and locally, the boundary escarpment of the Bank may have beenmodified by faulting. There is, however, no evidence of widespread uplift andsedimentation appears to have been continuous throughout the period althoughprobably with a reduced rate of deposition compared to the White LimestoneGroup.
12. It appears that the effects of the Caribbean Orogeny diminishrapidly southwards away from the Cayman Trench, the main locus of deformation.Pedro Bank is considered generally more prospective for oil and gas thanonshore Jamaica because of its escape from the effects of uplift and faultingduring the Caribbean Orogeny which has led to the preservation of a morecontinuous cover of younger sediments and besides the major positive areas arenot breached at the surface as they are onshore Jamaica.
13. An analysis of the major fault trends both of Jamaica and Pedro Bankindicates that faults are essentially wrench faults induced by a stress systemstriking N60 E. The present interpretation supports this conclusion and mostof the faults mapped fit well with this rose-diagram. Additionally, manyfaults show rapid changes in throw and even reversed directions of throwalong their length, suggesting an element of lateral movement. The generalimpression gained is that the present fault pattern of Pedro Bank may haveoriginated as a series of steep normal faults formed in a tensional regime,later reactivated as strike-slip faults under a compressive stress regime.There is little evidence of folding in the sediments of Pedro Bank suggestingthat all the compressive stresses were dissipated by lateral fault movements.
- 40 -
ANNEX IV
Page 5 of 12
The rigid carbonate framework of Pedro Bank may also have been important
in accounting for the observed lack of folding. However, the absence of
folding does not preclude the presence of a number of interesting prospectivehydrocarbon traps which were formed by the tilting of fault blocks and by
variations in thicknesses within the sedimentary sequence.
II. Petroleum Geology - Pedro Bank
(i) Source Rocks
14. The only well drilled on Pedro Bank (Signal-Oxy Pedro Bank No. 1well) encountered a carbonate sequence lacking marine shales, which normallyare considered the best potential hydrocarbon source rocks. Therefore, with
the present stratigraphic control, the presence of source rocks beneath PedroBank is speculative. However, onshore stratigraphic control indicates that
thick marine shale sections occur within the Upper Cretaceous and LowerTertiary sequences. As sediments of these ages are probably well developed
beneath Pedro Bank, presumably reaching local thicknesses in excess of 4,000 m,it may be supposed that they will include marine shales with source rockpotential. Therefore, one of the early objectives of exploration on Pedro
Bank must be to ascertain the stratigraphic sequence in the deeper areas.
(ii) Reservoir Rocks
15. Onshore stratigraphic control indicates the possible occurrenceof sandstones, conglomerates, porous calcearenites and porous bank and reefal
limestones. Similar reservoir rocks are expected to be developed beneathPedro Bank within the Yellow Limestone Group and within the underlying LateCampanian-Maestrichtian and Paleocene intervals. However, more stratigraphic
control is necessary before specific intervals can be highlighted, but as inthe case of potential source rocks, the Late Cretaceous and Early Tertiarysediments are considered to be the most prospective.
(iii) Potential Traps
16. Potential traps have been detected with the seismic surveys beneathPedro Bank in the form of tilted fault blocks, as probable unconformity traps
on the flanks of major highs and as probable stratigraphic traps within theLate Cretaceous-Early Tertiary sequence, consisting mainly of sand pinch-outs,reefal limestones and bank limestone lenses. The single well drilled to datecannot be considered to have evaluated the area. There is some doubt as tothe exact location of the well, since the rig is reported to have drifted off
location during anchoring operations. Indeed, the interpreted position of the
well indicates that it crossed from the low side of a fault into a basementintrusive, testing neither the top of the intrusive body nor the deeply buriedflank. If the well is positioned as suggested, it means that it was structur-ally misplaced and failed to penetrate the pre-Yellow Limestone sequence onthe crest of the granodionite intrusive.
- 41 -ANNEX IV
Page 6 of 12
17. Detailed information of the only exploratory well drilled offshore(Pedro Bank No. I Well) is given below:
Operator: Occidental Petroleum Co.
Owner: Occidental Petroleum Corporation - Signal Oil Co.
Location: Offshore Jamaica on Pedro Bank
T.D.: 6,491 feet
18. Evidence is inconclusive as to whether the Plio-Pleistocene (CoastalGroup) was penetrated, since very few samples were recovered due to extensiveloss circulation during drilling. No evidence for a shallow unconformity wasdetected and carbonate deposition was probably continuous throughout the LateTertiary and into the Quaternary.
19. In this well, some 6,135 ft (1,870 m) of the White Limestone Groupsequence was probably penetrated, but the diachronous contacts at the base andtop raise doubts as to the true equivalence of these rocks to the onshoreWhite Limestone Group.
20. In the well, a Yellow Limestone Group sequence, 200 ft thick(92 m) between 6,135 ft and 6,435 ft (1,870-1,962 m) was penetrated. Theupper 63 ft (19 m) comprised brown shaley limestones, in part vuggy anddolomitic. Beneath were drilled 187 ft (57 m) of dense, non-porous calcareoussandstone becoming coarser with depth. The Basal 50 ft (15 m) consisted of aboulder conglomerate of cobbles and pebbles from the underlying granodioritestock in a very tight sandy matrix. There are considerable difficulties inreconciling the well data and seismic data with its reported position.
21. This well does not provide data on the Pre-Yellow Limestone Groupstratigraphy, since the well probably crossed a fault from the Yellow Lime-stone into a granodiorite stock of the Cretaceous basement. There is somedoubt as to the exact location of the well as the rig is reported to havedrifted off location during anchoring operations (personal communication,Meterhoff and Krieg, 1977, p. 111). The uncertainty of the well's locationis unfortunate in that it provides the only stratigraphic control so faravailable.
22. Harriman (1974) suggested that the Pedro Bank No. 1 Well cut a faultwith a throw of about 2,000 ft (610 m) either in the Yellow Limestone or inthe White Limestone sequence. The present interpretation supports Harriman'scontention and suggests that the fault was within the Yellow Limestone Group,having the well crossed from the downthrown block directly into the grano-diorite stock on the upthrown block. The reported basal conglomerate encoun-tered between the Yellow Limestone and the granodiorite should possibly beinterpreted as a fault breccia. The seismic interpretation suggests thatthere may be some 600 m (2,000 ft) of Pre-Yellow Limestone sediments beneaththe actual Yellow Limestone sequence on the top of the granodiorite stock,
- 42 -ANNEX IVPage / ot 12
which were missed by the well. If the well is positioned as suggested itmeans that it has not at all evaluated the hydrocarbon potential of Pedro Bankin that it was structurally misplaced and failed to penetrate on the crest ofthe granodiorite stock the Pre-Yellow Limestone sequence, which is consideredto have the greatest exploration potential both on and offshore Jamaica.
III. Exploration to Date
23. Only limited exploration has been undertaken since the mid-50s(see Table I). Six exploration wells have been drilled onshore in prospectiveareas located in the southwest, north and northeast of the island withoutsuccess. (One well located in the northeast found gas at 2,500 ft, but dueto mechanical problems and gas pressure it has not yet been capped.) However,a comprehensive study of Jamaica's petroleum potential completed in 1977 bya US consulting firm concluded that these early wells were poorly located andrecommended further exploratory drilling, after additional seismic data wereobtained. Five prospective areas onshore have been identified in the southwest(Savanna-la-mar), northwest (Montego Bay), north (Felmouth), northeast (OchoRios), and eastern-most (Manchioneal) portions of the island, and with theassistance of the Norwegian and UK Governments new seismic data were acquiredon these areas during 1978-1979. The seismic surveys were carried out by aBritish firm using vibroseis equipment and utilizing primarily existing roads,but with a fairly adequate grid. The largest amount of work (500 km ofseismic lines) was done over the Savanna-la-mar/Lucea area, because of itssize, plus three smaller programs covering the northern prospects and twoadditional ones for the northeast and eastern-most areas. These seismicsurveys had severe limitations due to surface constraints, such as: Karsttopography, extensive vegetation coverage, variable thickness of soil and ofthe weathering zone. However, subsurface data thus obtained were better thanexpected, but still not sufficiently adequate to yield a reliable interpreta-tion. Several interesting, although small structures, were found as a resultof the interpretation of the seismic data, which was integrated with informa-tion gathered previously on the stratigraphic and structural framework of theisland,. plus some data on geochemical analyses of potential source rocks. Ofthese structures, five are located on the southwest area, two on Montego Bay(one of them is very large) and one each on the other areas.
24. The main area explored 2ffshore is locally known as the Pedro Bank,which is a fairly large, 9,405 km in size, shallow, steepsided submarinebank, that lies about 80 km south-southwest of the island. Here explorationbegan in the period 1967-1969, with operations conducted by a consortiumformed by Occidental Petroleum Corporation and Signal Oil Company, resultingin the acquisition of nearly 3,000 km of seismic data, 2,600 km of seismiclines being located on Pedro Bank, and the rest in shallower coastal watersoff Jamaica. In 1969, this consortium drilled the Pedro Bank No. 1 Well,with T.D. at 6,491 ft, which penetrated a thick section of Tertiary WhiteLimestone and a thin section of Paleocene-Lower Eocene Yellow Limestonebefore encountering igneous basement (granodionite) at 6,354 ft.
an -
ANNEX IVPage 8 of 12
25. Exploration was resumed by the Petroleum Corporation of Jamaicathrough a grant from NORAD and seismic data were obtained in 1978 coveringPedro Bank with 4,065 km of seismic lines acquired on a 2x4 km grid. Addi-tional seismic data were obtained off the southwest (at Negril/Savanna-la-mar)and northwest (Montego Bay) ends of the island, plus further reconnaissancelines across the Walton and Grappler Banks. The seismic lines were recordedby Prakla-Seismos of Germany, using their most modern geophysical vessel,the Explora, under a subcontract to the Geophysical Company of Norway (GECO).The data were processed by GECO at their computer center located in Stavanger(Norway). Gravity and magnetic information was also recorded by the Exploraand was processed by Prakla in their computer center in Hannover (Germany).In 1976, Exxon had also acquired in Jamaican waters three reconnaissancelines, totalling 256 km, as part of a regional Caribbean survey.
IV. Current Plans for Exploration
26. Present plans for onshore exploration being financed in part by IDBcall for the drilling of seven wells in at least three of the five prospectiveareas defined by seismic surveys already completed, and include additionalgeophysical surveys, geological studies and geochemical analyses. The purposeof the core hole and strat well activities included in the program will be:(1) to assess the petrographic characteristics of potential source and reser-voir rocks present in the sedimentary section, either directly in the wellsand/or through electric log evaluation and analysis; (2) to better define thestratigraphy of the rocks with higher hydrocarbon potential, which appear tobe mainly the Late Campanian-Maestrichtian shale, sandstone and limestonesequence, and the Paleocene-Lower Eocene Yellow Limestone Group, which alsocontains shales and sandstones that will probably make good seal and sourcerocks. The potential reservoir rocks are mainly fractured reefal limestones(similar to those found in the Campeche area of southeast Mexico), withskeletal matter derived from rudistids, corals, molluscan and echinoid debris,but also the possibility exists of finding reservoir rocks within the sand-stones and conglomerates of the Tertiary section. Both the core hole programand the stratigraphic tests will be designed to evaluate primarily the sourcerocks and reservoir potential of the most promising structures mapped with theseismic surveys already performed. The strat wells will include a deep testof the largest structure mapped. To better define those structures showingsome degree of closure, additional seismic lines will be shot utilizingportable seismic equipment. The remainder of the prospective areas, andespecially those covered by limestone inliers, will be evaluated in a prelim-inary fashion with gravity and magnetic surveys, that will better define theirstructural relationships, depth to basement and presence of intrusive bodiesin the subsurface. Ancient topography seems to be related to present daystructures, and structures appear to tighten up with depth, becoming smaller.Below the Tertiary there is no continuity in seismic events and no mappinghorizon has been defined with existing surveys. Detailed stratigraphiccorrelations will be made by measuring a series of outcrop sections and byperforming detailed microscopic work. Geochemical analysis will be performedin all samples obtained from wells, core holes and surface outcrops.
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ANNEX IVPage 9 of 12
27. Offshore Jamaica, and aside from the Pedro Bank area in the platformor shelf and the deep basin between the island and Pedro Bank, the Corporationplans to conduct seismic, gravity and magnetic surveys. The area between theisland and Pedro Bank is a deep basin known as the Walton Basin, which wasdownfaulted recently to a depth between 300 to 600 m. The seismic surveyto cover this area, and the shallower coastal waters up to the 200 m ofdepth, will consist of about 2,300 km of lines.
V. Geological Prospects
(i) Onshore Prospects
28. Only six wells have been drilled onshore Jamaica and all the explo-ration effort has been concentrated on the limestone sections making up thePaleocene-Lower Eocene Yellow Limestone sequence and also the Middle Eocene-Upper Miocene White Limestone Group. Three of the six wells were the onlyones to drill through the red-bed sequence. The oldest prospective rocksknown from outcrops are probably the Campanian to Maestrichtian deltaicsediments that once covered most of the central and western portions of theisland, extending into Pedro Bank. Two stages of faulting can easily berecognized, and probably a third one also existed, all linked to the mainevents of structural deformation. Major faults have a northwest-southeasttrend and lesser faults have a radiating pattern with a northeast-southwestprevailing trend. However, it appears that all faults have a horizontalcomponent. The third system is made up of probably wrench faults orientedeast-west. The overall structure consists of tilted fault-blocks, with asouthwest dip, somewhat small in size. Probably about seven to eight of thesefault blocks still have some potential for finding in them petroleum deposits.Reservoir rocks have not been defined as yet, and most probably are thedetrital fractured limestones prevailing in the sedimentary sequence, but alsothe possibility exists of finding reservoirs in sandstones and conglomerates.There is a gas seep that geochemical analysis indicates is a legitimate gasseep related to the base Tertiary or top Cretaceous rocks. A thick sectionof marine shales within the Campanian-Maestrichtian sequence would easily havebeen the source rock, and this has been corroborated by geochemical analysis.In spite of all these good indications, it is difficult to properly assess thepetroleum producing potential of onshore Jamaica, mainly because some 34 wellshave already been drilled without success, from Jamaica to Nicaragua, alongthe Honduras-Nicaragua rise.
29. Nevertheless, based on the fact that the main elements for findingpetroleum reserves do exist, the following assessment has been made on thebasis of an overall evaluation of the geological and geophysical informationavailable. If the middle reflecting horizon is used for mapping the struc-tures, these will have a size ranging from 128 to 725 acres, but if the deephorizon is used instead, then the size of the structures increases to 175 to800 acres. Assuming a reservoir with a thickness of 50 ft and a recovery
0 0factor of 50 barrels per acre-foot of 30 -31 API oil, the recoverable reserves
- 45 -ANNEX IVPage 10 of 12
could be between 320,000 to 3,000,000 barrels per structure, depending ontheir size. An overall, average figure for all structures will be 3.7 MMB.However, if the recovery factor is increased to 120 barrels per acre-foot,then reserves could be increased up to 15 MMB. If gas is assumed to be thehydrocarbon to be found, its reserves could vary from 38 million cubic feetto 152 billion cubic feet depending on sizes used for the structures andrecovery factors. There is a large structure in Montego Bay, about 600 acresin size, whose reserves could be in the order of 2 to 3.5 MMB of oil or upto 20 billion cubic feet of gas, using the same parameters as above. Thereis also a very large structure in the eastern-most portion of the island thatcould have as much as 20 to 40 billion cubic feet of gas. The likelihoodof a gas discovery is greater than any oil.
(ii) Offshore Prospects
30. An evaluation of the petroleum prospects existing offshore Jamaica,primarily those located on Pedro Bank, can be made on the basis of an inter-pretation of the seismic, gravity and magnetic data obtained over Pedro Bank,in conjunction with geological data projected from onshore Jamaica. Depth ofwater, over most of the bank, is less than 100 m. Pedro Bank is probablya basement high, formed during Late Cretaceous times, possibly on the down-thrown side of a major fault. The present form of Pedro Bank is somewhatproblematic, since the very steep bank margins appear to be controlled byfaulting, especially on the north side, where the Walton Basin is located;however, some seismic events are continuous beneath the bank's edge and slopesuggesting that the bank has grown in-situ by carbonate accretion. There issome evidence that Pedro Bank has a long standing reef margin, mainly to thewest and northeast. These possible reefal limestones may form a valid objec-tive, if they can be found beneath sufficient sedimentary cover. It isinterpreted that Pedro Bank had a geologic history similar to that of Jamaica,except in the Late Tertiary, when the island was subject to considerablefaulting and uplift. Pedro Bank shows little evidence of compressive folding,but there are numerous faults, which are mainly normal faults that have inmany cases been reactivated as transcurrent faults. The most important faultsare those trending northeast-southwest, although some east-west transcurrentfaults are also present. It is noticeable that many faults die out upwardssuggesting decreased stress in the Late Tertiary, which resulted in that theshallow rocks are not extensively fractured. In escaping the most recentCaribbean tectonism, since major faults do not seem to break the Tertiarycover, Pedro Bank has preserved a more continuous sedimentary cover and themajor structural highs are not breached and eroded as they are onshore.
31. It appears that a thick sedimentary cover exists over the entirearea of Pedro Bank, with thicknesses varying between 4,500 m (14,800 ft)to locally more than 6,100 m (20,100 ft). Thinner sequences of sediments,probably no more than 1,100 m (3,600 ft) in thickness, are located inthe eastern portion of the bank (Block E) and over two structurally highareas, both probably having a core of Late Cretaceous granodicrite intrusions.Available data indicate, however, that intrusive bodies and volcanic rocks are
- 46 -
ANNEX IV
Page 11 of 12
not widespread beneath Pedro Bank, and are only present in three well definedareas. Thick sequences of sediments are found mainly in the central, westernand northern parts of the bank (Blocks D, B and A, respectively), which areinterpreted as consisting of nearly 2,000 m (6,600 ft) of Tertiarycarbonates overlying up to 4,000 m (13,200 ft) of Late Cretaceous andEarly Tertiary limestones and clastics. The latter sequence, outcropping inJamaica, comprises potential source, reservoir and cap rocks. Potentialentrapment mechanisms are provided by tilted fault blocks, by pinch out andby reefal and lensoid limestone developments. A good number of very largestructures, in some with important closures, mainly due to faulting, havebeen Iefined with the seismic and some of these structures are more than80 km in size. Several of the seismic lines contain indications of reefalbuild-ups, although none has been pinpointed in detail.
32. In conclusion, it can be said on the data now available that a largearea of Pedro Bank has a fair to good potential for hydrocarbon exploration.An estimate of potential recoverable reserves has been made, assuming theexistence of only 12 prospective structures. All those structures too smallin size, and also those two with granodiorite intrusive bodies at the core,were eliminated. The largest structure mapped was subdivided in three parts,more or less equal in size. A limestone reservoir with a thickness of 50feet was assumed and, with a recovery factor of 50 barrels per acre-foot foroil with a gravity of 30 -31 API, the recoverable reserves could be 590million barrels, subject to a risk factor of 1/40. Making the reservoir 100feet thick, the reserves will increase to 1,200 million barrels, and thelargest structure could have 375 million barrels of reserves with a 50 footreservoir.
T.D. ELEV.,K.B. SPUD COMPLETION OLDEST UNITWELL OPERATOR FT M FT H DATE DATE PENETRATED
Negril Spots-i Canadian Base 6 ,314 1,925 42 13 4-IV-55 10-IV-55 Unnamed unit below CaltonMetals Hill Limestone (siddle
Maestrichtian)
Santa Cruz-1 Pan Jamaican 8,732 2,662 2,576 786 3-VI-56 2-III-57 Bullhead Fm. (early to(Amoco) middle Canpanian). or
Arthur's Seat Fm.(Coniacian), or EarlyCretaceous
Cockpit-I Pan Jamaican 5,525 1,684 2,373 723 10-IV-57 14-V-57 Bullhead F-. (early tomiddle(Amoco) Campanian). or Arthur's
Seat Fu (Coniacian), orEarly Cretaceous
West Negril-l Pan Jamaican 9,244 2,818 398 121 10-VI-51 22-VIII-57 Pre-Jerusalem Mountain I(Amoco) part of Summerfield Fm .
(latest Maestrichtian) '
Pedro Bank-1 Occidental- 6 491 1 979 81 25 12-I-71 13-IV-70 Granodiorite 48.6. 57.4 *. y-Signal
Portland Ridge-I Occidental- 7 420 2 ,262 656 200 22-1-71 2-IV-71 Bullhead Fu. (Early to middleSignal Campanian) or Arthur's
Seat Fm. (Coniacian)
Content-i Kirby, Weaver 7,608 2,320 2,070 631 14-X-72 31-1-73 Upper part of Summerfield Fm.et al. (Paleoc-ne or early
boeesn?)
EXPLORATORY TESTS DRILLED IN JAKAICA, 1955-1974
0
- 48 -ANNEX V
Page 1 of 7
JAMAICA
PETROLEUM EXPLORATION PROJECT
THE PETROLEUM CORPORATION OF JAMAICA (PCJ)
Establishment and Scope of Activities
l. The Petroleum Corporation of Jamaica was created by the Petroleum Actof June 14, 1979, as a fully Government-owned, but autonomous and financiallyaccountable body. It drew its initial assets from the dismantled PetroleumCompany of Jamaica Limited (PETROJAM). Its purpose under the law is to act asthe Government's operational arm in all matters concerning petroleum andenergy in general and specifically to promote the orderly and rational devel-opment of Jamaica's petroleum resources. Under the Petroleum Act, the Corpora-tion has the exclusive right to explore for, and develop, petroleum resourcesin Jamaica, but it can do so in association with contractors. It can also,alone or in cooperation with contractors, refine, store, buy and sell crudeoil and petroleum products.
Management, organization and staff
2. The Corporation is administered by a Board of between 5 and 12directors, including the Chairman, who are appointed by the Minister ofMining and Energy for renewable 2-year terms. The current Board is composed ofeleven members, mostly drawn from the private financial sector. It includesthree representatives of the Ministry of Mining and Energy and the Governor ofthe Bank of Jamaica. The board appoints the chief executive officer (ManagingDirector) who in turn is responsible for the appointment and training of thecorporation's staff. The current managing director, who is also a Board member,has headed the corporation since its inception. He is a fully competentengineer who developed a broad technical and managerial experience duringa 20-year career mostly in private industry. He is assisted by a ManagementCommittee consisting of PCJ's senior department heads.
3. PCJ's organization, job descriptions, and procedures have beendeveloped following a thorough study by outside consultants. They are satis-factory, and well adapted to PCJ's objectives. The organization currentlycomprises six departments: Finance and Accounting, Legal, Administration,Economics and Planning Operations Development, and Exploration. The Corpora-tion's staff numbers 55 permanent employees, including 37 professionals withcollege-level education. They are generally well qualified and competent tocarry out PCJ's on-going activities, though many of them have only limitez.experience in the petroleum sector. Training, both on-the-job and throughcourses abroad, is given priority by PCJ's management. PCJ's technicalstaff, however, would need considerable strengthening if the explorationactivities now underway are successful, especially for purposes of effec-tively monitoring the activities of the foreign partners.
- 49 -ANNEX V
Page 2 of 7
4. More than half of PCJ's professional staff is concentrated in theExploration Department, the key technical and operational unit within theorganization. The Department is headed by a US-trained Jamaican geologist.He is assisted by two expatriate engineers both with long experience withExxon, who occupy the posts of Operations Manager and are financed under theIDB loan for the on-shore oil exploration project. The department alsoincludes a Special Projects Unit which is in charge of the preparation of ahydro electric and peat development project and employs about 20 people on afixed-term basis.
5. The Corporation's financial management, including internal auditingarrangements, is adequate. PCJ's books are audited by Touche Ross Thornburnand Co., who issued unqualified opinions on PCJ's 1979 accounts.
Operations
6. Crude oil and petroleum products trading. Since its inception todate, the main activity of PCJ (and, before it, of PETROJAM) has consistedof purchasing crude oil under an agreement between Jamaica and Nigeria(15,000 barrels/day), having it processed off-shore at the Shell refineryin Curacao and trading the resulting products to obtain high sulphur fuel oilto sell to the bauxite companies in Jamaica. The price differential betweenthe light products obtained from the high-quality Nigerian crude and thelow-grade fuel needed by the bauxite industry has permitted PCJ to reapsizeable profits from this intermediation activity, which is expected tocontinue in the foreseeable future. The Nigerian agreement is of indefiniteduration, but can be repealed at the option of either party with a 90-daynotice. Even if it came to an end, it would have to be replaced by anotherlong-term crude supply agreement from other sources, and PCJ would continueto benefit from this type of activity as long as it remains the JamaicanGovernment's agent for intermediation in petroleum trading.
7. PCJ will also act as the Government's agent in the execution ofthe 1980 agreements with Mexico and Venezuela, according to which Jamaicais guaranteed the supply of its domestic needs of crude oil (excluding thebauxite industry consumption). PCJ will provide to the local refinery,operated by an Exxon subsidiary, that portion of the Venezuelan and Mexicancrude which the refinery can technically handle, and will have the remainderprocessed off-shore for further allocation of the products to local distributors.So far, the Exxon refinery procured its crude requirements directly from theopen market; since from now on PCJ will be supplying the refinery with thebulk of its crude needs, Exxon has agreed, in exchange, to furnish PCJ refinedproducts, which PCJ would then market to Jamaican bulk consumers, such as theutility companies. PCJ has already been active in this area, through a jointagreement with Shell to supply fuel to the Jamaica Public Service Corporation.PCJ intends to expand its wholesale marketing of finished products takingadvantage of the competitive payment terms (30 days after delivery) which itcan offer its customers, thanks to the comfortable liquidity situation whichPCJ enjoys (para. 12).
- 50 -
ANNEX V
Page 3 of 7
8. Exploration activities. Although up until now PCJ's activities havemostly consisted of trading crude oil and petroleum products, PCJ's long runobjective is to shift from trading to the development of the country's energyresources. The proposed project would provide it with the long-term fundingand technical assistance it needs. Its first major development activity hasbeen petroleum exploration. PCJ is the executing agency for a major on-shore exploration project which IDB is financing. The project will be carriedout in two phases: during the first phase, which has already started andwhich is expected to be completed by year-end, PCJ plans to drill at leastthree wells, for a total of 30,000 feet, at an estimated investment cost ofUS$12.5 million. The second phase of the project would be launched only ifthe results obtained during the first phase prove the continuation of theproject to be technically, financially, and economically viable. In thatcase, PCJ would drill at least another four wells for a total of 40,000 feetat an estimated cost of a further US$17.0 million. IDB's financing is pro-vided in the form of a loan to the Government at soft terms (para 15, foot-note), which the Government passes on to PCJ. The loan, which was signed inMarch, 1981, would cover 75.1% of total project cost, the balance to beprovided by PCJ from its own resources.
9. As regards off-shore explorations, apart from seismic surveys whichit carried out for the purpose of attracting foreign investment, PCJ hasrelied exclusively on contracts with multinational oil firms, without invest-ing any funds of its own, so far. As explained in the main body of thisreport, a production sharing contract, in which PCJ has a 10% carried interest,has been awarded in May 1980 to a group headed by Union Oil of Texas for oneof the blocks (Block C) into which the Pedro Bank area is subdivided. Anothercontract on either block A or D is expected to be signed with the same groupby mid-1981. Subsequently PCJ expects to conclude negotiations with othergroups for block not selected by the Union of Texas group. PCJ will alsorequire future contracts to contain carried interest clauses; as a result, itwould begin investing in exploration activities as a fully fledged member ofthe consortia only once it is proven that a commercial discovery has beenmade. Also, PCJ does not exclude the possibility of investing in offshoreexploration at its sole risk and expense in the future if the results ofon-going exploration work so warrants, but only relatively small investmentsof this sort are envisaged at this stage.
10. Other investment activities. PCJ is also assisting the Government inthe identification and preparation of a number of other energy-relatedprojects. These include a peat recovery project, an experimental Ocean ThermalEnergy Conversion (OTEC) project (possibly to be financed by the SwedishGovernment), and a plant to reconstitute used lubricating oils (for which thefeasibility study would be financed with the proceeds of the proposed loan).All these projects are in the early stages of conception; PCJ's role has beenlimited, so far, to the preparation of pre-feasibility studies, and it hasnot been decided, yet, whether PCJ will invest in them, and if so in whatproportion, or whether PCJ will directly take part in their execution and intheir maragement.
- 51 -
ANNEX V
Page 4 of 7
PCJ's financial situation and prospects
II. Current financial situation. PCJ's balance sheets and incomestatements for the fiscal years closed September 30, 1979 (audited) and 1980(actual but unaudited) are shown in attachments 1 and 2. They indicate thatPCJ has a solid financial position, with a sizeable net working capital, acurrent ratio of 1:3:1 in 1979 and of 1.5:1 in 1980, and a term debt/equityratio of 5/95 in 1980. As of December 1980, PCJ's total assets amounted tothe equivalent of US$51.2 million, of which 98% represented current assets.Current and tax liabilities amounted to US$ 34.1 million. The only outstand-ing long-term liability consisted of the disbursed portion of an IDB pre-investment loan (US$0.9 million) which has been consolidated in 1981 withIDB's long-term loan at soft term for the on-shore exploration project.Equity, amounting to US$16.2 million, was entirely accounted for by retainedearnings.
12. PCJ's net income after tax amounted to the equivalent of US$9.6million and 6.6 million in fiscal 1979 and 1980, respectively, representingover 51% of average equity in 1980. Earnings from the sale of productsderived from the Nigerian crude (5.4 million barrels/year on average) accountedfor 91% and 47% of PCJ's total gross earnings in 1979 and 1980, respectively.PCJ's average profit margin on its trading of crude oil and petroleum productswas a high US$4.40 per barrel in 1979 (due to the abnormally high differentialbetween long-term contract prices of crude and spot prices of refined productsrecorded that year), and a more normal US$1.15 per barrel in 1980. Otherincome earned by PCJ in the first two years of operations consisted essentiallyof (i) interest earned on cash surpluses mostly invested in treasury bills,accounting for the equivalent of US$1.8 million and 6.0 million in 1979 and1980, respectively; such cash surpluses derive largely from the differencebetween payment terms for the Nigerian crude (90 days) and those on PCJ'ssales (30 to 60 days) which, during 1980, allowed PCJ the use, at all times,of about US$50 million on average; (ii) PCJ's profits on the joint Shell/PCJintermediation contract to supply fuel to the Jamaica Public Service Corpora-tion, which accounted for the equivalent of US$700,000 in 1980; and (iii) thesale of geo-physical data to foreign oil companies, accounting for US$500,000in 1979 and US$50,000 in 1980.
13. PCJ's administrative expenses were reasonable: about US$1.1 millionor 2.3% of average assets, in 1980. Other expenses included the cost ofsurveys and prefeasibility studies for a number of energy-related projects(para. 10) as well as the preparatory expenditures for the on-shore explora-tion projects (stratigraphic investigations and data interpretations). Theextraordinary expense of US$5.9 million labeled as "management fees" in the1979 accounts represents a compensatory payment made by PCJ to the JamaicaNational Investment Corporation, previously the main shareholder of PETROJAM,to compensate it for PETROJAM's assets (including 2900 acres of valuable land)following the transfer to PCJ of the ownership of PETROJAM's shares. 1/
1/ PETROJAM's assets are not listed in the 1980 unaudited balance sheet becauseof delays in the legal transfer of the title. This problem has since beenresolved and the value of PETROJAM's land assets will be reflected inPCJ's consolidated balance sheet for 1981.
- 52 - ANNEX V
Page 5 of 7
14. Financial Prospects. The projected financial data shown in the
attachments which are expressed in constant 1981 Jamaican dollars (J$1.75 =
US$1.00) have been prepared on the basis of the following conservative
assumptions: (i) no oil or gas would be discovered either on-shore or off-
shore; (ii) the second phase of the on-shore oil exploration project would
be abandoned, and PCJ therefore would limit its borrowing from IDB through
the Government to $10 million (the IDB-financed portion of the $12.5 million
investment estimated to be needed in the first phase of the project); 1/
(iii) PCJ would draw down the proposed World Bank loan in full between 1981
and 1984, investing the exploration component either in the consortium equity
or in a sole risk operation, but without deriving any income from such invest-
ment; (iv) PCJ would start investing in other energy related projects (peat
development, lubricating oil recovery, OTEC power plant, etc.) only in 1983,
after accumulating sufficient cash surpluses to finance these investments
without resorting to external borrowings; and (v) PCJ's income from its
trading of crude oil and petroleum products would stabilize at the level of
5.4 million barrels/year, and to yield an average profit margin of US$1.42/
barrel, i.e., 27 cents more than in 1980 (this increase is due to the fact
that the ex-refinery prices set by the Government for the Exxon refinery
production, which also apply to PCJ's sales in the local market, have been
renegotiated upwards in 1981); (vi) PCJ's income from marketing petroleum
products to large consumers in Jamaica is expected to double from the
US$700,000 level in 1980 to US$1.4 million by 1983; (vii) PCJ would continue
to earn interest income from cash surpluses averaging about US$50 million at
all times; such income is thus projected to stabilize around US$4.8 million/
year; and, (viii) administrative expenses would stabilize around US$1.2
million/year, not counting additional staffing costs and other overheads due
to PCJ's expanding activities in oil and gas exploration (such costs being
accounted for in the projected income statement as part of exploration
expenses).
15. The assumptions are all deliberately pessimistic, because the
purpose of these projections is to demonstrate that PCJ would remain credit-
worthy even in the worst circumstances. In fact, PCJ's performance during
the next five years is expected to be considerably better. Firstly, the
volume of PCJ's trading of crude oil and petroleum products is likely to
exceed the average level of 1979/80 (which has been assumed to remain constant
in the projections). The Corporation's handling of the Venezuelan and Mexican
agreements, in addition to the Nigerian one, would most likely permit PCJ
1/ The Loan Agreement with IDB foresees that, if the first phase of the
project is unsuccessful, the balance of IDB's loan would be cancelled.
Conversely, if the results of the first phase warrant the continuation of
the project, an additional $17 million investment is estimated to be
required for the second phase, of which $12.5 million would be financed
by IDB. The Loan Agreement, furthermore, foresees that, if a commercial
discovery of oil or gas is made, the loan conditions would be automatic-
ally converted from the current soft terms (35 years, including 8 years
of grace; interest rate of 2.5% p.a.) to IDB's regular terms (15 years
including 4 years of grace, at the going interest rate of IDB, which
is 8.5% p.a. at present).
ANNEX V
Page 6 of 7
to make a profit on sales of at least an additional 2 million barrels a year,since the local refinery cannot technically handle the entire Mexican andVenezuelan supply, part of which PCJ would have processed offshore, to
re-sell the products to local distributors. Secondly, PCJ is likely toincrease its share of the local petroleum products market. One possibilitynow being explored, fo_ instance, is the local marketing of LPG obtained from
the offshore processing of Mexican crude. Thirdly, the discovery of oil or
gas either onshore or offshore, is not to be ruled out. If there were adiscovery, clearly PCJ's financial position would be much stronger although itwould have to borrow large additional amounts of capital and consequentlyincrease its leverage. Barnk lending to PCJ now would facilitate for PCJ thefuture borrowings from other financial sources by enhancing its creditworthiness.
16. Even under the assumptions used for the financial projections, theseshow clearly that PCJ would remain a creditworthy institution, capable of
servicing its debt to IDB and the World Bank, as long as the Governmentcontinues to permit PCJ to operate in the petroleum trading business andprovided that it does not require PCJ to pay out exorbitant dividends.According to the projections, PCJ's total assets would increase from US$51
million in 1980 to US$80 million in 1985; its net working capital would rangefrom US$20 million to US$25 million through 1985, with the current ratioremaining above 1.5:1 and the quick ratio remaining at about 1.0:1. The termdebt/equity ratio is projected to remain at all times below 35/65. PCJ'sgross earnings are projected to stabilize around US$14 million/year, againstadministrative expenses of US$1.2 million/year. After expensing all explora-tion costs and other project preparation expenses which the law permits todepreciate within the same year that they are incurred, net profits beforetaxes are expected to range between the equivalent of US$5 and US$8 million.PCJ is taxed at the rate of 50%, so net income after tax would range betweenthe equivalent of US$2.5 and US$5 million. Net income before tax wouldrepresent between 20% and 35% of average equity, and between 8% and 12%of average total assets in 1981-85.
17. The projected source and application of funds statement showsand IDB's loans will be drawn down), which would be used up from 1983 onwardsto finance energy related projects, other than oil and gas exploration.Throughout the period, the debt service coverage ratio would remain higherthan 10:1. No distribution of dividends is projected, because PCJ intends toonly start paying dividends to the Government after hydrocarbons are discoveredin commercial quantities and their production begins. The Government hasindicated its intention to convert automatically into a capital subscriptionany dividend declared by PCJ's board before the discovery of oil or gas: thiswould amount to simply changing the accounting label of PCJ's reserves fromretained income to equity.
Conclusions and Recommendations
18. PCJ is a well-managed and well organized institution, which iscompetently carrying out its function. The technical expertise of its staff
will need some strengthening in connection with the on-going off-shore explo-ration activities, to improve PCJ's ability to monitor the activities of the
- 54 -
ANNEX VPage 7 of 7
(_onsortia in which it participates, and possibly to permit PCJ to undertakeo, -l.ore explorations at its sole risk and expense if the circumstanceswarrant it. The technical assistance component of the proposed loan isintended to help PCJ resolve this problem, of which its management is fullyaware.
19. PCJ is profitable and creditworthy; it is projected to remain soeven in the event that no oil or gas discovery results from the explorationactivities in which it is engaged, both on-shore and off-shore. However, toensure the continuing creditworthiness of the institution, which depends to alarge extent on it being allowed to maintain its current business and finan-cial practices, the following financial covenants are included in the LoanAgreemnt between PCJ and the Bank: (a) PCJ shall maintain on a year-to-yearbasis, a total debt service coverage ratio of not less than 2:1; (b) PCJ shallmaintain at all times a quick ratio (current assets minus inventories overcurrent liabilities) of not less than 1:1; (c) PCJ's term debt to equity ratioshall not be allowed to rise above 50/50; and (d) the investments in oil andgas exploration projects which PCJ will carry as assets in its balance sheetshall not exceed, at any time, 70% of PCJ's equity. For purposes of calculat-ing the debt service coverage ratio and the debt /equity ratio, the followingadjustments will be made to PCJ's official accounting data: (a) explorationcosts, which PCJ fully charges as expenses the year they are incurred in com-pliance with Jamaica's tax laws, will be treated as investments and capitalizedaccording to accounting practices generally accepted in the oil industry; and(b) in the case of a commercial discovery, PCJ's equity will be adjustedupward to include the net present value of proven recoverable oil reserves, tothe extent that this is not reflected in the balance sheet. Furthermore, acovenant in the Cuarantee Agreement would commit the Government not to require"CJ to distribute dividends if by doing so the above financial covenants arebreached, and to inject fresh capital in PCJ if this proves necessary for PCJto abide by those covenants.
- 55 - ATTACHMENT I
JAMAICA
PETROLEUM CORPORATION OF JAMAICA
INCOME STATEMENT(J$ million)
1979 1980 1981 1982 1983 1984 1985(audited) (actual)- …----(projected) -----------
Volume of crude and productstraded (millions of barrels/year) (5.4) (5.4) (5.4) (5.4) (5.4) (5.4) (5.4)
Profit margin (US$ per barrel) (7.69) (2.02) (2.53) (2.53) (2.53) (2.53) (2.53)
Income
Earnings from crude and productstrading 41.5 10.9 13.7 13.7 13.7 13.7 13.7
Earnings from product marketingto bulk consumers - 1.3 1.3 1.8 2.5 2.5 2.5
Interest Income 3.2 10.4 8.4 8.4 8.4 8.4 8.4Sale of geophysical data, and
other income 0.9 0.2 - - - - -IDB Technical Assistance grant - 0.3 - - - - -
45.6 23.3 23.4 23.9 24.6 24.6 24.6
Expenses
Administrative expenses 0.7 1.9 2.1 2.1 2.1 2.1 2.1Management fees 1/ 10.4 - - - - - -Expenses for onshore explora-
tion and development 0.9 1.1 10.9 3.5 - - -Expenses for offshore explora-
tion and development - - - 2.1 2.8 2.8 2.8
Expenses for other projects 0.7 0.5 1.1 2.5 2.5 3.5 3.5Depreciation 0.1 0.2 0.2 1.1 1.6 2.6 3.5Taxes 15.9 7.9 4.3 5.9 7.2 6.0 5.4
28.7 11.6 18.6 17.2 16.2 17.0 17.3
Operating Revenue 16.9 11.7 4.8 6.7 8.4 7.6 7.3Financial expenses 0.1 0.1 0.5 0.7 1.1 1.9 1.9
Net Profit 16.8 11.6 4.3 6.0 7.3 6.0 5.4
Ratios:
Profit before tax, as % of- average equity - 86.2 28.1 33.3 34.2 24.5 19.7
- average assets - 23.4 9.1 11.2 12.1 9.2 7.8Profit after tax, as % of
- average equity - 51.3 14.1 16.8 17.2 12.2 9.9Administrative expenses, as % of
- average assets - 2.3 2.2 2.0 1.8 1.6 1.5
1/ Compensatory payment to Jamaica National Investment Corporation (para. 13).
- 56 -
ATTACHMENT 2
JAMAICA
PETROLEUM CORPORATION OF JAMAICA
BALANCE SHEET(J$ million)
1979 1980(audited) (actual) 1981 1982 1983 1984 1985
Assets
,ash and short-term investments 27.5 27.7 28.9 34.2 30.5 31.2 28.8Accounts receivable 11.7 60.3 24.9 29.1 35.7 27.8 26.2Goods in transit 37.1 - 35.0 35.0 35.0 35.0 35.0
Total Current Assets 76.3 88.0 88.8 98.3 101.2 94.0 90.0
',ixed Assets (net) 0.5 1.3 7.0 8.1 8.8 10.5 11.4Investments in Exploration (net) - 0.3 2.9 6.2 5.9 8.9 9.4i[nvestments in other projects (net) - - - 1.6 9.5 22.8 29.8
TOTAL ASSETS 76.8 89.6 98.7 114.2 125.4 136.2 140.6
-I,iabilities
liank overdraft 7.0 - - - - - -Accounts payable 37.2 46.2 50.0 50.0 50.0 50.0 50.0"ax liabilities 15.8 13.6 4.3 5.9 7.2 6.0 5.4
Total Current Liabilities 60.0 59.8 54.3 55.9 57.2 56.0 55.4
Borrowings at long-term - 1.4 11.7 19.6 22.2 28.2 27.8I'etained earnings (equity) 16.8 28.4 32.7 38.7 46.0 52.0 57.4
Q70TAL LIABILITIES 76.8 89.6 98.7 114.2 125.4 136.2 140.6
1.emo Item: Net working capital 16.3 28.2 34.5 42.4 44.0 38.0 34.6
Ratios:
Iong-term debt/equity - 5/95 26/74 34/66 33/67 38/62 34/66Ouick ratio 0.7:1 1.5:1 1.0:1 1.1:1 1.2:1 1.1:1 1.1:1Current ratio 1.3:1 1.5:1 1.6:1 1.8:1 1.8:1 1.7:1 1.7:1:.nvestments in explorationas % of equity - 1.1 8.9 16.0 12.8 17.1 16.4
- 57 -ATTACHMENT 3
JAMAICA
PETROLEUM CORPORATION OF JAMAICA
SOURCES AND APPLICATIONS OF FUNDS(J$ million)
Sources 1979 1980 1981 1982 1983 1984 1985
Profits before financial expenses 32.8 19.6 9.1 12.6 15.6 13.6 12.7
Depreciation 0.1 0.1 0.2 1.1 1.6 2.6 3.5
Internal cash generation 32.9 19.7 9.3 13.7 17.2 16.2 16.2Borrowings from IDB - 1.4 10.3 5.6 - - -Borrowings from WB - - - 2.3 2.6 6.0 -
Total cash generation 32.9 21.1 19.6 21.6 19.8 22.2 16.2
Applications
Investments in fixed assets 0.5 1.0 6.0 1.6 1.6 1.8 1.8Investments in exploration - 0.3 2.5 3.9 0.2 3.7 1.2
Investments in other projects - - - 1.6 8.1 15.1 8.9Interest repayments 0.1 0.1 0.5 0.7 1.1 1.6 1.9Principal repayments - - - - - - 0.4Tax payments 15.0 13.6 4.3 5.9 7.2 6.0 5.4
16.5 15.0 13.3 13.7 18.2 28.2 19.6
Increase (Decrease) in NetWorking Capital 16.4 6.1 6.3 7.9 1.6 (6.0) (3.4)
Total debt service coverageratio - 19:1 20:1 16:1 10:1 10:1
IBRD 15576
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