The Editor, Sir:

In response to the Letter of the Day of December 24, 2008, titled 'Peculiar Petrojam pricing policy' and another letter on December 29, 2008 titled 'High gas prices', Petrojam wishes to explain the following.

Petrojam's ex-refinery product prices are based on USG (United States Gulf) reference prices for petroleum products, which provide for a transparent and credible petroleum product pricing mechanism. These prices are not based on crude oil reference prices such as WTI (West Texas Intermediate). While the crude and product markets eventually converge over time, they exhibit unique characteristics at any given point in time, largely driven by supply and demand factors in each specific market.

Compare prices

One good way to test the credibility of Petrojam's pricing structure is to compare prices and/or price changes in the Jamaican market to another market (e.g. Miami). In this regard, over the period since around mid July 2008, the price declines in Miami are comparable to those seen in the Jamaican market when the devaluation of the Jamaican dollar to the United States dollar is taken into consideration.

Petrojam's ex-refinery prices are based on a pricing formula which ensures that finished products cost no more than what similar products of comparable quality would cost if imported directly into Jamaica from the least-cost source on a sustained basis.

This pricing formula has been used by Petrojam since the industry was deregulated in the early 1990s and has therefore been tried and proven over the period since then.

The importation of petroleum products for use in the local market is deregulated and Petrojam's pricing mechanism is therefore largely market driven, as Petrojam competes with the marketing companies which are free to import petroleum products as they see fit, depending on pricing economics.

I am, etc.,

DENISE HEWITT

Public Relations Officer

Petrojam Limited

Kingston