DACO Report: LPG Allegedly Being Imported to Puerto Rico in Violation of Jones Act
A Consumer Affairs Department (DACO by its Spanish acronym) report on the liquefied petroleum-gas distribution industry in Puerto Rico has found that the product is apparently being imported to Puerto Rico from Houston via the Dominican Republic (D.R.), where it is labeled as a D.R. product, and then sent on to Puerto Rico, in violation of the Jones Act.
“The imports of liquefied gas in Puerto Rico primarily come from two countries. [An estimated] 33% is imported from Trinidad & Tobago, 62% is imported from the Dominican Republic and the remaining 5% is imported from the U.S., Argentina and Colombia. The imports from the Dominican Republic have increased at an accelerated pace since 2007,” states the report, a copy of which was obtained by Caribbean Business.
“Apparently all the liquefied gas imported from the Dominican Republic to Puerto Rico really comes from Houston, Texas, [where] it is shipped in smaller tankers in Ocoa Bay, in the Dominican Republic, and transferred to Puerto Rico in foreign-flagged tankers declaring the import as from the Dominican Republic, when in reality, [the product] is an import from the U.S., [thus] violating the cabotage laws,” the report adds.
For the product to be correctly labeled as an import from the Dominican Republic, the liquefied petroleum gas (LPG) must be somehow “processed” in that country, said a Caribbean Business source who reviewed the document. “That is apparently not the case here,” the source said.
Trinidad & Tobago is a leading Caribbean producer of oil and gas, while the Dominican Republic is not. D.R. officials have said they will boost oil and gas exploration in 2016 and the D.R. is building a gas export terminal.
The Jones Act, or cabotage laws, requires that maritime transportation of cargo between ports in the U.S. be carried on vessels that are owned by U.S. citizens and registered in the U.S., built at shipyards located in the U.S., and operated with predominantly U.S. citizen crews.
Prices for LPG have dropped significantly in recent years, starting with the worldwide recession that began in 2008, while transportation costs have not. The report indicates that this is the economic rationale for why LPG may be allegedly being transported from the U.S. to Puerto Rico, via the Dominican Republic, in violation of the Jones Act.
“In the last three years, the price of liquefied gas has decreased from $1.63 in September 2011 to 71¢ in June 2012, and then it maintained for a year and a half an average price of 89¢. The price had increased gradually halfway through 2013 until reaching a monthly average of $1.40 in December 2013. Toward the end of December, the price increased to $1.70 per gallon, but at the beginning of February, it went down a bit to $1.54 per gallon and increased again to $1.70 on Feb. 10, 2014,” the report states.
“After this date, the price of liquefied gas has been going down consistently until the actual levels of around 45¢ per gallon. In fact, the price of liquefied gas has decreased so much that the cost of transportation plus taxes is more than the cost of importing the product,” the report adds.
Transportation is a large component of the total cost for LPG, along with the price of LPG and transportation / administrative costs, the source indicated. “The logic is that importers want to save on transportation costs, and foreign-flagged ships are cheaper than U.S.-flagged ships.”
Companies not directly implicated
It should be noted that no company is directly implicated in the DACO report. However, the document states that the two main importers of LPG in Puerto Rico are Empire Gas and Tropigas. Puma is a newcomer, as it did not enter the LPG market until October 2014, the report says.
A senior DACO official confirmed the report’s findings.
Tropigas Vice President Ramón Berríos said he had seen the report, but clarified that the company receives most of its product from Trinidad & Tobago and Argentina. In the past, product also came from Venezuela and as far away as Africa. “Today, the cheapest [LPG] is from the U.S., but we cannot access that market because it is too expensive and the infrastructure is not there,” he said.
Berríos indicated that to build a vessel capable of handling LPG would cost about $50 million to $60 million in South Korea, while in the U.S. it would cost “two-and-a-half times that.”
“The Jones Act is really hurting Puerto Rico. We requested a waiver from the Jones Act, but it was not successful. It would definitely help Puerto Rico’s economy if we get that waiver. The U.S. Virgin Islands is Jones Act exempt, but we are not.”
Empire Gas officials could not be reached for comment as of presstime.
According to the DACO document, the penalty for violating the Jones Act is as follows: “Merchandise transported in violation…is liable to seizure by and forfeiture by the Government. Alternatively, an amount equal to the value of the merchandise (as determined by the secretary of Homeland Security) or the actual cost of the transportation, whichever is greater, may be recovered from any person transporting the merchandise or causing the merchandise to be transported.”
As reported by Caribbean Business (Dec. 24, 2015), LPG prices have not dropped in Puerto Rico, even though oil prices have fallen significantly. DACO issued an order to control gross-profit margins starting Nov. 18, 2015, as a result of the high prices in the LPG market’s consumer segment.
“The price of liquefied gas within the consumer level in Puerto Rico is one of the most expensive ones in the world. Among 46 countries in the world, a recent survey found that the average global price is 58¢ per liter, while in Puerto Rico the average price for the consumer was 93¢ per liter, surpassed by only one country on the globe, Sweden, with [a price of] $1.02,” the report states. “The retail price of liquefied gas in the United States is [around] 51¢ per liter, 45% less than on the island.”