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The PetroCaribe Agreement
It’s more about easy financing rather than cheap oil

By Odeen Ishmael

Ever since thirteen Caribbean leaders joined with President Hugo Chavez in signing the agreement establishing PetroCaribe, speculation has sprung up in certain quarters in the Caribbean and Latin American as to the objectives of this new Venezuelan-sponsored oil trading facility. While some analysts see it as a positive strategy employed by Chavez to assist his poorer Caribbean neighbours, a few others view it as a “bribe” to win political support for Venezuela in the OAS.

Only Trinidad and Tobago and Barbados did not sign the agreement in Puerto la Cruz on 29 June. While the Barbados minister who headed the delegation said he had no authority to do so, Prime Minister Manning of Trinidad and Tobago insisted that he needed more time to study the document, and thought that Caricom heads should jointly examine it before any signing should occur. He also rationalised that PetroCaribe would be an export competitor to Trinidad and Tobago which also has its own growing oil and gas industry.

Interestingly, Guyana’s Prime Minister Sam Hinds, at the summit queried whether by signing the agreement it would bind countries to purchase fuel and fuel products only from Venezuela, noting at the same time that Guyana’s current suppliers were Trinidad and Tobago and Suriname. In response, President Chavez said that each country was sovereign and being a member of PetroCaribe should not force it to curtail purchases from other countries.

The agreement itself is not binding because it is more of a framework arrangement. Bilateral discussions are now necessary between each country and Venezuela to work out a definite accord on the amount of oil, the financing required and pay-back terms.

In reality, it is a financing initiative and, considering the present state of crude oil prices, citizens of the signatory countries should not expect cheaper fuel. Nevertheless, it allows the member-countries to deal with their balance of payment problems, and this may have a positive effect on their overall economies.

The initiative proposes a fixed percentage of credit that can be accessed based on oil prices. If fuel prices reach a particular dollar level then the member countries can benefit from a soft loan. For example, if the price is US$30 per barrel, a 25 percent credit line may be obtained; at US$40 per barrel, it will be 30 percent; and at US$50 it moves to 40 percent. If the price reaches US$100 per barrel, 50 percent will go back as a loan for the country over a specified period.

The PetroCaribe pact supersedes the Caracas Energy Accord which Guyana – originally kept out – joined in December 2001. Guyana already began negotiations last year with Venezuela on that Accord, and it is expected that this will pick up pace under PetroCaribe which offers better financing terms.

As is widely known, Guyana’s acquisition of new loans is affected by conditions set by the World Bank and the IMF under the Highly Indebted Poor Countries (HIPC) initiative. These conditions stipulate that any new financing arrangements must have at least a 35 percent grant element. The PetroCaribe financing at 1 percent interest with a maturity period of 20 years implies a grant element of roughly 42 percent. Thus, such terms meet the conditions imposed by the World Bank and IMF, and Guyana can move forward to access the financing when the negotiations are completed.

Unlike the Bahamas, Jamaica, Suriname, and Trinidad and Tobago, the other Caricom states do not possess refining infrastructure. According to Venezuelan Energy Minster Rafael Ramierez who gave a post-summit media briefing, these non-refining states rely on “middle men” who sell them petroleum at US$6 to US$8 (per barrel) above cost. Under the financing scheme and other arrangements proposed in the PetroCaribe agreement, the middle men would be cut out and petroleum costs would be reduced by $1.50 per barrel.

When the arrangement is finally implemented, Ramierez said the state-run Petroleos de Venezuela (PDVSA) would send about 34,000 barrels per day (bpd) to Antigua and Barbuda, Barbados, Dominica, Grenada, Guyana, St. Kitts and Nevis, St. Lucia, St. Vincent, and Suriname. Of this amount, Guyana is listed to receive 10,000 barrels. No figures were given for Belize and the Bahamas. Haiti was not invited because Venezuela broke diplomatic relations with that country after President Aristide was removed from office.

Venezuela will also ship 98,000 bpd to Cuba, 50,000 bpd to the Dominican Republic and 14,000 bpd to Jamaica, even though Jamaica may ask for more. Separate agreements were signed in Puerto la Cruz between Venezuela and each of these three countries for the improvement and expansion of their oil refining capacity. During the summit discussions, Chavez suggested that Cuba and the Dominican Republic could become refining centres to supply fuel and fuel products to Caricom states to the south.

Overall, discussions in Puerto la Cruz were very open and amicable. Major statements of support for the Venezuelan initiative were made by Prime Ministers Ralph Gonsalves of St. Vincent and the Grenadines and Percival Patterson on Jamaica. President Fidel Castro, in a vintage off-the-cuff presentation, urged solidarity for the Venezuelan government and people and talked about the current wastage of energy resources practised by “capitalism”.

The problem of storage of PetroCaribe petroleum in some Caricom states was raised, since doubts were expressed that the facilities owned by the oil companies (like Shell and Texaco) could be used for this purpose. Chavez announced that a number of unused large storage tanks located along Venezuela’s coast could be dismantled and shipped to Caricom countries in need of such facilities. Grenada and Antigua and Barbuda immediately announced that they were ready to take them as early as possible.

The Caricom summit which followed within days of the Puerto la Cruz meeting discussed the implications of the PetroCaribe agreement after the topic was raised by Prime Minister Manning. Surprisingly, even though media reports stated that he was mandated by his colleagues on their behalf to “negotiate” the agreement with Chavez, the final communiqué of the Caricom summit mentions nothing on the discussions surrounding the issue.

Trinidad and Tobago, of course, has its own bilateral issues to discuss with Venezuela. Significantly, Manning was the only Caricom leader who managed to hold bilateral discussions with Chavez in Puerto la Cruz. No one seems to know as yet what he will be negotiating on Caricom’s behalf, but whenever he begins this task, he will be fetching a weighty plate since each Caricom state will certainly have its own special concerns and requests to be placed on the table.

There is speculation that out of this negotiation Trinidad and Tobago can become a main refining centre for PetroCaribe crude, the products from which would then be shipped to the other non-refining partners. In this scenario, it is hoped that benefits of lower costs will be passed on to the receiving countries.

But PetroCaribe is not only about oil sales. Under its umbrella a development fund would be established, with an initial annual contribution of US$50 million by Venezuela for the financing of social and economic programmes in the participating states.

Then there is the issue of pay-back. Venezuela has agreed that countries benefiting from other goods and services for which preferential prices would be offered. Certainly, this aspect will feature prominently in the bilateral negotiation process.

Undoubtedly, President Chavez is asserting a leadership role in the region through the PetroCaribe scheme. Often, he speaks of integrating energy resources in South America and the Caribbean saying that this is one of the main stages for more concrete integration in the future. Through his initiative, a PetroSur framework for the Mercosur countries and Venezuela has already been drawn up, and more recently, he and the other Andean presidents (of Colombia, Ecuador, Peru and Bolivia) have agreed to develop a PetroAndina agreement through which they would together use their energy resources to combat poverty in that sub-region.

While all of this is happening, some anti-Chavez critics continue to claim that the PetroCaribe deal is aimed at ensuring Caricom support at the OAS in the event political pressure is brought on the Venezuelan government in the hemispheric body. But if that specious speculation is given serious consideration, then with the establishment PetroSur and the agreement to set up PetroAndina, it seems that President Chavez has the great majority of the membership of the hemispheric organisation already on his side.

(The writer is Guyana’s ambassador to Venezuela)
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