Will Petrocaribe collapse as Venezuela changes the ground rules?

Mr Bernardo Alvarez new Secretary General of ALBA/Petrocaribe.

Mr Bernardo Alvarez new Secretary General of ALBA/Petrocaribe.

While the Government of Saint Lucia seems certain that the deal with Venezuela’s Petrocaribe is airtight, in an online article from Christian Science Monitor, serious questions have been asked about the future of Petrocaribe, Hugo Chávez’ flagship program to supply petroleum to neighbouring countries at below-market prices. Just last week a visiting delegation from the Bolivarian Alternative for the Peoples of our America (ALBA) and Petrocaribe met at the Saint Lucian PM’s official residence as part of a familiarization tour for Mr Bernardo Alvarez new Secretary General of ALBA/Petrocaribe. But even as assurance of the “deal” between Saint Lucia and Venezuela was given by Alvarez, it appears one of the South American country’s long-term allies now wants out.

According to CSM reporter Ezra Fieser: “Guatemala announced in early November that it was pulling out of the alliance as the cost of staying within it increased.

“Guatemala’s decision was the clearest sign yet that the program could be on the verge of serious changes.”

Citing the death of Chávez as having left behind “a Venezuela with serious economic concerns that put in question his ideology of Socialism for the 21st Century,” Fieser stated that the announcement by Guatemala that it will leave the alliance is an indication that more countries are likely to bail, because of increasing interest rates and the higher cost of doing business with Petrocaribe. Guatemala’s Vice President Roxana Baldetti said her country backed out of the pact because the terms of the deal had changed.

According to the CSM report: “While the Venezuelan government has promised to keep Petrocaribe intact, it has quietly cut oil shipments, and may be contemplating pushing up interest rates and modifying repayment terms. Any such changes could have deep and lasting impacts on small countries accustomed to propping up their economies with the shipments.

“The Venezuelan Petrocaribe Initiative provided a partial and temporary solution for [regional energy needs] but this solution is unlikely to be sustainable,” Trinidad & Tobago’s Acting Minister of Energy and Energy Affairs Bhoendradatt Tewarie told leaders this week at the Caribbean Community Energy Week in Port of Spain.”

Under most contracts, countries pay 40 percent of a bill in the first 90 days and finance the rest at a 1 percent interest rate over 25 years. But Guatemala was offered a repayment interest rate of between 2 percent and 4 percent with more of the bill paid up front, and is not the only country to see unexpected changes to its deal with Venezuela. The Dominican Republic, one of the leading recipients of petroleum shipments under Petrocaribe, is receiving about half of the 50,000 barrels per day it was promised, according to government advisers familiar with the contract.

Alarmingly, Venezuela’s oil production has been stagnant in recent years, despite its ample reserves. The Organization of Petroleum Exporting Countries (OPEC) November oil market report found that independent sources put Venezuela’s production at 2.35 million barrels per day, nearly unchanged in the previous 3 years.

And a portion of Venezuela’s oil is promised to countries such as India and China, where it’s sending 640,000 barrels per day, half of which is sent to repay $40 billion in loans. China and Venezuela are soon expected to begin negotiating the renewal of a $20 billion credit line that would further oblige the South American country to send its oil to Asia.

“The production is not there to keep up with all these commitments,” Mr. Romero says. “For those countries that are not fully allied politically, [Venezuela] might just look the other way.”

Throughout recent economic troubles at home, Venezuela has sent 232 million barrels of oil to Petrocaribe nations on preferential terms, including providing some 40 percent of the energy needs of its 14 Caribbean partners. Economists say the foreign dollars that those oil shipments could bring in if sold on the open market would help ease pressure on the nation’s overvalued currency, the bolivar.

“What’s most intriguing is recognizing that the architect of the deal and the individual who had power to comfort these countries is no longer there,” says Anton Edmunds, a consultant who advises corporations and Caribbean governments on energy policy.

“Since the passing of Hugo Chávez, the whole climate and arrangement with Venezuela is no longer certain.”

During last weeks meeting in Saint Lucia Bernardo Alvarez confirmed; “everyday we supply to the Caribbean an equivalent of one hundred and seventeen barrels a day to eighteen counties through thirteen mixed companies that we establish in any country that we go.”

But all indications beg the question how stable are those deals under the “new” Venezuelan regime?

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