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Saturday's
Lagniappe
PetroCaribe:
Chávez’s venturesome solution to the Caribbean oil
crisis and Trinidad’s and Barbados’ ungracious riposte
Reuters
Hugo
Chavez and Caribbean heads of state
By
Kaia La
The unremitting surging global price of oil has crippled the economies
of many small, poor nations, and the tourism-dependent Caribbean
countries are among the most vulnerable.
Into
this bleak picture has emerged a possible savior in the person
of Venezuelan president Hugo Chávez and his principled
PetroCaribe plan. The arrangement, which was signed with 15 countries
last September, promises discounted oil and wide reaching social
components.
Yet
this act of generosity has not gone smoothly, as controversy over
the proposal has revealed nasty rifts within the Caribbean Community
(CARICOM), primarily involving Trinidad and Tobago’s unflinching
and self-interested opposition to the proposal, and Barbados’
equally muscular resistance.
Nonetheless,
whatever objections have been raised by these two nations, PetroCaribe
is the best offer on the table, and for the 13 CARICOM governments
(along with Cuba and the Dominican Republic) that have accepted
it, this could prove to be the best exit from their current misery.
Structure
of the Deal
As
famed Caribbean reporter Tony Best clearly establishes in the
January 24, 2006, issue of Carib News, PetroCaribe does not offer
cheap oil, as Venezuela’s OPEC obligations prohibit sales
at below market value. Instead, its innovative approach allows
area countries to defer part of the payment.
The
deal functions by a means of a discount whereby contracting countries
are required to pay a percentage of the market price, with the
remaining cost converted into long term, low interest loans.
When
market prices rise above US$50 per gallon, as they are now, participating
countries will receive a 40 percent discount that will accrue
as a 25-year, 1 percent interest loan. If prices rise above US$100,
this discount will rise to 50 percent.
Member
countries’ debt may be partially amortized by means of paying
in goods and services, like Venezuela’s existing arrangement
with Cuba. That program is popularly known as “doctors for
oil,” in which Cuba sends over ten thousand doctors, nurses,
and dentists to provide free health care in clinics in Venezuela’s
poorest communities, in exchange for 90,000 barrels of Venezuelan
oil per day.
Under
the agreement, Venezuela will cover shipping costs, aid in the
development of distribution infrastructure and storage sites,
contribute to the formation of state-controlled facilities, and
provide fuel-efficient systems in member countries.
The
one catch is PetroCaribe will only deal with a state controlled
entity, meaning that the PetroCaribe agreement is based on eliminating
all intermediaries. “We're not talking about discounts...We're
talking about financial facilities, direct deliveries of products,
infrastructure,” said Energy and Petroleum Minister and
President of PDVSA, Rafael Ramírez; the goal is to cut
down on unnecessary, middlemen costs.
This
means that existing U.S. area distributors, Shell and Texaco,
would be excluded from purchasing subsidized Venezuelan oil under
the envisaged program. In effect, participating CARICOM countries
will be edged in the direction of de-privatizing their oil industry
infrastructure in favor of setting up state-guided facilities.
Distribution
will be managed by PDV Caribe, a subsidiary of PDVSA, which will
be set up to handle shipment and delivery of the crude, although
questions regarding the establishment of regional refining capacity
remain.
According
to the Oil and Gas Journal, PDVSA has refining facilities in the
U.S. Virgin Islands (495,000 barrels-per-day), as well as a 320,000
barrels-per-day facility in the Netherlands Antilles, while other
major refineries can be found in Trinidad and Tobago and Cuba.
The Jamaican government, spurred by PetroCaribe, has moved forward
on a plan to build a refinery on that island as well.
Bonanza
from Heaven
Additionally,
Venezuela has created a $60 million fund for social projects on
Jamaica. For some island economies, PetroCaribe is seen as a bonanza
from heaven.
Antigua
and Barbuda’s Prime Minister Baldwin Spencer has enthused
that, “The current crippling impact of continually rising
energy costs on our fragile economies is a current case in point.
Venezuela’s offer of stable fuel supplies on concessionary
terms through the PetroCaribe initiative is therefore a timely
– and welcome – intervention for member countries
of the Caribbean Community.”
In
a like-minded mood, Prime Minister Keith Mitchell of Grenada notes
that his country will be able to accrue a total savings of between
$10-15 million annually as a result of the Venezuelan deal.
Who’s
in, Who’s Out
Initially,
PetroCaribe was offered to the all 15 CARICOM member countries,
Antigua and Barbuda, the Bahamas, Belize, Dominica, Grenada, Guyana,
Jamaica, Suriname, St Lucia, St Kitts and Nevis, and St Vincent,
the Grenadines, and Trinidad and Tobago, as well as Barbados.
However the latter two have quite directly declined the offer.
Cuba
and the Dominican Republic, who already have existing agreements
with Venezuela, are also included in the plan.
Haiti
has been at the margins of the deal, as significant controversy
revolves around that country’s recent political history.
At first, Haiti was not offered inclusion in the PetroCaribe arrangement,
as Chávez does not recognize the U.S.-installed controversial
Latortue interim government.
However,
as of early October 2005, Venezuela announced the possibility
of Haiti’s participation due to pressure coming from a Haitian
interest group, the “Collective to Mobilize against the
High Cost of Living,” which Chávez happens to hold
in high esteem.
As
a result, Latortue was allowed to apply for membership in PetroCaribe
in November, which would make Haiti the latest country to join,
if voted upon. However, PetroCaribe will not be launched in Haiti
until after elections are held and the installation of a new administration
in Port-au-Prince.
With
elections now being postponed to Feb. 7, 2006, for the fourth
time since last November, the launch of PetroCaribe’s operations
in Haiti may remain relatively remote.
Sitting
it Out
Barbados’
decision not to join the other CARICOM nations in signing on to
PetroCaribe is based on a smattering of valid reasons and certainly
what appears to be an ample dose of exported Washington-influenced
paranoia.
Barbados
produces some oil – although far less than it consumes –
and has an existing arrangement with Trinidad and Tobago to refine
that oil. Maintaining this refinery relationship, as Barbados’
government has indicated that it felt Venezuela was reluctant
to refine the island’s crude, has contributed to Bridgetown’s
opposition to PetroCaribe.
Furthermore,
the deal between Barbados and Trinidad and Tobago includes a preferential
supply agreement, and Barbados claims that any changes to the
existing supply chain are only likely to create complications.
But
such factors aside, it is no secret that Prime Minister Owen Arthur
has been a loyal liegeman of President Bush and his litany of
other objections to the deal seem to be born out of contrivances
rather than on solid grounds, more the results of a man hunting
for an excuse rather than one deferring to irresistible logic.
These
include his thesis that PetroCaribe will lead to serious debt
problems, which seems somewhat silly considering that the region
currently must borrow extensively to cover its needs, and that
the PetroCaribe loans are based on highly flexible and attractive
repayment terms.
Self-Interested
Opposition
Trinidad
and Tobago, a member of CARICOM whose approximately 150,000 barrel-per-day
oil industry and major refining capacity has made the island wealthy,
was a logical choice to supply the region with subsidized petroleum.
But
Port-of-Spain’s oil strategy is partially restricted by
its existing international commitments – its industry is
closely tied to U.S. oil operations – making options for
discounting oil prices to CARICOM countries somewhat limited.
Indeed it has always hesitated to extend discounts to its less-fortunate
neighbors – a fact which the Caribbean has not overlooked.
Yet
despite his unwillingness to step up and help his fellow Caribbean
islanders, Prime Minister Manning has continually blasted the
PetroCaribe agreement, cautioning that PetroCaribe could force
the islands into an agreement which will betroth them to a sole-provider
situation, perhaps inexorably locking to future problems.
More
stridently, Manning also has blustered that if the region walks
away from its current arrangements with him (currently Trinidad
and Tobago supplies the region with 60,000 barrels-per-day) and
reorganizes its oil sectors under PetroCaribe, his country will
look elsewhere for permanent buyers and that in the future the
rest of the Caribbean may not be able to count on his country’s
previously committed oil supply.
Manning
spitefully warns that, “it is a question of cutting your
own throat if you are not careful.” This undeniable self-interest
– the same attitude that he and Arthur more often than not
displayed in their desire to harmonize their position to one which
would cause Washington no grief – has been publicly criticized
by at least one regional leader, and by several more, privately.
Prime
Minister Kenny Anthony of Saint Lucia asserts that "Rather
than Trinidad and Tobago suggesting that they are incapable, or
that they are unable to do anything about the high prices we are
forced to pay, they should rethink that position...”
He,
of course, believes that Trinidad and Tobago, in fact, is quite
capable of providing some formula that could ease the effects
of record high oil prices in the Caribbean, but they are not showing
any desire or initiative. Instead, fellow `CARICOM members, without
any alternative options being placed on the table by Trinidad
and Tobago, may have little choice but to go along with PetroCaribe.
The
Best Thing Going
PetroCaribe
is not without flaws and logistical hang-ups, yet it remains the
most concrete proposal on the table to alleviate the region’s
suffering. Chávez’s intention is patently not self
interest or glorification, as he is not exactly aiding a region
with significant global diplomatic or economic clout.
Furthermore,
objections to the proposal – specifically by Trinidad and
Tobago – are not based on well-reasoned arguments, but rather
on stubborn selfishness and shameless servility to Washington.
These pitiful motives are often a fact of life when it comes to
Arthur – certainly so when it has come to pushing the hapless
and inept interim government of Gerard Latortue on the Haitian
people at Washington’s behest.
Can
Arthur’s heartless Haiti policy in any way be compared to
that of the statesmanship of his predecessor Erskine Sandiford
who trivializes Arthur by his stature?
And
Trinidad’s Manning has likewise unwaveringly worked to override
moral objectors within CARICOM and extend official recognition
to the Latortue regime, going so far as to meet with the interim
leader last week in Bridgetown.
In
regards to PetroCaribe, Manning’s flat refusal to offer
any sort of discount to his neighbors should be a cause for embarrassment,
and his haughty threats against those who do accept Chávez’s
largesse are shameful at best.
PetroCaribe
will offer 15 islands the best hope for riding out the energy
crisis, and cannot be repudiated as some regional naysayers would
very much like to see happen.
Kaia Lai
is COHA Research Associate. COHA -The Council on Hemispheric Affairs
Encourages the formulation of rational and constructive US policies
towards Latin America. Petroleumworld not necessarily share these
views.
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