The case of Cuba, although exceptional, also falls within the framework of Petrocaribe. The island has not only had an economic boom but it has also managed to start work to reactivate its Cienfuegos refinery.

A popular proverb goes “it’s easier said than done.” Although it would be a sin to use this cliché, this simple sentence summarizes what has happened with Petrocaribe during its first year of life.

The point is that this energy initiative launched with much pomposity by the Venezuelan Government on June 29, 2005, seeking among other things, to benefit Central America and Caribbean countries with oil supplies granted under preferential financial conditions, has barely been implemented in five nations (Cuba, Jamaica, Saint Vincent and the Grenadines, the Dominican Republic and Haiti) out of the 13 countries that signed the agreement. Haiti joined Petrocaribe in May this year, following René Preval’s rise to power.

Three out of the other ten islands (Belize, Grenada and Saint Kitts and Nevis) are on their way to implementing the agreement in the medium term, whereas the other six countries (Antigua and Barbuda, Dominica, Suriname, Guyana, Saint Lucia and Bahamas) have not taken any steps to implement the oil agreement, though some have received occasional deliveries of oil-derived products such as asphalt and liquefied oil gas (LOG), or other kinds of energy benefits.

Major reasons  

Both government spokesmen and analysts agree that the slow progress in implementing the agreement in the different signatory countries is due to classical bureaucratic (government and managerial) obstacles as well as the major difficulties in terms of infrastructure, namely distribution, storage of crude oil and products, and even terminals to load and unload ships (ports).

When asked about the status of Petrocaribe, Alejandro Granado, vice-president of Refining in Pdvsa and president of PDV Caribbean (in charge of implementing the energy agreement), said "we are working on that. By the end of the third quarter of the year there will be some announcements. In Antigua (and Barbuda) 10 megawatts of electricity are already being generated." But Granado also had to admit that "the big problem is infrastructure. Transportation and storage costs are being charged (to the countries), and are a heavy burden."

The other problem Petrocaribe has to deal with is that most member countries don't have control over their own energy resources or infrastructure.

One of the objectives of this agreement is to allow Caribbean countries to manage their own sovereign control over energy resources. This is not only because Venezuela wants to extend its oil policy to Caribbean countries - and South America as well - but also because Venezuelan legislation prevents Pdvsa from having partnerships with private companies.

That explains the need for signatory countries to have State - run energy companies. Otherwise they need to establish one, which is a process that takes time.

But there is still another obstacle to overcome. Since Petrocaribe country members do not have control either over port operations or storage tanks (if in fact they exist), the islands have to negotiate with private companies, in some cases, affiliates of companies from the demonized Yankee Empire.

A concession

In order to overcome these bottlenecks and make some slow progress towards the consolidation of Petrocaribe, Venezuela started to make some concessions.

The first thing Pdvsa had to do was sign an agreement with Cuba for the integrating their marine transportation. The point is that although the state-run oil company’s fleet of tankers was supposed to be adequate for delivering crude oil, the reality is that the company doesn't have the small ships to act as a form of "milk cow" to distribute small amounts of oil or products needed in these Caribbean countries.

Venezuela also had to accept that Antigua and Barbuda have to become the regional center of storage and distribution for the countries of the Eastern Caribbean, but through the West Indies Oil Company.

And Venezuela will have to make even more concessions, at least, until those countries have their own infrastructure. Belize must negotiate with Esso – a branch of Exxon Mobil - for the use of the storage tanks. The only shipment that has arrived in that island was unloaded one week later due to the difficulties in reaching an agreement between Esso and Belize.

Grenada will have to negotiate with Texaco and Sol, and Guyana with Trinidad and Tobago.  In the latter case, Venezuela will have to decide whether or not it accepts that the old British colony can buy crude oil from it and then refine it in Trinidad, because it is the only way for Guyana to implement the Petrocaribe agreement. Otherwise it would not be able to meet the moral and legal obligations it has with Trinidad and Tobago.

Half-way benefits

Despite the slow progress of Petrocaribe, there are three nations that are totally active in the framework of the agreement and have started to reap some benefits from the agreement. Jamaica is not only receiving the agreed-upon barrels of crude oil, but it is also receiving help to enlarge its refinery in Kingston, and Petrojam was formed. As Alejandro Granado, president of PDV Caribbean said "the Canadian firm SGC Lavalin won the tender and obtained the go ahead to develop the basic engineering for the plant. The expansion will be ready by 2008."

The case of Cuba, though special, also falls within the framework of Petrocaribe. The island has not only had an economic boom, thanks to the "financing" of its oil bill, but it has also been able to start work to reactivate its Cienfuegos refinery. According to Granado, "the first barrels will be generated in the third quarter of 2007. That’s why the idea is to begin with 65 thousand barrels a day (b/d) in the initial configuration (the one the plant has always had) and then move on to deep conversion (to process heavy crude oil, like that from Venezuela) and to increase it to 120 thousand b/d."

In the Dominican Republic the benefits can be measured in cash. According to the Central Bank of that country, in the first two months since the agreement came into effect the oil debt has been reduced to the order of $34 million.  However, the decrease in government spending has not translated into a decrease in consumer spending on fuel in the Dominican Republic or in any other member country. Granado professes that "undoubtedly fuel costs in those countries must go down in the long term." But some presidents don't believe this will happen, because the money saved is to be used for social programs.

Petrocaribe, undoubtedly advancing slowly, while at the same time seems to yield to the unavoidable realities of each member country and to the geo-strategic chessboard that drives the international oil market today.

Assets

Saint Vincent and the Grenadines:  according to Pdvsa, 47,800 containers of 10 kilograms of Oil Liquefied Gas each have been sent from December 2005 to date. The last shipment with 4,200 containers of OLG arrived last Friday. This country is scheduled to build a plant for OLG and a tank farm (with capacity for 36,000 barrels), according to official spokesmen for PDV Caribbean.

Countries towards the implementation of the agreement

Belize: A mixed company between PDV Caribbean, the company in charge of implementing the agreement, and Belize Petroleum and Energy Limited was formed early June this year. It requires the construction of storage facilities for crude oil and products as well as better port facilities. This country received a shipment of 15,000 barrels of diesel in October last year.

Grenada: The island has already formed the mixed company and the supply agreement has already been signed. However, the island is not ready yet to implement the initiative. It needs assistance in technology and storage. The first shipment of fuel is scheduled to arrive in approximately three months.

Saint Kitts and Nevis: The shareholders of Saint Kitts Energy Company Limited agreed to form the mixed company with PDV Caribbean last June. However, negotiations still continue. The next meeting between the authorities of the island and those of Venezuela is scheduled for July 23. The first shipment of crude oil is expected to arrive in September.

Non-active countries

Antigua and Barbuda: Members of Petrocaribe agreed that this would be the regional center of storage and distribution of oil and derived products for the rest of the islands that make up the eastern archipelago of the Caribbean. In March this year 12 portable electric plants were supplied to the island in order to generate 10 megawatts of electricity per hour.

Bahamas: It signed the Petrocaribe framework agreement in June 2005, but it didn't sign the bilateral agreement. Official spokesmen for the Bahamas government have stated that it would take the country three or four years to be able to adapt its infrastructure in order to benefit from the agreement.

Dominica: It received a shipment of 1,200 barrels on June 7, 2006 and a delivery of the same product is scheduled to arrive on a quarterly basis. At the end of June the mixed company was formed. The supply agreement has not been signed yet, because the island needs to solve its storage problems first. Pdvsa plans to build tanks with a capacity of 25,000 barrels a day to store diesel, despite the fact that PDVSA announced last November that it had sent a storage tank, which, apparently, has not been installed so far.

Guyana: It signed the Petrocaribe framework agreement in June 2005, and then it signed the bilateral agreement. However, implementing the agreement would entail non-compliance with legal obligations to Trinidad and Tobago.

Saint Lucia: It signed the Petrocaribe framework agreement in June 2005, but it didn't sign the bilateral agreement.

Suriname: It signed Petrocaribe framework agreement in June 2005, and it later signed the bilateral agreement.

Although Suriname seems to have the optimal conditions to set the agreement in motion, official government sources have said that they are still negotiating the terms under which the mixed company will be formed.

The cost of the financing

The political purpose behind Petrocaribe was overwhelmingly obvious; not only because of the advantageous condition it offered by financing a portion of the oil invoice (40%), but also for the payment modality that could be used - paying part of the bill with goods and services. Although Petrocaribe has been implemented only in three countries – not including Cuba, which already had a special agreement - all the governments that have joined this energy initiative have agreed to pay with goods and services. Grenada, for example, plans on paying a portion with bananas and nutmeg.

Financing  40% of the oil bill already reduces Pdvsa cash flow. And if we add to it the fact that the cost of importing goods and services from Petrocaribe country members may not correspond to the real value of the oil, we would be speaking of irreparable financial damages to Pdvsa and to the National Treasury.

If Petrocaribe were implemented 100%, the total oil costs (without including Cuba, because of its payment conditions), would stand at $2.26 billion a year, assuming that the average oil price is at $50 per barrel. The financed amount would reach $965 million a year.

This money is supposed to be deposited in Bolivarian Alternative (ALBA) Caribbean Fund, created in order to administer the resources generated from the portion of the debt to be financed, to spend it later on social and economic programs in the countries that signed the agreement.

The fund, though it has an initial capital of $50 million donated by Venezuela and with several participating countries already, has only given one grant: a compacting machine and a grader (construction vehicles) to the government of Saint Vincent and the Grenadines just a week ago.

Originally published in Reporte diario la Economía on July 31, 2006 (taken from Descifrado, July 27, 2006) and republished with permission.