Energy Dependency And President Chávez

By David Jessop

News Americas, LONDON, England, Tues. July 19, 2011: For years, many in the U.S. and Europe have been wishing that Venezuela’s mercurial President, Hugo Chávez, would depart and a more pro-western leader take his place. But now, paradoxically, some of his harshest critics appear to be having second thoughts as the possible regional implications of his illness become apparent.

The Venezuelan President’s confirmation on television on June 30th that he has been diagnosed with cancer, has focussed minds on just what it would mean should the special arrangements for energy supply that he personally has championed across the Caribbean Basin should for any reason have to be modified or come to an end.

Although the prognosis for President Chávez’s cancer remains unclear following his recent extended stay in Cuba where he underwent surgery and other forms of treatment, there are persistent but impossible to confirm reports that that his medical problem may be subject to metastasis.

Irrespective, what is not in doubt is that during President Chávez’s tenure in office, Venezuela has become of huge economic and social significance to almost all of the nations of the Caribbean, where the PetroCaribe arrangement underwrites the stability of most economies.

Created in 2005, the PetroCaribe arrangement has as its members, Antigua, the, Bahamas, Belize, Cuba, Dominica, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Dominican Republic, St Kitts, St Vincent and, St Lucia, Suriname and Venezuela .

The scheme works on the basis that nations receive Venezuelan oil on concessionary terms on a scale that adjusts depending on the world market price of oil. This means that now that oil is above US$100 per barrel, PetroCaribe member nations pay just 60 per cent of the cost over a period of 25 years at an interest rate of 1 per cent on deferred terms. The arrangement operates in such a way that member countries are allowed to retain a part of their payment so governments can use the programme for balance of payment purposes and budgetary support or to deliver an agreed range of development programmes.

The scheme has been extended to incorporate oil exploration, distribution and storage. More recently, in mid June in Venezuela’s Isla Margarita, discussions took place on the creation of a development fund, the establishment of joint ventures between members, creating a trade in agrochemicals and petrochemicals, and developing regional gas supply.

Under the PetroCaribe arrangement, PetroCaribe members have received in total, oil on preferential terms at the rate of between 120,000 and 140,000 barrels per day (bpd) over the past three years. The largest share of this has been allocated to Jamaica (21,000 bpd) and the Dominican Republic (50,000 bpd) while Cuba receives somewhere between 64,000 and around 100,000 bpd under a more complex arrangement. According to the Vice President of Refining, Trade and Supply of Petroleos de Venezuela (PDVSA), Asdrubal Chávez, the overall arrangement this year will involve the supply of 200,000 bpd.

Less positively, the programme has increased the region’s long-term indebtedness; with Caracas projecting that over one third of the Caribbean’s external debt by 2015 will be owed to Venezuela.

The country potentially most at risk from any change in the arrangement is Cuba, where Venezuela supplies more than two thirds of the country’s oil needs, and has a trade relationship that results in a net gain to Cuba, some published figures suggest, of around US$ 3,500m in 2010. So seriously is this taken in Havana and despite the special relationship that exists between Cuba and Venezuela, Cuba has been working for some time now to diversify its energy relationships. Despite this it is believed that it will still be another five years before this can be achieved.

Haiti too is critically reliant on PetroCaribe despite US attempts to undermine the arrangement. Venezuela has pledged to provide for the fuel needs of the Haitian people without cost and has allocated US$120m to aid the reconstruction of industry, agriculture and social services. President Chávez also forgave Haiti’s debt, estimated by the IMF to be US$295m.

In the case of the Dominican Republic’s its debt with Venezuela totals US$2.02 billion which it is repaying through the provision of commodities and tourism services, while other reports suggest that Jamaica too is carrying high levels of debt that it will service through trade in cement as well as by making cash payments.

Despite criticism from those outside the Caribbean who do not like the implied political leverage the programme gives to Caracas, no other nation at this time has the political will to provide this level of support to Caribbean states. So much so that the US in particular is now faced with the paradox of needing Caracas’ continuing commitment to maintaining PetroCaribe’s programmes in the region if it is to have any guarantee of economic and social stability in the region.

Having said this, there is a need for much greater realism about the arrangement. Nations within the region and beyond are only now asking themselves serious questions about what happens if Venezuela finds itself having to increase prices, reduce supply or at worst change or even end the arrangement.

The strong probability is that whatever happens in forthcoming Presidential elections the National Assembly will remain under the control of Venezuela’s governing PSUV, which will continue to pursue President Chávez’s populist domestic policies. However, some independent analysts suggest that PetroCaribe could still under certain circumstances be subject to change as it has limited support within the governing party, the National Assembly, PDVSA and the military.

No one should be in any doubt about the critical importance of Venezuela’s PetroCaribe programme. If it were not for the energy lifeline that it has provided to every Caribbean nation other than Trinidad and Barbados, much of the region would by now be in economic free fall.

The debt the region owes to President Chávez is enormous and was recognised at both a personal and economic level in discussions at the recently held Caricom Heads of Government meeting in St Kitts.

Much of the region’s economic stability especially at a time of austerity and IMF programmes depends on the continuation of the PetroCaribe arrangement and its pricing structure: factors which should give belated pause for thought not only in the region but also amongst those in Washington and Europe not well disposed to Venezuela’s regional role.

All of which suggests that those who decry President Chavez even as he undergoes further treatment, should be careful what they wish for.

David Jessop is the Director of the Caribbean Council and can be contacted at Previous columns can be found at USA, LLC