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PetroCaribe and the Caribbean: Is the party over?

ANTON EDMUNDS

Published: Jul 05, 2013

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Statements by the government of Haiti that Venezuela and PetroCaribe are responsible for 94 percent of that country’s public investment sheds some light on the value of PetroCaribe for this particular domicile, but begs the broader question as to whether PetroCaribe is sustainable and, if not, what’s next for the Caribbean countries who are members. Below are some thoughts from a recent presentation made by the author on CARICOM and PetroCaribe at the Center for Strategic & International Studies (CSIS).

As it relates to energy, Venezuela and PetroCaribe offered the Caribbean a lifeline of sorts when the majority of the Caribbean countries were struggling to pay their energy bills. The rise in oil prices at a time that countries were facing financial strain allowed for their agreement to a proffered deal that – in broad strokes – allows them to either pay a percentage of their oil bill within 90 days or enjoy a one- to three-year grace period and pay the remainder over the next 25 years at a fixed interest rate of one percent.

While considered a godsend to some, many a critic point out that the agreement allows countries to delay paying their bills and, insidiously, allows political leaders to do nothing more than mortgage the futures of their nations. Interesting to these critics is the fact that the price of fuel has not been lowered and governments have continued to collect tariffs on fuel imports, just as in the past. In essence the consumer still pays full price.

In any event, into the breach entered Venezuela and PetroCaribe with the political argument/agenda that the existing system that many would argue was free market based was in fact stymieing the growth of the region. And into PetroCaribe and ALBA came the majority of Caribbean countries looking for a deferred payment plan, the promise of government-to-government aid, and a supposed alternative to a U.S.-led Free Trade Area of the Americas.

 

The situation

Today the question is what now and what next considering the passing of the architect and driver of PetroCaribe in Hugo Chavez; the increasing economic pressures that the new administration in Caracas faces considering Venezuela’s own socio-economic problems and the fact that PetroCaribe countries are now finding themselves heavily indebted to Venezuela. In fact, some regional experts have noted that Caribbean debt obligations to Venezuela may make it difficult for many countries to access funds from the open market and multilateral community because this debt is not reflected in their public financials.

While the illness and passing of Hugo Chavez was bracing for many regional leaders, more worrisome was the possibility that the opposition would have won the presidential election, considering the assertion that PetroCaribe would be reassessed. While the Nicolas Maduro-led administration vows to continue the program and sighs of relief are audible, there has to be a recognition that the personalized relationship that many had with Chavez and the personality that characterized Venezuela’s largesse and PetroCaribe’s evolution is gone. In fact, for the Caribbean, the tight election may be a harbinger of the future and a sign that the benefactor relationship as currently constituted is not assured.

As mentioned prior, Venezuela’s serious social and economic issues are very real and should not be ignored. Venezuela’s sovereign debt load is high, which should worry its leaders as well as the leaders of those countries presently benefiting from its main resource. Examples are many of the country’s domestic problems, and the fact that Venezuela is spending billions to import refined petroleum products itself, as well as importing food products and staples such as toilet paper, cannot be passed off as imperialist plots to destabilize the government.

In terms of energy opportunities for the Caribbean, there are quite a few that need to be explored though they all have complications. With the United States a budding liquefied natural gas (LNG) exporter, there may be opportunities for inserting LNG into the regional energy mix, though there are questions as to whether the political underpinnings of PetroCaribe will allow the region to look seriously at this option. Maybe more problematic would be the economics of LNG for small Caribbean markets, including the viability and costs associated with pipelines and small processing plants.

Interestingly, efficiency and renewable solutions are again being promoted and embraced and a CARICOM commitment to see renewables as 47 percent of the regional energy mix by 2027 is hopeful. It should be noted, however, that efforts to promote renewables in the region have had mixed and sometimes disappointing results due to lack of political will, costs and a lack of engagement of the private sector into the equation.

A dusting off of decades of work and significant inputs from donors on the creation of draft legislation and mapping could however allow the region to jumpstart programs in this space. Here once again, the politics of energy vis-à-vis the region’s interests and that of the U.S., Europe and Venezuela will need to be carefully navigated.

 

Finding a way forward

Outside of LNG and renewables, the elephant in the room as it relates to regional energy is Trinidad and Tobago. As a producer of oil, as well as LNG, it should be a natural that the region finds a way to source product from that market. The fact that Trinidad itself may be in need of a market for its product as its main client in the U.S. is soon to be in the production business should bode well for the Caribbean.

Unfortunately, a critical impediment is the strained relationship that many in the region have with Trinidad and Tobago and the fact that Trinidad and Tobago will not offer concessions and sweeteners similar to what Venezuela does. Threats of lawsuits arguing that under the Treaty of Chaguaramas, Trinidad and Tobago has an obligation to provide energy at very near cost excluding transportation costs to CARICOM member countries remain a serious impediment to advancing on this option.

The clock is ticking, however, as recent Chinese interest in Trinidad and Tobago may serve to leave the broader Caribbean on the sidelines if a mutually beneficial arrangement can’t be arrived at soon.

At the end of the day, the reality is that Caribbean countries will remain with PetroCaribe unless forced out. While some describe the region as being addicted to the arrangement with no thought to the possible hangover, there are some realities that should not be ignored, namely:

• Venezuela and PetroCaribe are for many the largest creditor, but with such a debt load untenable and unlikely ever to be repaid, there may be no easy way for a country to voluntarily leave PetroCaribe.

• Venezuela supports are also focused on the public sector, allowing governments to administer funds for initiatives at a time when coffers are stretched thin. This allows access to resources for political leadership that it is unlikely to eschew.

• Renewables and LNG will take time to develop and the region will have to pay for it or find deep pocketed benefactors.

• While ideological ties have boundaries (Caribbean countries recognize the need for strong relationships with the West), an antagonistic relationship with a United States that is seen to be a less than committed partner on certain issues encourages many Caribbean leaders to view Venezuela as a protector of sorts.

As for PetroCaribe, there is the real possibility that Venezuela will jettison the Caribbean, though there may be exceptions in Cuba and Haiti. Even recent pronouncements about the expansion of regional integration through PetroCaribe and ALBA do undermine the reality that the inability to maintain the program in its current form may be a problem for Caracas.

That special mix of deferred payments and aid programs to Caribbean governments will be a key deciding factor, as will be the increased clamoring of Venezuela’s population for resources to be dedicated to domestic needs. Faced with having to pay for fuel at closer to market terms and/or the pressure to enter further into a socio-political allegiance that may be unfamiliar will also help determine who stays and who is shown the door.


• Anton Edmunds is the head of The Edmunds Group International, a consulting firm focused on the Caribbean region and a senior associate at the Center for Strategic & International Studies (CSIS). Published with the permission of caribbeannewsnow.com.

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