Introduction
Today’s column, along with next week’s will concentrate on 1) an evaluation of the role the PetroCaribe initiative has been playing in the region’s regime of crude oil importation, since its establishment in 2005, and 2) an assessment of the near-to-medium prospects of this initiative, with special reference to Guyana’s membership. As I hinted last week, the non-transparent management and operational structure of the initiative combined with its poor track-record in regard to the timely provision of financial, economic, and other operational data, have proved to be formidable hindrances to my fulfilling the objectives indicated above. It should be noted however that the several weaknesses of PetroCaribe, which I shall reference later are not confined to the initiative’s patron, Venezuela, but instead apply across the board to every PetroCaribe member.
In the following section I provide selected indicators of those features of the initiative’s financial and economic operations that I was able to obtain.
Operational features
While the reported estimates I have come across vary significantly, particularly between those found in English and Spanish publications, there appears to be some general agreement that Venezuela has disbursed since 2005 to date approximately US$28-30 billion to members of PetroCaribe. The subsidy value of this has been roughly estimated to average US$8 billion per year over recent years. Secondly, the consensus estimate appears to be that approximately US$16 billion of this disbursement (more than one-half) has been repaid so far. Of this amount, about one fifth or approximately US$3 billion, has been repaid in the form of goods, for example rice exports from Guyana.
Thirdly, Venezuela seems to have exported under this initiative during the past three years, approximately 120,000-140,000 barrels of oil per day to PetroCaribe members. Of further note, Venezuela also dispenses under a separate arrangement, on average, about 100,000 barrels per day to Cuba. Fourthly, it is further estimated that PetroCaribe costs Venezuela as much as US$6-7 billion annually.
Fifthly, the disaggregated data also reveal that in recent times the ratio of oil consumption through PetroCaribe to the GDP of Caricom members has been quite significant, varying between 6 and 16 per cent. Indeed Guyana’s ratio of the value of its PetroCaribe oil consumption to its GDP is presently about 11 per cent. Jamaica has the highest ratio in the region at 16 per cent; and together with the Dominican Republic these two are easily the biggest financial/oil beneficiaries under PetroCaribe. Importantly Jamaica had revealed at the end of 2014 that its PetroCaribe debt was as high as US$3.5billion. Not surprisingly, the consensus estimate is that the highly indebted Caricom economies will be carrying as a group roughly one-third of their total national debt as PetroCaribe debt by the end of this year.
At this juncture I urge readers to recall that in last week column I had proffered the opinion that, in essence, the PetroCaribe initiative is genuinely altruistic in its goals and objectives. Its lofty goals and objectives include promoting fair trade, pursuing economic complementarities, development based on principles of sustainability, social justice, energy security, combined political will and maximum efforts to pursue the deepest and widest possible regional Latin American and Caribbean solidarity and integration. Unfortunately I believe that, unintentionally, these goals and objectives are placing far too much economic and political pressure on the Venezuelan economy and society, especially in the recent period since mid-2014 of rapidly declining global crude oil prices.
Guyana’s oil dependence
At this point it would be useful for readers to recall how heavy Guyana’s dependence on imported oil is. The country has spent annually in recent years (over 2012-13) as much as US$600 million on imported fuel and lubicants. This has been equal to approximately 30 per cent of the total value of all its total imports for those years; 43 per cent of the value of all its exports, and 24 per cent of GDP for those years. The strategic need for alternate energy sources in Guyana is therefore strikingly self-evident. If however private investors cannot address this strategic need and taxpayers are required to provide finance for either public or private-public projects aimed at providing alternate energy supplies then such investments would have to satisfy the basic economic efficiency criteria for public spending. This means that at the minimum any proposed project would have to be subjected to social cost-benefit and financial appraisal as well as evaluated for risk and uncertainty in order to determine the best economic use of scarce public resources.
Unlike several other Caricom members (for example, Jamaica, Suriname and Trinidad and Tobago) Guyana does not have its own crude oil refining capacity. As a result it does not import crude oil directly from Venezuela for further processing and thereafter local distribution. As a rule, where there is local refining capacity, a sale-purchase arrangement is separately negotiated and agreed to with the local refiner under the broad rubric of PetroCaribe. This would serve as the overall framework agreement for these sales.
Guyana has however negotiated a special deal, “rice for oil swap”, with Venezuela under the PetroCaribe initiative. Late last year the Minister of Finance, Dr Ashni Singh announced Guyana had completed a fourth debt compensation agreement with Venezuela in the form of a partial write-off of the debt it owed under PetroCaribe in exchange for rice exports. He has also indicated recently that Guyana is hoping to add sugar and other products to rice exports as a further means of repayment under the initiative.
Conclusion
Next week I will wrap up this evaluation of PetroCaribe, which accounts for about 45 per cent to one-half of Guyana’s oil imports by focusing on 1) its revealed contradictions and 2) thereafter its prospects for Guyana, if, as most analysts today project low global prices for crude oil (that is less than US$50 per barrel) continue well into 2016.
Put another way, the crucial question is whether the PetroCaribe initiative can survive a protracted period of low global oil prices? Or, is it instead doomed to become another dreaded instance of ‘pathological altruism’ where, as I indicated last week, it comes to be realized that the way to hell is paved with the good intentions of PetroCaribe?
