Submersible
The change of government and the aggression shown by Venezuela towards Guyana have brought the PetroCaribe energy agreement into sharp focus. In existence since June 
2005, the PetroCaribe agreement existed like a submersible operating at shallow depths below the surface of the water and with parts of the programme becoming visible every now and then. Earlier this year, the programme became the focus of attention as the price of oil began to decline and public officials and analysts alike in Guyana speculated about the survivability of the programme. Even before concerns about the longevity of the PetroCaribe programme for Guyana could subside, the matter raised its head once again following the passing of the obnoxious Decree 1787 by Venezuela in an attempt to usurp Guyana’s maritime space. For many Guyanese, PetroCaribe has become synonymous more with rice than with the acquisition of oil under favourable terms that underlie the energy agreement. During the 2015 election campaign, former President Bharrat Jagdeo was at pains to explain to rice farmers in the Essequibo that PetroCaribe had little to do with rice and more to do with the sale of oil at concessionary prices. The symbiotic relationship that has developed between the two commodities, encouraged by his own government and party, made that a hard sell. Like the rice farmers, many Guyanese remain uncertain as to what PetroCaribe is about and its implications for the security and economic future of the country. This article attempts to offer some thoughts on those issues.
A man of compassion
The PetroCaribe Energy Co-operation Agreement is a creation of the late Hugo Chávez Frias who served as President of the Bolivarian Republic of Venezuela from February 1999 to March 2013. It is said that action speaks louder than words, and if one were to go by his actions, the late President Hugo Chávez, appeared to be a man of compassion. The PetroCaribe programme that he created had three goals in mind. One was to contribute to the social and economic development of the countries of the Caribbean. Another was to achieve integration of the countries of the Caribbean. A third objective of the agreement was to contribute to the energy security of the countries of the Caribbean. These are all laudable objectives, even though one could also see from the language of the agreement and alliances that President Chávez sought ways not only to avoid, but also to challenge, US dominance in the Latin American and Caribbean region. The nation that had pleaded between 1876 and 1895, on the basis of the Monroe Doctrine, for US intervention to have its border issue with British Guiana settled was spurning a benefactor of many years in the 21st century.
Threat
Given the border controversy between Guyana and Venezuela, the issue of Guyana’s security cannot be excluded from any discourse on PetroCaribe. Such a focus helps Guyanese to understand the implications of Guyana’s diplomatic posture with Caricom and the rest of the world. This security factor is also intertwined with the production and finance structures of the Guyana economy and underscores the need for Guyana to always proceed with caution when dealing in the PetroCaribe world. In the short period that Guyana has been part of the programme, there is clear evidence that PetroCaribe has altered the production structure of the country and, without due care, could pose a threat to the stability of the economy.
Guyana is heavily dependent on oil imports. Fuel and lubricants account for nearly one-third of the import bill of Guyana. It is understood that Guyana obtains half of its fuel needs from Venezuela. The price of oil automatically triggers the financing option that is available to Guyana under PetroCaribe. From 2005 to present, the price of oil was hardly ever below US$40 per barrel. For the most part, the price of oil has been above US$50 per barrel. At that price level, the 50-per cent level financing was automatically triggered. This meant that Guyana had to pay cash for 50 per cent of its oil purchases from Venezuela and had the option of financing the other 50 per cent of its oil purchases from the same source for 25 years. Purchased under those terms, PetroCaribe provided Guyana with balance-of-payments support to meet some of its import needs on conditions superior to those offered by the International Monetary Fund (IMF) to lower middle-income countries.
Export component
The PetroCaribe programme also contained an export component that allowed beneficiary countries to pay their oil bill. This component provides some balance in the trade relationship with Venezuela and makes PetroCaribe an attractive mechanism for stimulating production in member countries. Examples of products that could enter the trade relations include chicken, black beans, rice, and animal feed. Agricultural products were not the only items that Venezuela was willing to import under the PetroCaribe programme. Jamaica, for example, was able to export electronic equipment, sulphur and cement to Venezuela as well, and is seeking ways to expand its sale of these items in the Bolivarian market. It was also a means by which oil purchases could be paid. Guyana did not begin to take advantage of this opportunity until 2009 when it sold its first set of rice under the programme, 4,104 MT, to Venezuela. However, once the market opened up, Guyana pursued it aggressively. Exports to Venezuela skyrocketed in 2010 to nearly 86,000 MT and made Venezuela the single largest importer of Guyana’s rice ever since then. Within the short window of three years, 66 per cent of Guyana’s rice exports were going to Venezuela even though that figure fell back to about 60 per cent in 2013.
It is not clear why no other product featured as prominently as rice in the loan repayment programme. One could find an explanation in the trade liberalization theory of comparative advantage. Guyana no doubt felt that it could produce the rice relatively cheaply to make it attractive to the Venezuelan market. One should keep in mind also that the surge in the Venezuelan market occurred at the same time that the European market began to dwindle. On the surface, it appears that the Venezuelan market was used primarily to compensate for the loss of European market share. This priority focus has led to Guyana increasing its rice production more than twofold from 2006 to 2014. During that same period, Guyana reallocated in excess of three times as many resources to rice as it did in 2006. It is not surprising that Guyanese reached the conclusion that PetroCaribe was about oil in exchange for rice. What is surprising is that despite getting a lucrative return on the trade in rice, rice farmers continue to be underpaid or paid very late for their produce. A facility that is supposed to have the cash available is unable to meet its payments on time. This negative experience of rice farmers underscores the non-transparent way in which the PetroCaribe funds were managed, a point already alluded to by Professor Thomas in his articles on the PetroCaribe subject, and raise suspicions about the integrity of the account.
Major contributor
PetroCaribe has also produced changes in the finance structure in Guyana. Financing is about borrowing money and repaying money and is therefore linked to the public debt. The part of Guyana’s debt that is relevant to PetroCaribe is its external debt which is made up of obligations to bilateral creditors, multilateral creditors, suppliers and money borrowed in private markets. The major creditors of Guyana are the bilateral and multilateral creditors. They account for over 97 per cent of all external debt owed by Guyana. Bilateral creditors are grouped as Paris Club members and non-Paris Club members. A review of the data presented in the 2008 Budget shows that the non-Paris Club portion of Guyana’s debt, which is where Guyana’s debt to Venezuela shows up, represented 13 per cent of Guyana’s external debt. By 2013, the non-Paris Club component of the debt had climbed to approximately 38 per cent of Guyana’s overall external debt.
A major contributor to this shift in the finance structure was the balance-of-payments support that was provided under PetroCaribe. In 2005, Venezuela’s portion of the non-Paris Club debt was about eight per cent while its share of the overall external debt was one per cent. By 2012, the influence of PetroCaribe on Guyana’s debt structure was obvious. At 2012, Venezuela was responsible for nearly 59 per cent of the non-Paris Club debt and about 27 per cent of the overall external debt of Guyana. As of 2013, Guyana’s dependence on the Latin American creditor had declined with Venezuela’s financial claim on assets in Guyana falling to 42 per cent of the non-Paris Club debt and 15 per cent of Guyana’s total external debt.
The benefits of PetroCaribe to Guyana seem to fall away under the financing arrangement. Because the price of oil was consistently over US$50 per barrel, the debt incurred by Guyana could be repaid over 25 years at the highly concessional rate of one per cent per annum. Yet within the period 2011 to 2013, the PPP/C government rushed to pay off a debt that it could easily manage. Many wonder why Guyana was in a hurry to repay Venezuela its low-cost debt ahead of time. There was a mad rush too to expand rice cultivation and exports since rice was the ‘currency’ used to offset the debt. The unexplained rush to repay Venezuela ahead of time sparked speculation that Guyana was seeking to bring its debt level and debt-servicing burden within acceptable limits as it sought to secure additional financing for the Amaila Falls hydroelectric project. This assertion clearly needs further research to validate the claim. But for sure, the Amaila Falls project collapsed and the energy savings that were anticipated were never realized. Rice became a ‘currency’ with little value as the Venezuelan market was exhausted and new markets are yet to materialize.
Energy security
Rice exports it seems were being used to push Guyana’s energy security. With Amaila Falls dead and the PetroCaribe programme in doubt, the third objective of the PetroCaribe programme is under threat. Nevertheless, the relevance of energy security under PetroCaribe is an interesting one for Guyana. For a country like Guyana which believes that Venezuela cannot always be relied on to keep its word given the way it has turned its back on the 1899 Arbitral Award which settled its borders with Guyana, energy security could only mean one thing and, that is energy independence. For Venezuela, on the other hand, energy security seems to imply energy dependence where Guyana is concerned. This latter perspective is based on the attitude of Venezuela when it comes to Guyana and the pursuit of its energy needs. In the 1970s when Guyana was building a hydro in the Mazaruni that would have made it energy independent, Venezuela challenged Guyana’s efforts and caused progress to be halted. When Guyana was building the Amaila Falls hydro which would not give the country energy independence, Vene-zuela did not object. The discovery of significant quantities of oil by ExxonMobil that was likely to make Guyana energy independent now has thrown Venezuela into a tizzy.
So, PetroCaribe therefore cannot be seen as a mere economic instrument for development and regional unity where Guyana is concerned because each of its objectives has different implications for Guyana. In all instances, Guyana cannot afford to become too dependent on PetroCaribe and it ought to keep in mind that there are no free lunches.
