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Venezuela could not continue subsidizing oil to Petrocaribe

Venezuela could not continue subsidizing oil to Petrocaribe

Posted by Dubraswka Aguilar on October 17, 2014

There is a prediction that Petrocaribe will be discontinued by the Venezuelan government in the near future. It comes from Prof Anthony Bryan who said the programme has become too costly for a country reeling from political instability and economic challenges. In an interview with the T&T Guardian, Bryan explained that Venezuela was “in serious trouble” and the country was essentially allowing one-third of its total crude production to be sold at discounted rates in Petrocaribe and assistance to Nicaragua and Cuba. “The loss of revenue for Venezuela from these programmes is about 400,000 barrels a day or US$20 billion a year. When you add to that the US$28 billion that the country allows in terms of petroleum subsidies, you can see the problem. So Venezuela will not cut the domestic subsidies because that will be political suicide so it will have to be a case of easing out Petrocaribe,” he said.

In 2005, the Petrocaribe Energy Co-operation Agreement was signed by 14 countries including all Caricom countries with the exception of T&T, Barbados and Montserrat. Under the agreement, the countries purchase petroleum and petroleum products from Venezuela on concessionary terms and the differential between the market and discounted prices are turned into a loan. In addition, the countries can pay for part of their petroleum imports using non-cash mechanisms. Bryan said Jamaica would be particularly vulnerable because the country has used the savings to assist with budgetary support, domestic debt refinancing and infrastructure development. “As you know, Jamaica is going through a tough economic plan with the IMF and it needs the savings from this programme, so if it is forced to pay external prices, that can seriously hurt the country’s economy,” he said.

Bryan, who is professor emeritus at the University of Miami, said he expected the assistance to Cuba and Nicaragua will be reduced, but will remain in place for ideological reasons, but warned that Haiti was likely to be in the same boat as jamaica since they did not provide either ideological or strategic reasons for Caracas to continue support. According to the IMF, Venezuela’s economy has been in almost freefall with market distortions that have created major economic disincentives for investment and production inside the country. This has made Venezuela almost entirely dependent on imports for pretty much everything from electronics to food. As a result, inflation has skyrocketed (56 per cent last year) as the central bank printed more and more bolivars, Venezuela’s currency, to sustain the exchange rate.

Today, the government’s official exchange rate remains locked at 6.3 bolivars to the US dollar, but on the black market, the rate is at 80 to 90 bolivars to the US dollar—around 14 times the official rate. Such disparity means that foreign goods are now incredibly expensive, leading to shortages. It has become so bad that people are only allowed to go to the supermarket once a week, and when they get there, they find little on the shelves. Bryan said he was disappointed that more countries that are beneficiaries of Petrocaribe have not sought to move to alternative fuels and cheaper sources of energy. He said with the exception of the Dominican Republic, Dominica, El Salvador and Jamaica, the rest have not done a lot to seek out options. He said: “I think the Dominican Republic will survive the removal of Petrocaribe because it has an excellent energy mix with renewables and LNG along with crude. Jamaica has been looking at alternative sources of energy and they have invested in wind farms and, of course, El Salvador also has a good energy mix. But I am a bit disappointed that more countries have not gone this way.” Petrocaribe was signed in Puerto la Cruz in Venezuela and is considered part of the Venezuela late President Hugo Chavez’s legacy.

 

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