Changes proposed for PetroCaribe Agreement

St. Vincent and the Grenadines is not opposed to the changes being proposed to the PetroCaribe Agreement, but Prime Minister Dr Ralph Gonsalves has expressed concern about the timing of the changes and how they might affect some Caribbean countries.{{more}}

“It is disadvantageous if you don’t have the US dollars to pay for the fuel, but if you have it, you will get it back in a short period of time,” Dr. Gonsalves told Searchlight.

Under the existing PetroCaribe arrangement, governments buy fuel from Venezuela at market value, but only part of the price is paid upfront; the remainder is paid through a 25-year financing agreement at an interest rate of one per cent.

At present, 60 per cent of the market price of the fuel is paid up front to the suppliers, while the balance is retained locally by participating countries and paid into a fund to be used for local projects.

However, Venezuela has indicated that they wish to change the agreement. It is being proposed that 80 per cent of the price of the oil should be paid up front, with 50 per cent of that going to the suppliers, while 30 per cent will be paid to a PetroCaribe fund at the Alba Bank. The funds paid to the Alba Bank will then be available for participating countries to borrow.

“We will have to apply to the bank… and we will get back the money….There would be guidelines that all of us would determine. The management of the fund is going to be vital. It can’t be unilateral,” said Dr Gonsalves when asked if Caracas would be the sole decision maker regarding the approval of loans.

The balance of 20 per cent will be retained by participating countries to be used for budgetary support and local projects, and repaid over 25 years at an interest rate of one per cent.

Stressing that this is only a proposal that may yet be amended several times, Dr. Gonsalves said that such an arrangement will “put an immense strain” on the fiscal situation of countries such as Jamaica which bought US$700 million worth of fuel from PetroCaribe last year. Having to come up with US$560 million up front (80 per cent) may hasten that country’s “rush to the IMF (International Monetary Fund)” and put pressure on their currency, he said.

Dr Gonsalves is also of the view that the changes cannot work “in this period of difficulty” and any money which CARICOM countries have already retained should be held under the old formula.

In the case of St. Vincent and the Grenadines, the pressure on the foreign exchange is not that high, Dr. Gonsalves, who is also the Minister of Finance, disclosed. “Once we can get the money back in a good time, it’s no problem for us,” he said.

Additionally, because of this country’s limited capacity for storing fuel, only Liquefied Petroleum Gas (LPG) and forty percent of the fuel requirement for mainland St Vincent is purchased through PetroCaribe. “When the storage tanks are finished, it (PetroCaribe) would be an even bigger help to us than it is at the moment,” Dr Gonsalves said.

Despite the relatively small quantity of fuel purchased by this country through PetroCaribe, the arrangement, according to Dr Gonsalves, still brings tremendous benefit to St. Vincent and the Grenadines. He told Searchlight that $18 million of the $20 million in the local PetroCaribe fund has recently been approved as a loan to the International Airport Development Company.

It is widely felt that Caracas has moved to propose these changes because of a tightened liquidity situation at home. But this may not have been the only reason. An official familiar with the workings of PetroCaribe told Searchlight that some governments have not been making interest payments on the credit of 40 per cent, while others have not been making any payments at all, even for the part of the price of the fuel which has to be paid up front.

When asked whether St. Vincent and the Grenadines has been meeting its commitments to Caracas, Prime Minister Gonsalves was quick to assure that it has. “Yes, yes, yes, we are current,” he said.

PetroCaribe member countries are Antigua and Barbuda, the Bahamas, Belize, Cuba, Dominica, the Dominican Republic, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, St. Kitts and Nevis, St. and the Grenadines, Saint Lucia, Suriname and Venezuela.

Barbados and Trinidad & Tobago are the only two Caribbean countries that are not part of PetroCaribe.

Last week, at a press briefing in Jamaica following a meeting to craft appropriate strategies in response to the global economic crisis and its impact on the region, Guyana’s President and CARICOM Chairman Bharrat Jagdeo said the region “would like the impending changes altered or delayed and particularly over the period when we have some difficulties.”

He said, CARICOM countries, including Jamaica, which feel endangered by proposed changes are to approach Venezuela for a compromise.