by David Jessop

27-07-08 Venezuela has clearly emerged as by far the Caribbean Basin's single-most important global-development partner. Driven largely by rising oil prices, growing domestic political pressure to contain inflation, and the growing cost of food subsidies, governments across the region are seeing an expansion of their economic relationship with Venezuela as central to their long-term stability.
The implication is that, over time, this will reorient regional relationships, not for any ideological reason, but on the basis of economic reality, and come to reduce significantly the remaining leverage exercised by partners in both Europe and North America.

At a meeting in Maracaibo held on July 13, the Venezuelan president, Hugo Chavez, not only announced significantly improved terms for countries purchasing oil under the PetroCaribe Agreement, but proposed exploring a number of new regional initiatives relating to food security, fertiliser and financing. On energy pricing, the new arrangements will enable the 18 Caribbean and Central American nations that are PetroCaribe members to obtain oil on even more preferential terms than was previously the case.
Under the new proposal, Venezuela will, when crude prices are higher than $ 100 per barrel -- the figure is currently around $ 145 per barrel -- receive payment for 40 % of the cost in 90 days, with the remaining 60 % being repaid in 25 years at an annual average interest rate of 1 %.

It was further agreed that if oil prices were to reach $ 150, PetroCaribe signatory countries would pay 30 % of their bill within 90 days, with the remaining 70 % being subject to special financing terms. Moreover, these long-term arrangements continue to be linked to a development fund which can be used by participating governments for social or infrastructure projects.
Notwithstanding, the latest agreement potentially goes much further, as it appears that up to 50 % of the bill could be paid for with agriculture products, services, including tourism, or in other ways. At the meeting, it was also announced that an oil block in the Orinoco belt would be assigned to PetroCaribe's member countries.

In the case of Cuba, the arrangement is more significant still, involving investments that include a refinery and the enlargement and construction of new petro-chemical and other facilities. Among these are a project to enlarge the Camilo Cienfuegos plant, in central Cuba, in which $ 3.6 bn will be invested to increase its processing capacity to 150 mm barrels of oil a day.
There are also a wide range of other agreements that include the provision of medical and teaching services by Cuba, and Venezuelan support with financing of agricultural development in Cuba.

Elsewhere in the Caribbean, there are also other Venezuelan-backed projects under way. In Jamaica, money is being provided for the enlargement of a refinery in Kingston for completion in 2012 to increase its capacity by 15,000 bpd.
Recent remarks by Jamaica's Minister of Finance Audley Shaw suggest that PetroCaribe development funds are now playing a key role in the economy, having been used as loans for Air Jamaica and to support Clarendon Alumina Partners, the Port Authority of Jamaica and the Sugar Company of Jamaica, and in future, for developing revenue-earning facilities.

In Central America, in order to meet growing energy demands, $ 4.41 bn is to be invested in the refinery El Supremo Sueno de Bolívar in Nicaragua. Other oil refineries are also to be constructed in Dominica and Haiti, involving an investment of $ 340 mm. Elsewhere in the region, Venezuela is involved in the construction of infrastructure for the storage and transportation of oil and petroleum products and is considering the construction of a transregional gas pipeline and related facilities.
Although published figures vary, it is suggested that the investment in joint-venture companies to provide infrastructure for storage and distribution is costing $ 550 mm and that social funds for the region, excluding Cuba, may amount to $ 100 mm. Reports from the Maracaibo meeting suggest that other initiatives are also possible if the price of oil and related products such as fertiliser remain high.

Caribbean government representatives attending discussed closer cooperation to expand their food supply and addressed the high cost of fertiliser. In order to take such initiatives forward, a council of agriculture ministers was created, which is to meet for the first time in Tegucigalpa, Honduras.
According to a recent report, the total value of these arrangements is huge and set to rise. The report also noted that the PetroCaribe oil arrangement alone is equivalent to 43 % of the $ 4.7 bn cost of the 59 mm barrels of oil Venezuela has sent to PetroCaribe members since 2005. It also noted that members of the scheme have saved an estimated $ 921 mm through the spread between PetroCaribe's 1 % financing rate and the cost of raising money on the credit markets.

Supply from Trinidad
Meanwhile, it is becoming apparent that Trinidad's role as a regional energy supplier is becoming ever-more marginal. Moreover, there are indications that Port-of-Spain may also have become less central to Venezuela's offshore gas plans. In 2007, President Chavez had provisionally agreed that gas from a new platform known as Deltana would be processed in Trinidad's LNG facilities; but sources suggest that this now is less certain.
Coincidentally or otherwise, Barbados -- like Trinidad, a previous critic of the PetroCaribe arrangement -- appears to be subject to a claim that two of the 24 offshore blocks that it is planning to offer to foreign oil companies are in Venezuelan waters.

Outside the region, concern continues to be expressed about the political implications of the PetroCaribe arrangement, but such politically driven comments appear increasingly vacuous as no other nation is prepared to support Caribbean governments to the extent or in the practical ways that President Hugo Chavez is.
More potent potentially are concerns less frequently expressed about the destabilising effect on the region of any change of government in Caracas. So much so that the region's future economic fortunes now depend heavily on the continuation politically of President Chavez, as it is far from clear whether electoral change in Venezuela would produce a leader who would continue the same policies.

What all of this appears to mean is an increasing macroeconomic reliance in the Caribbean on Venezuela for energy and development support. Fortunately for the rest of the region, there are signs that in Venezuela,
Mr Chavez has moderated some of his more centralising tendencies and is placing greater emphasis on trying to deliver domestic social and economic programmes that will retain the support of the poor who placed him in office.

Influencing Cuba
There are also indications that Cuba is encouraging the institutionalisation of the existing PetroCaribe arrangements.
Traditionally, Caribbean relations withLatin neighbours have not been easy. The implications and value of the positive and central role that Venezuela is playing underwriting almost all Caribbean economies needs to be better understood by those outside of the region, as do the downside economic risks by those who benefit from the PetroCaribe arrangement.

David Jessop is director of the Caribbean Council. Email: david.jessop@ caribbean-council.org