Barbados: The case against PetroCaribe

Oct 02, 2005 02:00 AM

Unlike other Caribbean oil importing countries, Barbados did not sign Venezuela's most recent oil facility initiative known as PetroCaribe.
The following is an edited version of a statement on the PetroCaribe Agreement by Minister of Energy Anthony Wood published in the September 18 edition of the Barbados Nation's Sunday paper, the Sunday Sun.

The PetroCaribe agreement aims to integrate the energy sectors of Venezuela and Caribbean countries, including Cuba. The arrangement also covers the Dominican Republic.
PetroCaribe would be responsible for co-ordinating and managing all issues associated with the energy-related links between the signatory countries in accordance with the agreement. Simply put, the petroleum company of Venezuela, through institutional arrangements established in the agreement, will have extensive reach into virtually all aspects of the petroleum sectors in signatory countries.

1. Pricing
Under the agreement, Venezuela will continueto sell oil at prevailing market prices, in accordance with its obligations as a member of OPEC (Organisation of Petroleum Exporting Countries); PetroCaribe makes it easier for countries to purchase petroleum products from Venezuela through the use of cash and a loan facility; and not through discounted prices. That is, a sort of pay-later plan.
If the price of oil is $ 70 per barrel a country will pay 60 % or $ 42 per barrel in cash at the time of delivery of the shipment. The remaining 40 %, or $ 28 per barrel, will be converted into a loan.

The conditions of the loan are as follows:
-- Interest rate of 1 % over a term ranging from 17 to 25 years with two years' moratorium.
-- When the price per barrel is below $ 40, the repayment period or term of the loan is a minimum period of 17 years, and above $ 40 per barrel, the repayment period rises to a maximum of 25 years. This simple illustration emphasises the point that PetroCaribe does not offer cheap oil (oil at heavily discounted prices) to signatory countries. It presents a short-term cash flow ease as distinct from better prices. It is also important to note that part of the unfunded portion of the shipments from Venezuela can be handled through the use of agricultural commodities and services.

2. Alba Caribe Fund for Social and Economic Development
Contributions are to be drawn from the financed portion of oil invoicing and the savings from direct trade. In effect, signatory countries are expected to contribute to the fund in a manner to be determined.
Venezuela has pledged an initial amount of $ 50 mm to activate the fund.

3. Governance
The highest policy making body of PetroCaribe is the Ministerial Council comprising ministers of energy or their representatives. This council was formally established in Montego Bay, Jamaica, in September.
The minister of energy and petroleum of Venezuela is the permanent president of the Ministerial Council and Jamaica was appointed deputy president for the first year, being the host country for the first meeting. Subsequently, the position of the deputy president will be rotated.

The main functions of the council are:
-- co-ordinate relevant policies, strategies and plans;
-- delegate functions and responsibilities to the agencies created for the fulfilment of specific tasks, whenever necessary;
-- agree on and approve issues of absolute priority to the organisation, as well as studies, workshops and work sessions, with a view to providing the necessary technical and legal support for these issues;
-- exercise its fullest authority with regard to the performance of the executive secretariat;
-- agree on the admission or withdrawal of members whenever required.

There will also be an executive secretariat located within the Ministry of Energy and Petroleum of Venezuela. This secretariat will service the Ministerial Council. The main functions of the executive secretariat are as follows:
-- prepare the agendas of the meetings of the Council of Ministers;
-- directly manage and administer Related-related affairs;
-- ensure the implementation and follow-up of the decisions adopted by the Council of Ministers and submit the relevant reports and recommendations.
-- prioritise the studies and projects defined by the Council of Ministers;
-- propose the allocation of resources for the performance of all necessary studies.

4. Operating aspects
At the operational level, a company PDV Caribe, will execute all arrangements pertaining to PetroCaribe. PDV Caribe will be an affiliate of the petroleum company of Venezuela , PdVSA. Essentially, PDV Caribe will be responsible for organising a logistics network of ships, storage facilities and terminals.
It is intended in PetroCaribe that supply arrangements will be undertaken between PdVSA (through PDV Caribe) and state-owned companies, and that the freighting of products will be at cost (rather than market price) using Venezuelan tankers. Recognising that in almost all the islands the infrastructure is owned by major oil companies, Venezuela is prepared, through PetroCaribe, to establish terminals and infrastructure, wherever necessary, to allow the individual islands to benefit from the concept.

5. Energy efficiency
PetroCaribe will seek to add energy-saving programmes to supply-related arrangements. Signatory countries may access technology to enable them to develop functional energy-efficient programmes and systems.

To appreciate and understand the impact of PetroCaribe on Barbados and other countries in the region, one should first have a detailed knowledge of the structure of the petroleum sector in these economies.
The focus should be on the level of Government involvement to the sector and the logistical arrangements along every segment of the transactional chain.

The salient features of the petroleum sector in Barbados are:
-- state agencies such as Barbados National Oil Company Ltd. (BNOCL), which looks after exploration activities, and the Barbados National Terminal Company which deals with the terminalling operations. Barbados' crude oil is processed by Petrotrin of Trinidad and Tobago via a processing agreement. Barbados also has a procurement agreement with the same Trinidad company.
-- the freight arrangements for petroleum products entering Barbados from Trinidad and Tobago are handled by both BNOCL and the major oil companies operating in Barbados, namely Shell, Esso and Texaco. Imported petroleum products such as diesel, gasoline, kerosene and liquefied petroleum gas (LPG) are price-controlled items. At the retail level the infrastructure is largely owned by the major oil companies, including the SOL Group.

However, in the Organisation of Eastern Caribbean States, for example, the major oil companies are in charge of the shipping arrangements and the infrastructure, both for storage and for retailing.
The government's main involvement is in the regulation of prices. These countries have no exploration programmes.

Is PetroCaribe advantageous to Barbados?
-- PetroCaribe will not deliver discounted prices for petroleum products. Further, oil and petroleum products originating in Venezuela will attract the Common External Tariff (CET) which at the moment stands at 20 %. The impact of the application of the CET will be to make these already expensive products more costly. In the current arrangement with Petrotrin, Barbados obtains rebates and discounts on its purchases of petroleum products. During the last year these discounts and rebates were worth about $ 4.2 mm.
-- The agreement will result in debt-accumulation at a tremendous rate. Based on the value of our petroleum imports last year of just over BDS$ 342 mm, with a price of oil at $ 70 a barrel, the addition to Barbados' debt would be about BDS$ 136 mm. The debt implication of the PetroCaribe agreement runs counter to the Government's debt management strategy.
Consumers in signatory countries may be called upon to pay for the product twice(at the point of purchase and when the country is required to liquidate the debt).

-- Barbados will not benefit from the offer for infrastructure like other countries in which the government does not own the storage facilities. The Barbados Government spent just under $ 140 mm in a new petroleum distribution project to boost our storage capacity, modernise the transmission infrastructure and cement BNTCL's role in the petroleum sector.
-- Barbados also has to consider the refining of our crude oil. Previously, the Venezuelans indicated to Barbados their unwillingness to refine our crude because of the small quantities and the fact that it would be delivered by ships.
-- Barbados is seeking even more competitive freight rates as a means of effecting some savings along the transactional chain.
-- Since PetroCaribe will only allow for trading with state agencies, the investments of the regional and international private sectors will be at risk. A stated aim of PetroCaribe is the removal of the middle men, that is, the private sector.

Responding Leader of the Clement Payne Movement, David Comissiong, should understand that selling sugar in the present raw bulk form to Venezuela as opposed to Europe will not be the saviour for the sugar industry. Barbados is a very high-cost producer of raw sugar, one of the most uncompetitive producers in the world, and the way to save the industry is to transform into a sugar cane industry in the manner being pursued by Government.
Emphasis is on (1) branding, (2) producing fuel cane to help with our alternative energy programme and hence reduce our dependence on import fossil fuel for electricity generation, and (3) producing value-added products.

Source: Trinidad Express
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