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PetroCaribe: A crucial solution at a critical time

President Hugo Chavez and Prime Minister PJ Patterson launch PetroCaribe in Montego Bay 2005 President Hugo Chavez and Prime Minister PJ Patterson launch PetroCaribe in Montego Bay 2005
MONTEGO BAY, Jamaica, January 25, 2015— On the heels of first Caribbean Energy Summit being hosted in Washington by US Vice President Joe Biden, the US media seems to be devaluing the role played by Venezuela, through its PetroCaribe initiative which came to the rescue of Caribbean and Latin American governments a decade ago when oil prices were at a crippling high. According to the Associated Press “A decade-long addiction to oil subsidized by Venezuela may be coming to an end for several Caribbean nations, with a nudge from the United States.” “Fears that falling oil prices could knock the wheels off the already wobbly economy of oil-dependent Venezuela have sparked apparent interest in alternatives to Petrocaribe, a trade program created by the late President Hugo Chavez that has kept the region dependent on the South American country for energy,” says the AP article in announcing the start of the US Energy Summit. According to the AP “Caribbean governments began signing on to Petrocaribe in 2005 as a spike in oil prices sent energy and car-fuel costs soaring. Venezuela, which created the program as part of an effort to counter U.S. influence in the region, provides oil and refined products such as diesel at market prices, but it requires member countries to pay only a small portion of the cost up front and allows them to finance the rest under generous long-term debt agreements, as well as to barter for agricultural products or services.” The fact is however, until the United States and its G6 allies begun to wage an economic war on Venezuela, Caribbean and Latin American economies, with the exception of Trinidad and Tobago, had nowhere else to turn except Venezauela, in an effort to get relief from the high oil prices which threatened to cripple their economies. Under the arrangement with Petro Caribe Agreement member nations pay, with some variations, 40 per cent of the cost of the oil price upfront when it is above US$100 per barrel; 50 per cent when it falls within a range of US$100 to US$80 per barrel; 60 per cent at US$80 to US$50 per barrel;  and full payment when the oil price falls below US$15 per barrel. The delayed portion is then transferred to the PetroCaribe Development Fund as a long-term loan repayable at one per cent over 25 years, and the loan proceeds are used to fund development projects and provide budgetary support for the government. According to David Jessop, Director of the Caribbean Council, this means “PetroCaribe member nations may therefore have to find more cash from already constrained budgets to meet the repayment terms as oil prices fall; increase their indebtedness; or agree to some other adjustment such as an increase in the interest rate.” The PetroCaribe arrangement was a God send for Caribbean economies at the time. However, with the changing world economy, and the additional pressure on the Venezuela economy, this may warrant a revisit of the scheme. On Monday as Caribbean leaders converge in Washington for the first Caribbean Energy Security Summit, hosted by Vice President Joe Biden, and with but with oil recently falling to below $50 a barrel, a sense of urgency has emerged given Venezuela's increasingly precarious situation. The focus will be on exploring ways to help Caribbean countries convert diesel-powered energy plants to natural gas and increase use of other alternative energy sources. Such moves would reduce the nearly complete dependence on oil that has made energy expensive in the region and created the opening for Venezuela in the first place. In practical terms, the summit is intended to offer technical assistance, help obtaining financing and advice on regulatory changes that can attract investment, said an official with the vice president's office involved in the event. The word "Venezuela" may not even get mentioned, but it will be on everyone's minds. "These folks are in a situation where Petrocaribe is not as sweet of a deal as it used to be," said the official, who spoke on condition of anonymity to discuss the private, multilateral talks in Washington. There is no doubt that this is part of what Maduro calls the Economic war against Venezuela. However, Caribbean nations are interested primarily in economic survival and not political polemics of the right or left. They take decisions that are in the best interest of their member states and Region. At the moment, there is no sign that Venezuela will end Petrocaribe. Earlier this month, President Nicolas Maduro praised it as a "guarantee of peace, stability, mutual benefit, shared development and fair commerce shared by the entire Caribbean." Still, a prolonged collapse of oil prices could sink an economy already in a deep recession or Caracas could be forced to commit its exports to China to meet its debt obligations.. "It's a little bit like addiction. It's hard for them to break it," said Goldwyn, who is a co-author of a report on Petrocaribe by the Atlantic Council's Adrienne Arsht Latin America Center, one of the organizers of a public portion of Monday's summit. Petrocaribe also has increased indebtedness, adding $3 billion alone to the obligation owed by Jamaica, where the public debt stands at 130 percent of GDP. And, if the program were to fall apart, it would leave its 17 members struggling for alternatives. "I just don't think it's going to be around much longer, or at least not in its full form," said Peter Schechter, director of the Atlantic Council's Latin America Center. "We don't want our closest neighbors in the Caribbean to suddenly be surprised by a situation in which Venezuela is suddenly unable to provide oil." In late October the International Monetary Fund advised Caribbean countries to put contingencies in place to cater for possible interruptions or a complete halt of PetroCaribe. In November, Ronald Harford, the Chairman of Republic Bank, pointed out in an address to the Caribbean Association of Bankers, that the region is consuming energy at levels it could not afford. According to Jessop, “these facts, taken together with the decision by the Saudis to let oil prices float freely, leave the Caribbean as it enters 2015 in a hugely uncertain place.” 
Last modified onSunday, 25 January 2015 10:37