Headline — 09 December 2014 — by Adele Ramos
PetroCaribe pain visits Belize

BELIZE CITY–Two weeks ago, there were chants of praise and celebration on Independence Hill over the $228 million in cut-rate financing which Belize has received from Venezuela since 2012 under the PetroCaribe accord, but today, prospects for the continuity of that program seem to be fading amid fears that economic turmoil in Venezuela could force that country to abort the concessionary deal, which is supposed to finance new helicopters for the Belize Defence Force as well as external exam fees for high school graduates and the payment of mortgages this month for thousands of homeowners in Belize.

Under the terms of the PetroCaribe accord, Venezuela only needs to give Belize 30 days’ notice of its intent to change the program or cancel it altogether.

Today, Prime Minister and Minister of Finance Dean Barrow confirmed to journalists in Belize that Venezuela will soon cut its exports of premium fuel to Belize, and as a result, Government vehicles will use regular gasoline instead. That realization has changed the mantra of “PetroCaribe, roll it!” to “we will roll with the punches…”

Barrow was candid in speaking with the media today, explaining that to make up for the 13 to 15% loss that the Government will face due to the halt in premium gasoline shipments, “Government vehicles will use only regular” gasoline.

“If [PetroCaribe] comes to an end in the current form, we will roll with the punches,” Barrow said.

John Mencias, deputy chairman of Alba PetroCaribe Belize, the joint venture company which Belize and Venezuela had established to handle the PetroCaribe program, had advised Barrow that Government vehicles could use the regular gas exported by Venezuela.

Mencias told us that the grade of the regular gas from Venezuela is actually of a higher quality than what Belize had been receiving before and suitable for virtually all vehicles in Belize, except for late model vehicles which require the use of premium gas, such as Porches and late model BMWs. He said that the premium gasoline purchased from Venezuela has an anti-knock index of 89 (referring to the octane level in the fuel), while the regular gasoline has an index of 87 – comparable to Pemex Magna purchased from Mexico, which also has an anti-knock index of 87.

Mencias told Amandala that on Friday, December 5, Venezuela informed Belize that it would have to cut premium fuel exports to Belize. There is no need for consumers to panic, though. Mencias told us that the shipment of fuel arriving at 10:00 tonight from Venezuela will include premium gasoline, and so will the shipment due to arrive late December.

According to Mencias, Venezuela does not plan on cutting Belize’s premium supply until February 2015. He indicated that Belize would have the option of purchasing more regular fuel from Venezuela to make up for the loss in premium imports.

Mencias explained that the Government and its utility companies are the largest purchasers in Belize, and substituting regular fuel for premium would offset the revenue loss Government would otherwise sustain, since 13.5% of financing proceeds under the PetroCaribe deal comes from the sale of premium fuel.

He said that the disclosure was made after Belize submitted its 2015 projections for 40 million US gallons of fuel, 15-16% of which is premium fuel. This represents a marginal increase over what Belizeans are expected to consume in 2014, he indicated.

The worry over the PetroCaribe deal has been exacerbated by international reports that Venezuela will be forced to backpedal on its accord with the Caribbean. Venezuela’s economic woes have worsened, and that country’s president reportedly plans to cut spending by 20% to make up for budgetary shortfalls due to the major plunge in world market prices for crude – down to about US$70 a barrel today.

Apparently, Venezuela needs the price to remain about US$100 a barrel to keep on its economic footing, but the Organization of Petroleum Export Countries (OPEC), of which Venezuela is a member, has denied that country’s request to cut global oil production so that prices could stay up.

However, Mencias explains that the PetroCaribe countries, such as Belize, only consume 5% of what Venezuela produces, and the fall in price does not substantially affect the receipts which Venezuela gets from the countries, because of the sliding scale applied to the payment agreement.

For example, when the oil price is US$90 a barrel, countries are required to pay US$45 upfront; but when the price is between US$50 to US$80, they pay about US$42 – a difference of only US$3 a barrel.

Mencias said that earlier this year, Venezuela had reported refinery problems which affected the level of premium gasoline production, and it is possible that the country may resume premium shipments in the months ahead.

He told us that Puma, the commercial importer which imports the fuel from Venezuela for the Government, is already looking at alternative sources of premium gasoline for those Belizean consumers who will insist on having premium quality gas.

Amandala understands that the potential impacts of shifts in the PetroCaribe deal have been under scrutiny by the International Monetary Fund, which had representatives in-country last week on its routine Article IV Consultation with Belize.

In its Regional Economic Outlook: 2014: Western Hemisphere, Rising Challenges, the IMF said that, “A sudden interruption of these [PetroCaribe] agreements, or an abrupt change in their conditions, would create significant balance of payments problems for the recipient country, which would have to find alternative sources of external financing.”

The IMF report said that, “Financing from Venezuela’s PetroCaribe is also important in some countries (Guyana, Haiti, Jamaica, and most of the Eastern Caribbean Currency Union [ECCU], where it represents as much as 4–7 percent of GDP per year). A sudden interruption of any of these flows would cause severe financing difficulties…”

Violent unrest in Venezuela this March forced a disruption in fuel supply from Venezuela to Belize. At the time, Puma had to source fuel from Netherland, Antilles. Venezuela’s Ambassador to Belize, H.E. Yoel Perez Marcano, had told the media then that the uprisings in his country were engineered by what he termed the “political and economic elite,” backed, he said, by the United States of America, in a bid by the US to regain control of Venezuela’s oil.

The economic crisis in Venezuela has been the subject of much public discourse. In September, Venezuela’s inflation rate was reported at 63.4% — the highest in all of Latin America, and the oil-dependent country is expected to report a contracted economy for 2014.

A Wall Street Journal report published on Friday, December 5, 2014, the same day that Venezuela informed Belize of its plan to halt premium fuel shipments, said that, “Even as Venezuela pledges to continue the program, the country’s oil exports to the countries fell about 20% through October compared with the same period last year.” It added that in 2013, Venezuela’s cut-rate oil exports declined 15% from 2012, according to the IMF.

International press reports indicate that Venezuelan officials have made no public mention of cutbacks to Petrocaribe or other oil-aid programs. Roughly half the fuel exported under PetroCaribe goes to Cuba, in exchange for service from Cuban doctors in impoverished parts of Venezuela. The Wall Street Journal article said that although Venezuelan Foreign Minister Rafael Ramírez recently reiterated his government’s “strong commitment to continue the Petrocaribe initiative, under any circumstances,” a quiet shift is taking place.

Of note is that Honduras and Guatemala are not participating in PetroCaribe. Guatemala opted out due to the terms offered to that country, which include a higher interest rate than that being paid by other countries in the region.

The IMF calculates that Petrocaribe countries receive about 100,000 barrels of oil a day from Venezuela, and these countries will, on average, face a 1.6% hit to economic output if Venezuela turns off the oil tap, with highly dependent countries such as Haiti facing the most difficulty, the IMF has said.

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