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01/23/13 - BBC News - Venezuela oil deals: Poor nations worry about future

23 January 2013 Last updated at 14:10 ET

Venezuela oil deals: Poor nations worry about future

By Pablo Uchoa BBC Brasil, Washington

As Venezuela's President Hugo Chavez continues to receive medical care in
Cuba after a fourth cancer operation, many small countries across the
region have their own reasons for carefully monitoring his health.

>From Jamaica to Nicaragua, and the Dominican Republic to Uruguay, and not
least in Cuba itself, dozens of vulnerable nations that benefit from
favourable oil deals with Venezuela fear for a future without the leader
who fostered the idea of "economic solidarity" among neighbours.

Most susceptible to the winds of change in Caracas are the 15 or so
Caribbean nations that signed up to Petrocaribe, an alliance founded in
2005, which allows oil-rich Venezuela to sell oil to poorer countries in
the region.

Through Petrocaribe, they are able to buy Venezuelan oil by paying between
5% and 50% of the bill upfront, followed by a grace period of one to two
years. The outstanding balance can be paid in 17 to 25 years with a 1%
interest rate, if the oil goes over $40 (£25) a barrel.

According to the World Bank, the Caribbean nations spend about 13% of
their GDP on buying oil.

Without Venezuelan help, they would have no choice but to resort to the
commodities market, where prices are both much higher and more volatile.

[1]Continue reading the main story

"Start Quote

It is a dilemma that Caribbean countries faced before Chavez, face now
and will face after Chavez. They are small, dependent on imported energy
and with limited resources."

End Quote Charles Shapiro Former US ambassador to Venezuela

Instead, because of Petrocaribe, Nicaragua paid its bill in 2011 with
goods such as beef, sugar, coffee, milk and, more unconventionally, with
more than 19,000 pairs of trousers.

The Dominican Republic - the country that received one quarter of all
Petrocaribe oil shipments that year - sent sugar syrup, beans and pasta to
its neighbour, while Guyana paid Venezuela in rice, and El Salvador in
coffee.

Venezuela sent 243,500 barrels of oil a day to 16 countries across the
region in 2011, according to the latest report by state-owned oil company
PDVSA.

This represents about 8% of its official oil production (2.99m barrels a
day in 2011) and about 10% of what market analysts estimate is the
company's output (2.3m to 2.4m barrels a day).

Through Petrocaribe, countries like Jamaica, the Dominican Republic,
Nicaragua, Haiti, Grenada and St Vincent and the Grenadines received
94,600 barrels of cheaper Venezuelan oil a day.

Under a separate agreement, Cuba alone received the equivalent of 96,300
daily barrels, totalling over $3.5bn at market prices.

Havana and Caracas have a much broader and deeper co-operation, through
which Cuba has already sent thousands of doctors and teachers to provide
the backbone of Mr Chavez's social programmes, known as the misiones.

Venezuela also grants special deals to the countries of the so-called
Bolivarian Alliance for the Americas (Alba). Alba's money has been used to
donate asphalt for roads, as well as computers and printers for schools in
Bolivia.

It is no wonder then that, after a meeting in Caracas this month, the Alba
and Petrocaribe nations issued a statement expressing their "full and
absolute solidarity" with Mr Chavez and urging "respect" for the Supreme
Court ruling that postponed his inauguration to an undefined date.

'Buying support'

But critics accuse President Chavez of misusing those "gifts" to buy
political support instead of investing in Venezuela's own economy, which
is highly indebted and dependent on oil.

They argue that Mr Chavez is giving away resources in exchange for goods
that could have been produced at home.

At just over $100 a barrel, the Venezuelan oil supplied through
preferential deals could have generated $8.9bn of income in 2011.

Eddie Ramirez, a former PDVSA director who is critical of its current
management, argues that money could have been used for maintenance which
the state-owned company postponed because of cash flow problems.

"They are doing maintenance in PDVSA like you and I do with our cars:
letting it go unchecked until there is a problem," says Mr Ramirez. "It is
not how it should be in a high-risk industry such as this."

In August last year, an explosion at a refinery in the state of Falcon
killed more than 40 people and wounded more than 80.

For critics, it highlighted the lack of investment in safety in the
Venezuelan oil infrastructure. But Mr Chavez defended the state-owned firm
and accused his opponents of using the incident to try to gain political
advantage.

Change on the horizon?

If the Venezuelan president does not return to his post, those among his
allies favoured to replace him are not expected to scrap the deals,
because they form his international legacy.

But the prospects are less clear should the opposition take power.

While running against Mr Chavez last year, Henrique Capriles promised to
"stop the gifts to the world on behalf of geopolitical alliances of
doubtful convenience" for Venezuela.

But he also implied that, if elected, he would not do it at the stroke of
a pen. Instead, he would review each agreement taking into account
"national interests" and "international solidarity".

The former US ambassador to Caracas, Charles Shapiro, believes the
agreements are in danger with or without a Chavista government.

He argues Venezuela is nearing an economic crisis, and that "sooner or
later the government will have to make some adjustments".

Mr Shapiro believes that selling rather than subsidising oil to other
countries is easier and less politically risky than devaluing the
Venezuelan currency, the bolivar, which is sold in the black market at
about four times the official rate.

"This is possibly a sequel of any change in government in Venezuela, and I
am afraid it doesn't matter whether it is Chavista or not," says the
former ambassador.

"It is a dilemma that Caribbean countries faced before Chavez, face now
and will face after Chavez. They are small, dependent on imported energy
and with limited resources."

References

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http://www.bbc.co.uk/news/business-21081458