Tue | Aug 14, 2018

Martin Henry | Don’t blow PetroCaribe like bauxite levy

Published:Sunday | July 22, 2018 | 12:00 AM

Jamaica is having difficulty paying Venezuela US$120 million under the PetroCaribe agreement.

Don't jump to any conclusions. This has nothing to do with the troubles at Petrojam, the oil refinery that is half-owned by Venezuela, or with the general state of penury of the Government. The money is available. And plenty more. The PetroCaribe Development Fund, which was set up under the PetroCaribe Energy Financing Agreement, has US$1.6 billion in it and can pay. The difficulty is to get that paltry US$120 million through the banking system from Jamaica to Venezuela. The transaction is caught in the Trump sanctions against the Maduro government.

And this PetroCaribe debt payment is not the only domestic thing trapped in the squeeze of Trump sanctions against perceived foreign foes.

Too Mondays ago, a pretty pointless meeting was politely accommodated by the US Kingston Embassy with a trade union, the Union of Clerical, Administrative and Supervisory Employees (UCASE), which represents hundreds of workers at the Windalco alumina refinery. An entirely unprecedented meeting since the matter is a diplomatic government-to-government matter. And even then, it is most unlikely that the Government can exercise any sway on the matter.

Just the threat of sanctions against Russia to get at one of its plutocrats accused of playing dirty, Oleg Deripaska, who owns UC Rusal, the Russian parent of Windalco, has been having a crippling effect on the operations of the alumina refinery as international banks are shying away from doing business with the company.

 

Negotiate the sanctions

 

UCASE is seeking to negotiate a waiver of the sanctions for Jamaica! Something that neither itself nor the American Embassy in Kingston has the power to achieve. Never mind the protocol issues.

Following the May elections in Venezuela that opposition parties boycotted and which returned Nicolas Maduro to power, the US Government further jacked up sanctions against Venezuela. The New York Times ran the story on May 21, 'US places new sanctions on Venezuela day after election'.

We pause to note that PDVSA owns half of Petrojam, our sole oil refinery, which is not even receiving Venezuelan oil now.

The PetroCaribe Agreement, which Hugo Ch·vez, then president of oil-rich Venezuela, offered regional governments 13 years ago, provided concessionary access to Venezuelan oil at a time when petroleum prices were climbing steeply on the world market. The terms of the agreement had a pegged payment rate. Beneficiary states would pay for 40 per cent of the oil up front from PDVSA when the price of crude oil was above US$100 per barrel; 50 per cent when the price falls within a range of US$80 to US$100 per barrel; and 60 per cent at US$50 to US$80 per barrel.

More expensive oil would provide greater PetroCaribe benefits!

 

Budgetary support

 

For Jamaica, full payment would be necessary only if the price of oil fell below US$15 per barrel. Which it never did.

The delayed portion of the payment was to be put into the PetroCaribe Development Fund as a long-term loan repayable at one per cent over 25 years. The loan proceeds should be used to fund development projects and as budgetary support for the Government.

At peak, the PetroCaribe Development Fund was home to more than US$3 billion - by far the fattest fund in the country. In a debt buy-back three years ago, Jamaica paid off the bulk of the PetroCaribe debt obligation - US$1.5 billion. Now to get the last dribbles paid up.

The Huntley Medley Gleaner story 'Cash-rich PetroCaribe Fund struggles to repay Venezuelan debt" (July 6), which inspired this column, said, "In seeking to fulfil its primary function of investing to repay Venezuelan debt under PetroCaribe, the PDF has been caught in the cross hairs of the ongoing United States sanctions again the Nicolas Maduro-led Bolivarian republic, which it accuses of anti-democratic politics and unfair practices against some US companies."

The Gleaner story reports the fund manager and former director general of the Planning Institute of Jamaica, Dr Wesley Hughes, as saying, "We are spending a lot of time negotiating with correspondent banks in the US (and) navigating our internal banking arrangements almost on a daily basis.

"We have been able to pay to Venezuela but it takes up a lot of time and resources. It wastes resources. We are collateral damage" to US sanctions, Hughes said.

The Fund has been losing interest income as it tries to move money from one local bank to another - a foreign-exchange transaction between two local banks which has to be negotiated, I believe, through an off-shore 'correspondent' bank.

The attempt by the PetroCaribe Fund to resolve the latest of the recurring banking issues has included ongoing diplomatic initiatives involving the Office of Foreign Assets Control in the US Treasury Department; the Ministries of Foreign Affairs, Finance, and Energy; and the Central Bank. Nothing yet. Nothing likely. The Trump Administration does not listen even to its most powerful allies.

 

Narrow path

 

In furtherance of his ambitions and socialist philanthropic instinct, Hugo Ch·vez's PetroCaribe Agreement has been good to us. Cheap oil, soft loan, development fund. With Venezuelan domestic politics turning increasingly undemocratic, paranoid, and hostile and oppressive to dissent, and with the country's longstanding claim to all of Guyana, a sister CARICOM state, Jamaica has had to be walking a winding and narrow uphill path.

The Government, particularly the current administration, has been doing a pretty decent job of maintaining bilateral relations, beneficial up to now, without, on the one hand, endorsing or condoning, or on the other hand, frontally attacking the downsides of a down Venezuela. The future seems set to impose PetroCaribe liabilities upon us as US sanctions bite.

The PetroCaribe Development Fund has been good to us for a number of developments, and, from all appearances, has been prudently managed.

In the Gleaner story, CEO Hughes describes the contribution of the PDF to the Jamaican economy as "almost a godsend, saving the Jamaican economy in the period of the global financial recession in which a significant inflow came into the country".

He argues that without those inflows at a time when the international capital markets were closed off to Jamaica from 2008 to about 2010, the economy would have suffered catastrophically, including the exchange rate collapsing dramatically.

Throughout its period of operations, the PDF has lent $334 billion to a wide range of public-sector entities.

 

Development of capital

 

But apart from loans and income-earning investments, Hughes is very keen on the fund's investment in the development of social and human capital in Jamaica. Grant financing is made available through the allocation of seven per cent of each year's audited surplus of the PDF. A total of $5.4 billion has been invested in this way with a focus on sanitation, education, and housing for the poor and needy.

The PDF, The Gleaner says, has also given economic infrastructure and education grants. The PDF has also provided more than $500 million to support national energy initiatives to reduce reliance on the very fossil fuels that made the Fund possible and to promote the use of renewable energy.

The IMF has been insisting, and the Government has agreed, that the PetroCaribe Fund be merged into the Consolidated Fund. For efficiency and proper public accounting, I suppose.

It would be a $208-billion pity if this rich development fund is not insulated from general housekeeping expenses and is used exclusively for transformational development projects with visible long-term benefits. PetroCaribe is, basically, dead, with no new inflows since May 2017. The development fund is a non-renewable resource. Let us not blow it like the bauxite levy.

What a big thank you and a fitting tribute it would be to a Venezuela, falling apart from the very internal politics which made PetroCaribe possible and further aggravated by US sanctions, if the PetroCaribe Development Fund remained exclusively dedicated to development.

- Martin Henry is a university administrator.

Email feedback to columns@gleanerjm.com and medhen@gmail.com.