Petrocaribe Initiative: A reflection

By S. Scott & Paul Andrew Bourne

In 1980, the San Jose Petroleum Accord, an energy cooperation programme was created

to facilitate the supply of petroleum products on favorable terms to eleven developing

nations within the Central American and Caribbean region. It arose out of the need to

help reduce the heavy oil import burden on non-oil producing countries in the region.

The agreement, jointly administered by Mexico and Venezuela and renewed annually,

provides signatory nations up to 160,000 bbl/d, with 80,000 bbl/d coming from Mexico,

and 80,000 bbl/d from Venezuela. Under the original Agreement, there was provision for

20% of the cost of the crude oil to be made available as a low interest loan for

development projects when the price of oil exceeds US$15 per barrel. The Agreement is

reviewed annually and the terms have been modified, making the Accord less

concessional. The Signatory countries to the San Jose Accord include: Barbados, El

Salvador, Costa Rica, Guatemala, Honduras, Dominica Republic, Venezuela, Haiti,

Panama, Jamaica and Belize.

The agreement which complements the San Jose Accord of 1980 is dubbed the

Caracas Energy Agreement. It is a regionally-inclusive bi-lateral cooperative energy

agreement administered by Venezuela, which expands the coverage of the San Jose

Accord, and has been designed to function parallel to it. It establishes preferential price

levels and percentages for financing long term low interest loans to the various countries

based on the quantity of oil purchased. Loans range from 10-25% of the payment for the

oil based on the prices paid. There is a one-year grace period on repayment, extending

over 15 years at an interest rate of 2%.

The Accord was originally extended to the original beneficiary countries of the

San Jose Accord, and has since been expanded. Signing on to the new accord in 2000

were Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras,

Jamaica, and Nicaragua. Cuba signed on shortly after, and Guyana is expected to join in

May of 2004. All members of the Association of Caribbean States (Colombia, Mexico,

Venezuela, all Central American Countries, CARICOM, Dominican Republic, Cuba,

Panama, France {associate membership on behalf of French Guiana, Guadalupe, and

Martinique}, Aruba, and the Netherlands Antilles, which combined represent 71% of all

Latin American and Caribbean states, a combined GDP of some $751 billion) are eligible

to receive the benefits of the Accord. Continued favorable relations will encourage the

region to explore other areas of mutual cooperation.

At meeting of Caribbean energy ministers held in Caracas, Venezuela on July 10

2004, Venezuela expressed concerns about the prevailing high prices of oil and its

adverse effects on non-oil producing countries. Concerns were expressed regarding the

high margin applied to petroleum products, which drive up the retail prices. Venezuela

expressed a strong desire to see more of the benefits of the energy agreements accruing to

the social sectors including health and education in beneficiary countries.

Accordingly, Venezuela proposed a “Petrocaribe Initiative” to support Caribbean

and the other countries within the Americas. The PetroCaribe model is based on the

concept of state involvement in the energy sector whereby surpluses achieved will be

used to meet expenses via subsidies. Launched in June of 2005, it is aimed at facilitating

the development of energy policies and plans for the integration of the nations of the

Caribbean through the sovereign use of natural energy resources to directly benefit their

peoples. In this regard, Petrocaribe is responsible for coordinating and managing all

issues associated with the energy-related links between the signatory countries in

accordance with this Agreement.

Essentially, Petrocaribe is seen as a replacement and an enhancement of the

Caracas Agreement. The oil alliance allows for participating nations to purchase oil on

conditions of preferential payment. This payment system allows the purchase of oil on

market value, however, only a certain amount is needed upfront the remainder may be

paid through a 25 year financing agreement on 1% interest. The deal allows for

Caribbean nation to purchase up to 185,000 barrels of oil per day on these terms. Also

nations are allowed to pay part of the cost with other products for example bananas, rice

and sugar.

Twelve out of the fifteen members of Caricom along with Cuba and the

Dominican Republic signed onto the agreement on September 7, 2005. The only

countries that chose not to sign were Barbados and Trinidad and Tobago. Initially, Haiti

was not invited to participate in the talks essentially because Venezuela refused to

recognize its “U.S installed government”. However with the president-elect Rene Preval,

Chavez has discussed the possibility of Haiti’s entry into the project.

The conclusion of this paper is your assessment of what is written therein.