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Thursday, October 19 2017 @ 09:38 PM AST

RBC Caribbean economist: PetroCaribe countries paying more with lower oil price

PetroCaribe countries are paying more for crude oil now that oil prices are lower, a Caribbean economist has said. RBC Caribbean Group Economist Marla Dukharan said PetroCaribe member countries "pay 40 per cent upfront when the price is over US$100 per barrel; 50 per cent upfront when the price is between US$80-100 per barrel; 60 per cent upfront when the price is between US$50-80 per barrel; and full payment upfront when the price is below US$50 per barrel. So right now, with prices below US$80 per barrel (now), they are paying more than when the price was above US$80 per barrel."

Data from Venezuelan state oil company PDVSA shows the Caribbean territories of Jamaica, Haiti and the Dominican Republic have been receiving close to, or in excess of, their full PetroCaribe quotas, and are the largest recipients of shipments overall, she said.

"These countries will be the most significantly affected by an end to PetroCaribe shipments, in terms of finding a substitute supplier, and the removal of the favourable repayment terms afforded by PetroCaribe. Jamaica also has one of the highest oil import bills relative to gross domestic product (GDP), as do Guyana and Antigua and Barbuda," she said, citing International Monetary Fund (IMF) data, "and from that perspective - the quantum of oil imports relative to the size of the economy - these countries are likely to be the most affected by an end to PetroCaribe shipments."

Most Caribbean countries have about 3-4 months of import cover, with a few exceptions, she said. "PetroCaribe shipments are more likely to taper off than end abruptly, affording PetroCaribe members the opportunity to seek alternative sources of fuel in anticipation of any disruptions to PetroCaribe shipments. Assuming that alternative arrangements would not carry the favourable repayment terms and conditions that PetroCaribe does, it stands to reason that external balances would come under additional pressure. Consumption patterns for imported fuel would probably have to be adjusted accordingly."

She said many countries in the region, including Jamaica and the Dominican Republic, have been looking to renewables and natural gas as alternative sources of fuel for many reasons.

Why PetroCaribe matters

First Citizens Research & Analytics Head Vangie Bhagoo-Ramrattan in a paper released November 25 said: "CARICOM countries account for about 40 per cent of T&T's non-energy exports, and a prolonged recession in these countries as well as the potential impact of PetroCaribe on the regionís external accounts can severely affect T&Tís external current account as well as the performance of the exporters of this country."

While organisations questioning the longevity of PetroCaribe span the IMF, Moody's, Fitch Ratings, Scotiabank, Oppenheimer and Credit Suisse, the Venezuelan government - who T&T' Energy Minister Kevin Ramnarine has said would be best poised to answer - has reaffirmed its commitment to the programme started by late President Hugo Chavez.

Foreign Minister Rafael Ramirez said at a PetroCaribe ministers conference in Caracas last Thursday (November 20) that the Bolivarian Republic of Venezuela will maintain and strengthen programmes started by former President Chavez.

A former energy minister, Ramirez said PetroCaribe supplies 40 per cent of members' needs. He said PetroCaribe has supplied 301 million barrels of oil to members, and, on average, at a rate of 100,000 barrels per day (bbls/d).

He said PetroCaribe members have paid US$16.8 billion of the US$28.3 billion supplied. He said, however, government is looking for ways to generate liquidity, including via asset sales, changes in PetroCaribe, and alternative financing mechanisms such as securitizing PetroCaribe debt.

One day later, Venezuela's Oil Minister Asdrubal Chavez, a cousin to the late president, told reporters at the same PetroCaribe meeting in Caracas that PetroCaribe member countries are paying their oil debts and that Venezuela does not expect problems with payment from PetroCaribe members. He said Venezuela will continue with the programme despite reduced oil prices.

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