May 22, 2013
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May 22, 2013
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In this July 14, 2012 file photo, Venezuela’s President Hugo Chavez smiles at a campaign rally in Barquisimeto, Venezuela.With Hugo Chavez undergoing cancer treatment in Cuba, the 18 countries in Central America and the Caribbean that have enjoyed the largess of his generous Petrocaribe oil program may now be headed toward their own fiscal cliff if new leadership in Caracas decides to terminate this expensive energy for loyalty program. (AP Photo/Ariana Cubillos,File)
President Hugo Chavez’s somber Saturday night speech to his countrymen confirmed what rumors had speculated for weeks since his winning another term in office on October 7th. The President’s cancer, first revealed in June 2011, was back and he was headed to Cuba for additional treatment. Unlike previous departures, this one was different. First, he announced a successor, Vice President Nicolas Maduro, should he not make it through this next round of surgery, chemotherapy, and convalescence. Second, his speech sounded like a farewell address—a reflection on his own mortality, according to Venezuelan analyst, Moises Naim.
While Caracas bookmakers may be taking bets on whether Hugo Chavez will make it to his inauguration ceremony on January 10, should he die or step down before this date, the Venezuelan Constitution requires a new election within 30 days. This would most likely pit Vice President Maduro against Henrique Capriles, the opposition politician who lost to Chavez in October by a 10 point margin (55 to 44 percent). If Chavez survives for a year or more, there could be a different lineup of candidates or even a succession struggle. In almost any case, there could be an unstable political scenario, probably accompanied by a looming currency devaluation.
Without Hugo Chavez, what will become of Petrocaribe and the 18 countries benefiting from it?
Such consequences could have a far-reaching impact in the region. Specifically, the 18 countries in Central America and the Caribbean that have enjoyed the largess of Hugo Chavez’s generous Petrocaribe oil program may now be headed toward their own fiscal cliff if new leadership in Caracas decides to terminate this expensive energy for loyalty program. Created seven years ago in 2005 in Puerto Santa Cruz, Venezuela, Petrocaribe is an oil alliance among many Caribbean and Central American states to supply fuel to neighboring countries that are net oil importers, in exchange for solidarity. Even so, Venezuela sometimes received commodities it needed in return for oil, which is why Hugo Chavez called Petrocaribe oil program “an anti-crisis shield to protect us from hunger.”
Generally, Petrocaribe oil demands 40 percent of the bill within 90 days, with low percentage repayment over an extended term, which helps offset huge energy costs in countries that have no fossil fuels of their own. Rafael Ramirez, the president of Venezuela’s oil company, Petróleos de Venezuela (PDVSA), has suggested that Petrocaribe oil was Venezuela’s “moral responsibility” to rescue the Caribbean from bankruptcy due to high oil prices.
While not a member of Petrocaribe oil, Cuba has been one of the main beneficiaries of a similar concessional oil arrangement with Venezuela. Through a barter agreement Venezuela supplies 96,000 barrels a day at market prices in return for Cuba providing doctors and other services to Venezuela. Additional oil that is outside the agreement is provided with a 25-year concessional financing arrangement, with a 1 percent interest rate on repayment. An additional 22,000 barrels a day is delivered to Cienfuegos, where Venezuela has built a refinery. This oil gives PDVSA equity in the refinery production. It is estimated that Cuba may owe Venezuela as much as $8 billion in repayment of debt for the oil it receives. A Venezuela without Chavez could demand quicker repayment.
While no one can predict the future, finance ministers in the Caribbean and Central America should do some arithmetic. Even if Petrocaribe oil contracts are not immediately terminated with a new government in Venezuela, the future of Petrocaribe oil hangs in the balance if only because it is not sustainable. Because most member countries have no refineries, Venezuela sends diesel and gasoline to some. And to meet its own needs, Venezuela imports gasoline to distribute to local stations, which it reportedly subsidizes and sells for pennies a gallon.
This could be a moment of opportunity for advocates of renewable energy resources and those concerned about climate change. Petrocaribe oil could be supplanted by an energy coalition that depends not on oil for loyalty, but on investments in technological solutions from both the private sector and the international community to help these countries attain some measure of energy independence. The United States, Canada, Mexico and Brazil, the new region’s new axis of energy, should drive a dialogue on reducing energy poverty, lowering emissions, and creating mechanisms for investment that promote outside investment in the Caribbean and Central America. A more democratic Venezuela would certainly be welcome.
Nature abhors a vacuum. Let Petrocaribe oil and the barter deal with Cuba be replaced by a new vision of regional cooperation built on common goals: clean, cheap, renewable, and reliable sources of energy for all. This may be the most positive outcome of the pile-up of a Hugo Chavez-driven oil for friends scheme in the months and years ahead.
This article was first published in CSIS. Johanna Mendelson Forman is a Senior Associate at the Center for Strategic and International Studies, Washington, D.C.
Johanna Mendelson Forman is a Senior Associate, Americas Program at the Center for Strategic and International Studies and president of Johanna Mendelson Forman, Inc. She works on Latin America security and development issues. She is fluent in Spanish.