By Lucien Chauvin From Emerging Markets

Although Venezuelan President Nicolás Maduro has committed to maintain the discounted oil programme PetroCaribe, some of the 17 beneficiary nations in Central America and the Caribbean are using the opportunity of low crude orices to pay off their debts.

An end to Venezuela’s PetroCaribe programme that delivers discounted oil to Central America and the Caribbean would not spell disaster for many of the 17 participating nations, according to leading analysts.

PetroCaribe, started in 2005, allows members to defer payment of oil shipments. They pay 50% of the market price, but the remainder is deferred for up to 25 years with an interest rate of 1%-2%. The result has made PetroCaribe one of the largest sources of external funding for many highly indebted Caribbean countries, such as Haiti and Jamaica.

Earlier this month Venezuelan President Nicolás Maduro said during a summit of PetroCaribe members that he was not only committed to the programme, but called for it to be deepened to focus on the socio-economic development and integration of participating countries.

But doubts abound about Venezuela’s capacity to continue shipping cheap oil given the country’s economic difficulties, but observers are discounting the dire predictions of economic hardhsip for member countries if PetroCaribe were to disappear.

“Very little would happen today without PetroCaribe. The time is right for borrowing countries,” said Joydeep Mukherji, managing partner at Standard & Poor’s. “We were very concerned, but the situation is different today. It is no longer a big worry, because oil prices are no longer a big worry.”

Member countries still receive oil from PetroCaribe, but with the price of oil around $50 a barrel and traders willing to sell at a discount because of the supply glut, it is a buyers’ market.

Winds of change

Some of the bigger countries are taking advantage of conditions to pay off their debt. The Dominican Republic used funds from a bond sale in January to eliminate nearly all of its debt with the programme. The country owed around $4.1bn to Venezuela, but negotiated a deal to pay just $1.9bn to cancel 98% of the debt.

Jamaica could follow. Finance minister Peter Phillips announced in mid-March his office was looking at options to pay down the debt owed to PetroCaribe. If a similar deal were reached with Venezuela, Jamaica would have to shell out around $1.8bn to cancel the debt.

In a twist that will also help poor countries when PetroCaribe does end, the resources freed up from the discounted price when oil was $100 a barrel have allowed countries to invest in alternatives to change their energy grid.

Nicaragua, a close Venezuelan ally and big recipient of PetroCaribe, has made impressive progress changing its energy grid. It will soon have more than 20% of its electricity production coming from wind energy.

“While Nicaragua receives inexpensive oil from Venezuela, they realised that they needed to develop their own resources to move away from a dependence on imported oil,” said Arnaldo Vieira de Carvalho, senior energy specialist at the IADB.

The government has made a big push for wind power, and is now the regional leading in wind-generated energy, but it has also invested in hydroelectric power and geothermal energy.
For more on this story go to: http://www.emergingmarkets.org/Article/3439964/No-need-to-fear-the-end-of-PetroCaribe-S-P-tells-Caribbean.html

IMAGE: www.panamericanworld.com