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Uncertain oil supplies under PetroCaribe limits flows to development fund

Published:Tuesday | September 12, 2017 | 12:00 AMMcPherse Thompson
CEO of the PetroCaribe Development Fund, Dr Wesley Hughes.

In the face of declining inflows of crude oil to Jamaica under the energy cooperation agreement with Venezuela, there will also be less net flow of capital to the PetroCaribe Development Fund, according to its Chief Executive Officer Dr Wesley Hughes.

The fund is currently valued at approximately US$1.6 billion, he said.

However, the current level of inflows to the fund, as well as the extent of the cutback in oil supplies to Petrojam under the agreement at this time, has not been ascertained because the government ministry in charge of energy has declined to release the information unless queries are made under the access to information legislation.

Such queries can take upwards of 30 days to be processed and in at least one instance, after that period has expired, personnel

in records and information management of the relevant access to information unit of

a government department responded to say that the information requested cannot be released.

Asked to provide data on the latest oil imported under the PetroCaribe agreement, as well as crude oil sourced on the open market, Petrojam, Jamaica's sole petroleum refinery, referred Financial Gleaner to the Ministry of Science, Energy and Technology, which subsequently suggested that the enquiries be submitted under the Access to Information Act.

Notwithstanding the political turmoil in Venezuela which escalated over the past few months, Dr Hughes said the PetroCaribe agreement, under which the South American country supplies oil to Jamaica and other countries in the region at concessionary interest rates, remains in place and is working.

Earlier this year, as the political crisis in Venezuela spun out of control with daily demonstrations, Minister of Foreign Affairs and Foreign Trade Kamina Johnson Smith said Jamaica's quota of 23,000 barrels per day under the PetroCaribe agreement has significantly declined to about 1,300 barrels.

She said production had been reduced in Venezuela and, therefore, Jamaica's imports have been proportionately reduced as well.

While Dr Hughes could not say what has been the extent of the reduction in the quota up to now, he said it would affect the monetary inflows to the PetroCaribe Fund, in that those intakes would also be reduced.

As to how the decreased monetary inflows will affect infrastructural projects, for example, Dr Hughes said "we would have less money to lend in the coming years, but as it is now, we are maintaining our portfolio of projects and we are doing what we had budgeted to do".

Data not secret

Asked whether Venezuela, given the political turmoil engulfing the country, has requested the Jamaican Government not to release information on the amount of crude oil received, the PetroCaribe CEO said that is highly unlikely. And even if such a request was made, it would not be honoured, he added.

"They have never made any request anything near like that, so I would rule that out absolutely," Dr Hughes said.

He said information on the PetroCaribe Development Fund has to be published at some point. "Our data can't be secret. We run a market economy and the market requires data and information to flow freely. So the media has a right to inform the public with this information flow," Dr Hughes said.

The PetroCaribe Development Fund is the largest source of concessionary loan financing available to the Jamaican Government. It provides loan financing to the Ministry of Finance as well as self-financing public bodies for development projects, such as expansion and upgrading of roads and other infrastructure.

The PetroCaribe agreement allows Jamaica to buy crude oil from Venezuela by paying only a part of the cost upfront.

When the price of oil in the international market exceeds US$40 per barrel, between 30 per cent and 70 per cent of each invoice is financed and the loan is repaid over 25 years at a rate of one per cent per annum. Below US$40, between five per cent and 25 per cent of each invoice would be financed over 17 years at two per cent per annum.

The inflows that accrue to Jamaica under the arrangement are managed by the fund. In addition to providing loan financing to the government, the fund maintains a portfolio of investments to enhance its overall returns and provide liquidity for government's debt servicing and operational expenses.

The resources of the fund may be used for upgrading of social and physical infrastructure, stimulating economic growth, supporting the development of human resources, supporting projects which promote the use of alternative sources of energy, and refinancing of public-sector domestic debt.

Oil accounts for about 95 per cent of Venezuela's export revenues and was used to finance some of the government's social programmes which, according to official figures, have provided more than one million poor Venezuelans with homes.

The lack of oil revenue has forced the government to curtail its social programmes, leading to an erosion of support among its core backers.