PetroCaribe granting millions in unsecured loans

Correction & Clarification

In the article captioned ‘PetroCaribe Granting Millions In Unsecured Loans’ published in Wednesday’s edition of this newspaper, we erroneously reported that the lower commitment fees charged by the PetroCaribe Development Fund resulted in commitment fees being reduced by US$43.75 million.

The correct figure is US$3.75 million.

We regret the error.

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Daraine Luton, Senior Staff Reporter

In addition to not having a formal risk-management framework, the PetroCaribe Development Fund (PDF) has been breaching its own guidelines, making US$100 million in unsecured loans available to entities, while at the same time charging commitment fees that are lower than the rate approved.

According to the most recent annual report of the auditor general, the PDF has been in breach of the Lending and Grant Funding policy of the Government, which states that collateral security must be obtained from the borrower prior to disbursement to provide ultimate protection from the risk of default.

In her report to Parliament, tabled in the House of Representatives yesterday, Auditor General Pamela Monroe Ellis implored the fund to take the necessary steps to have the particular entities provide the necessary security and to ensure that all future loans are supported by adequate security or obtain the requisite capital approval in keeping with the Lending and Grant Funding policy.

"We found that unsecured loans amounting to approximately US$100 million were made to four entities, and the PDF reported that Cabinet approvals were not obtained. One of the loans was subsequently assumed by the Ministry of Finance. The PDF explained that credit assessments done for two of the entities disclosed good debt-service record," the Monroe Ellis-authored report said.

For the period April 2012 to July 18, 2014, the auditor general said there were instances where commitment fees to some borrowers were less than the required 0.5 per cent.

"We noted that for 17 loans granted during the period, PDF applied a commitment of 0.2 per cent for six of these loans and a rate of 0.25 per cent for four. This resulted in commitment fees being reduced by US$3.75 million," the report said.

The report also stated that the management of the PDF indicated that the board made a determination on each loan whether to apply a lower commitment fee. However, the auditor general said that the loan and grant policy does not speak to any discretion being applied to the commitment fee and, therefore, the board would be in breach of its own policy.

The PetroCaribe agreement gives Jamaica and other Caribbean countries preferential payment conditions on oil purchases from Venezuela. Under the agreement, countries receive a loan to purchase oil at one and two per cent rates of interest and 25 years to pay. The agreement now also provides funds to assist developmental projects.

Nearly US$3 billion has been collected under the fund and a total of US$221.9 million has been repaid to the Venezuelan Government under the agreement.

The audit of the PDF was done to determine whether the entity was managing its resources effectively and efficiently to achieve its core business objectives.