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Guyana Remains Firmly with PetroCaribe

Guyana Remains Firmly with PetroCaribe

Posted by Shanelle Weir on February 25, 2015

Ever since the inception of PetroCaribe in 2005, Guyana has remained firmly committed to the agreement. This staunch assertion flies in the face of urgings from some analysts in the Caribbean region who opine that Venezuela would be unable to sustain the program of providing concessionary oil to countries in the region due to its current economic crisis and the recent drop in international oil prices. They, therefore, suggest that Caribbean countries, including Guyana, should not place much reliance on it.

This position was also adopted by the International Monetary Fund (IMF) which in November 2014 claimed that four Caricom countries (Belize, Haiti, Jamaica and Guyana) had begun to take steps to reduce their dependency on PetroCaribe oil.

But it was unclear how the IMF could have reached the view with respect to Guyana. An opposite position was taken by the country’s finance minister, Dr. Ashni Singh, who stated in his March 2014 budget presentation that the country had concluded three rice-for-oil agreements with Venezuela, specifically within the ambit of the PetroCaribe agreement and aimed at debt compensation. He also assured that Guyana would continue to meet its obligations under the PetroCaribe arrangement.

From the beginning of the agreement, Guyana never placed its total dependency on PetroCaribe oil; it actually obtains only half of its requirements from that source. Guyana has not responded to the IMF statement, but nevertheless the government is concerned over the economic downturn in Venezuela, one of the largest purchasers of Guyana’s rice. It is probably for this reason that the national rice marketing agency has been seeking to expand its international rice sales to new markets just in case future Venezuelan purchases are reduced.

Significantly, Venezuela’s President Nicolas Maduro has dispelled fears about any cutback in PetroCaribe support to Caribbean countries and has reassured them of the “long term” viability of the agreement despite the recent price drop. He reaffirmed his government’s commitment to the initiative which would remain as an integral part of Venezuela’s strategy for regional security and support.

Guyana itself remains firmly in support of PetroCaribe. At a joint meeting of PetroCaribe and the Bolivarian Alliance for the Peoples of Our America (ALBA) in Caracas on Dec. 17, 2014, President Donald Ramotar said PetroCaribe was one of foresight and of special importance to the Caribbean region. He pointed out that the arrangement was exemplary and important for Guyana, and has helped to increase trade relations with Venezuela.

PetroCaribe is also intended to promote trade amongst member countries, and Guyana has been supplying rice to Venezuela under the initiative. Under the current trade agreement, Guyana is expected to supply 210,000 tons of paddy and polished rice annually to Venezuela. The value of this supply amounts to US$130 million. Significantly, under this rice agreement which dates back to 2009, Guyana has been able to obtain increased prices every year, a development that has since brought added benefits to rice farmers and the economy as a whole. Actually, for Guyana it has spurred a rapid increase in rice production, due to the lucrative Venezuelan market, thus increasing the food supply in the region.

It will be recalled that PetroCaribe was established to act as an economic “cushion,” giving countries time to adjust their rates of consumption, make lifestyle changes, and move toward renewable energy sources. It also created a mechanism, whereby a fund could be established to be used for the development of the energy sector as well as other areas such as social projects.

However, there has been little adjustment in the agreement over the past decade. Obviously, one of its drawbacks is that while it serves as a conduit for the supply of fuel under concessionary terms, it has not moved into the area whereby it can offer support for oil exploration projects by member-states.

Guyana’s total fuel bill at the time it joined PetroCaribe was about US$400 million annually and at 50 percent co-financing under the agreement, the country was expected to develop an annual debt of about US$200 million. But with the aim to offset such a situation, Guyana took the position that for every shipment of oil, full payment would be made immediately.

At present, the local fuel company buying the oil has to pay the full price to the Guyana Energy Agency which acts as the agent to purchase. At the level of the government, the Venezuelan-financed portion is placed in a special account and the finance ministry issues a promissory note. The money accumulated in this process has been used to help in purchasing two power plants for the national electricity sector as well as funding other projects.

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