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After PetroCaribe: what next?
Any bets on PetroCaribe’s life expectancy? Months? Couple of years? Longer? When PetroCaribe was launched in 2005, Venezuela offered Caribbean countries crude oil or refinery products at an effective 50 per cent discount. Up to half the up-front cost would flow straight back as a 25-year loan, with interest rates as low as one per cent. It’s not clear how long that party can continue.
The nightmare outcome is for the lights to go out one time. The PetroCaribe agreements allow Venezuela to take the whole show off the road at just 30 days’ notice. A more gentle scenario would be a fade-out: quotas edged down, loan terms tightened. On that track, close Venezuelan allies like Nicaragua would get better treatment.
We may already be on that route. Guatemala pulled out of PetroCaribe last year, when its interest rate was increased. The Dominican Republic has already suffered shortfalls from its promised oil deliveries.
Either way—quick dive or slow climb-down—it won’t be nice for our neighbours. Bahamas and Barbados have stayed clear—but every other independent Caricom member is part of the deal. The effective subsidy from PetroCaribe’s deferred payments is worth around four per cent of GDP in Guyana, Jamaica, Haiti and Nicaragua. It is equivalent to ten per cent or more of government revenue in Jamaica, Guyana, Antigua, Nicaragua and Haiti.
Take that cash away, and government accounts swing deep into deficit. For Jamaica, losing one year’s PetroCaribe savings would eat up close to 30 per cent of foreign exchange reserves.
A Scotiabank report released last month says the potential 30-day cut-off makes PetroCaribe “more noose than lifeline.” Scotia operates in all the PetroCaribe countries, as well as in Venezuela. Tighten that noose, and the bank, too, will feel the pinch.
The IMF last month published its fifth review of its Jamaica rescue package, launched last year. The IMF highlighted risks to Jamaica’s fragile recovery. Right up there on page one is PetroCaribe. Without PetroCaribe, the island’s IMF programme would be in deep trouble. Those carefully calibrated fiscal targets would be missed by miles.
Even with PetroCaribe, Jamaica, like most of our neighbours, suffers disastrously high energy costs. Jamaica spends more on imported oil than it earns from tourism. Half is used for electricity or bauxite and alumina—and much of that is wasted by inefficient generating equipment more than 30 years old. Said the IMF in its September review: “Reducing the cost of electricity is critical to improve competitiveness.”
Families feel the pinch. Work one full 48-hour week at Jamaica’s minimum wage, and you’ll earn just enough to pay one month’s average household light bill. To dodge that bullet, one consumer in seven steals electricity, usually through a dangerous and illegal “throw-up” connection. Cut the light bill, and voters might more readily accept the IMF’s austerity programme.
UC Rusal—Russian oligarch Oleg Deripaska’s giant aluminium company—owns three bauxite mines in Jamaica, each with an alumina processing plant. Two of the three have been mothballed since 2009. And they won’t reopen until there’s a cost-effective power source.
It’s almost a decade since PetroCaribe was launched. During that time, Jamaica could have committed to a move-on programme. The Dominican Republic has done pretty much that, with increased use of LNG—much of it from Point Fortin.
Instead, Jamaica has dithered. During that decade, four big schemes for power generation were triumphantly announced, then dumped, in some cases with an acrimonious dispute over transparency and project selection procedures. Plans to import LNG from T&T broke down ten years ago over pricing issues.
But there may now be movement. In May, the Government set up an Electricity Sector Enterprise Team which last month reported on four proposals for new power plants. Together, these projects aim to chop a third off power costs by 2018. UC Rusal wants to generate power with a natural gas liquid, ethane, to be derived from US shale gas. Jamalco—another bauxite-alumina company—wants to use low-sulphur “clean” coal from Colombia.
The dominant electricity supplier, Jamaica Public Service Company, wants to convert one of its plants from diesel to propane, which like UC Rusal’s ethane would be derived from US shale gas; and wants to run another on LNG. Jamaica Public Service also signed up last month with three somewhat smaller renewables projects.
Two will be wind-powered, like Jamaica’s existing wind farm at Wigton, which supplies one per cent of Jamaica’s energy. One, excitingly, will be a 20 megawatt plant generating electricity from 98,000 solar panels, to come on stream in September 2015, less than a year from now. Its power will cost 40 per cent less than current from Jamaica’s existing oil-based plants.
Solar by September 2015? Four new plants by 2018?
Sounds good. But in the worst case, PetroCaribe may be in deep trouble long before that. Jamaica needs to move fast. And its friends may need to be on standby.
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