PETROCARIBE-A Possible Gateway to Greater Energy Security? August 8, 2005
PETROCARIBE-A Possible Gateway to Greater Energy Security?
AN OLD ISSUE
Today, I want to return to an issue that is at the forefront of the minds of many Saint Lucians. From all corners of our society, voices are already being heard expressing concerns about the steep increases in the price of crude oil on the world market. I have heard concerns from almost everyone, everywhere, from the hoteliers to bus drivers, from the farmers in the fields of Cul-de-Sac and Roseau Valleys, to the fishermen of Dennery, Vieux Fort and Anse La Raye, and from the businessmen in the heart of Castries to the bartenders of Soufriere.
The effects of the increasing cost of fuel on the world market are inescapable and the impact will be felt by every Saint Lucian. For the Government, the steady increase in the price of crude oil is worrying. The consequences of spiraling oil prices have the potential of undermining our economic stability and long term growth prospects.
On Monday, August 1st , the world oil market responded to the death of King Fahd of Saudi Arabia by reaching new record highs of US $62 per barrel. From all indications, the current economic boom being experienced by China and India are certain to ensure that oil prices remain high. The continuing instability in the Middle East provides no comfort. Of greater concern is the prediction by analysts and other energy experts that the price of crude oil on the world market may peak at US $100 per barrel. For us, such a prospect is, indeed, frightening.
FLOODGATE TO INFLATION
The question is: Can our fragile economy, already battered by adjustments to the commodity regime for our bananas, withstand the onslaught of this oil crisis? That is a question I am certain that the bus drivers or ordinary motorists who ply our roads and who must buy gas or diesel, would prefer never to have answer. I am certain too, that it is a question that our fishermen would prefer not to consider. The same holds true for our farmers, our hoteliers, our retailers and wholesalers, and to you the ordinary citizen who feels the pinch in the pocket and in the cost of living.
I need not remind you that the cost of energy is very important in determining the final price that the consumer -- you and I -- pay for basic goods and services. A basic understanding of the laws of commerce and business practices tells us that increases in the price of oil will lead to increases in the cost of production and in the cost of shipping or transporting goods. Increases in freight charges will be reflected in increases in the price of basic foodstuffs. Likewise, increases in oil prices correspond to increases in the cost of providing electricity. Increases in oil prices have also pushed up the prices of airline tickets for travellers as a result of surcharges imposed by the airlines. As a result, the cost of vacations for tourists have increased. Meanwhile, the Government is losing millions in revenue each day by subsiding domestic oil prices at the pumps.
The Government is fully aware that if the forces of demand and supply are allowed to determine the prices of oil, we may very well be opening the floodgates to inflation. It is also clear however, that the Government will not be in a position to subside the local price of fuel for an indefinite period of time. So, adjustments are inevitable if oil prices continue to rise.
TRINIDAD – A TRADITIONAL SOURCE OF OIL
To meet the demands of our economy, Saint Lucia has traditionally sourced its oil supplies from the twin island Republic of Trinidad and Tobago. As a member of the Caribbean Community, and as an expression of regional solidarity, obtaining refined oil from a fellow CARICOM member-state was always a logical choice. In any event, Trinidad’s oil is protected by the Caricom trading regime.
Today, as we attempt to cope with the spiraling cost of oil, it may seem that Trinidad and Tobago is unable to provide us with any substantive form of relief for our oil woes. This is simply because the twin island republic sells its oil to us at world market prices. According to the Government of Trinidad and Tobago, Caricom cannot enjoy a preferential rate because of two basic but related factors. Firstly, the Government of Trinidad and Tobago does not possess 100 percent ownership of the industry. And secondly, Trinidad and Tobago is, to some extent, dependent on foreign crude to supply its refineries. This means that private and foreign interests play a large part in determining the rate at which Trinidad and Tobago sells it oil on the World market.
IS PETROCARIBE A LIFELINE?
Sometimes, as the immortal Bob Marley said, “when one door is closed, another one is opened.” The Petrocaribe initiative by Venezuela has opened for us a new door that represents a possible lifeline. I say it is a “possible lifeline” because there are hurdles in the way of implementing the initiative.
Before I itemize the hurdles and the challenges, let me explain the initiative.
ELEMENTS OF THE INITIATIVE
The main aim of the Petrocaribe initiative is to supply oil at preferential prices to the countries of the region. As part of the preferential pricing arrangements proposed by the Venezuelan Government, it has agreed to contribute 40% of the cost, if oil is selling at more than US $50 a barrel. Further concessions are proposed if oil prices reach the US $100 a barrel mark. Countries that are party to this agreement will be given a period of 17 years, including a two year grace period to pay for the oil supplied under the agreement, providing that the price per barrel remains below US $40. Should the price per barrel exceed US $40, the payment period shall be extended to 25 years, including the specified grace period of two years, at 1% interest.
What is of greater significance is that under the agreement provisions have also been made for the deferment of payments. With regard to deferred payments, Venezuela shall determine the portion that shall be paid with goods and services for which it shall offer preferential rates. The products that Venezuela may purchase at preferential rates may include certain items such as sugar, bananas or other goods or services to be determined that are believed to be affected by the trade policies of rich countries.
Further, Venezuela proposes to contribute US $50 million as part of a package, which will go into a facility called the Alba Caribe fund to kick-start the plan. And that is not all. The Venezuelan Government has also agreed to pay for the oil shipments and to help establish storage facilities in countries which are party to the agreement.
INVITATION TO THE STATE
As you are well aware, Government has stayed clear of the business of supplying and distributing oil. The Petrocaribe initiative offers to change all that. The initiative stipulates that the new business which will be generated by this initiative must be between governments. The agreement specifically requires states to implement the energy-related operations. In order to enable the governments of the region to do so, the Venezuela Government will offer technical cooperation to support the creation of state agencies in countries not possessing qualified state institutions for this purpose. Such a stipulation will, if the Government wishes, lead to a stake in the supply and distribution of oil.
AN ALTERNATIVE AND RENEWABLE SOURCE
There is another dimension worth noting. The Venezuelan Government, as part of this agreement, has offered to help the governments of the region implement functional energy-efficient programmes and systems, to reduce oil consumption.
However, we must not allow ourselves to be lured into a false sense of security, even as we reflect on the scope and generosity of the Petrocaribe initiative. Energy will remain a critical issue for us in the foreseeable future. We must use this window provided by this initiative to seriously begin looking at alternative and renewable sources of energy. The time to seek new alternatives is now, not tomorrow or the day after. That is why the Government is cooperating with LUCELEC to establish a wind farm close to Vieux Fort to generate electricity.
HUGO CHAVEZ – CHAMPION OF THE POOR
The Petrocaribe initiative is a bold venture on the part of Venezuelan President, Hugo Chavez. It has been a long time since this region has experienced such generosity. The Petrocaribe initiative is a brave initiative that would not have been undertaken by no less a man than Hugo Chavez, a renowned champion of the poor. By undertaking this initiative, he is sure to cause alarm among international oil companies. However, it is a risk he is willing to take to stand in solidarity with the poor people of the world.
THE CHALLENGES OF IMPLEMENING THE AGREEMENT
Obviously, as we welcome this initiative, we need to study very carefully how best we can implement it.
To begin with, since the initiative is a bi-lateral agreement between the Governments of Saint Lucia and Venezuela, the Government is required to first establish a local company, to be jointly owned by the Government of Saint Lucia and Venezuela.
Implementation of the initiative will also be hampered by the fact that the Government of Saint Lucia does not own any storage facility or distribution outlets.
There is one area where I think the initiative can be of major and immediate benefit. It is in the provision of cheaper oil to LUCELEC. If LUCELEC is able to source cheaper oil from Venezuela under the agreement, then consumers will benefit immediately. So too would hotels and manufacturing entities. Cheaper oil will help to make our tourism and manufacturing more competitive. It will ease the cost of electricity for consumers too. I hope to engage the management of LUCELEC in the coming days on this issue.
A GATEWAY TO ENERGY SECURITY
The Petrocaribe initiative is not only a possible gateway to greater energy security, but it will also open the door to new areas of cooperation between the Governments of Saint Lucia and Venezuela. The other areas identified so far for possible cooperation under this agreement are education, road construction, housing and the establishment of an asphalt plant for Saint Lucia.
If the Petrocaribe initiative becomes a reality, it will undoubtedly strengthen our ability to survive current global market trends in oil prices.
Let us see what happens. Take care now, and be of good cheer. Until next week, God bless.
August 8, 2005
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