CEIS Petroleum Update December 2011

Caribbean Energy Information System (CEIS) December 2011 Venezuela is made available to the purchasing Government/Country as a long-term concessionary loan payable over a period of up to 25 years. The interest rate, period of the loan and amount financed is linked to the price of oil in the international marketplace.

If the price of oil exceeds US$40/BBL between 30% and 70% of the invoiced amount is financed and this loan attracts a 1% interest rate per annum, repayable over 25 years inclusive of a 2 years moratorium period. If the price of oil falls below US$40/BBL between 5% and 25% of each invoice is financed over 17 years (inclusive of 2 years moratorium) at a 2% interest rate per annum. This is considered a “winwin” for many Caribbean countries that have signed on to the Agreement as there is guaranteed supply for the countries life blood (petroleum) and access to attractive financing or repayment arrangements that are not available anywhere else. Table 1 (see overleaf) indicates the quotas available to each CEIS member country that signed the Agreement and Table 2 below provides an idea of how payments are calculated using the Deferred Financing Mechanism.

14 countries (Antigua and Barbuda, Bahamas, Belize, Cuba, Dominica, Guyana, Haiti, Jamaica, Nicaragua, Dominican Republic, Guatemala, St. Kitts, St. Lucia and Suriname) that were already “concerned about global economy trends and, particularly, about policies and practices prevailing in industrialized countries that could lead to more exclusion of the Third World smaller Source: www.petroleumworld.com countries with economies that are more dependent ince the birth of the Petroon international developments.” Curcaribe agreement in 2005 rently there are 18 countries that are many people have been trying part of the Agreement. to ascertain if the advantages of Petrocaribe have outweighed the Deferred Financing Mechanism disadvantages. In this issue of the pub(DFM) lication we will attempt to explain the agreement, highlight what has been The most crucial or important compoachieved by Caribbean nations through nent of the agreement is an innovative continued on page 2/ this agreement and also take a look at financing arrangement DFM whereby the possible implications of the 25 a percentage of the value of years loan agreement. each invoice for petroleum CONTACT US products purchased from About Petrocaribe Caribbean Energy Information System

s

Petrocaribe started as an Energy Cooperation Agreement signed by

CARIBBEAN PETROLEUM UPDATE

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Scientific Research Council Hope Gardens, Kingston 6, Jamaica 1-876-927-1779 (Telephone) 1-876-977-1840 (Fax) ceis@src-jamaica.org www.ceis-caribenergy.org

is a monthly Bulletin which highlights petroleum issues affecting or relevant to the Caribbean, international developments that may affect the region’s way of life and movements in oil prices and retail prices for fuel regionally.

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Call: 1-876-927-1779 | Caribbean Petroleum Update : December 2011 Benefits of Petrocaribe

Petrocaribe Agreement the Caribbean’s Oil Knight in Shining Armor? continued from page 1/ Table 1: Quotas Allowed for Oil Imports under Petrocaribe.

Country

Supply quota (2011)

1

Antigua and Barbuda

4.4KBD

2

Belize

4KBD

3

Cuba

92.3KBD

4

Dominica

1KBD

5

Dominican Republic

50KBD

6

Guyana

5.2KBD

7

Jamaica

23.5KBD

8

St Kitts

1.2KBD

9

Suriname

10KBD

Note: Barbados, Trinidad & Tobago, the Bahamas and St. Lucia have not signed the Bi-lateral Petrocaribe Agreement.

Petrocaribe is more than a mere supply agreement that offers payment facilities for signatory countries. It provides the opportunity for member countries to develop the country’s infrastructure through various projects and social programmes. For the purpose of implementing the operating guidelines of Petrocaribe, PDVSA created a special purposes subsidiary for Caribbean and Latin American Countries, “PDV Caribe S.A.,” with the main objectives being provision of support for joint planning, organization, and development of capabilities to transport, receive, store, distribute, and commercialize hydrocarbons through a direct, secure, and reliable means of supply for the purpose of promoting sustainable development.

PDV Caribe also coordinates and promotes development of infrastructure projects aimed at improving the collective well being and the quality of life for people. In order to facilitate the successful implementation of these projects Mixed Companies are created to carry out the Petrocaribe Agreement in several member countries. These companies assist with the provision of technical training and technological cooperation with activities related to the conservation of electrical energy, the use of alternative energy sources and more rational and efficient use of conventional and renewable energy sources. Financial support for many of the social projects implemented under the agreement is provided through the Alba Caribe Fund which is constituted by resources coming continued on page 3/

Table 2 Table 1: Example of Petrocaribe Deferred Financing Mechanism using 1000 Barrels Per Day and prices as per Rate Schedule as outlined in Agreement.

Price Range per Barrel of Oil US$>>> % of Cash Paid to Venezuela for Oil % of Cash Paid to Government as a Loan % Interest Rate Applied to Loan Amount Loan Repayment Moratorium Period (Years) Period of Loan Repayment (Years)

Sample Invoice Date: December 15, 2011(Principal Loaned) Yr 1 Principal + Interest (Moratorium Period 2012) -Compounded Yr 2 Principal + Interest (Moratorium period 2013) - Compounded Principal and Interest Due December 15, 2014

15 - 19 20 - 21 22 - 23 24 -29 30 - 39 40 - 49 50 - 79 80 - 99 100 - 149 95 90 85 80 75 70 60 50 40 5 10 15 20 25 30 40 50 60 2 2 2 2 2 1 1 1 1 2 2 2 2 2 2 2 2 2 15 15 15 15 15 23 23 23 23 US$ US$ US$ US$ US$ US$ US$ US$ US$ 19 21 23 29 39 49 79 99 149 18,050 18,900 19,550 23,200 29,250 34,300 47,400 49,500 59,600 950 2,100 3,450 5,800 9,750 14,700 31,600 49,500 89,400 US$ US$ US$ US$ US$ US$ US$ US$ US$ 950 2,100 3,450 5,800 9,750 14,700 31,600 49,500 89,400 969 2,142 3,519 5,916 9,945 14,847 31,916 49,995 90,294 988 2,185 3,589 6,034 10,144 14,995 32,235 50,495 91,197 988 2,185 3,589 6,034 10,144 14,995 32,235 50,495 91,197

Amount Paid Annually to Venezuela (US$) Total Amount Due over Life of Loan - Principal + Interest (US$) Total Interest Accrued over Life of Loan (US$) Total Interest Expressed as % of Loan at the end LoanTenor

(76.9) (1153.8) (203.8) 21.5

Assumed price per Barrel of Oil>>> Upfront Payment to Venezuela for 1KBD Loaned provided to Government on 1KBD

(170.0) (2550.5) (450.5) 21.5

(279.3) (4190.2) (740.2) 21.5

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30 70 1 2 23 US$ 150 45,000 105,000 US$ 105,000 106,050 107,111 107,111

(469.6) (789.5) (733.1) (1575.8) (2468.5) (4458.2) (5236.2) (7044.4) (11841.8) (16860.5) (36244.4) (56775.2) (102539.5) (120432.3) (1244.4) (2091.8) (2160.5) (4644.4) (7275.2) (13139.5) (15432.3) 21.5 21.5 14.7 14.7 14.7 14.7 14.7

Note: Interest calculated for the 2 years moratorium period is capitalized/compounded.

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Petrocaribe Agreement the Caribbean’s Oil Knight in Shining Armor? continued from page 2/ from the savings generated by the financing of the oil bill and direct trade, as well as coming from financial and non-financial instruments. Nine countries have benefited from this fund: Antigua and Barbuda, Belize, Cuba, Dominica, Grenada, Haiti, St. Kitts and Nevis, Saint Vincent and the Grenadines, and Nicaragua.

Interviews and surveys with representatives from countries that have utilized the Petrocaribe Agreement revealed that since signing, the agreement has been of great benefit more so particularly at the time when oil prices sky rocketed in 2008. Many highlighted the fact that having the differed financing arrangement in place cushioned the impact on their economies.

Had these countries been required to

find the full amount of the invoice to pay upfront for fuels the impact would have been too severe for some. In addition several social programmes have been realized and the lives of many have been improved as a result. It is important to note also that the Governments benefiting from financing under the Agreement has full autonomy to utilize the funds as they see fit locally.

drying so that they could establish Small and Micro Enterprises (SMEs), Hurricane Omar (2008) Relief Programme, Development of water storage desalination plant, etc. Plans are currently on the ground to focus attention on utilizing some of the funds under the Petrocaribe Agreement to establish large scale Renewable Energy projects for Antigua in 2012.

In the case of Antigua and Barbuda for example, 14 projects have been realized on the National level, two of which are regarded as flagship projects: People’s Benefit Programme (since March 2009 providing EC$215/ mth to approximately 1600 poor or economically disadvantage or disabled persons to Petroleum News & Happenings purchase grocerBrazil police seek Chevron oil spill charges >> 22/12/2011 ies, etc.) and UtilOil price soars on promising economic news >> 21/12/2011 ity Subsidy Programme (since Petrobras' CEO participates in Global Pact meeting at UN 2008 providing Headquarters >> 16/12/2011 EC$100/mth to 4,520 pensioners Venezuela Increasing Influence in Region Through to assist with offPetrocaribe >> 13/12/2011 setting the cost of Guyana within reach of becoming elite oil and gas economy – Utilities). Other President at commissioning of Shell Bel Air Park Service programs of mention in Antigua Station >> 09/12/2011 includes support to Trafigura Section Buys Caribbean Resources from the Gilbert’s AgriChevron >> 08/12/2011 culture Research Centre to allow Carribean: Bahamas oil wells may imperil Florida – Palm single mothers and Beach Post >> 04/12/2011 young people to Venezuela Confirms Buys Jets From Brazil’s learn skills in solar

Jamaica, another of the beneficiaries under the agreement, boast the 18 MW expansion of the Wigton Windfarm, expansion and modernization of the Norman Manley International Airport (NMIA), expansion of the Port Authority of Jamaica Kingston Container Terminal, Petro-jam Refinery upgrade (expand processing capacity from 35KBD to 50KBD), support to Air Jamaica to assist with operations during high fuel prices, support to Clarendon Alumina Production Ltd (CAP) to improve efficiency and maintain operations during the period of weak global conditions, budgetary support for national priorities such as education and road maintenance as being achievable through financing under Petrocaribe. The most important intangible benefit as highlighted by Jamaica and many other countries is the ability to have an assured supplier of Petroleum products with attractive payment terms. As a result Jamaica has consistently purchased the allowed quota (now 23.5KBD) from Venezuela to

Embraer >> 03/12/2011

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Call: 1-876-927-1779 | Caribbean Petroleum Update : December 2011

import due to the closure of this facility although lower duties were offered for imports by PetrofuPetrocaribe Agreement the Caribbean’s Oil els to facilitate Knight in Shining Armor? continued from page 3/ ease of imports. In addition, it was assist with supplying the local market noted also that the Petro-fuels facility and for processing at the Petrojam rewas not of the standard required by finery. On a monthly basis between Venezuela and competing marketing 50%-70% of Crude and 30- 50% of companies in Belize who were sole refined products are purchased (varies importers prior to Petrofuels were not based on demand). benefiting from the lowered duties offered to Petrofuels. Belize is curGuyana since signing the agreement rently exploring avenues through has been able to increase the electricity which they can resume imports under generating capacity of the country and the Agreement in order to also benefit has also embarked on several social from the financing provided. programs. It is worth highlighting that all countries that are party to the PetroOther countries highlighted inadequate caribe Agreement have benefited in storage in the early years as a hinmore ways than one particularly drance to drawing down on their althrough the social projects in the areas lowed quota. In addition some had of tourism, education, health, housing, concerns that Venezuela at any point environmental sanitation, road networks, sports and agriculture. Some of the projects were further aided under the framework of the Alba Caribe Fund. Below is a summary of the areas in which each country has benefited.

in time could indicate that they would not be able to supply fuels and as such some maintained purchases from other suppliers on a month on month off basis. Concerns were also raised with the fact that the Agreement was changed from a 5-year agreement to a 1-year agreement i.e. countries would be required to sign every year to benefit.

In conclusion however, all countries that have been assessed cited the Petrocaribe Agreement as being very beneficial for them. Some even alluded to the fact that they wish they could access more than the current quota. Overall, despite the concerns mentioned above, the Agreement is seen as a savior for the region largely due to the fact that many countries have been able to establish needed social progammes with cheap financing while at the same time accessing a much needed resource.

Issues impacting the Agreement Although the agreement is seen by signatory countries as “the best thing since sliced bread” a few challenges were highlighted. Some of these challenges for example in the case of Belize (no imports under the Agreement since 2008) include issues such as, high transportation and distribution cost due to geographic location.

Other issues that affected Belize were the fact that the government established/allowed a private company (Petro-fuels) to manage the purchase and importation of fuels from Venezuela under the Agreement and this in itself created numerous problems for the Government of Belize. The most impacting of which is the inability to

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Caribbean Petroleum Update : December 2011 | Call: 1-876-927-1779

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REGULAR UNLEADED GASOLINE AVERAGE PRICES AT THE PUMP January - December 2011 Retail prices for Regular Unleaded Gasoline in the sixteen Caribbean countries reviewed at the end of December, remained relatively stable in six countries. Consumers in eight other countries were relieved to see reduction in prices while prices in the remaining two countries showed slight increases. The average retail price at the end of December 2011 for the product over the sixteen countries when compared to the average retail price seen in January 2011 showed and overall 12% increase.

Table : Regular Unleaded Gasoline Average Retail Price (US$/Litre) 2011 COUNTRIES

JAN FEB MAR

ANTIGUA/ BARBUDA

1.00

1.00

BAHAMAS [91 OCT]

1.24

BARBADOS

JUL AUG SEP OCT NOV DEC AVG

APR

MAY

JUN

1.07

1.15

1.25

1.33

1.30

1.30

1.30

1.30

1.23

1.23

1.21

1.25

1.30

1.46

1.47

1.47

1.45

1.43

1.44

1.34

1.37

1.35

1.38

1.47

1.48

1.49

1.59

1.59

1.59

1.59

1.66

1.66

1.60

1.60

1.56

1.57

BELIZE [87 OCT]

1.33

1.34

1.48

1.50

1.54

1.51

1.49

1.51

1.44

1.47

1.37

1.38

1.45

B.V.I [87 OCT]

1.12

1.13

1.20

1.26

1.26

1.27

1.25

1.22

1.22

1.22

1.22

1.25

1.22

DOMINICA

1.01

1.05

1.06

1.11

1.21

1.24

1.22

1.22

1.22

1.17

1.14

1.13

1.15

GRENADA (95 OCT)

1.05

1.06

1.17

1.23

1.29

1.32

1.29

1.29

1.31

1.28

1.23

1.23

1.23

GUYANA

0.99

0.99

1.06

1.08

1.08

1.12

1.15

1.14

1.14

1.14

1.14

1.11

1.10

JAMAICA 87 Octane[E10]

1.17

1.18

1.25

1.28

1.29

1.29

1.31

1.29

1.28

1.25

1.24

1.23

1.26

MONTSERRAT

1.13

1.14

1.18

1.27

1.38

1.42

1.35

1.32

1.32

1.27

1.23

1.23

1.27

ST. KITTS/ NEVIS

1.04

1.07

1.20

1.13

1.14

1.23

1.27

1.28

1.28

1.29

1.29

1.23

1.20

ST. LUCIA

1.14

1.14

1.16

1.22

1.27

1.28

1.28

1.27

1.25

1.21

1.21

1.21

1.22

ST. VINCENT/GRENADINES

0.99

0.98

1.00

1.06

1.10

1.17

1.24

1.24

1.23

1.22

1.20

1.19

1.13

SURINAME [95 OCT]

1.21

1.32

1.34

1.47

1.55

1.51

1.48

1.48

1.45

1.40

1.42

1.40

1.42

TRINIDAD/[92 OCT]

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

0.42

TURKS/ CAICOS

1.36

1.36

1.42

1.42

1.45

1.55

1.61

1.60

1.60

1.54

1.58

1.58

1.51

NOTE: *US Gallon = 3.785 L *Imperial Gallon = 4.546 L *As at November 1, 2009 MTBE was phased out from all gasoline blends in Jamaica and replaced with 10% Ethanol.

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Call: 1-876-927-1779 | Caribbean Petroleum Update : December 2011

REGULAR UNLEADED GASOLINE AVERAGE PRICES AT THE PUMP January - December 2011 CHART

Comparative Retail Pump Prices Regular Unleaded Gasolline December Avg vs 12 Mths Avg (Jan - Dec 2011) 1.8 1.6

Dec Avg

1.4

12 Mths Avg

US$/Litre

1.2 1 0.8

0.6 0.4 0.2 0

16 Caribbean Countries

See prices for other products at www.ceis www.ceis--caribenergy.org .

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International Crude Oil prices over the period October to December 2011 saw prices on the upward trend in December when compared to the two previous months. The highest weekly price seen in December for the product was US$100.08/BBL - reflected at the end of the 2nd week. This price came after a period of 3 months with prices averaging below US$100/BBL. The average monthly price seen for December was approximately US$99/BBL. This average price was 11% above the average price seen for the month of December in 2010 and 140% above the December average during the record oil price year of 2008.

Speculations are that prices will remain close to the US$100/BBL if issues regarding Iran Nuclear project are not resolved. Saudi Arabia has proposed to increase their output in order to boost supplies in Europe.

US$/BBL

US$/BBL

Caribbean Petroleum Update : December 2011 | Call: 1-876-927-1779

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