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Fossil Fuels Under Assault

Fossil fuels are under assault, Planning Minister Bhoendradatt Tewarie said in response to e-mailed Guardian queries about PetroCaribe October 29. Tewarie said “it is very difficult to see how PetroCaribe can survive” the likely chance of a sustained low oil price. “However, Venezuela is an important member of the Organisation of Petroleum Exporting Countries (OPEC) and may succeed in influencing more stable oil prices.”


He said too that “Petrocaribe was, at least in part, political in intent and the geopolitics the PetroCaribe initiative may well persist over and beyond the economic cost to Venezuela. However we are entering a fierce energy period in which fossil fuels are under assault, shale gas production has a fair amount of challenges including cost of production, and contention about environmental consequences of fracking, renewable energy options are on the ascendency.”


PetroCaribe, from the beginning was never regarded as a sustainable solution, he said. “With the prevailing uncertainty in the oil market, the downward movement of oil prices, the financial implications of these developments on Venezuela, and the economic and political challenges internally, complicated by the debt challenges, financial stress and economic stagnation in several Caricom countries, it would be wise to prepare for a worst case scenario,” Tewarie said. “If the worst case scenario does not emerge so much the better for everybody.”



Should Petrocaribe come to an abrupt end it is bound to have an immediate negative effect on the countries of Caricom which are involved, he said. “Let’s start from the premise that any abrupt change will cause some disruption,” he said. “Most Caricom countries will not have a huge storage of energy and without an alternative supply, the prospect of industrial shut down, difficult working conditions and darkness in homes is likely.”


Strides have been made in some of Caribbean islands in renewable energy and in energy conservation, but “these are not yet equal to the challenge that will need to be met in the face of a cut off of oil supply from Venezuela,” he said.


The planning minister said: “If a worst case situation were to emerge T&T will be carrying a heavy psychological burden as the strongest energy resourced country. Beyond the psychological, there will be direct economic consequences for T&T simply because our own economy is so tied up with Caricom in terms of trade and investment.”


Tewarie said the “PetroCaribe countries of Caricom are not prepared for such an eventuality, but neither is T&T now. I first raised the issue of the un-sustainability of PetroCaribe publicly about a year ago. I have been having discussions on this matter with the Minister of Energy (Kevin Ramnarine) and at the Americas Competitivesness Forum (ACF) held in Port of Spain some weeks ago. I raised it in a talk I gave on planning for T&T, with and without energy.”


The minister said T&T has been thinking about it the impact of no PetroCaribe for some time, “both because of the energy challenges of our Caricom partners (with Jamaica being the most vocal on this matter) and because of deteriorating economic conditions in Venezuela.”


Moreover, Tewarie said, Caricom represents “a neighborhood market” and if T&T can supply energy to the countries of the region it will be a small but sustainable market. He said “the thinking has involved altruistic, self-interested and business considerations all at once.” He said this is what has led over the years to discussion about a gas pipeline project, about transporting natural gas or liquified natural gas (LNG) across the region as well as the prospect of a dimethyl ether (DME) solution in the future emanating from the Mitsubishi-Massy project in La Brea.




He said “the crux of the problem is money – viable business proposals that make financial sense and have sustainability built into them” are needed. Everything has to be paid for, he said. Tewarie, who is T&T’s governor to the Inter-American Development Bank (IDB), said he has “been exploring this matter. Also this country’s representative at the Caribbean Development Bank (CDB), the minister said “the CDB president and myself have discussed options.”


He said he has “diligently pursued this matter with the IDB and when (IDB) President (Luis Alberto) Moreno was here in February of this year, he agreed to set up a task force on this matter which has since reported. I have shared this with the minister of energy. The honourable prime minister is aware of discussions but not of the details. The time is now ripe for a wider governmental discussion.”


Essentially, he said, it is about “an energy solution for the region with T&T playing a vital role, the technological options for a viable solution and a structured financial mechanism involving a range of stakeholders coordinated by (the) IDB to make it possible. Much discussion has to take place yet, but at least there is a solution proposal worth discussing that will soon be on the table.”


He said at the moment his ministry is leading the thrust for this country’s next medium term plan. The budget this year is the last one under guidance from the Medium Term Policy Framework 2011-2014 entitled “Innovation for Lasting Prosperity.” In 2014, the country is “in a good place but the world is full of uncertainty,” Tewarie said.


The challenge is how to plan amidst increasing uncertainty and unpredictability, he said. First, he said, plan in the context of a spectrum of scenarios involving everything from best case to worst case. Second, plan for the future coming at you, in the context of well defined scenarios and this means being adaptable and building resilience, he continued.


“Adaptability is the key to survival under any circumstances and resilience is essential to withstand the unexpected, but while we must plan for the future, we must also plan to shape the future, knowing that we might not be the only shapers, but that our actions and interventions do matter,” he said. “It is against this background that we are preparing our plan to take us to 2021, against the background of our National Spatial Strategy which outlines a vision for what T&T can and will be in 2033.”




Barclays Analyst Alejandro Grisanti in a November 3 note said: “The government seems to be looking to increase the amount of cashable oil exports by cutting deliveries under the oil agreements, through the securitization of PetroCaribe debt, trying to sell assets to gain liquidity, cutting imports, employing a devaluation and increasing gasoline prices to collect additional fiscal revenues.”


Grisanti said Venezuela’s “economic cabinet has proposed to President (Nicolas) Maduro a set of economic measures that include a disguised devaluation of the currency, suspending the sales of dollars at the 6.3 Venezuelan Bolivar (VEB) to one US dollar (USD) exchange rate, allowing international oil firms to sell dollars at SICAD II (an alternative bank-based currency market) to cover operating expenditure (opex), increasing the price of gasoline, increasing the amount of cashable oil exports by cutting deliveries under oil agreements and securitizing PetroCaribe debt with Venezuela.”


The first measure seems to be on its way, the Barclays analyst said. “Local banks report a decline in foreign exchange (FX) sales at VEB6.3/USD, which in practice is a devaluation. Sectors are being transferred to the FX mechanism with weaker exchange rates. For some products such as autos, the government is giving people the possibility of importing cars using its own FX, a signal that it will maintain or even increase the restriction in the access to FX to these sectors through the official mechanism,” he said.


Regarding the oil agreements, Venezuela already renegotiated some of their conditions, which allows it to reduce its deliveries to China, the Barclays analyst said. Although this does not mean a reduction in the non-cashable barrels yet, it could reduce delivery costs and give the government the possibility to accelerate the revenue collection process, he said.


“The decline in PetroCaribe deliveries has already been happening and is likely to continue, given its low domestic political cost. Nonetheless, the government seems to be prioritizing a securitization of Petrocaribe debt,” said Grisanti. Citing the governmen, he said “this debt amounts for more than US$20 billion, with more than 40 per cent of it (being) marketable debt of the Dominican Republic and Jamaica, from which it says that it could get US$2.0-US$3.0 billion in the short term, increasing the liquidity position of Venezuela.”



The International Monetary Fund (IMF) in the Fall 2014 issue of its regional economic outlook (REO) update said: “Lower assistance from Venezuela for the payment of oil imports through PetroCaribe could put pressure on the fiscal and external positions of some countries, notably the Dominican Republic and Nicaragua.”


Against this backdrop, deficit reduction constitutes a policy priority, the IMF said. “Fiscal efforts should combine expenditure restraint and rationalization, including strict control of the public wage bill and better targeting of subsidies. Beyond addressing sustainability concerns, revenue mobilization would be suitable in some countries to finance critical public investment and social spending,” said the REO.


The IMF said that although a few Caribbean countries – including Jamaica and St. Kitts and Nevis, which implemented reform programmes supported by the IMF – have recently made progress toward reducing vulnerabilities, fiscal risks have generally risen further. The tourism-based economies face average public debt levels in excess of 90 per cent of gross domestic product (GDP), along with increasing financing needs, said the IMF.


“Governments’ market access has deteriorated and budgetary buffers have narrowed in most countries. External imbalances have also mounted, prompting reserve losses in some countries. Dependence on PetroCaribe presents a further risk. This bleak backdrop calls for stepped-up efforts to strengthen fiscal positions, including by reducing costly and poorly targeted energy subsidies,” the IMF said.


The multilateral said: “Notable recent progress in Jamaica provides an encouraging example. Specifically, the country’s fiscal and external current account deficits have declined sharply since 2012, enabling Jamaica to regain market access, with the issuance of an external bond in July. Among the commodity exporters, near-term fiscal risks are generally lower, but faster improvements in revenue management and the quality of public expenditure are critical for mitigating medium term fiscal vulnerabilities.”




Category/ies:Jamaica News, Regional News, Trinidad and Tobago News.
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