Should Guyana consider alternatives to oil purchasing from Venezuela?
By William Walker
The supply of oil to this country is based upon a 15-year-old agreement which leaves Guyana largely dependent on Venezuela for a vital commodity. While Venezuelan Ambassador Hector Azocar has expressed satisfaction at the arrangement and would like to see resumption of one aspect of the accord, one leading oil company official says that the benefits of the 1986 agreement now seem unclear and a free market system may result in better prices. The commercial section of the agreement is distinct from a financing arrangement which has not been renewed in the last five years, Azocar told Stabroek News. It comprises a contract negotiated between PDV, formerly PDVSA, the Venezuelan national energy company, and the Guyana Energy Agency (GEA), formerly the Guyana National Energy Authority. All four suppliers to Guyana: Guyoil, Texaco, Esso and Shell must notify the GEA of their needs for the month ahead and their ships then collect from the PDV refinery in Curacao. Payments are then made by the companies in local currency to GEA which in turn pays PDV in foreign currency. A fee for inspection and administrative costs has recently been instituted by the GEA. Only large contracts for industrial operations are allowed to be brought in without going through the GEA. An official of one local oil company wondered why the government persisted with the present system as the low interest financing of the oil bill was no longer in effect. With Trinidad a shorter sailing distance away from Georgetown than Curacao's 36 hours, shipment costs would, he said, be lower. In most other countries, the official said, the local companies would buy from the parent company, whereas in the case of Guyana all products excluding lubricants come from one source. Manzoor Nadir, adviser to the Guyana Petrol Station Dealers Association was not surprised that the oil companies would be against the present arrangement. The alternative, he said, would be an oligopoly where the companies would be able to take advantage of price moves in international markets to raise prices, perhaps collusively. At present, Nadir said, the system forces the companies to work from a price given to the GEA by PDV. He went further to say that the supply of petroleum products was almost like a "public utility" and that the wholesale price to retailers should also be regulated in the interests of the economy and the consumer. An official of a local oil company also agreed that GEA's knowledge of the price from Venezuela helps to keep the companies here from making excessive profits. He said that despite GEA's negotiating power "we are not finding prices to have any distinct advantage." The official did note that the Curacao refinery was state of the art and well organised and was the first choice of companies in the region. Problems between Guyana and Trinidad over outstanding debts, according to him, would probably see that country requiring cash up front and there had been some loading problems associated with the "fledgling" Suriname facility. Another source close to the oil industry, whilst applauding the role of the GEA as an administrator wondered whether there could be savings from buying from other countries. He cited the case of Linmine that had switched to a Suriname supplier some two years ago and had saved around US$2 million to US$3 million in one year. The objective, he stressed, should be to lower the nation's oil bill with the GEA perhaps in a monitoring role directed primarily at quality control. Sandra Bevan, economist with the GEA, provided Stabroek News with a copy of a study of prices for petroleum products throughout South America and the Caribbean which compared Guyana's prices favourably: The average price for a gallon of regular unleaded gasoline for April of 1999 in Barbados was US$2.52; Jamaica, US$1.38; Dominican Republic, US$1.49; Suriname, US$2.11. Trinidad's average price of US$1.48 was the same as Guyana's retail price of $250 (US$1.48). In the case of kerosene only Trinidad had a lower price for a gallon at 69 US cents compared to Guyana at 97 US cents, Barbados at US$1.00, Jamaica at US$1.05, Dominican Republic at US$1.16 and Suriname at US$1.36. The present prices for these two products in Guyana for October 1999 are gasoline $302 (US$1.67) and kerosene $207 (US$1.15) (GEA source). World oil prices have been rising steadily since OPEC agreed to limit production earlier this year, with prices touching US$25 a barrel in the last few weeks. Bevan says that the agency does a yearly review of petroleum prices in the region and in general Venezuela's prices to Guyana are "a bit" below international rates. Venezuela is the third largest producer in the world with capacity to produce 1.2 million barrels of oil per day. She noted that while Trinidad was closer, the added savings in transportation would not make up for the higher prices. Trinidad however does supply cooking gas to Guyana. Guyana Power and Light also imports number six fuel for its Wartsila plant from there. Linmine's "offshore arrangement" for diesel from Suriname excludes GEA, and Bevan said the savings come from their bulk purchase arrangements. She said that in general Suriname's prices are considered high. Other companies that do not purchase through the GEA include Omai, Bermine, Barama and Georgetown Seafoods. Bevan explained that many of these arrangements involve the purchase of fuel from Venezuela anyway as most of the large oil companies supply the region from Curacao. Bevan said that her impression was that the local oil companies are satisfied with the present arrangement as it does not require them to purchase foreign currency at cambio rates, because of the concession at the Bank of Guyana. For 1998 the total amount of petroleum products shipped to Guyana included 1 million barrels of diesel; 1.2 million barrels of fuel oil; 650,000 barrels of gasoline; 211,000 barrels of kerosene; 20,000 barrels of aviation fuel and 50,000 barrels of light propane gas (GEA source). The nation's bill for imports of fuel and lubricants for the first quarter of 1999 was US$14.96 million. (Bureau of Statistics) The bilateral agreement between Guyana and Venezuela signed in 1986 is, according to Azocar, largely similar to a 1979 agreement called the San Jose declaration between Mexico and Venezuela as suppliers and 11 beneficiary countries and does not involve Guyana. This country's bilateral agreement with Venezuela was signed in 1986 and stipulated that Guyana was guaranteed 6,000 barrels of oil or its equivalent such as diesel, gasoline, kerosene and other products per day. Guyana could pay for up to 45% of its oil bill in bauxite. So for 1986, Guyana agreed to supply 100,000 tonnes and in 1987, 440,000 tonnes of bauxite to Venezuela as part of a barter system. Azocar explained that for various reasons this was not supplied in the two years agreed upon but was spread out over the end of the decade. In 1992/3 the bauxite component of the agreement was rendered moot by Venezuela's discovery of its own bauxite supplies. Since 1993 the Government of Guyana has not renewed a financing component of the agreement that allowed for a certain portion of the oil bill to be financed by low interest loans from Venezuela. No money is now owing to the Venezuelan Government as a result of the loans. Although the reasons for this non-renewal are not clear other financial considerations such as commitments under IMF agreements may have had an influence. However, three housing schemes were financed in the late 90's by funds left over from the low-interest loans. Azocar expressed his government's willingness to renew the arrangement as "one step to strengthen friendship and bilateral cooperation." The declaration on which Guyana's agreement is based, was signed on August 3rd 1979 in San Jose, Costa Rica between Mexico and Venezuela, as the suppliers, to 11 beneficiary countries in Central America and the Caribbean. The impetus for this declaration was the oil crisis of the mid-seventies when OPEC caused prices for world oil to quadruple to over US$30. The concern for many countries at the time was the guarantee of supplies and the costs of the oil bills on their fragile economies. The San Jose declaration committed the two supplier countries to deliver a total of 160,000 barrels (80,000 each) of crude oil per day. As to which supplier would supply which country was reflected by traditional patterns of trade, with Mexico and supplying countries primarily in Central America and Venezuela, countries in the Caribbean, although some of the markets were and still are, shared by the two. The 11 participating countries are Barbados, Belize, Costa Rica, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Nicaragua, Panama, and the Dominican Republic. The price is determined solely by the international market and the countries are allowed to buy from other sources to make up shortfalls. To help alleviate the cost of oil bills and to promote the development of the beneficiary countries, Mexico and Venezuela set up a balance of payments support system that allowed for the financing of the oil bill through low interest loans direct to the central banks of the 11 countries. In the case of the San Jose agreement the percentage of the oil bill that could be financed is dependent on the price of crude oil internationally; ranging from 20% when the price was between US$15 to US$20.99, up to 25% when over US$40 per barrel. Part of these loans, whose rates were tied to the Inter-American Development Bank rates, could be used for infrastructure and social development projects. According to the Venezuelan ambassador, the two-decade agreement has been very successful and has been renewed annually with only minor adjustments to reflect the changing dynamics of trade. With the demise of inefficient refineries in smaller countries, most trade is now accounted for in petroleum products and not crude oil. Secondly, the privatisation of many state-owned oil companies during the early 90's is reflected in the agreement. A joint committee of Venezuelan and Mexican representatives monitor all sales and meet twice a year to review quotas. Only two countries have been suspended from the programme after failing to service the financing loans; Haiti during 1990 after the coup d'etat and Panama. They have both been reinstated. Guyana's oil purchasing arrangements from Venezuela have attracted attention in the wake of recent acts by the Venezuelan army in the border area including helicopter incursions into this country's airspace and unusual troop movements. Following the 100th anniversary of the 1899 Paris arbitral award which settled the boundaries between the two countries, Venezuela also restated its claim to the Essequibo region and views have been expressed that Guyana should not be so heavily dependent on Caracas for crucial oil supplies.
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