| On
June 29th at the invitation of President Hugo Chavez,
I signed the Petrocaribe Energy Cooperation Agreement,
and the Minister of Commerce, Science and Technology
signed a Memorandum of Understanding with his Venezuelan
counterpart for the upgrading and expansion of the Petrojam
Refinery.
In
view of their importance to the nation and the wider
implications for our energy sector, I believe it is
necessary to outline in Parliament the details of
these Agreements and the benefits that will accrue
to Jamaica.
A
Ministry Paper will be tabled next week setting out
the background to these two Agreements and the documents
which were signed in Puerto La Cruz.
Mr.
Speaker,
In
repeated presentations to this House during consecutive
Budget Debates, the Minister of Finance and I have
repeatedly drawn attention to the implications for
Jamaica of the constant escalations in oil prices.
The
Minister of Commerce, Science and Technology has been
fully engaged in a series of Ministerial meetings
on escalating oil prices and the financial imperatives
that now drive energy markets.
Energy
use is a major component in the production of goods
and services. The costs of securing and utilizing
energy sources is critical if all our countries are
to achieve and then maintain a competitive edge in
the global economy.
Furthermore
the volatility of the world's oil markets over the
past thirty years has handicapped the development
of our industries. Two main issues confront us …
the need to address social concerns and at the same
time to stimulate economic growth. Energy is critical
to these issues as we are an energy deficient country,
which imports well over 90 percent of our energy needs.
Over
the past 10 years our energy intensity – the
ratio of energy consumption to GDP – is increasing
at a rate that is economically challenging. Using
1987 as a base year, the GDP grew by 20%, while energy
consumption increased by 112%.
The cost of imported petroleum in 2004 amounted to
just under US$800 million, nearly doubling the US$420
million in 2001.
The
volatility in oil prices is also having a crippling
effect on finance planning and the allocation of scarce
resources in the Jamaican economy.
In
2004 over 60 percent of our export earnings was spent
on the importation of petroleum products. The average
price of a barrel of crude in 2004 was US$34.4 compared
to the recent wild fluctuations resulting in prices
announced yesterday in excess of US$61.00 per barrel.
Collectively,
well over 60 percent of Jamaica’s petroleum
imports are used by the electricity generation, mining
and manufacturing sectors. In 2004 about 8.3 million
barrels of oil was consumed by the bauxite/alumina
sector, 6.5 million barrels by electric power generation
and 5.4 million barrels by the transport sector.
Mr.
Speaker,
In
July 2004 Trinidad and Tobago announced a commitment
to establish a US$50M Fund, which would be available
to CARICOM countries through grants as decided by
the Community.
Petrocaribe
was conceived as a model for South South Cooperation
when G15 met in Caracas, Venezuela last year.
Following
that a series of Ministerial meetings took place involving
Venezuela and all Caricom countries including Trinidad
and Tobago. Cuba and the Dominican Republic are also
signatories to the new Petrocaribe Initiative. This
reflects the deepening of relationships within all
the countries of the Caribbean.
The
Ministers eventually agreed on Petrocaribe as a vehicle
for energy integration and formulated a commercial
initiative designed to “secure access to energy
at just and reasonable prices within the framework
of Latin American and Caribbean energy integration”.
Simultaneously,
Jamaica vigorously pursued bilateral discussions with
Venezuela in relation to the upgrade of the Petrojam
Refinery. In this regard, there have been several
discussions at the political level and numerous bilateral
meetings at the technical level.
In
February 2005, the respective Ministers from Venezuela
and Jamaica, signed a Letter of Intent (LIO) which
allowed for significant technical preparatory work
to be undertaken to inform the design parameters.
These
included due diligence analysis of the Refinery by
PDVSA and linear programming studies by Muse and Stancil,
a US consulting firm. Importantly, the LOI provided
the framework for advancing the process of a financial
review of the proposed upgrade.
At
both the political and technical levels, Jamaica also
continued to engage in discussions aimed at shaping
the PETROCARIBE Agreement.
Details
of the Agreement and benefits to Jamaica and others
Mr.
Speaker,
The
June 2005 PETROCARIBE Agreement speaks to equality
of states and underscores the principles of sovereignty.
The Agreement specifically recognizes the importance
of Trinidad and Tobago as a reliable energy exporting
country.
The
PETROCARIBE Agreement has come into being at a time
when the per barrel cost of oil is hovering at US
$60. These increases are coming at a time when the
markets for and the prices at which we can sell our
commodities are under severe threat.
Within this Agreement, there will be opportunities
to increase trade in our agricultural commodities
such as sugar and bananas.
The
features of the Agreement include:
- The
establishment of a Fund for social and economic
development in the wider region. Venezuela has made
the first capital injection of US $ 50M
- This
initiative will facilitate the installation of storage
infrastructure in member states which subscribe
to it
- Shipping,
will be provided at cost to move petroleum supplies
within the region
- There
is provision for training to enhance efficiency
in the use of conventional and renewable energy
resources
- We
are going to enjoy better financial terms including:-
- An
extension of short-term financing from 30 to 90
days
Mr. Speaker, The
deferred payment facility available under the existing
Caracas Accord has been significantly enhanced, recognizing
the dramatic increase in the cost of petroleum.
In this regard, where the per barrel price exceeds
US $40, the payment period is being extended to 25
years, including a grace period of two years and at
an interest rate of 1%.
The
amount of funds available under the long term financing
facility, now takes account of the prices above the
$40 per barrel, but should prices hit the $100 mark,
the trigger will allow 50 percent to be available
under this deferred payment plan.
As
I said at the signing ceremony in Venezuela, Petrocaribe
opens the opportunity for increase trade flows within
the region. A new corridor has been created for us
in the Caribbean to supply to Venezuela, certain goods
and services that may be affected by emerging trade
policies including decisions of the WTO, which are
inimical to member states.
Implications
for the proposed Jamaica/Trinidad LNG Project
The
Members of this House will recall that a Memorandum
of Understanding was signed between the Government
of Jamaica and Trinidad and Tobago concerning the
proposed Jamaica Liquefied Natural Gas Project in
Trinidad last year November.
That
MOU provides for the supply of approximately 1.1 million
tones of LNG per annum by Trinidad to Jamaica at agreed
prices for 20 years.
The
Petrocaribe initiative does not in any way compromise
the spirit or the letter of this MOU.
The
Agreement does not restrict Trinidad from selling
its petroleum products in the Jamaican market.
With
regard to the Energy Fund established for CARICOM
members by Trinidad and Tobago, I regard Petrocaribe
as a complement to this Fund. It reflects a commonality
of purpose by the region’s two energy rich countries
that is cooperation and integration for the social
and economic development of the peoples of the region.
Ministers
of Energy will constitute Ministerial Council for
PETROCARIBE responsible for the coordination of policies,
strategies and plans. The Council will establish priorities
for work (technical, legal) in support of the initiatives
and agree to the admission or withdrawal of members.
Implementation of decisions will be through an Executive
Secretariat to be provided by the Ministry of Energy,
Venezuela.
It
is to be noted, that bilateral or plurilateral arrangements
will be the mechanism for implementation of projects
within the PETROCARIBE Agreement. Within this context,
Jamaica signed an MOU with Venezuela for the Upgrade
of the Petrojam Refinery.
The
result of the upgrade will be to expand the capacity
of the Refinery by about 42% to 50,000 barrels per
day and through the introduction of new processing
technology to increase the proportion of higher quality
fuel produced from the crude supplies. The new technology
will allow the refinery to process heavier crude,
which attracts a comparatively lower price in the
market.
Under
this Agreement, PDVSA and PCJ intent to be 50/50 partners
in the US$500 million expansion of the Petrojam Oil
Refinery. The final equity percentage will be dependent
upon capital invested in the project in the form of
cash or tangible and intangible assets directly related
to the refinery operation and the project development
costs.
Jamaica
is continuing bilateral discussions through our mission
in Venezuela with a view to advancing the Petrojam
Project as well as to develop other projects for consideration.
Discussions have been initiated to secure the next
supplies of petroleum under the PETROCARIBE facility.
Conclusion
Mr.
Speaker,
As
we speak, the region faces the grave threat of an
active hurricane season. Caribbean countries that
are especially vulnerable confront the prospect of
serious disruption to our economies.
We
face escalating oil prices and for many of us the
serious threat to our primary export products such
as sugar, banana and more recently, rum.
All
countries in the region must welcome the Petrocaribe
Initiative as it provides critical support to vulnerable
states and critical assistance for those in our population
who are most at risk. |