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.
