Oil deal over a barrel?
Jamaica's road ahead
BENEFICIARY countries of the PetroCaribe agreement are anxiously watching developments following Tuesday's death of Venezuelan President Hugo Chavez.
The 58-year-old leader — who ruled the South American country for the last 14 years — succumbed to cancer after a two-year battle.
With his passing, the Venezuelan Constitution dictates elections are to be held within 30 days.
However, there are concerns about recent utterances by Opposition Leader Henrique Caprilles that if elected he would discontinue the PetroCaribe agreement initiated by Chavez eight years ago.
Derrick Thompson, president of the Jamaica Gasolene Retailers Association (JGRA), told Auto that a termination of the agreement would not result in an immediate spike in gasolene prices.
"There may be other dynamics that would come into play," Thompson said.
"As a matter of fact, the government may have to borrow more money to pay for fuel and if that is the case, we may be subject to higher interest charges," the JGRA president continued.
Under the Treaty, signed in 2005, Jamaica and 17 other countries pay 60 per cent for the oil it receives from Venezuela. The balance is repaid at an interest of one per cent over 20 years.
Last year, Jamaica's fuel bill was US$2.6 billion, an increase of US$200m over the previous year.
Clive Mullings, former minister of energy, mining and telecoms in the Jamaica Labour Party administration, agrees that discontinuation of the PetroCaribe Agreement could result in a scarcity of US dollars.
According to Mullings, without the treaty, Jamaica's Central Bank would have to find more US dollars to purchase the oil up front.
"This would increase our net outflows and could rock the foundation of our economy," Mullings said. "But it would not reflect as an immediate skyrocketing of prices at the pump."
It is estimated the pact's termination would result in a US$600 million per year impact on the country's balance of payments.
Mulling suggested, therefore, that critical discourse was needed at this time.
"The discussion the government should be having should focus on the impact the discontinuation of the PetroCaribe Agreement would have on the IMF [International Monetary Fund] agreement and whether such a scenario taken into consideration during the discussions with the multilateral agency," Mullings told Auto.
Thompson pointed out that the implementation of a gas tax as of April 1, would result in increased gas prices.
Several efforts to get a comment from Phillip Paulwell, minister of science, technology, energy & Mining, and AJ Nicholson, foreign affairs and foreign trade minister, were unsuccessful.