PETROCARIBE UPDATE #21 - CHAVEZ MAY ALLOW PRIVATE

C O N F I D E N T I A L BRIDGETOWN 000877

SIPDIS

SIPDIS

WHA/EPSC FOR FAITH CORNEILLE
EB/ESC FOR MATTHEW MCMANUS

E.O. 12958: DECL: 05/18/2016
TAGS: EPET ENRG EINV PREL PGOV XL VE
SUBJECT: PETROCARIBE UPDATE #21 - CHAVEZ MAY ALLOW PRIVATE
COMPANIES INTO PETROCARIBE

REF: A. BRIDGETOWN 788


B. BRIDGETOWN 602 AND PREVIOUS

C. 05 BRIDGETOWN 2043

D. 05 BRIDGETOWN 1911

Classified By: Econoff John Ashworth for reasons 1.4(b) and (d).


1. (C) Summary: The Executive Director of Simpson Oil
Limited (SOL) believes that Venezuela may work through SOL to
import and distribute PetroCaribe fuel in the Eastern
Caribbean. Such a move would contradict PetroCaribe's design
as a government-only oil agreement. SOL used its
participation in the recently formed Organization of Eastern
Caribbean States (OECS) Energy Task Force to encourage OECS
member-states to utilize existing privately owned import,
storage, and distribution infrastructure for PetroCaribe oil
instead of building duplicate state-owned facilities. The
Barbados-based SOL is "waiting on a final decision from
Chavez" on its possible participation in PetroCaribe.
Venezuela faces a tough decision in the Eastern Caribbean.
Allowing private companies to take part in PetroCaribe
violates the plan's principle of "direct trade" or
state-to-state oil transfers, but keeping private companies
out could delay the start of PetroCaribe shipments for years.
End Summary.

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PetroCaribe Logistics
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2. (C) In a May 17 conversation with Econoff, Stewart Gill,
Executive Director of Barbados-based SOL, clarified the
logistical plans for PetroCaribe made by the OECS (Antigua
and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St.
Lucia, St. Vincent and the Grenadines) Energy Task Force at
its April meeting (Ref A). PetroCaribe oil bound for the
Eastern Caribbean would be refined in Venezuela (not Curacao,
as Post had previously assumed) and shipped on a large vessel
to Antigua for storage and distribution to the other islands.
The OECS and the Venezuelan state oil company (Petroleos de
Venezuela/PDVSA) chose Antigua because it has excess storage
capacity at a former refinery. St. Lucia, with a large Hess
Oil transshipment facility in Cul de Sac Bay, could also
become a PetroCaribe distribution hub.


3. (C) SOL and the OECS are "waiting on a final decision
from Chavez" to activate the plan described above. Gill
expressed confidence that the plan would be approved, but he
did not know when. He noted that the only operational
difference for SOL would be that the refined petroleum
products offloaded into the company's storage tanks would
come from Venezuela instead of Trinidad. SOL has lobbied
OECS countries against erecting state-owned oil import and
storage facilities that would duplicate existing privately
owned structures. SOL has offered to import PetroCaribe oil
using its current infrastructure as a way to keep down the
cost to governments and speed up implementation of the energy
deal.

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Background on SOL
--------------


4. (C) Barbadian businessman Kyffin Simpson created SOL
(www.solpetroleum.com) when he purchased Shell's Caribbean
downstream business in 2004. SOL uses the Shell brand under
license at its service stations and sources its oil from
Shell. SOL operates exclusively in the Caribbean and has
facilities on each OECS island. The other major oil company
in the OECS, ChevronTexaco, is diversified around the world,
so it has much less to lose from PetroCaribe. Gill has
privately expressed serious reservations about Venezuelan
President Hugo Chavez's motives in the region. Publicly,
however, he has sought a role for SOL within PetroCaribe for
the sake of his company's survival. Gill is betting the
Venezuelan energy scheme will implode in three or four years.
SOL's strategy is to ride it out until then (Ref C). SOL,
as a Caribbean company, has apparently had a much easier time
working with the Venezuelans and the OECS than has the
American ChevronTexaco. (Comment: ChevronTexaco is out of
favor with many OECS countries, having both made a
politically unsavvy decision to threaten a cut-off of
Liquified Petroleum Gas (LPG) supplies to St. Vincent at the
time of its December 2005 elections and pulled out of the
Antiguan LPG market entirely. End Comment.)


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OECS Obstacles to Implementing PetroCaribe
--------------


5. (C) PetroCaribe supposedly will save money in two ways:
cutting out private oil companies in favor of state-to-state
oil transfers and providing concessionary financing. In
practical terms, these imagined benefits are unlikely to
accrue to the Eastern Caribbean microstates. The OECS
countries run the gamut from tiny St. Kitts and Nevis
(population 45,000) to small St. Lucia (population 165,000).
With governments more municipal than national in character,
these countries already struggle to uphold all the trappings
of nationhood and survive as independent states. They have
neither the resources nor the expertise to start and sustain
state oil companies. Furthermore, their crushing debt loads,
some of the highest in the world as a percentage of GDP (Ref
D),leave them ill-suited to incurring any additional
financial obligations.

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A New Public-Private Energy Deal?
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6. (C) Private participation in PetroCaribe could help the
recipient countries avoid becoming dependent on Venezuelan
oil. With state-to-state transfers, Chavez can credibly
threaten a cutoff in oil supplies to bring regional leaders
to heel. With private companies involved, however, his
threat would be empty. The private company importing oil
would simply find another source of fuel. (Note: Gill
explained that SOL could use its existing connections with
Shell's trading company to quickly obtain petroleum on the
open market in the event of a Venezuelan supply disruption.
End Note.) State-run companies set up by PDVSA would not
likely have the flexibility, expertise, and connections with
the larger petroleum companies to quickly procure oil
elsewhere.

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Comment
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7. (C) PetroCaribe has thus far been a failure in the
Eastern Caribbean. Despite all its promises, Venezuela has
delivered just two shipments of Liquified Petroleum Gas (LPG)
to St. Vincent and one oil storage tank to Dominica.
Venezuela is in a bind: allowing private company
participation would violate Chavez's illusion that
state-to-state oil transfers would somehow reduce energy
costs. Given the inherent resource constraints of the OECS
microstates, insisting on the formation of state-run
companies and construction of duplicate oil import and
storage infrastructure on each tiny island could mean the
Eastern Caribbean countries will not see PetroCaribe oil for
years.

PETERS