Identifier
Created
Classification
Origin
06KINGSTON1592
2006-08-15 19:47:00
CONFIDENTIAL
Embassy Kingston
Cable title:  

VENEZUELA/JAMAICA: USD 563 MILLION ASSISTANCE

Tags:  EAID ECON EPET PGOV PREL JM VE 
pdf how-to read a cable
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INFO RUCNCOM/EC CARICOM COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 0435
RUEHME/AMEMBASSY MEXICO PRIORITY 2877
RUEHQT/AMEMBASSY QUITO PRIORITY 0708
RUEHDG/AMEMBASSY SANTO DOMINGO PRIORITY 5710
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RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
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C O N F I D E N T I A L KINGSTON 001592 

SIPDIS

SIPDIS

STATE FOR WHA/CAR (NICHOLS, BUDDEN),WHA/EPSC (CORNEILLE),
EB/ESC/IEC/EPC (MCMANUS)

E.O. 12958: DECL: 08/15/2016
TAGS: EAID ECON EPET PGOV PREL JM VE
SUBJECT: VENEZUELA/JAMAICA: USD 563 MILLION ASSISTANCE

REF: A. 05 KINGSTON 2661

B. KINGSTON 1342

Classified By: Ambassador Brenda Johnson, reasons 1.4 (B) and (D)

-------
Summary
-------

C O N F I D E N T I A L KINGSTON 001592

SIPDIS

SIPDIS

STATE FOR WHA/CAR (NICHOLS, BUDDEN),WHA/EPSC (CORNEILLE),
EB/ESC/IEC/EPC (MCMANUS)

E.O. 12958: DECL: 08/15/2016
TAGS: EAID ECON EPET PGOV PREL JM VE
SUBJECT: VENEZUELA/JAMAICA: USD 563 MILLION ASSISTANCE

REF: A. 05 KINGSTON 2661

B. KINGSTON 1342

Classified By: Ambassador Brenda Johnson, reasons 1.4 (B) and (D)

--------------
Summary
--------------


1. (SBU) On August 14, Venezuelan President Hugo Chavez,
accompanied by Foreign Minister Nicolas Maduro and Energy and
Petroleum Minister Raphael Ramirez, made a one-day stop in
Jamaica during which he signed agreements with the GOJ
totaling USD 563.3 million. Of that figure, USD 290 million
purchased a 49 percent equity position in the GOJ-owned
PetroJam refinery, which has serious implications for the
security of Jamaica's energy supply. In addition, GOJ
announced a USD 260 million soft loan for the construction of
a highway from Spanish Town (near Kingston) to Ocho Rios, as
well as three smaller projects totaling USD 13.3 million
which will assist construction of a sports complex, a civic
center, and low-income housing.


2. (C) The Opposition Jamaica Labor Party (JLP) publicly and
privately expressed concern over Jamaica's growing
relationship with Venezuela. In a conversation with Poloff
on August 15, JLP General Secretary Karl Samuda (protect)
stated that he is fearful that Chavez will "meddle in
Jamaica's domestic affairs." As expected, GOJ contacts have
declined to offer any information regarding the visit. Prime
Minister Portia Simpson Miller and members of her government
received Chavez and his delegation in Montego Bay rather than
in Kingston.

--------------
Venezuelan Assistance for Jamaica
--------------


3. (SBU) On August 14, Venezuelan President Hugo Chavez,
accompanied by Foreign Minister Nicolas Maduro and Energy and
Petroleum Minister Raphael Ramirez, made a one-day stop in
Jamaica during which he signed agreements with the GOJ
totaling USD 563.3 million. Of that figure, USD 290 million
purchased a 49 percent equity position in the GOJ-owned

PetroJam refinery, USD 260 million was a soft loan for the
construction of a highway from Spanish Town (near Kingston)
to Ocho Rios, and three smaller construction projects totaled
USD 13.3 million.

--------------
Energy Background
--------------


4. (U) Jamaica, with no domestic sources of petroleum, is
entirely dependent upon foreign suppliers. At the same time,
the country has one of the highest energy intensity rates in
Latin America and the Caribbean (due in part to high usage in
the bauxite/alumina sector),and since the mid-1980s has seen
a doubling of per capita consumption, from 5.6 boe to 10.31
boe. When this rising consumption is combined with
ever-increasing prices, Jamaica has reached a point where
two-thirds of every dollar earned on merchandise exports goes
to pay the country,s energy bill.


5. (U) Jamaica has been refining crude oil since 1964 at the
Kingston Harbor facility. In 1982, the Government-owned
Petroleum Corporation of Jamaica acquired the refinery from
Esso Standard Oil. It is a hydroskimming refinery with a
current capacity to refine 36,000 bpd, which manufactures
Liquid Petroleum Gas (LPG),unleaded gasoline, turbo fuel,
kerosene, diesel oil, heavy fuel oil, asphalt, and light and
heavy naphtha.


6. (U) Jamaica currently imports approximately 26 million
barrels of petroleum per year (Note: 2004 is the most recent
year for which reliable statistics are available. End note).
Of this, approximately 5.5 million barrels were crude oil,
sourced primarily from Mexico, Venezuela and Ecuador. The
remaining 20.5 million barrels were refined products, sourced
largely from Trinidad and Tobago, but with significant levels
from Venezuela.


7. (U) Under the PetroCaribe bilateral, Jamaica is entitled
to a quota of 21,000 bpd under concessionary financing terms.
Where the per barrel price is USD 40 or greater, 60 percent
of the cost must be paid within 90 days (attracting two
percent interest for the 60-90 day period). The remaining 40
percent attracts interest at one percent and is repayable
within 25 years. The agreement was signed on August 23,

2005. The Ministry of Industry, Technology, Energy and
Commerce (MITEC) estimate that at a price of USD 50 per
barrel over a 12-month period, this will give a soft loan
benefit to Jamaica of USD 176 million.

--------------
PDVSA to Control 49 Percent of PetroJam
--------------


8. (SBU) Venezuela's purchase of a 49 percent stake in the
PetroJam refinery has significant implications for the
Jamaican energy sector. Although Mexico has historically
been the main supplier of crude oil to Jamaica, this obscures
increasing levels of Venezuelan supply. In 2003, Jamaica
sourced 1.1 million barrels from Venezuela. In 2004, that
figure jumped 65 percent to 1.67 million barrels. While that
increase came primarily at the expense of Ecuadoran crude,
Mexico's supply remained static, and it is likely that
Venezuelan imports will outstrip Mexico's for 2005 and beyond.

--------------
Upgrade: Technical Aspects
--------------


9. (C) The upgrade of the Kingston Harbor refinery will only
exacerbate this trend. Currently, PetroJam primarily imports
three types of crude oil from Venezuela: the medium grades
Leona and Lago Treco, as well as the lighter Mesa. In
addition to increasing the capacity of the facility to 50,000
bpd, the current engineering plans, developed by SNC Lavalin
of Canada, call for the addition of a catalytic reforming
unit, vacuum tower, visbreaker unit, and desulphurization
facilities. According to Winston Watson (protect),Managing
Director of the PetroJam refinery, this will allow the
efficient processing of heavier crudes such as Merey and
Boscan produced by Venezuela.


10. (C) Currently, construction for the upgrade is projected
to begin in the first quarter of 2007 (designs are expected
to be completed and approved by February). While still
accepting tender offers, the front runners appear to be SNC
Lavalin and Foster Wheeler of New Jersey.

--------------
Amendment to PetroCaribe Accord
--------------


11. (U) Additionally, Chavez and Simpson Miller added an
amendment protocol to the PetroCaribe Bilateral which will
increase the quota that Jamaica received from 21,000 bpd to
23,500 bpd. This increase reflects 2,500 bpd of aviation
fuel supplied to Air Jamaica. This agreement is effective
from June 2006 to June 2007.

--------------
A Long-Term Policy?
--------------


12. (C) According to a GOJ Green Paper entitled "The Jamaica
Energy Policy 2006-2020", concern about ensuring the security
of the energy supply favors strengthening
government-to-government energy agreements. Therefore, the
paper argues: "The Government's foreign trade policy will
seek to strengthen bilateral relationships with energy
supplying countries(especially Venezuela(" Repeated
conversations that econoff has had with high level contacts
in MITEC has revealed that the GOJ considers it inconceivable
that Venezuela would "betray" them. They also argue that "it
would not make business sense" to willfully disrupt the
petroleum flows to Jamaica (ref. A).
--------------
The Continuing Saga of Highway 2000
--------------


13. (U) A USD 260 million soft loan for the construction of a
leg of "Highway 2000" between Spanish Town and Ocho Rios has
a ring of the familiar. In 1999, when former Prime Minister
P.J. Patterson announced the original road construction
project, he announced that it would serve as a "catalyst for
growth and development." Once the first leg was completed in
2002, it was a platform for re-election under the slogan
"Don't Stop the Progress."


14. (U) The highway was originally intended to connect
Kingston and Montego Bay. In a joint venture with the French
firm Bouygues Travaux Publiques, the GOJ estimated that
construction would cost USD 850 million utilized over a
five-year period. Funding was sourced through equity and
loans from Bouygues, as well as bonds issued by the National
Road Operating and Construction Company (NROCC). However,
Bouygues and ENROCC became embroiled in a dispute over the
financing arrangements. Venezuela's loan offers a low-cost
alternative source of funds in the face of Bouygues'
reluctance to commit more resources to the project.


15. (C) Under the deal with Venezuela, GOJ will receive USD
130 million immediately to begin work on the project, with
additional sums of USD 65 million in March 2007, and USD 65
million in May 2007. Contacts at both NROCC and at the
Ministry of Finance and Planning, however, indicated that
these negotiations were "as premature as they come", and that
repayment terms and details had yet to be agreed upon.

--------------
Political Considerations
--------------


16. (C) The Jamaica Labor Party (JLP) has publicly voiced
concern over the GOJ entering into these agreements with GOV
and has insisted on knowing what strings are attached.
Poloff spoke to Karl Samuda, JLP General Secretary, who
stated that even though PetroCaribe is beneficial
economically, the JLP is concerned about Jamaica forming such
a close relationship with Chavez. Samuda said that the JLP
does not want the GOV on the UNSC because Chavez is an
obstructionist and he may try to meddle in Jamaica,s
domestic affairs, especially considering his alignment with
Bolivia and his attempt to destabilize Peru. Chavez, Samuda
stated, is bad for Jamaica,s development and may take them
back to the time of the Cold War. Samuda concluded by
stating that "Chavez is a flipping disaster".


17. (C) Given the JLP,s concern that Chavez may meddle in
domestic politics (ref. B),it is noteworthy that former
Prime Minister P.J. Patterson, is reported in the media to
have had a "private meeting" with Chavez.


18. (C) On August 14, DCM called Delano Franklyn, Minister of
State at the Ministry of Foreign Affairs and Foreign Trade,
and asked if Franklyn could share the agenda or any details
of the Chavez visit. Franklyn responded that "he was not in
a position to do so" at that time, echoing sentiments that
emboffs have received from a range of GOJ contacts.

--------------
On the Margins: Additional Assistance
--------------


19. (U) Smaller agreements initialed during meetings between
senior representatives form both governments include the
construction of the final phase of a sports complex in
Montego Bay (USD 9.3 million),the continuing construction of
a civic center in Port Maria (USD 2.3 million),and the
provision of a line of credit of USD 2 million for the
Jamaica Mortgage Bank, to help finance low-income housing.

--------------
Comment
--------------

20. (C) These announcements come at an opportune time for a
Simpson Miller administration that has been reeling from
scandals in the cement sector, corruption allegations aimed
at high-ranking People's National Party officials, and a
public perception that her leadership has been ineffective.
While it will offer a temporary respite, there is some reason
to take the figures provided with a pinch of salt. The
highway loan has not yet been completed, and terms could
bring the deal to a halt.


21. (C) The PetroJam upgrade offers greater cause for
concern. Although a minority shareholder at 49 percent, the
deal will place Jamaica's energy supply future ) at least
partially - at the whims of the GOV's foreign policy
imperatives. At the very least, it would not be surprising
if the actual funds were transmitted after the UNSC vote.


22. (C) Chavez's "private" meeting with P.J. Patterson could
have taken place because they are good old friends; however,
some speculate that Patterson desires to play a role in
national politics despite that he no longer holds office.
Patterson may attempt to continue his involvement through his
free consulting services to the GOJ through his consulting
firm Heis Consult (sic). Post will continue to track this
issue and press Embassy contacts for more information. End
comment.
JOHNSON