FUEL SECTOR COMPETITION IN BELIZE

UNCLAS BELMOPAN 000313 SIPDIS SIPDIS SENSITIVE STATE FOR WHA/CEN/JRMACK DEPT OF ENERGY FOR LINDSAY EINSTEIN E.O. 12958: N/A TAGS: EPET ENRG ETRD EINV ECON EFIN EPET PREL BH SUBJECT: FUEL SECTOR COMPETITION IN BELIZE ¶1. (SBU) Summary. With the recent discovery of oil in Belize and the anticipated delivery of PetroCaribe fuel, a privately-owned marine terminal has recently constructed in the south of Belize. Esso, the sole importer of fuel in Belize, believes that up to forty percent of its future imports may eventually be affected by the new marine terminal. Esso is also concerned with possible government interference in the market and with competition from subsidized contraband fuel imported from Mexico. End summary. ¶2. (U) Esso Standard Oil, Exxon Mobil's agent in Belize, has a marine terminal that houses 160 tanks with a capacity of 180,000 barrels. Esso has for many years managed the countryQs only marine terminal and was the sole provider of fuel for the entire country. Esso annually distributes more than a million barrels of kerosene, diesel, and gasoline. Esso operates its own retail fuel stations in Belize but also has sub-contracts with Texaco Belize (Chevron) and Simon Oil Belize (Barbados) to pay Esso a Qgo-thruQ service fee at its terminal for importing and delivering the fuel to their retail stations. ¶3. (SBU) According to Guillermo Alamina, EssoQs Lead Country Manager, the Government of Belize (GoB) controls the retail price for all petroleum products in Belize, sets transportation prices with the local Freight Haulers Association, and uses a formula on the CIF (cost, insurance, freight) value to determine profit margins. The GoB's Revenue Replacement Duty is a tax on petroleum imports and the only piece of the price that is not fixed. GOB uses this duty to provide price and revenue flexibility (i.e. to manipulate prices to either secure more government revenue or conversely to decrease prices at the pump when a need arises). Consequently, there is no price competition in the fuel market in Belize. The only competition is at the retail station in the form of the service that is provided. ¶4. (U) According to Alamina, Esso has seen a fall in its imports from 1.5 million barrels three years ago to 1 million barrels last year. Belize Natural Energy (BNE),the only oil producing company in Belize, has started to market the light sweet crude oil it produces directly to consumers. Many large exporting companies, especially in the citrus, shrimp and banana industries have purchased crude oil from BNE to mix with diesel to run equipment. ¶5. (U) Alamina noted that petroleum imports have also been adversely affected by contraband products from Mexico. In response to losing business to Belize's Corozal Free Zone the Mexican government began subsidizing fuel prices in the Chetumal area of Mexico, just north of the Belize border. These subsidies have caused sales in Northern Belize to steadily fall over the past four years by at least ten percent each year as Belizeans head north to gas up. These decreases have caused Esso to close all of their retail stations in the north. ¶6. (SBU) According to Alamina, the new marine terminal that was recently constructed at Big Creek in the south of Belize is privately owned. He alluded to the fact that the property was purchased by insiders with ties to the ruling party who would profit most from particular clauses in the PetroCaribe agreement. He specifically noted that banana exporters own the terminal and Belize had the option of paying back oil loans to Venezuela in kind (read bananas). ¶7. (SBU) Alamina noted that under the PetroCaribe agreement the receiving government becomes responsible for the fuel the minute it leaves the Venezuelan port. He was concerned that the government would attempt to pressure or force his terminal to accept PetroCaribe shipments that would expose Esso to undesired liability risk. He noted that Esso followed safety and shipping standards in fuel exportation that minimized liability exposure and did not believe the GOB would adhere to the same high standards. ¶8. (SBU) Comment. Esso seemed more concerned with government interference in their business affairs than with the possibility of price competition. Alamina noted that GOB had in the past attempted to force the company to make choices contrary to their interests by manipulating duty costs and withholding transportation resources. End Comment. HILL