NICARAGUA - VENEZUELA AGREEMENT ON ENERGY

UNCLAS MANAGUA 000640 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/CEN, WHA/EPSC, EEB/ESC E.O. 12958: N/A TAGS: EPET ENRG EAID MCC NU VE SUBJECT: NICARAGUA - VENEZUELA AGREEMENT ON ENERGY COOPERATION AND PETROCARIBE ¶1. (SBU) Summary. As part of a series of Bolivarian Alternative agreements between Nicaraguan and Venezuela signed on January 11, 2007, Nicaraguan and Venezuelan Ministers of Foreign Relations also signed an Agreement on Energy Cooperation and Petrocaribe. The agreement sets forth a schematic for the supply of Venezuelan fuel to Nicaragua that includes how much of a purchase may be financed, for how long, and at what rate of interest. End Summary. ¶2. (SBU) The Agreement on Energy Cooperation and Petrocaribe was one of a series of thirteen commitments with Venezuela negotiated by the Ortega government before it came to power on January 10, 2007. Nicaraguan Minister of Foreign Relations Samuel Santos and Venezuelan Minister of Foreign Relations Nicolas Maduro Moros signed the agreement on January 11, 2007. The substance of the agreement, along with the other commitments made that day, was kept from the public for weeks. This cable reports on an unsigned copy of the agreement. Preambular Language -------------- ¶3. (SBU) Preambular language mentions the creation of PetroCaribe on June 29, 2005 as an enabling organization for energy policies and plans. The parties reaffirm close ties of friendship and cooperation and take into account that "cooperative solidarity" is indispensable to attain mutual objectives of social and economic progress in an environment of peace and social justice. The parties recognize the need to adapt to changing conditions in petroleum markets. Article 1: Supply of Petroleum Products -------------- ¶4. (SBU) The Government of Venezuela will supply crude oil, refined products, and liquefied natural propane gas (GLP) or equivalent energy projects to Nicaragua in a quantity up to 10,000 barrels per day, based on a monthly average. This supply will be the object of evaluation and adjustment according to the purchasing needs of the Government of Nicaragua, the availability of supply from Venezuela, and decisions adopted by the Organization of Oil Exporting Countries or whatever circumstance that obligates Venezuela to change the quota assigned according to the specification of this agreement. Article 2: PDVSA Policies Prevail -------------- ¶5. (SBU) Supply will be effected between the Government of Venezuela and the Government of Nicaragua, or Nicaraguan entities chosen by mutual agreement between both governments, in accordance with the commercial policies and practices of Petroleos de Venezuela (PDVSA),which will administer deliveries under this agreement according to the quota ratified by the Government of Venezuela. Article 3: Financing Terms -------------- ¶6. (SBU) The Government of Venezuela will provide financing under the following scheme: a grace period of 2 years on the payment of principal and an annual interest rate of 2%. The percentage to be financed varies with the international reference price per barrel for crude oil according to the following scale: -- $15/b, then 5%. -- $20/b, then 10% -- $22/b, then 15% -- $24/b, then 20% -- $30/b, then 25% -- $40/b, then 30% -- $50/b, then 40% -- $100/b, then 50% ¶7. (SBU) In addition, 15-year financing at 2% per annum (including a two-year grace period) will apply if the international reference price per barrel of crude oil is less than $40; 25-year financing at 1% per annum (including a two-year grace period) will apply if the international reference price per barrel of crude oil is greater than $40. (Note: the international reference price was not designated.) If mutually agreed, payment may be made in-kind (i.e., goods or services) at preferential prices, including &those products whose price has been affected by the policies of rich countries.8 ¶8. (SBU) Payment must be received within 90 days of having received notice of shipment. No interest will be charged during the first 30 days. An annual rate of 2% interest will apply to the remaining 60 days. The Government of Venezuela reserves the right to deliver to the port of its choice (cost plus freight). Financing will only cover the cost of the product (FOB Venezuela); the cost of shipping will be paid no later than 30 days from the notice of shipment. Article 4: Debt Payment Mechanisms -------------- ¶9. (SBU) Interest and principal payments for debt contracted by the Government of Nicaragua or Nicaraguan entities, as the case may be, may be made through commercial compensation, when requested by the Government of Venezuela. Article 5: Use -------------- ¶10. (SBU) Financed sales will be used for internal consumption by the Government of Nicaragua. On each occasion, quantities will be decided by the Government of Venezuela. Article 6: Imports Not To Exceed Consumption -------------- ¶11. (SBU) As in the case under the Energy Cooperation Program with Central American and Caribbean countries (San Jose Agreement),imports under this agreement may not exceed the level of internal consumption of the Government of Nicaragua. Article 7: San Jose Agreement -------------- ¶12. (SBU) This quantities purchased under this agreement will have no affect on financing mechanisms in place under the San Jose Agreement for Central America and the Caribbean. For this reason, the Government of Nicaragua will notify Venezuela of the quantities of purchases to be made within the context of this agreement. Article 8: Executing Authorities -------------- ¶13. (SBU) The Ministry of Energy and Petroleum and Venezuelan Oil Company (PDVSA) will execute this agreement on behalf of the Government of Venezuela. They will establish the procedures and mechanisms for implementation. Article 9: Duration, Renewal, Termination -------------- ¶14. (SBU) This agreement will be in effect for a period of one year, to be automatically renewed for equal and successive terms. This agreement may be modified or withdrawn when it is in the interest of the Government of Venezuela and it so demands, in which case Venezuela will notify the Government of Nicaragua in writing at least 30 days in advance. Article 10: 2000 Agreement on Energy Cooperation -------------- --- ¶15. (SBU) This agreement is an extension of the Agreement on Energy Cooperation signed in Caracas on October 19, 2000. TRIVELLI