PETROCARIBE OIL SHIPMENTS TO BEGIN FALL 2008

UNCLAS SECTION 01 OF 03 PARAMARIBO 000312

SENSITIVE
SIPDIS

WHA/CAR FOR JROSHOLT
INR FOR BCARHART
WHA/EPSC
EEB/ESC/IEC/ENR

E.O. 12958: N/A
TAGS: EPET ETRD PREL XM XL
SUBJECT: PETROCARIBE OIL SHIPMENTS TO BEGIN FALL 2008

REF: A. CARACAS 976

B. PARAMARIBO 18

C. 05 PARAMARIBO 602


1. (SBU) Summary. The governments of Suriname and Venezuela
reached agreement on the structure of their PetroCaribe deal,
which has been dubbed the "Suriname Model." Under this
scheme, the Government of Suriname (GOS) will provide the
Government of Venezuela (GOV) partial payment for the crude
oil, refined oil, and liquefied petroleum gas (LPG),while
the remainder of the payment will be made to a Trust Fund
managed by the state-owned Venezuelan Development Bank
(BANDES). Trust Fund profits and principal will be used to
repay the GOV at a 1 percent interest rate over 23 years
(after a two-year grace period),and the remaining profits
will fund social and development projects in Suriname. The
first shipment of PetroCaribe oil to Suriname is slated to
arrive in late Fall 2008. The GOS is also pursuing other
projects that were discussed as "outputs" during the July
2008 PetroCaribe Summit. Whether the GOS will be any more
effective in programming Trust Fund projects than other donor
aid projects remains to be seen. End Summary.

--------------
The Suriname Model
--------------


2. (SBU) During a July 31 meeting with Armand Dongen,
Manager of Corporate Planning at the parastatal Staatsolie
Suriname Maatschappij (Staatsolie; the Suriname State Oil
Company),Dongen shared with EconOff a detailed explanation
of the agreed structure, the "Suriname Model," of the
PetroCaribe Energy Cooperation Agreement between the
governments of Suriname and Venezuela. Staatsolie holds
responsibility for implementing this model on behalf of the
Government of Suriname (GOS).


3. (SBU) PetroCaribe has an "attractive" financing scheme,
according to Dongen, because oil purchases are "financed" for
future payment. The GOS was, however, adamant that Suriname
incur no debt to Venezuela while taking advantage of the
financing scheme. Suriname will, like other PetroCaribe oil
recipients, receive financing to include a 2-year grace
period before the start of a 23-year repayment period at 1
percent interest. The percentage of each purchase that may
be financed is the same as for other PetroCaribe countries,
including adjustments made at the July 2008 5th PetroCaribe
Summit (Reftel A).


4. (SBU) The GOS met its key objectives in negotiating the
new "Suriname Model" with the GOV, Dongen continued. In
order to incur no debt to the GOV, full payment will be made
to the GOV upon delivery each time. What is different about
the "Suriname Model" is that the payment will be divided into
two portions - the payment due will be paid directly to the
GOV, and the financed portion will be funneled into a Trust
Fund managed by the Venezuelan Development Bank (BANDES).
BANDES will invest the funds in low-risk stocks and bonds,
earning a projected 7 percent interest. Trust Fund money
will be used to repay the GOV for the financed portion at 1
percent interest after the two-year grace period, while the
remaining profits will be used for a still-to-be-designated
Surinamese financial institution for social and development
projects.


5. (SBU) Dongen showed EconOff a PowerPoint slide of an
"example case," which had been prepared for GOS use. In the
flowchart scenario, if the GOS were to buy one barrel of oil
at $50 from the GOV, Staatsolie would make full payment. Of
this, $30 dollars would go to the GOV and $20 to the BANDES
Trust Fund. Profits not needed to repay the financed
principal or interest would become available to the
Surinamese financial institution; for this scenario the
profits were $8. The Surinamese financial institution would
use $1 on social projects and $7 on development grants or
loans. Dongen said the GOS is already looking into building
low-income housing as one of the social projects in order to
demonstrate the value of the Petrocaribe agreement to the
Surinamese people.


6. (SBU) A second key component of the "Suriname Model" is
Staatsolie's role in the PetroCaribe oil process. Rather
than allowing GOV tankers to deliver oil to Suriname,
Staatsolie will send its own tankers to Venezuela.
Staatsolie already had this excess capacity, Dongen
explained, so it will be optimizing the use of its tankers.

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The final agreement with the Venezuela state-owned oil
company PDVSA is under preparation for signature, so
PetroCaribe oil shipments will begin in the fourth quarter of

2008. Since Venezuelan oil is of lower quality than
Surinamese oil, Staatsolie will then blend the two grades of
oil before making the blended oil for sale on the local
market at regular market prices. Dongen clarified that
despite much press speculation, no PetroCaribe oil will be
available to subsidize the fisheries sector nor the
parastatal Surinam Airways.


7. (SBU) The "Suriname Model" covers crude oil, refined oil,
and liquefied petroleum gas (LPG),but initial PetroCaribe
shipments will be heavy fuel oil to replace some of what
Suriname currently imports from Trinidad and Tobago.
Importation of diesel and gasoline will be left for "next
steps," although Dongen noted that Sol Suriname N.V. had
already expressed interest. (Note: Established in 1966, the
local office of the Sol Group acquired Shell and Esso assets
in Suriname in February 2005 and November 2007,
respectively.) With respect to frequency of shipments,
Suriname will probably start with one or two tankers of oil
per month (with each tanker having a capacity of 40,000
barrels). Eventually, Suriname could increase to the agreed
bilateral maximum of 10,000 barrels per day.


8. (SBU) Dongen said he was very pleased with the "Suriname
Model" because "some Caribbean islands" had agreed that their
oil companies, which do not produce oil, would form joint
ventures with Venezuela holding 51 percent of the shares.
Under such an arrangement these Caribbean partners would no
longer be in a position to determine what happens on their
islands. The GOS, on the other hand, held a firm position in
negotiations and refused all suggestions of joint ventures.

-------------- --
Suriname Interest in PetroCaribe Summit Outputs
-------------- --


9. (SBU) On July 13, 2008, Dongen attended the 5th
PetroCaribe Summit. He shared that while the original
objectives of Petrocaribe were to 1) diversify energy
resources, 2) secure energy supplies, and 3) lower costs,
during the Summit, member states agreed to create technical
groups as an expansion on the original objectives. These
were added partially as a reaction to the increase in energy
and food prices, and include: 1) petrochemicals, 2)
renewable energy and energy conservation, 3) natural gas
(including a proposed pipeline to Guyana and Suriname),4)
repayment with goods and services, 5) a verification and
auditing mechanism (for the Trust Fund in the "Suriname
Model"),6) training and education, and 7) developing a fund
management structure (based on the "Suriname Model.")


10. (SBU) Referring to many of the Summit's outputs (as
described in Reftel A),Dongen made special note of the new
AgroFunds scheme, explaining that the GOV would contribute
$1.2 million whenever oil prices reach $100/barrel. He told
EconOff that Suriname's Minister of Agriculture, Fisheries
and Husbandry was in Honduras with other Ministers of
Agriculture to begin planning for AgroFunds utilization. All
Petrocaribe member states will be eligible to apply for these
funds to stimulate agricultural projects.


11. (SBU) Dongen was especially enthusiastic about the new
proposal for the oil sector. He said Chavez was "crazy" to
do it, but said Chavez proposed sharing the Orinoco Basin
(with 180 billion barrel reserves) with PetroCaribe
countries. According to Dongen, Chavez said he would set
aside the Boyaca 3 bloc (with proven reserves of 12 billion)
for PetroCaribe countries to develop as a joint venture with
the PDVSA. Dongen said he believed that, due to
Staatsollie's experience in heavy oil, Suriname's state oil
company would be well-positioned to start a joint venture and
extract the oil.


12. (SBU) Comment. Although it appears the GOS has great
interest in the Trust Fund concept, it remains to be seen if
the GOS is in a position to use these funds productively.
Members of the international community in Suriname often
discuss the GOS inability to program existing donor funds or,
for that matter, the longstanding Netherlands-provided Treaty
Funds. Post remains skeptical that the GOS can move at a
faster pace to apply Trust Fund profits to social and
development projects. Despite its questionable practical
utility in spurring Surinamese development and social

PARAMARIBO 00000312 003 OF 003


projects, the PetroCaribe deal looks very good on paper. If
nothing else, the GOV has likely scored a public relations
victory with Suriname's man-on-the-street. End Comment.
SCHREIBER HUGHES