Monday, October 31, 2005

Venezuela has financed USD 850 million to Cuba

Over 100 million barrels shipped under integral cooperation agreement
Venezuela has financed USD 850 million to Cuba


Few people could deny that a so-called integral cooperation agreement
Cuba and Venezuela initialed in October 2000 -whose first five-year term
elapsed last Sunday- has been more than a mere oil supply deal.

Under this instrument, healthcare programs known as Barrio Adentro and
Milagro were created; Cuban professional have played a series of roles
in Venezuela, while Venezuelan students have taken studies in Cuba, just
to mention a few results local authorities have praised once and again.

The agreement -which appears to benefit Fidel Castro's regime much more
than President Hugo Chávez' intended revolution- has been the target of
harsh criticism. Such rejection, however, has not undermined the deal.

Actually, this year Energy and Petroleum Minister Rafael Ramírez
conceded that Venezuelan oil shipments to Cuba went from 53,000 bpd -as
originally agreed- to an average of 98,000 bpd.

In this way, at the end of the agreement first five-year term, Venezuela
delivered some 100.42 million barrels of oil and by-products worth USD
3.38 billion.

Since the deal provides for long-term financing that varies depending on
the Venezuelan oil prices, based on the average Venezuelan oil prices in
2000-2005, it can be asserted that Venezuela has financed some USD 850
million to Cuba. Under the agreement, this amount is to be repaid in 15
years, with a two-year grace period at a yearly interest rate of 1 percent.

Black hole
The part of the oil sales subject to long-term financing averaged 25.2
percent over the last five years, and it was guaranteed with promissory
notes from the Cuban national bank whose fate is still uncertain.

Former officials of the Venezuelan Finance Ministry claim that the
present net value of this long-term loan is around 50 percent.
Therefore, for USD 850 million being financed to Cuba in 15 years,
Venezuela is to be repaid USD 425 million in real terms. Practically,
this loss can be translated into a discount of USD 4.25 per each barrel
of oil sold since 2000.

These figures were estimated based on the hypothesis that Cuba has
timely repaid the part of the loan subject to short-term financing,
which represents most of the sales. Until 2003, however, Cuba had a debt
of USD 651 million for delays in 90-day payments, following debt
refinancing in 2002.

When President Hugo Chávez launched Venezuela-Caribbean oil trade
agreement Petrocaribe, Caracas offered Cuba the possibility to migrate
to the new instrument, which provides for even more flexible terms and

Ramírez described as "cordiality" the fact that Cuba rejected this
proposal. But such a decision can be interpreted otherwise: while
Petrocaribe is an agreement with equal loan terms for 12 countries,
Cuba-Venezuela deal is plagued with secrecy.

Translated by Maryflor Suárez R.

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