Venezuelan President Hugo Chavez was expected to sign the Caracas Energy Accord on October 19th, under which his country will provide Caribbean and Central American states with cheap oil.
The deal, to be inked with Belize, Costa Rica, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Panama, Nicaragua and the Dominican Republic, will involve supplies of 80,000 b/d of crude.
Barbados and Cuba are expected to sign at a later date, with Cuban President Fidel Castro planning a four-day visit to Venezuela on October 26th. The deal’s aim is to cushion poor nations in the region from the shock of high oil prices, by providing favorable financing terms for the crude purchases.
Venezuelan Deputy Energy Minister Alvaro Silva said that: “Venezuela is focusing, within its long-term economic plans, on Latin American unification.” Under the accord, Caracas will finance between 15 percent – 25 percent of the cost of 80,000 b/d of oil, when the price is more than $15 a barrel.
The finance period is up to 15 years, with an interest rate of 2 percent, a one-year grace period and the option of paying in-kind. The deal is similar to the San Jose Pact, under which Mexico and Venezuela provide 160,000 b/d of crude to Caribbean and Central American countries, but does not have the stipulation that the proceeds from the soft loans be used to buy Venezuelan goods.
Some analysts have said that the new deal is more of a subsidy and that Venezuela may have difficulty establishing a fair price for its goods if the countries involved in the deal decide to pay in-kind.
The deal is estimated to set the country back nearly $44 million in financing costs alone. Chavez has been vehement in his support of economic and political integration of the region, saying that developing countries need to protect their interests against western-led globalization.