Venezuela's Sweetheart Oil Deal Has A Legacy Of Debt And Corruption Charges : Goats and Soda The PetroCaribe program provided fuel to Venezuela's neighbors on long-term credit to spur economic growth. What has happened now that Venezuela is in free fall?
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The Fallout From A Seemingly Sweet Oil Deal For Venezuela's Neighbors

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The Fallout From A Seemingly Sweet Oil Deal For Venezuela's Neighbors

The Fallout From A Seemingly Sweet Oil Deal For Venezuela's Neighbors

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Till recently, Venezuela allowed Caribbean and Central American countries to buy oil on credit at extremely low interest rates. The program's name is Petrocaribe. It was once touted by former President Hugo Chavez as a regional development partnership to free up government funds for schools, roads and other public infrastructure. Critics say Petrocaribe has been problematic, leaving many small nations burdened with billions of dollars in debt. And now the collapse of Venezuela's oil industry has also led to Petrocaribe's demise.

NPR's Jason Beaubien reports.

JASON BEAUBIEN, BYLINE: President Hugo Chavez launched Petrocaribe in 2005 at a time when rising global oil prices were leading to gas shortages and power outages in parts of the Caribbean. As global oil prices pushed towards a hundred dollars a barrel, President Chavez offered his neighbors a solution - Petrocaribe members could get fuel from Venezuela for roughly 50% of the cost upfront; the rest of the bill could be financed at 1% interest over the next 25 years.


HUGO CHAVEZ: (Speaking Spanish).

BEAUBIEN: At a conference of regional leaders in 2007, the socialist Chavez declared that Petrocaribe was freeing Central American and Caribbean nations from the tyranny of international capitalism.


CHAVEZ: (Speaking Spanish).

BEAUBIEN: Since its inception, seventeen countries took part in Petrocaribe. They included the tiny island nation of Saint Kitts and Nevis, the Dominican Republic and Nicaragua.

JORGE PINON: Today, the only country that's receiving crude oil from Venezuela at this type of preferential treatment is Cuba.

BEAUBIEN: Jorge Piñon is the director of the Latin America and Caribbean Energy Program at the University of Texas in Austin. Venezuela claims Petrocaribe continues as a regional energy alliance, but Piñon says it's no longer a functional program.

PINON: We know for a fact that none of the Caribbean islands and none of the Central American countries that have been members of Petrocaribe are receiving crude.

BEAUBIEN: Chavez's original idea was that the money Petrocaribe nations weren't dedicating to high-priced fuel could be funneled into public infrastructure and other social projects. But with little oversight, the amount of development it spurred is unclear. Some countries simply use the fuel deliveries to keep gas prices low at the pump. Haiti set up a Petrocaribe development fund, but legislators now say $1.7 billion from it is unaccounted for.

For Chavez, Petrocaribe was a political success. It bought him goodwill among regional allies. But it is falling apart for several reasons. First, Venezuela's oil industry, like the rest of the country's economy, is in turmoil. Venezuela's oil rigs, which had been producing nearly 3 million barrels of crude a day in 2014, are now producing just a fraction of that.

PINON: The country with the largest crude oil reserves in the world is producing today less than a million barrels a day.

BEAUBIEN: Jose Toro Hardy, an economist in Caracas and a former board member of the Venezuelan state oil company, says Venezuela simply doesn't have the oil to allocate for Petrocaribe.

JOSE TORO HARDY: Right now, there is no gas in the country. Caracas still - there is some, but if you to any other estate in Venezuela, lines for two, three, four hours and sometimes days making lines to get some gas. It’s impossible to understand that.

BEAUBIEN: Another energy analyst, David Goldwyn, who used to work on international energy affairs at the U.S. State Department and is now the head of an international energy consulting firm, has written several reports on Petrocaribe.

DAVID GOLDWYN: This was not a subsidized fuel program. This was a public finance program.

BEAUBIEN: While Petrocaribe eased the shock of rapidly rising fuel costs, the Petrocaribe countries were purchasing the oil at the market rate.

GOLDWYN: But what they got was a loan from Venezuela to buy that fuel over a very long term at a very low rate.

BEAUBIEN: Some countries now owe Venezuela billions of dollars, and Goldwyn says that that lingering debt makes getting financing for new public infrastructure projects even more difficult.

GOLDWYN: They're not only highly indebted, but they're considered middle income because of their small populations.

BEAUBIEN: Which makes them ineligible for a range of international development loans.

GOLDWYN: They are really squeezed in terms of the ability to access capital markets to do development. So from a fiscal perspective, they've done themselves, in many cases, some very significant harm.

BEAUBIEN: Chavez passed away in 2013. Petrocaribe oil shipments started to sputter soon after that, but the most lasting impact of the program may be the debts that so many of these countries still owe.

Jason Beaubien, NPR News.

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