Petrocaribe: Making Our Case For Us

The Worldwatch Institute has begun implementing a Low Carbon Energy Roadmaps project to help Caribbean Small Island Developing States (SIDS) transition to a low-carbon economy. Undertaking such a transition is an immediate imperative for these states. If they can capitalize on their indigenous, renewable resources they can reduce their oil imports, reduce exposure to volatile prices, and invest any saved money in other areas of their economy. Still, it’s always nice to have someone (or something) else burnish our argument.

In 2005, Venezuelan president Hugo Chavez initiated the Petrocaribe Energy Cooperation Agreement, an arrangement that allowed 12 Caribbean nations, including the Dominican Republic, to purchase oil at a subsidized cost. Nevertheless fuel prices in the D.R. have jumped 50 percent in the last two years.  Gasoline and diesel currently cost around $4.60 and $4.16 per gallon, respectively. Dominican taxi and bus drivers have recently begun taking out their frustration over higher fuel costs on Venezuela, protesting outside the Venezuelan Embassy and demanding more information on the details of the Petrocaribe program. In response, Alfredo Murga, Venezuela’s ambassador to the D.R., pointed out that Dominican authorities set their own fuel prices based on international crude oil markets. In other words, even Petrocaribe does not protect Dominicans from the vagaries of oil prices.  These developments only reinforce Worldwatch’s position: such complete dependence on oil for electricity in addition to vehicle fuel is untenable for the Dominican Republic.

Petrocaribe seems like a favorable arrangement that would reduce government expenses and increase domestic productivity. The agreement is lenient in terms of outstanding balances. Money owed carries a 1 percent interest rate and countries can take up to 25 years, if necessary, to pay their debts. As part of the Petrocaribe arrangement, the D.R. exports 5,000 tons of beans to Venezuela in exchange for the preferential oil price. Ambassador Murga noted that the Caribbean island will also include construction material in lieu of further debt payments.

The Dominican Republic consumes, on average, 155,000 barrels of oil per day. Under the Petrocaribe agreement, the D.R. imports 50,000 barrels per day at a discounted rate while an additional 70,000 comes from Venezuela under other agreements. Together, over 75 percent of the D.R.’s oil is Venezuelan. Additionally, Venezuela acquired 49% of the Dominican Petroleum Refinery Refidomsa in May 2010. In short, the Dominican Republic is at the mercy of Venezuela for its energy supply. The debt owed by the D.R. to Venezuela now stands at over US$1.23 billion.  This amount is almost three times what was owed five years ago. And if oil prices continue to rise, so will the D.R.’s debt. By comparison Peru, a county with an almost identical GDP per capita but three times the population, consumed just 181,000 barrels per day as of 2009. The D.R.’s use of oil for electricity generation is the obvious explanation for this disparity.

It is not in the interest of countries like the D.R. to rely on oil imports to fuel their economies. No matter how preferential an agreement with an oil-rich country may seem, it does not prevent exposure to a commodity whose price broadly fluctuates. While fossil fuel prices know only one way in the long-term, and that’s up, alternative energy technologies have and will continue to become more affordable every year. True advancement, both economic and environmental, comes in the kinds of solutions being proposed by Worldwatch and its Caribbean partners: movement away from relying on external resources towards more sustainable self-reliance. The D.R., as with many island states, has renewable energy resources and potential for energy efficiency gains, which are thus far mostly untapped. As we said, we just started.

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