Venezuela cuts cheap oil shipments to Cuba

Venezuela's state oil company has suspended a key oil-supply deal with Cuba after the communist-run island failed to meet payments, according to officials.

Though both countries say a resumption of shipments is being negotiated, analysts said the oil debt is the latest clear sign of Cuba's economic woes following a slump in the island's tourist trade.

Cuba relies on Venezuela for one-third of its oil under a highly favorable trade agreement. The payment problem could result in energy shortages during Cuba's long, hot summer, an inconvenience that has triggered public discontent in the past.

But the halt in shipments is equally revealing of Venezuela's own political and economic crisis, a month after a failed coup almost toppled the country's unpopular left-wing president, Hugo Chavez. The Cuban oil deal is a sore point among many Chavez critics who say Venezuela cannot afford to subsidize the president's communist friends.

Cuban officials confirmed the debt after it was first reported by industry sources in Venezuela.

According to Granma, Cuba's official Communist Party newspaper, Havana has not paid Venezuela for oil since April. The paper said Cuba and Venezuela were working out "a viable agreement" to renew trade, details of which are unclear.

When it was signed in October 2000 the oil deal confirmed the blossoming political and economic ties between Chavez and Cuban leader Fidel Castro. Under the arrangement, Caracas agreed to provide 53,000 barrels of crude per day, delivered in eight monthly shipments. Part of the deal involved generous long-term financing of only 2 percent annual interest over 15 years.

"Those are very favorable terms," said John Lichtblau, chairman of the New York-based Petroleum Industry Research Foundation. "You don't find that kind of interest rate in the commercial markets." He added normal rates were between 15 percent and 30 percent.

Over the last two years, the Venezuelan state oil giant, Petroleos de Venezuela, or PDVSA, has sold some $702-million of oil to Cuba, of which $451-million has been paid, with a further $109-million settled in 15-year bonds. Some $63.4-million is outstanding, while a further $78.6-million comes due between May and July.

Venezuelan officials said the oil shipments stopped on April 12 during the brief anti-Chavez coup. During the 48 hours it lasted, PDVSA officials wasted no time in announcing the termination of the Cuban oil deal.

The coup was seen as a major threat to Castro, as it would have forced him to turn to more expensive sources of oil on the international market. But it was widely assumed that oil shipments had quickly resumed after Chavez was restored to power.

Instead, since his return Chavez has moved cautiously to avoid sparking new political trouble. He has, for example, replaced the left-leaning head of PDVSA with a more publicly acceptable figure.

In the new post-coup climate, and with the country itself in dire financial straits, Chavez now appears to recognize that generosity with Cuba may have its limits.

Officials stress that an interruption is not unusual in this type of supply deal and that shipments could be resumed as soon as later this month. A payment agreement was reached last November after a similar debt was accumulated, which has also yet to be fully paid off. But this time Venezuela is insisting on tougher payment conditions.

Both Cuba and Venezuela are struggling through economic hard times. On Thursday the Chavez government announced it plans to raise taxes and seek loans to fill an $8-billion budget deficit. That followed an announcement by the Central Bank of Venezuela that the economy shrunk by 4.2 percent in the first quarter, with oil revenue down by 7.6 percent. Oil exports account for 80 percent of the country's export earnings and 50 percent of government income.

For its part, Cuba announced sweeping price increases Friday for goods sold in dollars to meet its own hard currency problems. At the same time an Economy Ministry statement stressed plans to compensate with lower prices on some basic food items.

"Times have changed . . . due to the international crisis," the ministry said, pointing to the high oil costs and low prices for sugar, the country's principal export.

Cuba is also suffering from the worldwide drop in tourism after the Sept. 11 terrorist attacks.

Last year the island's 1 percent growth in tourism was well below expectations after major investment in new hotels and resorts. So far this year, estimates are that Cuba's tourism revenue is down a disastrous 15 percent.

© 2006 • All Rights Reserved • St. Petersburg Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright