In Jamaica: PetroCaribe Debt Approaching J$164b

19 October 2011


Jamaica’s debt to Venezuela steadily climbing, even with falling oil prices

Jamaica’s total liabilities to Venezuela under the PetroCaribe Development Fund (PDF) has been increasing steadily since its creation in 2006 and is expected to reach J$164 billion at the end of this fiscal year, even in the midst of declining global oil prices.

While the PDF agrees that the lowering of oil prices is likely to reduce the levels of inflows to the fund, its administrators told Wednesday Business, growth in the Venezuelan oil debt, on which Jamaica pays interest of one per cent is in line with projections.

“It should be noted, however, that projections are based on the average price per barrel for the year. While there might be fluctuations in some months, this does not necessarily mean that the overall performance will depart from projections for the year,” said the PDF via email.

The fund’s secretariat resides at the Development Bank of Jamaica.

Jamaica does not disclose the price it pays Venezuela for oil imported from the South American country – PetroCaribe allows a quota of at least 21,000 barrels per day – but Petrojam has said in the past that while it is lower, it tracks with the price movement of world crude.

The PDF is financed by a portion of the oil bill – 40 per cent – which the PetroCaribe pact allows Jamaica to convert to a long-term loan for use as project financing.

Initial moratorium period

There was an initial moratorium period of two years, which has since elapsed – the pact was signed in 2005 – and this year’s debt payment to Venezuela is expected to amount to US$44 million (J$3.8 billion).

“The repayment schedule is quite complex as there is a separate one for each shipment of petroleum products. Generally, repayment is over 25 years, including a two-year moratorium on principal and interest payments,” said PDF.

“Payments fall due on various days throughout the month. However, for simplicity they are made at the beginning of each month. The amount to be paid during this financial year is US$44 million, compared to US$28 million last fiscal year.”

The payments are remitted through the commercial-banking networks to accounts designated by Venezuelan state oil company Petroleos de Venezuela (PDVSA), PDF said.

Since 2006/07, the fund has grown seven-fold from J$20.4 billion. Its growth depends directly on the price of oil and the amount of purchases made by Petrojam from Venezuela, but PDF said other factors influencing the size of the PDF includes movements in the exchange rate, interest earned on investment and overall performance of the loan portfolio.

Interest income expected to rise

This year, for example, interest income from loans to public bodies is expected to rise close to J$5 billion and interest income on investments of about J$2.7 billion, according to the finance ministry’s Jamaica Public Bodies report.

PDF is projecting that the fund will grow 34 per cent this year, from J$121.9 billion at March 2011 to a projected US$163.9 billion at March 2012. If the forecast holds, it would be the largest increase since 2008.

At March 2008, the fund was estimated at J$39.1 billion. A year later it had doubled to J$78.4 billion.

PDF said the 100.5 per cent increase occurred during dramatic movements in average oil price when global prices averaged US$96 per barrel, leading to significant inflows to the fund.

The PetroCaribe fund was established to provide loan financing for approved projects and oil imports.

For this fiscal year to date, said PDF, the fund has disbursed approximately J$12.7 billion to: Clarendon Alumina Refinery as working-capital support for the Jamalco refinery; the Urban Development Corporation for the upgrade of Falmouth and Petrojam to finance oil imports.

Other projects are in the pipeline but PDF did not name them, saying they are pending board approval.

Minister of Finance Audley Shaw, in his opening Budget presentation in April, had indicated that the Students’ Loan Bureau would receive support during this financial year from the fund.

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