Skip to Main Content
Have library access? Log in through your library
Research Report

The Waning of Petrocaribe?: Central America and Caribbean Energy in Transition

David L. Goldwyn
Cory R. Gill
Copyright Date: May. 1, 2016
Published by: Atlantic Council
Pages: 28
OPEN ACCESS
https://www.jstor.org/stable/resrep03657
  • Cite this Item

Table of Contents

  1. (pp. 1-1)
    Peter Schechter and Jason Marczak

    Venezuela is teetering on the brink of economic disaster. Although the freefall started some time ago, it is now on track for the most severe contraction since independence. Energy shortages forced President Nicolás Maduro to institute three-day weekends in early April. Comestibles and medicines are in short supply. In this crisis atmosphere, programs such as Petrocaribe face an increasingly dim future.

    The abrupt demise of the eleven-year-old chavista oil financing project could cause severe dislocations for its Central American and Caribbean member-nations. Petrocaribe is less critical in an environment of low oil prices, but the global energy market is prone...

  2. (pp. 3-4)

    Venezuela’s financial free fall casts a shadow of concern over the Caribbean and Central America. In the Caribbean, the sudden decline of Petrocaribe and other Venezuelan credit programs could trigger humanitarian crises and unauthorized migration flows to the US mainland. A Petrocaribe shock could also imperil economic growth in Central America, undermining efforts by the Northern Triangle to address transnational crime.

    While some former Petrocaribe recipients have transitioned away from the program, the most vulnerable have not. The United States has a unique opportunity to exercise effective crisis prevention by weaning the remaining governments off insecure Venezuelan credit.

    A transition...

  3. (pp. 5-8)

    Venezuela established Petrocaribe in 2005, as a means to provide generous credit financing for Caribbean and Central American countries to purchase Venezuelan crude oil and petroleum products.² Countries make an up-front payment to Venezuela ranging from 30 percent to 95 percent of the official market price, and roll over the remainder into loans ranging from seventeen- to twenty-five-year durations with 1-2 percent interest rates. The terms of this payment structure are calibrated to ensure that the higher the Venezuelan benchmark oil price, the smaller the percentage share the recipient state must pay up front (for precise formulas, see figure 1,...

  4. (pp. 9-12)

    With small isolated markets, poor credit, limited area for wind farms, and thin government capacity, Caribbean states face challenges in moving to a lower-carbon economy. For the United States, the top priority is helping the larger nations shake their fuel dependency, and then helping the smaller nations with bespoke clean energy solutions. These are challenges that diplomacy and policy reform can address; progress is under way.

    The most promising development is the firm commitment of Caribbean nations to move ahead on lower- or no-carbon projects, even though Petrocaribe continues and oil prices remain at multi-year lows. The larger countries are...

  5. (pp. 13-14)

    Central America’s energy insecurity derives from an overdependence on fuel oil, the resistance of existing generators to competition, and limited regional integration. It also suffers from high power prices, second only to the Caribbean in the Western Hemisphere. Approximately seven million people region-wide (or around 16 percent of the population) lack access to electricity.25 Enhancing energy access and lowering costs are critical for investment and stability.

    The decline of Petrocaribe puts many Central American nations at risk. Nicaragua is a significant Petrocaribe offtaker, importing around a combined 25,000 barrels per day of crude oil and petroleum products in recent years,...

  6. (pp. 15-17)

    Much of the Caribbean still faces the challenges of weak sovereign credit, small markets, and limited access to financing for an energy transition. But bright spots exist. Jamaica and the Dominican Republic both have sufficiently large markets and adequately creditworthy utilities to attract private sector financing for a conversion from oil to natural gas as a baseload for power generation. Jamaica and St. Kitts and Nevis, with some assistance from the State Department, OPIC, and other US government agencies, have garnered private sector investments in solar, wind, and geothermal energy projects. In Central America, Panama and El Salvador are enjoying...