Cash-rich PetroCaribe Fund struggles to repay Venezuelan debt
Published:Wednesday | July 4, 2018 | 12:00 AM
Jamaica's PetroCaribe Development Fund, PDF, created in 2006 to receive and manage proceeds from the deferred financing arrangement of the 13-year-old PetroCaribe Energy Financing Agreement for the purchase of oil from Venezuela, is rolling in the dough: US$1.6 billion of it, in fact.
And this is with the agreement at its lowest ebb, with no inflows since for more than a year, since May 2017, even though the oil pact remains in place.
The PetroCaribe arrangement, which allotted oil quotas to various regional markets on concessionary terms, required the beneficiaries to pay for 40 per cent of the oil up front from PDVSA when the price of crude passes above US$100 per barrel; 50 per cent when it falls within a range of US$80 to US$100 per barrel; and 60 per cent at US$50 to US$80 per barrel.
On Jamaica's schedule, full payment kicked in only if oil fell below US$15 per barrel. The delayed portion of the payment was transferred to the PetroCaribe Development Fund as a long-term loan repayable at one per cent over 25 years, and the loan proceeds used to fund development projects and as budgetary support for the Government.
But the economic crisis facing Venezuela has derailed oil supplies and, consequently, inflows to the PetroCaribe Fund.
When the agreement was in full swing, the PDF was managing more than US$3 billion in cash and assets. No wonder it has been the go-to public entity bailing out the Government in terms of improving the current accounts deficit, while also providing fiscal, side budget financing.
A difficult time
Yet, its chief executive officer, Dr Wesley Hughes, says the fund is having a difficult time paying Venezuela the minuscule US$120 million Jamaica still owes the troubled oil-rich South American country after having paid off the bulk of the oil debt - some US$1.5 billion - to Venezuela in a debt buy-back three years ago.
In seeking to fulfil its primary function of investing to replay Venezuelan debt under PetroCaribe, the PDF has been caught in the cross hairs of the ongoing United States sanctions again the Nicolas Maduro-led Bolivarian republic, which it accuses of anti-democratic politics and unfair practices against some US companies.
"We are spending a lot of time negotiating with correspondent banks in the US (and) navigating our internal banking arrangements almost on a daily basis," Hughes told the Financial Gleaner in an interview.
"We have been able to pay to Venezuela but it takes up a lot of time and resources. It wastes resources. We are collateral damage," he said.
The humbug even affects the PDF moving money from one Jamaican bank to another for investment purposes. For more than a month, the fund has been losing interest income in a bid to move an unspecified sum from National Commercial Bank to Sagicor Bank.
The attempt to resolve the latest of the recurring banking issues has included ongoing diplomatic initiatives involving the Office of Foreign Assets Control in the US Treasury Department, Jamaica's foreign ministry, the local finance ministry, central bank, and energy ministry.
Uses of the fund
In addition to receiving PetroCaribe flows in the form of 50 per cent of the price of oil not paid directly to Venezuela but rather, deferred as a concessionary development loan from Venezuela to Jamaica, the PetroCaribe Fund is also responsible for meeting the debt-servicing obligation to Venezuela for the proceeds it receives.
The fund also provides loan financing for approved Government of Jamaica projects through the Ministry of Finance and public bodies, receives repayment from borrowers, and makes income-earning investments.
Hughes describes the contribution of the PDF to the Jamaican economy as "almost godsend, saving the Jamaican economy in the period of the global financial recession in which a significant inflow came into the country".
It is his assessment that without those inflows at a time when the international capital markets were closed off to Jamaica from 2008 to about 2010, the economy would have suffered catastrophically, including the exchange rate collapsing dramatically.
"The exchange rate that people are complaining about now would have materialised from then, or probably would have been far more depreciated than it is now," he surmised.
Throughout its period of operations, the PDF has lent the equivalent of around $334 billion - issued in foreign currency of US$2.6 billion and Jamaican currency of $3.6 billion - to 18 public-sector entities. The recipients included its parent, the Ministry of Finance, which got US$1.1 billion; oil refinery Petrojam, US$227 million; Port Authority of Jamaica, US$166 million; Sugar Company of Jamaica, US$96 million; and US$84 million to the National Road Operating and Construction Company towards the build-out of the Highway 2000 network.
The PDF has also provided the bulk of business process outsourcing funding in Jamaica through a US$101.6-million loan to the Development Bank of Jamaica. Its loan clients have also included the Students Loan Bureau, EXIM Bank Jamaica, the Urban Development Corporation, or UDC, Jamaica Urban Transit Company, and Clarendon Alumina Production Limited, which borrowed more than US$237 million.
Some loans to these public bodies were mandated by Cabinet or PDF board decisions. Hughes said none of the loans are delinquent.
The fund is an investor in Wigton WindFarm Limited, both with equity and debt financing, having provided more than $99 million in loans to the state-owned energy firm. The PDF also recently invested US$25 million in the Jamaica Public Service's 190 megawatt gas-fired Old Harbour power plant.
A breakdown of the PDF's current investment portfolio was not available to the Financial Gleaner.
Loans and income earning investments apart, Hughes is very keen on the fund's investment in the development of social and human capital in Jamaica. Grant financing is made available through the allocation of seven per cent of each year's audited surplus of the PDF. A total of $5.4 billion has been invested in this way with a focus on sanitation, education and housing for the poor and needy.
It has also given economic infrastructure grants, including for the repairs to markets in the downtown Kingston area through a $200-million grant to the UDC. The single largest grant in this area of spending was a gift of $405 million for the construction of a metronics festo laboratory used for training in electronics repair and mechanical engineering at the Caribbean Maritime University.
The PDF has also given more than $500 million to support national energy initiatives to reduce reliance on fossil fuels and promote the use of renewable energy.