Hugo Chavez: the new sugar daddy.
By Gustavo Coronel | Petroleumworld.com
14.08.05 | “Why are you coming to Venezuela?”, a Cuban “doctor” was asked by a local journalist. “Because I want to see the first half of the movie!”, he replied.
I. Castro made a good investment.
After leading a bloody but inept and unsuccessful coup in 1992, Hugo Chavez was sent to prison but after a few months he received a pardon from Venezuelan President Rafael Caldera. One of the things that he did after coming out of prison was to pay Fidel Castro the first of what would become a long string of more than 30 visits. In this initial visit he was treated by Castro as a Head of State. He was received by the dictator at the airport and had the opportunity to give a speech before a large audience that included the top Cuban leaders. This modest investment by Castro in an obscure and ignorant Venezuelan demagogue paid handsomely. Today, Chavez is still an ignorant and a demagogue but, due to a combination of favorable circumstances and personal shrewdness, he has reached a very high level of political power in Venezuela and is now paying back Castro’s hospitality with a largesse both beyond Castro’s imagination and disastrous for the Venezuelan nation.
Venezuela has become a political satellite of Cuba and the main contributor to the fragile Cuban economy. Venezuela represents today much or even more of what the Soviet Union was to Cuba during the early stages of the Castro dictatorship. Today, there are about 50,000 Cubans in Venezuela, (1), in activities that almost invariably have a strong component of ideological indoctrination to the Venezuelan poor and in control of activities related to the Venezuelan military and to national security.
The extent and magnitude of the Cuban influence in Venezuela is now so great that it constitutes, without much doubt, the greatest danger to hemispheric political and social stability of the last decade and, perhaps, the greatest challenge to democracy and free market in the region in recent history, given the importance of Venezuela as a world class petroleum producer and exporter.
II. In Chavez, Castro has found a new and better “sugar daddy”.
The initial investment Castro made in Chavez in the 1990’s, treating him as political royalty when he was still a non-entity, has proven very profitable. There is no doubt that their relationship has been one of increasing ascendancy of Castro over Chavez. Chavez now says and does pretty much anything that Castro tells him. He seems convinced that, by doing time as Castro’s pupil and sycophant, he will inherit the leadership that Castro has exerted for many years over the Latin American extreme leftist movements. He is sure that he will become the “next Castro”. This belief has led him to dispense favors to Castro that history will almost certainly define as acts of treason against the Venezuelan nation. The concept of “sugar daddy” can be applied to political relationships between States, just as it is applied to “romantic” relationships in which age and money asymmetries prevail. Chavez is giving Castro money while being anointed by him as his heir apparent.
III. Under the terms of an arbitrary oil supply agreement to Cuba, Chavez is giving Castro a subsidy of between $3 and $4 billion.
The main contribution Chavez is giving Castro is in the form of oil. In an agreement signed by the two heads of state in October 2000, without proper consultation with, and approval by the peoples of the two countries, 53000 barrels of Venezuelan oil per day started to be sent to Cuba. This agreement was for 15 years. The Cubans can pay 25% of the oil shipments over the 15 years of the agreement, at interest rates of 2% and 2 years of grace. Payment requires no international guarantees, as is the case in normal commercial transactions of the Venezuelan petroleum company. Since commercial rates that Petroleos de Venezuela pay international lenders are substantially greater, it is easy to conclude that much of the Venezuelan oil going to Cuba under the terms of this agreement represents a gift from Chavez to Castro. On the basis of what we know of the details of the agreement, its favorable economic terms and the fact that an important portion of the oil can be paid in services, it is possible to estimate that no less than 10-13,000 barrels of oil per day are being given to Castro for free. At the current prices of oil, this handout of Chavez to Castro is already of the order of $3 - 4 billion during the 15-year term of the agreement. This is a considerable amount of money, taken away from a country where poverty afflicts more than 80% of the population.
IV. But, since early 2005 the situation is much worse!
Since early 2005 the handouts from Chavez to Castro have almost doubled! In December 2004, a new agreement was drawn up between Chavez and Castro, again without the Venezuelan people being consulted since they only found out the details after the fact. In the context of this broader agreement, it was announced that the supply of Venezuelan oil to Cuba had been increased from 53,000 barrels per day to 90,000 barrels per day. Since there is no detailed information on the conditions of this new arrangement, we have to presume that the conditions are the same ones as before. This means that the gift from Chavez to Castro for the next 15 years will now be in the order of $6 to $8 billion.
V. But wait…. there is more.
This unwarranted of Venezuelan oil and money to Castro has another probable and equally criminal component. According to Cuban official figures the domestic oil production in Cuba is already of the order of 80,000 barrels per day. This volume, claim the Cubans, is already sufficient to meet the industrial and electricity requirements for the island. Government and independent observers coincide in saying that the frequent power outages in the island are due to faulty maintenance of the electrical distribution system rather than to lack of domestic oil supplies. This means that the Venezuelan petroleum going into Cuba is only required for domestic transport. The Cuban government also claims that the oil consumption in Cuba is of about 160,000 barrels per day. Is this true?
If we accept that Cuba is consuming 160,000 barrels of oil per day this means that their consumption is of almost 15 barrels per day per 1000 inhabitants, consumption higher than Ecuador’s or Poland’s. It would represent consumption twice as large as Costa Rica’s or that of Egypt, Colombia, Peru or El Salvador and three times higher than that of Nicaragua, Bolivia or the Philippines. It would be six times higher than Nigeria’s and thirty times higher than Bangladesh’s. If this level of consumption were true it would also be higher than Norwegian or Irish or Puerto Rican oil consumption, all of which are countries with a considerably higher level of industrial and transport activity than Cuba. Cuban oil consumption, as claimed by the government, must therefore be highly doubted.
To judge by the level of transport in the island and by the general profile of the industrial and electrical consumption in a country where sugar production has declined to a third of what it used to be and where electrical supply is very erratic, it seems more likely to estimate oil consumption in no more than 120,000 barrels per day. If this estimate were close to being correct, it would mean that Castro could be re-exporting between 40,000 and 50,000 barrels of Venezuelan crude oil and products per day. In terms of additional income for Castro, at current prices, this would represent between $1.5 and $2 million per day, some $550-700 million per year.
In summary, therefore, the Venezuelan supply of oil to Cuba, under the terms of an illegal agreement that was never properly ratified by the nation, represents a total handout from Chavez to Castro of between $1.2 and $1.3 billion per year, for a total of some $18 to $20 billion during the 15 year duration of the agreement.
VI. A surrendering of Venezuelan sovereignty is also taking place.
The December 2004 agreement signed by Chavez and Castro gives Castro, free of charge, access to the petroleum technology owned by Venezuela and, by extension, it could also give Castro access to technology not owned by Venezuela but in Venezuelan hands through third party agreements. In non-petroleum matters it gives Cuban nationals authority to participate in criminal and political investigations in Venezuelan soil and to apply restrictive measures against Venezuelan nationals in Venezuelan territory. This constitutes a serious surrendering of Venezuelan national sovereignty, while the clause on petroleum technology represents a threat to the national security of Venezuela and other countries of the region.
VII. The new office of Petroleos de Venezuela in Havana.
The petroleum component of the Cuban-Venezuelan December 2004 agreement is being implemented by means of the opening in Cuba of an office of Petroleos de Venezuela. This office, according to Chavez, will serve to: “conduct oil exploration, production, refining, storage and transport” by Petroleos de Venezuela in Cuba. There is very little real exploration, production or refining to be done in Cuba. This is a very global and diffuse objective that serves to hide the real objective of controlling politically the distribution of Venezuelan oil in the Caribbean area. The office will serve two main purposes: (a), removing sizeable volumes of Venezuelan oil from direct monitoring by the Venezuelan opposition and general public, and (b), using the Venezuelan oil stored in Cuba for political purposes, supplying those countries that would kneel to the Castro-Chavez alliance and cutting off supplies to those countries that would not. The Office of Petroleos de Venezuela in Havana, being far removed from the control of the Venezuelan nation, will be in fact an office of Chavez and Castro Inc. and might serve to conduct private as well as state business.
VIII. Enter PetroCaribe. (5)
The latest move of Chavez in the Caribbean region has been the creation of PetroCaribe, a regional organization that would dispense highly subsidized oil to Caribbean countries. In this new political adventure of Chavez, Cuba also has a role to play, through the Office in Havana. The subsidies involved in PetroCaribe are substantial and include 25 years for payment, 2 years of grace and 1% interest on unpaid balances. When the oil price exceeds $50 a barrel (we are already there), payment for up to 60% of the invoice can be made in goods and services, anything from bananas to black beans. The Caribbean countries will have to create State owned companies in order to become a member of the organization, a provision that collides with the Free Trade Agreement being promoted by the U.S. The organization will have a Venezuelan Secretary General who will run the day to day affairs, will create an operational entity managed by Venezuela to do the transporting and the storage of the oil and will have an initial fund of $50 million contributed by Venezuela. All in all, PetroCaribe looks like an irresistible bargain for the Caribbean States, most of them short of cash and eager to get subsidized oil supplies. But, of course, there is no free lunch. The day will come when the Caribbean States will have to pay back this apparent act of unselfish generosity. This will be the day when they have to vote in the OAS for Venezuelan candidates or against sanctioning Chavez for violations to the Inter American Democratic Charter. Through PetroCaribe Chavez is shamelessly trying to buy political loyalties. However, as the days go by, several countries of the area are having more and more doubts about adventure, as the intentions and highhanded manners of Chavez become more evident. In my opinion PetroCaribe is stillborn.
But Chavez is not discouraged. Wherever he goes he proposes a Petrosomething. In Buenos Aires he proposed PetroSur. In Lima he proposed a PetroAndina, but few of his proposals seem to go beyond the oral stage.
IX. Venezuela is an invaded country.
The cumulative result of the mistakes made by Chavez in his attempts at consolidating an obsolete political regime has been an almost total economic and social national collapse. The Petroleum Industry, nationalized in the 1970’s, is heading again towards foreign control, due to the ineptness and corruption of the Chavez-chosen managers of the State-owned petroleum company. During the six years of Chavez rule, Petroleos de Venezuela has lost about 500,000 barrels per day of oil production, so that Venezuela is the only country member of OPEC that can no longer produce its full quota. The production lost is partially compensated by the efforts of foreign companies acting as contractors to the national company. This is happening although Chavez insists that now Petroleos de Venezuela is finally free from foreign influence!
In the political scene Venezuela is a country that has surrendered significant sovereignty to Fidel Castro and his 50,000-cuban contingent. Castro’s envoys have substantially infiltrated the entire Chavez inner circle of bodyguards, the military, and the intelligence agencies. The Cuban take over of Venezuela is one of those rare cases in history where a weak and poor country, ruled by a dying, dictatorial, political leader, takes over the body and soul of an oil- rich State and converts it into a political satellite.
As Venezuelan oil income declines due to decreasing production, and as Chavez becomes increasingly unable to keep everybody happy because of declining income, his revolution will progressively tend to dissolve and the country will start to look at other political alternatives. As T. S. Elliot would have said:
“This is the way the revolution ends,
1. “The other face of the Cuban invasion in Venezuela”. G. Coronel, venezuelaTODAY.net, July 2005.
2. “The Venezuela of Hugo Chavez: the truth in numbers. G. Coronel, venezuelaTODAY.net, March 6, 2005.
3. “The Attorney General and the Venezuelan President”. G. Coronel, VHeadline.com, March 2003.
4. “Chavez pushes through oil for Cuba”. A. Easton, BBC Caracas correspondent, BBC News, September 8, 2002.
5. “PetroCaribe: Chavez handouts go regional”. G. Coronel, venezuelaTODAY.net, July 4, 2005
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