Venezuela's Petrocaribe Plans Possible Changes to Oil Deals

CARACAS (Dow Jones Newswires), Aug. 17, 2009

Petrocaribe, an alliance created by Venezuela with Caribbean nations, may establish a "unique" rate for its internal oil deals that wouldn't be based on the often volatile global price for crude.

In a statement sent over the weekend, Petrocaribe said such a plan could "reduce the percentage amount of cash payments" member nations have to pay under the current agreement at current oil prices. It said whatever changes are eventually made "will benefit the member countries."

But Petrocaribe's press release comes amid growing concerns by the nearly 20 member nations that the changes being proposed by Venezuela would hurt the cash-strapped, oil-importing countries and only help Venezuela. Some members have reportedly said Venezuela wants upfront cash payments in full on oil deliveries, rather than the current partial payments.

Petrocaribe's statement seemed to deny this. It said the proposed changes do not include any modification of payment schedules "nor an increase in the percentage of the bill that must be paid in cash."

It said an option being studied would untie the cash payment obligations for oil "from the [global market] price of oil through the creation of a unique rate that eliminates the exposure of such payments to price volatility."

Venezuelan President Hugo Chavez created Petrocaribe in 2005, offering to provide oil at attractive terms to his oil-thirsty neighbors in Latin America that he's friendly with. Chavez offered lengthy repayment schedules and ultra-low interest rates and accepts a portion of the payments to be made with bananas, rice, sugar or other products.

Most Caribbean nations, as well as several countries from Central America and South America hurried to sign up.

Petrocaribe worked while oil prices were rising. The small, oil-importing nations were able to secure their crude oil needs at a discount, while Chavez gained some political points from his neighbors as he does battle with the U.S. over that country's influence in the region.

But as oil prices began dropping in 2008, Venezuela has been hit hard, as it relies on oil sales for half its budget. That could be leading Chavez to be less generous on his Petrocaribe dealings.

The statement from Petrocaribe did not indicate when any new proposals might be passed or implemented. Officials at Venezuela's Oil Ministry were not immediately available.  

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