Prime Minister Dr. Kenny Anthony.
The following is an edited version of the address delivered by Prime Minister Dr Kenny Anthony at the executive luncheon of the St Lucia Chamber of Commerce, Industry and Agriculture today.
It gives an insight into the PetroCaribe agreement.
Ladies and gentlemen, I was invited by the Chamber to speak to the issues relating to Saint Lucia’s engagement on the PetroCaribe Agreement.
At the outset, I must dispel the political conjecture and propaganda that these arrangements in any way impact Saint Lucia’s sovereignty, or Saint Lucia’s commitment to regional integration at the Caricom or OECS levels, nor would they undermine Saint Lucia’s ranking, trust and ability to speak freely in the world.
All governments, from the poorest to the wealthiest, must take decisions that are in the best interest of their country; in the best interest of sound, sustainable development; and in the interest of satisfying the just and reasonable aspirations of their people. We are not an exception.
We may not be responsible for how we got to where we are. We did not set the course of our history on our own. However, we do have the non-negotiable responsibility to set the course of our future.
Since Independence, Saint Lucia, much like the rest of the former British West Indies, has maintained our traditional socio-economic tilt towards trade dependence with our partners in the north, principally the United Kingdom, our former colonial rulers, and the United States of America, the world’s super power for the time being. We share with the United States, elements of a common history in slavery, a common language and a common “backyard”.
The traditional partners of the north will remain, but like them, we too cannot remain stagnant in a model of the world set in what is now, antiquity. The rise of the southern powers is well underway and so have emerged new global powers in Asia and Latin America. Our horizons here in Saint Lucia in a post global financial crisis era must be broadened in all directions as we witness the levelling of wealth around our sphere.
By the design of the international community, we are already grouped into a region defined as Latin America and the Caribbean, notwithstanding our traditionally strong ties with the United States and Canada. In the case of Canada, it is clear that it is a relationship that is now fraught with uncertainty.
It means that while we must maintain strong socio-economic and political ties to our allies in the north on which our trade, investment and economic viability still rely, we must also begin to diversify our economic partnerships beyond the traditions of the past. Even so, the Caribbean was once quite connected with our Latin American neighbours in the not too distant past.
The South American continent was once seen as a land of opportunity and trade from the Guianas to Brazil to Panama.
Venezuela is also within this mix. Venezuela has a Caribbean outlook as it lies along the Caribbean Sea. It has long been a partner with Saint Lucia, having established diplomatic relations shortly after our Independence in 1979.
This reawakening of our ties with our friends in Latin America is an important element in our future economic development, as was highlighted in the Foreign Policy Review undertaken by a team headed by former Prime Minister and Professor Emeritus of International Relations, Dr. Vaughan Lewis.
Our traditional partners have decidedly moved away from grant financing, despite all our known vulnerabilities. We have been fortunate to have had the new National Hospital funded primarily by European Union grants but this is not the case for St Jude, where the Government has in fact borne the brunt of the costs thus far.
The National Hospital resulted in elevated grant financing during the period 2009/10 to 2012/13, averaging over two percent of GDP.
However, for the decade and a half before that, grant funding was well under one percent of GDP each year. The European Union has also indicated that the Banana Accompanying Measures, or BAM for short, to be implemented over the next five years, will be the last in a series of structural adjustment funds.
While the US provides Israel and its friendly neighbours, Jordan and Egypt, grants in the region of 1.5 percent of their GDP, US government grant funding has continued to dwindle in our region. Thus, Israel, a developed state, may receive over US$400 per person, whereas Saint Lucia, a vulnerable Small Island Developing State, received in the region of US. $3.50 per person this year. This is the political reality of our world. This is our harsh reality. And so, our financial realities must be approached with pragmatism, open mindedness and certainly without naïveté.
The suggestions to continue with the country’s development agenda, thus far, have been to induce foreign direct investment through PPPs in sectors that may be seen as lucrative, such as sea ports and airport development, hotels, renewable energy, housing and real estate. In fact, we have been receiving much assistance from the International Finance Corporation, IFC, in this area.
However, in the meantime, we need to ponder this question: how will we be able to finance social or riskier investments to support and grow sectors such as agriculture, social housing and education in the medium term, before such PPPs induce more sustainable and positive growth rates? Let us face it, large primary surpluses are unlikely in the near future. And this is why ALBA and PetroCaribe are crucial to bettering our ability to deliver on development imperatives.
At the heart of PetroCaribe is the concept of low interest financing. Venezuela has said this to its Caribbean partners, and here I am translating and transmuting the essence of the conversation:
“We know you struggle with the high cost of fuel, and the impact it has in every facet of your economies.”
We know that the high cost of fuel is a major contributor to inflationary pressures. To illustrate this trend, in 2002, LUCELEC, the largest single consumer of diesel in this country, paid on average, $2.86 per imperial gallon. A decade later, in 2012, the average going rate was $10.59, a near four-fold increase. Even with hedging, such fuel dependence maintains the Caribbean as one of the highest, if not the highest energy cost region in the world.
The Venezuelan position continues by saying, “we know that energy costs are a large part of your import bill, and greatly impacts your current account deficit.” For instance, in the case of Saint Lucia, last year, we imported the equivalent of over 1.4 million barrels of fuel, generally in the form of diesel, gasoline and LPG. Using C.I.F. prices, last year our country imported mineral fuels in the order of EC $300 million, or about eight percent of GDP!
Our energy costs continue to grow and greatly impact the cost of transport, electricity and, in one way or the other, nearly all our transactions. For instance, the cost of our food production is tied to fertiliser costs, a by-product of petroleum. Every time our fishers set out to sea, their outboard engines are dependent on imported fuels.
Venezuela, on the other hand, is a hydrocarbon super-giant. It possesses vast oil and gas reserves, some of, if not, the largest in the world. It produces an estimated 2.47 million barrels of oil a day. It is the fourth largest supplier of oil products to the United States of America, exporting in the region of 1.4 million barrels a day to the US.
Our very own sister state of Trinidad & Tobago, the only major oil and gas exporter in Caricom, is presently negotiating with Venezuela a natural gas deal. Why then is there so much resistance in some quarters? Is it really based on reason and logic?
Venezuela is also saying, ‘we understand how your current economic model can cause hardship for your people and increased indebtedness. We will help you by allowing you to be part of the energy supply chain, and as a trusted partner, with a vested interest and benefit; and allow you generous credit terms on what is a major part of your costs, fuel’.
We have been a signatory to PetroCaribe since June of 2005 but sadly, we never activated our membership. Since then, a number of countries throughout our region have enjoyed the benefits of PetroCaribe. So, we are an unfortunate latecomer to this endeavour. Whereas, we could have been benefiting for over five years now, we unfortunately have been without this very beneficial financial facility.
So, what is involved in this energy cooperation agreement?
At the heart of it is the establishment of a Venezuela-Saint Lucia Bilateral Fund or a PetroCaribe Development Fund, as it is known in some PetroCaribe countries. The arrangements require the establishment of a joint venture company or entity responsible for the operations and sale of PetroCaribe products in Saint Lucia. These, of course, could be a wide number of hydrocarbon by-products: diesel gasoline, LPG, kerosene, lubricants and so forth.
Products would be sold to the joint venture company based on the going rate for these products by PDVSA, Venezuela’s national oil company. PDV Caribe, the subsidiary company of PDVSA, is responsible for arranging logistics, planning and coordination, including transport, storage and distribution systems.
The joint venture company would then apply its mark-up for operating costs and profits, and sell the product on to the distributors or bulk purchasers, more than likely through the existing channels. In the case of Saint Lucia, the proposed bulk purchasers could be LUCELEC and existing distributors, namely RUBIS and Sol. There are of course details that will have to be worked out with respect to these companies and their existing purchase commitments from other suppliers.
The proportion of the value of oil products to be provided concessionary finances varies with the price of oil. In fact, it becomes more generous as the price of oil gets higher. I should repeat this point for clarity: as the cost of oil goes up, our ability to seek concessionary financing increases.
So, therefore, for our purposes, consider the average price of oil set between US $100 and $150 per barrel. This would attract of up to 60 percent concessionary financing. In fact, if we were to be more conservative, we can say that the price of oil has rarely fallen below US $80 per barrel. This means that using this basis, Saint Lucia would be eligible for concessionary financing of between 50 and 60 percent of the cost, at a rate of two percent over a 25-year period. Further to this, each country is allowed a two-year grace period before which it begin repayments.
Each participating country is given a quota of oil products it can consume under the PetroCaribe agreement. For example, Dominica and Saint Vincent have quotas of one million barrels per annum.
The joint venture company will sell oil products to the local market. This direct line is likely to translate into modest savings for the consumer, whether through a somewhat lower electricity fuel surcharge or a lower price at the pump. There will still be mark ups for the distributors and the dealers, and Excise Tax collected by Central Government.
However, what will happen is that the joint venture company will be in a position to also make a profit. These profits will then be ploughed back into the economy through grant financing, or towards paying off the long-term liabilities. The joint venture company, within 90 days, will repay between 40 to 50 percent of PDVSA for the oil it has purchased, depending on the prevailing price of oil.
PDVSA has proposed that the joint venture company will then remit 50 to 60 percent of the payments collected into the Bilateral Fund for concessionary financing. We are currently negotiating the establishment of a separate social investment fund, which can be used to fund public sector initiatives whether in social, housing, agriculture, education or community infrastructure.
We are proposing that this social investment fund be allotted a lower interest rate of 1 percent, with the cost of additional repayment borne from the returns from investments on the Bilateral Fund. This model addresses the concerns of the Venezuelans about the sustainability of the fund while reducing the bureaucracy in accessing financing.
We believe it is a model that is a significant improvement on the existing one as it reduces on the hazard of debt accumulation while retaining the facility for funding much needed social projects. We are anxious to avoid any debt accumulation.
The monies that are deposited into the Bilateral Fund would be managed by a Board with representation from both Saint Lucia and Venezuela. Projects out of this fund would have to be geared towards meeting national development goals and would have to be directed towards the productive sector. In effect, the funds would have to be invested into projects, programmes or ventures that will yield positive rates of return. In effect, it can become a low interest credit facility, which can go towards a host of potential investments.
For example, a portion of the fund can go towards establishing a Green Energy Fund, allowing businesses to get the affordable capital to make investments in renewable energy and energy efficiency. Such use of the fund would be in keeping with our long-term goal to become more energy secure.
Funding could perhaps also be directed towards Saint Lucia’s involvement in regional travel and shipping capacity. We know there has been much talk of an inter-island ferry and better trade links. This could potentially be realised with the existence of this fund.
A number of state agencies or corporations might be able to access soft loans for infrastructural investments. SLASPA might see the possibility of utilising this fund for port redevelopment. WASCO might undertake a major network improvement project.
The Fund might wish to direct some of its resources towards the development of SMEs through the provision of low interest loans.
Such a fund could certainly be of importance to farmers who often struggle to get agricultural loans.
Such a fund would require the involvement of a locally licensed financial institution, possibly the Saint Lucia Development Bank, which can ensure that due diligence and risk management protocols are maintained and that the Fund is managed profitably with sufficient oversight arrangement.
The hope is that the Fund would realise returns in the region of at least 4 to 6 percent, so that the credit facility can be paid down. It is fully in our national interest to ensure that it runs sustainably. Surplus profits could, of course, be kept to bolster the Fund’s long-term operations. This fund could be a much-needed boost to the private sector that is already suffering from tight credit conditions.
The benefits to the Government are also rather obvious. The first benefit to Government is in the low interest rates and the lengthy repayment periods. If the Ministry of Finance goes out today to borrow moneys on the RGSM, they may fetch a 6 percent interest repayment over an eight-year period.
You can automatically see that the repayments would begin piling up very quickly into the future, and with relatively large repayments. For every $10 million in liability taken out each year against the proposed Bilateral Fund, the result is a manageable repayment of about $66,000 per month.
Government is therefore provided with a new line of concessionary financing, just like the opportunities that would be provided to the private sector through the Bilateral Fund. As would be said by the IMF, the quality of our financing would be improved.
Of course, I am sure a number of you are already wondering what scale of funding could be generated from PetroCaribe. It would be good for us to look at a few scenarios.
As I indicated, there are three principal opportunities:
• The first is the generation of grant funding through profits, to be directed towards targeted non-refundable projects and programmes;
• Secondly, there is low interest, concessionary financing for social programmes; and
• Thirdly, productive sector concessionary financing that would have to be targeted to projects that must generate reasonable returns.
The ability to achieve each of these would be determined by the size of the local market, the projected market share of the joint venture company, the anticipated profit mark up by the joint venture company, the extent of relief the Government would wish to provide to the consumer, which is of course inversely related to the profit mark up.
I know there are still those who may be wondering whether this sounds too good to be true. Well, being so late in the game, we have the benefit of seeing the impacts that have resulted in other countries.
On previous occasions, I have highlighted the benefits of ALBA and PetroCaribe to Dominica. Today, I shall choose Jamaica, merely to illustrate that even the most populous English-speaking economy in the Caribbean has benefited immensely.
Jamaica has been accessing PetroCaribe since 2006, passing legislation establishing its setting up that same year. Jamaica has benefited from US $2.4 billion in financing from their PetroCaribe Development Fund.
The Government of Jamaica has used funds associated with PetroCaribe for several projects including:
1. Expansion and upgrade of the country’s road network;
2. Upgrading of the Norman Manley International Airport;
3. Expansion of the port infrastructure;
4. Refinancing domestic public sector debt to prevent job losses and agency closures;
5. Support to state corporations;
6. Support for the public transportation system, including the Jamaican Urban Transit Company (JUTC) and the construction of the Half-Way Tree Transit Hub;
7. The Petrojam Refinery Upgrade Project which saw Venezuela purchase 49 per cent of the shares in the refinery in 2008; and
8. Investments in social infrastructure through the Jamaica Social Investment Fund.
Allow me to quote an article from the Jamaica Gleaner of January 27, 2012, which brings home what can be done through this facility:
“The National Export-Import Bank of Jamaica has signed a US$20-million loan agreement with the PetroCaribe Development Fund (PDF) for on-lending primarily to small and medium-size businesses in the productive sector.
An immediate spin-off of the loan is that SMEs operating in the productive sector will now be able to benefit from a new accelerated processing initiative, which allows them to access working capital within five working days for short-term loans and 15 working days for medium-term loans, EXIM said in a statement on Wednesday.
Businesses can access up to a maximum of J$40 million under the accelerated loan programme, which runs until March 30.
The EXIM Bank said it was the fourth loan that it has successfully negotiated with the PetroCaribe Fund since its borrowing relationship began with that organisation in 2007. Funds sourced from the PDF have primarily been used for the development of SMEs with export potential and or which provide linkages to the tourism and export sectors.
“This capital injection will greatly boost EXIM Bank’s ability to continue discharging its mandate of providing competitively priced financing solutions to ensure that the private sector builds its competitiveness, increase trade and, most importantly, stimulate growth in the economy,” the statement said.
However, even while we seek to finalise the legal and technical details to implement PetroCaribe, our membership in ALBA will help us to begin access grant funding to assist in our backlog of projects to be funded.
I have already asked the Ministry of Infrastructure to begin engaging the ALBA Caribbean Fund for funding for two bridges to be reconstructed on the Castries-Vieux Fort Highway, in the Mabouya Valley as well as in Micoud South.
Today, you have also noted at the Head Table, Saint Lucia’s recently appointed resident ambassador for ALBA-PetroCaribe, Mr. Eustace Vitalis, a gentleman with much experience and training in project cycle management, agriculture and creating linkages between agriculture and tourism.
He also speaks the principal languages of the South American continent, Portuguese and Spanish, having attended universities in Brazil and Cuba. I am sure as the weeks and months progress, you will hear from him regarding our rollout of the Agreement.
My friends, opportunities are what you make of them. We have lost enough time dithering on whether or not PetroCaribe or ALBA, as well as political energy debating its value. The current fiscal imperatives leave little doubt that our entry into these arrangements is warranted and will set us on a new path of positive engagement with the South.
And so, I urge you to consider the number of pressing socio-economic imperatives of our country at this time. These may be summarized thus:
1. Reducing the fiscal imbalance and containing debt;
2. Creating employment and stimulating economic activity;
3. Promoting tourism competitiveness and product development;
4. Energy and water security;
5. Citizen security;
6. Environmental Sustainability;
7. Championing food security and healthy living through expanding and modernizing our agriculture and fisheries sectors;
8. Reforming our education sector to enable our youth to gain the skills, technical ability and attitudes for a competitive world;
9. Reducing poverty and promoting social inclusion, not dependency;
10. Providing a chance for entrepreneurs and SMEs to find capital and create new businesses, particularly through applying technological advantage; and
11. Developing the resilient infrastructure for the future that will encourage growth in all economic sectors;
The list, my friends, is a long one.
This is a list to which we must be committed, even when it means navigating outside of our immediate comfort zones. It does, however, entreat that we nurture the bloom that arises from the fiscal desert.
A few days ago, I had the privilege of handing out laptop computers to the fourth form students of the Vieux Fort Comprehensive Secondary School. It was a promise that we made in the campaign, and it is a promise kept.
In a way, it was a liberating feeling, because I felt so much more hopeful of the future; because I believed that these children would embrace the powerful tool being given to them, and use it to begin transforming their minds, and then their opportunities, and then their communities and then their country.
We owe it to our children, to cast aside the politics, to push away these hardened, unjustified, antiquated philosophies and fears and even furore, and to embrace the world together.
And so, ladies and gentlemen, likewise, today I trust that your organisation will support this effort, because it makes sense, because it is good for the country, because we want to see a future brighter, not dimmer. We must broaden our circles of solidarity without fear.