Venezuela may sell PetroCaribe debt
NEW YORK, USA — According to a blog post by John-Paul Rathbone and Andres Schipani in the Financial Times, socialist Venezuela may sell out its Caribbean friends to capitalist Wall Street by securitizing debts owed under its $3.5 billion a year PetroCaribe subsidised oil program.
Under severe pressure from the continuing decline in the price of oil, Venezuela is reportedly trying to raise desperately-needed cash by selling debts owed to it by the Dominican Republic and Jamaica to Wall Street investment bank Goldman Sachs.
Three countries – the Dominican Republic, Jamaica and Nicaragua – together account for $10 billion of the $14.5 billion total owed to Venezuela under the 13-country PetroCaribe program.
In the case of the Dominican Republic, the $4 billion owed to Venezuela would reportedly be sold to Goldman Sachs for $1.75 billion. The Dominican Republic would then issue new bonds and, with the proceeds, buy the debt from Goldman.
Goldman Sachs is also reportedly holding discussions about doing the same for Jamaica’s PetroCaribe debts.
Using the Dominican Republic proposal as a template, securitizing all of the past PetroCaribe debt would bring in a total of $6 billion. Cancelling the program completely, including Venezuela’s strategically-important Cuba program, would provide the equivalent of another $3.6 billion a year – still far short of the $25 billion a year in fresh external finance that Bank of America estimates the country needs to maintain imports even at the current depressed levels.
For the debtor countries, the Dominican Republic and especially Jamaica are already struggling under hefty debt loads and, although any such arrangement would effectively discount the principal amounts now owed to Venezuela, the replacement bonds would require immediate servicing.
Meanwhile, Venezuela’s already dire economic straits are likely to get a whole lot worse if the latest forecasts of a continued slump in crude oil prices are borne out.
On Thursday morning, the price of the US benchmark West Texas Intermediate crude oil was back down to around $66.50 a barrel, after rebounding briefly earlier in the week, a far cry from the $100 a barrel Venezuela has been pressing for and needs to be able to sustain its economy.
Although sitting on the world’s largest oil reserves, Venezuelan oil is heavier and more difficult and costly to refine and therefore sells at a discount to other benchmark prices.
Much of the recent discussion on the price of oil has been focused on the dramatically increased production of US shale oil, reserves of which have been estimated to be able to supply North America for 100 years, with another 100 years capability from Canada’s tar sands.
Conventional wisdom was that it would cost at least $70 to $75 a barrel to produce shale oil, which was therefore expected to underpin the global price level. However, as recently as last week, new estimates that US producers could tolerate $60 oil now seem outdated.
Data from North Dakota now indicate that the average cost per barrel in America’s top oil-producing state is only $42, which includes a ten percent return to rig owners.
Source: Caribbean News Now
Category: DR News |