DURING HIS recent intervention in Parliament's sectoral debate, Phillip Paulwell, the last energy minister in the previous administration, and now the Opposition's spokesman for the portfolio, made an observation about the PetroCaribe energy facility and offered a suggestion, which, we are surprised, has generated almost no public discussion or, insofar as we can determine, no response or comment from the public.

That, we think, is unfortunate, for the matter raised by Mr Paulwell could have serious implications for the economy, including Jamaica's current negotiations for a credit facility from the International Monetary Fund (IMF), and would benefit, as he said, from a bi-partisan approach.

The agreement

PetroCaribe, we remind, is the arrangement under which Venezuela provides oil, among other things, to several Caribbean and Central American countries on a preferential basis. Specifically, when the price of oil goes above US$50 a barrel, beneficiaries pay cash for 60 per cent of their uptake, with the remainder converted to a 25-year debt at one per cent. When the price of oil hits US$100 per barrel, the amount for which the purchaser has to pay cash falls 10 percentage points to 50 per cent. The assumption is that the 'savings' will be invested in development projects by the recipient countries.

In Jamaica's case, we are entitled to 23,000 barrels of oil a day under PetroCaribe, which, in normal times - in as much as there are those in the oil business - provides a substantial cushion to the island's often skittish foreign exchange market. Last year, when the oil prices were rocketing and our bill for the commodity was heading towards US$3 billion, PetroCaribe's benefit was crucial. Indeed, the 'savings' the facility provides has allowed Jamaica to support Air Jamaica, investment in highways, build houses and refurbish sport facilities.

The concern to which Mr Paulwell referred in Parliament is the proposal by the Venezuelan president, Hugo Chávez, to amend the PetroCaribe arrangement so that beneficiaries pay all - or at least 80 per cent - of the cash upfront, and then receive direct loans from Caracas, but for specific projects approved by Venezuela. The net effect, in terms of dollar flows to an economy would, on the face of it, be the same as under the existing arrangement. But that's a chimera.

First, Jamaica would have to find the cash to pay upfront, which, in these bad times of little or no earnings from bauxite/alumina, a decline in remittances and discounting in tourism, would squeeze the foreign-exchange market, adding devaluation pressures to the Jamaican dollar. The time lag between funding applications and project approvals would slow the Government's capacity to implement projects, at a time when speed and flexibility are necessary.

Downside

The downside to the programme is its impact in driving up the national debt, currently at nearly 120 per cent of GDP, and potential as a disincentive to energy conservation and efficiency, as well as the development of alternative sources.

However, Jamaica, like others in the Caribbean, face an immediate crisis, which would only be exacerbated by this proposed mid-stream change which seems contrary to the spirit in which President Chávez launched PetroCaribe. Perhaps there is an approach that can meet Venezuela's needs, including the economic circumstance and the realities facing beneficiaries like Jamaica. Broad dialogue would be useful.

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