Jamaica will have to find up to $37-billion more to import oil this fiscal year if the crisis in Venezuela continues to result in drastically lower oil exports from that country.
Calculations by Nationwide News reveal that billions more will be required to pay for oil imports up front, which would otherwise be deferred under the PetroCaribe arrangement.
Foreign Affairs and Foreign Trade Minister, Senator Kamina Johnson Smith, revealed in a press conference on April 20, that Jamaica’s oil imports from Venezuela had fallen from 24,000 barrels a day to just over 1-thousand barrels a day.
The revelation of the drastic reduction raised alarm bells, as it has implications for Jamaica’s oil import bill since the bulk of the cost of oil from Venezuela is deferred under the PetroCaribe arrangement.
Energy Minister, Dr. Andrew Wheatley, said it did raise some concern.
But going to the spot market means Jamaica has to pay the full cost up front, at world market prices.
By our calculations, that could result in an extra JMD$37-billion this fiscal year on the country’s energy bill.
However, speaking on Nationwide at 5 on April 20, former Energy Minister Phillip Paulwell, sought to downplay the impact.
But while Mr. Paulwell is right that Jamaica benefits more from PetroCaribe when oil prices are high, he didn’t explain that that benchmark is set at USD$40 per barrel.
When oil prices climb above that mark, Jamaica gets to defer payment for 30 to 70-percent of the bill.
Oil prices have been trading consistently above USD$40 a barrel for over a year now on the US-based Nasdaq Stock Market.
In fact, Jamaica’s Fiscal Policy Paper for 2017/18 forecasts average oil prices at $47.50 a barrel this year.
With an estimated 9-million barrels of oil imported from Venezuela each year, that’s an annual bill of USD$427-million.
Up to 70-percent of that cost is deferred under Petrocaribe and put into a 25-year loan at 1-percent interest.
But as Venezuelan oil production dwindles while the country is in the throes of an economic and political crisis, that arrangement is becoming less and less reliable.
If the trend continues, 9-million barrels a year will be reduced to less than half a million barrels, leaving the Jamaican government to source the rest on the world market at full price.
That would leave the country with an additional price tag of USD$284-million this fiscal year, or about JMD$36.5-billion.