Chavez oil diplomacy gains ground in Caribbean

HAVANA Thu Dec 20, 2007 2:29pm GMT

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HAVANA Dec 20 (Reuters) - Venezuelan President Hugo Chavez will assert his regional leadership at a summit in Cuba on Friday for Petrocaribe, his initiative to sell oil to Caribbean nations with soft financing.

With oil prices above $90 a barrel, Petrocaribe is offering terms that few can refuse, even the best allies of the United States: deferred payment of 40 percent of their oil bill for up to 25 years, at 1 percent interest.

"Hugo Chavez wants to use Petrocaribe to establish Venezuela as a regional power," said Dan Erikson, an expert on the Caribbean at the Inter-American Dialogue think tank.

He said Chavez is trying to win support from Caribbean countries "and show that he is basically a good guy trying to help small, poor countries in the region."

Chavez, a leftist with close ties to Cuban leader Fidel Castro and the U.S. government's main antagonist in Latin America, has already gained dividends, Erikson said.

A dozen heads of state will gather at the Cuban port city of Cienfuegos and attend the opening of a mothballed Soviet-era refinery that was refurbished by Venezuelan state oil company PDVSA, Cuban officials said.

They include President Daniel Ortega of Nicaragua, one of 16 Caribbean and Central American states now receiving about 190,000 barrels per day (bpd) of crude and products under the 2005 Petrocaribe deal, covering one-third of their imports.

Delegations from Guatemala and Honduras, countries that have traditionally been close to Washington, are keen to join up and will attend the Petrocaribe summit as observers.

Caribbean states backed Venezuela in its unsuccessful bid last year to win a seat on the U.N. Security Council, which would have given Chavez a major platform for his anti-U.S. rhetoric.

OBJECTIVES AND HURDLES

Small indebted island states have welcomed the opportunity to cushion the impact of high oil prices and generate savings that can be used to develop social programs. The Dominican Republic looks to free up $450 million a year for other uses.

But critics of Petrocaribe, which does not offer discounted oil prices, say it will add to the debt of Caribbean nations.

It has also divided the English-speaking CARICOM community of 15 nations, many of which depended for fuel supplies on Trinidad and Tobago, an oil producer and major supplier of liquid natural gas to the United States.

Trinidad and Barbados refused to join Petrocaribe, though they are now trying to work with Venezuela to improve the region's energy security, said Anthony Bryan, a Caribbean expert at the University of Miami.

Bryan said Venezuela has been slow in providing supplies, with Grenada receiving its first batch of oil only last month.

One hurdle for Petrocaribe, which cuts out intermediaries and only deals with governments, is that most Caribbean storage terminals and refining facilities are privately owned.

PDVSA has agreed to upgrade Jamaica's refinery and has taken a 49 percent stake in Cuba's Cienfuegos refinery, which will have initial capacity of 65,000 bpd, producing fuel oil for Cuban power generation and the nickel industry, as well as gasoline and aviation fuel for export.

The Dominican Republic is negotiating the purchase of Shell's refinery to be able to receive its full quota of 50,000 bpd from Venezuela on Petrocaribe terms. Nicaragua is talking to Exxon about using storage capacity at its refinery there.

PDVSA plans to build a 34,200-barrel fuel terminal in St Kitts and Nevis, and other storage facilities in the region.

"One objective of Petrocaribe is to eventually displace international oil companies from the region and have their business role taken over by PDVSA," said Jorge Pinon, a former oil firm executive and University of Miami energy expert. (Additional reporting by Manuel Jimenez in Santo Domingo and Ivan Castro in Nicaragua; Editing by John O'Callaghan)

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