Posted: Friday, August 26, 2016. 8:35 a.m. CST.
By Richard Harrison: Belize…..do not take your eyes off Petrocaribe…..there needs to be an independent and comprehensive audit…..the numbers that the Government of Belize claim do not add up….many millions not accounted for….in his 2016 budget speech the PM of Belize claims that Belize had only received $325 million.
Belize imported on average BZ$240 million of fuels per year from Venezuela under the PetroCaribe agreement since restarting the program in 2012.
Belize signed on to this agreement in 2005, but stopped importing from Venezuela in 2009 and restarted in 2012, when the price was around US$115 per barrel.
Today WTI Crude (NYMEX) is quoted at US$37.02 per barrel.
This agreement, according to the SELA (Sistema Economica Latino America y el Caribe) report of June 2015, provides for partial financing of petroleum fuels from Venezuela to recipient countries, including Belize. The level of financing and terms are tagged to the invoice price of the petroleum. Above US$15/barrel only 5 % of the invoice is financed, with 2 years grace and 17 years term at 2 percent per annum. Between US$30-40, only 25% is financed. Between US$40-50, only 30%. Between US$50-80, only 40%. Between US$80-100, only 50%. Above US$100, 60% of the invoice is financed. Above US$40, the financing is 2 years grace, 25 years term and 1% per annum interest.
This means that for the most of 2015 when the price was below US$80 per barrel, Belize will only be financed at 40% of invoice value. In 2014, the price was mostly between US$70-90 per barrel, hence around 50% was financed. In 2012 and 2013, the price was mostly above US$100 per barrel, thus 60% of the fuel invoiced to Belize under PetroCaribe was financed during that time.
The Statistical Institute of Belize (SIB) October 2015 report indicated that Belize imported BZ$155.2 million under the PetroCaribe agreement from Curacao for the January to October period 2015. The SELA report stated that Belize imports an average of 3,200 barrels per day in 2015, which would translate to around 973,300 barrels during these 10 months, or US$79.73 per barrel. At 42 gallons per barrel, this is around 40,878,600 gallons. In 2015, Belize has paid an average price per gallon of US$1.90 or BZ$3.80.
Oil-price.net puts gasoline US Gulf Coast today at US$1.27 or BZ$2.54 per gallon, with an average through 2015 of around US$1.75 per gallon, and an average through 2014 of around US$2.75 per gallon.
This means that the 2015 average price landed in Belize is 9% higher than the 2015 average US Gulf price, and 50% higher than the current US Gulf price. Belize needs to consider a point of diminishing returns from PetroCaribe.
The SELA report claimed that PetroCaribe financed 3.5% of the Belize GDP in 2014. The Central Bank of Belize reported GDP at BZ$3.4 billion, hence PetroCaribe financing that year would have totaled BZ$119 million.
The Statistical Institute of Belize reported that Belize imported BZ$249.6 million in 2014, hence this would suggest financing of average 50%, consistent with the prices of crude and the agreement.
The SELA report also claims that Belize purchased 2.6 million barrels of fuel during the period 2005 to 2014, with the largest portion of this occurring between 2012 and now.
Belize imports from Curacao totaled BZ$249.6m in 2014, BZ$233.2m in 2013 and BZ$235.3m in 2012.
This would suggest that Belize was financed with BZ$62m from Jan-Oct 2015 (at 40% of invoice value), BZ$112.32m in 2014 at average 45% of invoice value, BZ$140m in 2013 at 60% and BZ$141m in 2012 at 60% of invoice value. This is a total of BZ$455.32m over the period from restarting in 2012 to October 2015. This financing would all be with 2 years grace period, 25 years term and 1% per annum interest.
“Substantial concessionary borrowing from Venezuela under the Petrocaribe Agreement facilitated a 5.5% increase in the public sector’s outstanding debt in 2013, as well as its subsequent 3.0% rise to $2,628.2mn in 2014” ~ Central Bank of Belize 2014 report. This suggests that Government of Belize only received financing of BZ$76.5 million in 2014, and BZ$133m in 2013; both below the estimates of financing calculated above based on import statistics.
It would be reasonable to estimate that Belize has received between BZ$400m and BZ$500m in total financing under PetroCaribe from 2012 to current. The total number should be made public.
If the price of crude continue to hover around US$40 per barrel, as is expected, financing will only be at the level of 25-30% of invoice value.
“The fiscal deficit was financed solely from external sources with borrowings of $171.6mn, of which 67.5% came from Venezuela on concessionary terms under the Venezuela Petrocaribe Agreement (VPCA). This contributed to a 4.0% rise in the public sector external debt stock to $2,252.2mn (66.3% of GDP).” ~ Belize Central Bank 2014 report. This suggests that in 2014, Belize used around BZ$115m of PetroCaribe financing to bridge the fiscal deficit.
The Central Bank of Belize August 2015 report states that Belize was disbursed BZ$59m during the 8 months period. It put the December 31, 2014 “disbursed outstanding debt” to Venezuela at BZ$291.5m, and the August 31, 2015 figure at BZ$349m.
Since August 2015, the Government of Belize (GOB) has used PetroCaribe funds to pay for portions of the BEL and BTL settlements and for the run up to the November 4 general elections.
It would be reasonable to conclude that the GOB has at best BZ$110m, with a worse-case-scenario of around BZ$50m left in the PetroCaribe cookie jar as of today. This amount can be expected to grow only at around BZ$5-8 million per month over the next few months, if the invoice price fluctuate between US$50-60 per barrel.
The Prime Minister of Belize last week stated that his priorities for use of those funds are to settle the outstanding arbitration judgment related to the settlement reached with the previous owners of BTL, and for using the remainder to refinance a portion of the SuperBond 2, which at the end of August stood at BZ$1,053 million, with interest alone costing Belize BZ$52.65 million in the first 8 months of 2015, to which principal will be added starting in 2016.
The total public sector external debt at the end of August 2015 was BZ$2,321m, or 66% of GDP. This is estimated to have increased since then by around BZ$300m to around BZ$2,621m or 76% of GDP. If the arbitration settlement comes in at the high end, debt-to-GDP ratio will increase to around 80%, which would be lower than the 90+ percent that the IMF estimated previously.
The BTL arbitration, based on informed judgment, can come in as low as BZ$60 million or as high as BZ$130 million. GOB is surely praying for the lower end, so that there might be something left to refinance a small portion of the SuperBond 2.
The long and short of this story is that the PetroCaribe hay days seem to be winding down quickly….unless the price of crude oil increases sharply over the near future, which is rather unlikely to happen. Tighten your seatbelts…
The silver lining on this dark cloud is that the wrong decisions by GOB to appropriate private property by force will have been corrected, the associated protracted and costly legal battle hopefully will have come to an end, the total national external debt challenge will have become more clear to domestic and foreign investors so they can better estimate risk….and Belize can start to see major inflow of new investment capital as a result.
Belizeans will see no benefit from such influx of capital (other than service jobs) if they do not push for fiscal and justice system reforms….the status quo will continue to reap a bountiful harvest. The youth must organize with the unions to push for these….they will not come without demands that are backed up with fire power.
The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.
This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Master’s in Business Administration degree from Lancaster University.
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