Why Petrocaribe may not be a good thing

I predicted that one of the first steps after the signing of the Cartagena Accord would be Honduras signing a Petrocaribe agreement with Venezuela. Honduran President Lobo said that Venezuela's Foreign Minister Nicolás Maduro brought it up during the signing: "And Petrocaribe?", to which Lobo responded by saying that if offered, he would jump on a plane on Monday.

The idea of rejoining Petrocaribe has already been tossed around to the Honduran media for the past two months, surprisingly first mentioned by prominent businessman Adolfo Facussé, widely considered by pro-Zelaya forces to be a golpista and strongly anti-socialist. He and high level government officials, including Pepe Lobo, publicly and falsely implied that Petrocaribe would mean lower gas prices for Hondurans at the gas pumps.

Petrocaribe is an organization in which member states purchase fuel at market rates from Venezuela. The benefit is that the countries only have to pay 50-60% of the purchase within 60-90 days and are able to finance the rest for 25 years, including a 2-year grace period, at 1% interest. Payments in the form of goods or services may be accepted by Venezuela. The amount financed is supposed to be spent on social projects to help the developing countries.

In theory, it sounds good. In practice, not so much. Supposedly, US $104 million of Honduras' Petrocaribe funds are still sitting in a bank account somewhere, but that in itself is very odd (if true) since the money was supposed to be used for social development projects. Here we are in 2011, three years and three presidents later, and none of the money has been put to use in this impoverished country?

In a January 28, 2008, Wikileak cable, former US Ambassador to Honduras Charles Ford wrote: "Zelaya may also think he can evade the conditions of both Petrocaribe and other donors and divert the funds to cover current spending, for corrupt ends or for the political campaign of his preferred successor, Patricia Rodas."

The Petrocaribe agreement gives no requirements about how the money is to be used or accounted for and there are no reporting or auditing requirements. It's impossible to know whether all of the financed funds were ever deposited or were diverted along the way. A transparency committee was supposed to be formed to oversee the administration of the funds, but I don't think it ever was since the media was constantly asking, "Where's the money?".

Certainly we would have heard about it if the funds had been used for social projects, since the Honduran government spends millions on publicity every year telling us of the good deeds that they do. The money may have partly been used for the government's 2008-2009 operating expenses or the hugely expensive Cuarta Urna publicity campaign, or maybe even just distributed directly to Cuarta Urna supporters. Zelaya's former Minister of Finance Rebeca Santos (who is also facing corruption charges) refused to provide the media with any accounting of the Petrocaribe funds despite constant demands in 2008-2009.

You can read a brief description of Petrocaribe at Wikipedia. (Note that this article is not updated. Honduras formally ceased being a member in 2009 while under Micheletti, but Chávez had already unilaterally and without the required 60-day notice stopped shipping fuel to Honduras on June 29, 2009.) During the period of January through June 2009, Petrocaribe and ALBA accounted for 71% of Honduras' external financing according to Maurico Díaz of FOSDEH, an independent organization that monitors Honduras' foreign debt and development.

According to Joel Hirst, a respected researcher for Council on Foreign Relations who is writing a book on ALBA, the reality in countries like Nicaragua is that the main benefit is actually a massive slush fund that is used (at the expense of future governments and future generations) for controlling the media and ensuring reelection of Chávez-approved candidates, as well as making multi-millionaires of those officials.

Mr. Hirst told me, "But the short story is the prices don't actually come down, it is a method to transfer money to the [political] leaders. Chavez has the same deal with his Petrocaribe El Salvador, but instead he transfers the gas to 22 FMLN municipalities who pay back half and transfer the other half to the party coffers."

Hirst went to explain how Petrocaribe works in Nicaragua: "Basically, you [the Nicaraguan government] pay 50% up front. At the pump, the buyer pays market rate. The other 50% goes into this company called ALBANISA controlled by Ortega's son. Of that, 25% is funneled back to Chavez and 25% is funneled into ALBACARUNA which is a micro-finance institution which currently has about 500 million in liquidity. That's where they pulled the money for all the social programs, the re-election campaign, and the purchasing of hotels, TV stations, etc. The other 50% to be paid immediately to the Chavez government can be repaid in kind. So Ortega takes his 25%, buys fincas [farms] and ranches, and has the PetroNIC buy the stuff (at a high price) from his fincas and ranches to pay back the 50% owed to Chavez. It's what they call a "negocio redondo"."

Lobo also mentioned a fertilizer deal with Venezuela. According to Hirst, this is but another piece of the puzzle: "But in Nicaragua, it's broader than PetroCaribe. Venezuela has provided 500,000 tons of fertilizer to Nicaragua which is treated in roughly the same fashion. This has made Ortega the wealthiest man in the country."

Initially, the Honduran media regurgitated the lower gas price lie, but have since begun to report the truth after asking harder questions of the politicians. Lobo now admits that signing Petrocaribe would not mean lower gas prices.

But the fable is easy to sell to the common folk, who believed Zelaya when he personally took credit for lowering gas prices in television ads. After all - they saw it at the gas pumps! Never mind that the price of oil in the world market went from around $110 per barrel when the congress approved Petrocaribe in mid-March 2008 down to around $46 a year later. A channel 10 viewer poll just this week showed that 67% of the callers believed that Petrocaribe would bring the benefit of lower gas prices to their pockets, even though that particular news organization was reporting the truth about the contract.

A May 10 comparison of Central American gas prices showed that Belize and Nicaragua, both Petrocaribe members, had the highest prices at US $5.98 and $5.15, respectively. Non-Petrocaribe Honduras was right in the middle of the seven Central American countries with a price of $4.76 (all prices based on the cost of regular gasoline).

With gas prices beginning to fall in the world market, this is the perfect time for Honduras to join Petrocaribe. Consumers will begin to see the lower prices at the gas pumps and won't be as tempted to demand transparency for the funds.

Don't be fooled by false promises and red tractors. Read the Petrocaribe agreement [in Spanish] for all the proof that you need.

One last ironic point, in 2008 when the Liberal-led Honduras congress approved the Petrocaribe contract, the Nacionalista party abstained from voting. Party leader Rodolfo Irias Navas spoke out against indebting Honduras to Hugo Chávez. Now the Nacionalista party is in power and they are pushing for Petrocaribe. It's all politics, isn't it?

As Congressman and caricaturist Dario Banegas illustrates in the cartoon below, entitled 'Melobo', sometimes it is hard to tell them apart.