Venezuela, main partner and a sensible part of Cuba’s economy

By Gerardo Arreola

From the Mexican newspaper La Jornada

HAVANA – In one year, Cuba doubled the volume of its trade with Venezuela, which in late 2010 accounted for nearly 40 percent of the island’s total trade, said an official report.

The trade, based on preferential agreements and strategic investments, makes Venezuela the senior partner and a very sensitive part of Cuba’s economy, but the projects that are underway on the island still require two to three years more for full operation.

The National Statistics Office (ONE, www.one.cu) reported an exchange with Venezuela in 2010 of 6 billion, 27 million and 679 thousand U.S. dollars, compared with 3 billion, 135 million and 490 thousand dollars in 2009.

The NSO released most of its 2010 report in the middle of last year, but held on until last weekend to release some results, such as the external sector and national accounts.

When skyrocketing in 2010, Cuba’s trade with Venezuela was more than three times its trade with China, its second-largest partner ($1.9 billion). The other major exchange partners were – in descending order – Canada, Spain, Brazil, Holland, USA, Mexico, Italy and France, for a total of $15.24 billion.

Some analysts attribute the rise in trade with Venezuela with the increase in oil prices and the fact that Venezuela began to pay Cuba for services it didn’t previously pay.

The axis of the relationship between Cuba and Venezuela is the sale of professional services and purchase of oil under a preferential agreement. According to sources familiar with the mechanism, Cuba’s medical services are priced according to an index tied to oil prices.

Under the current agreement, Cuba can pay the oil bill on credit in two installments (90 days and 15 years with two of grace), whose amounts are based on a rising scale in oil prices.

Petróleos de Venezuela (PDVSA) in 2010 reported sales to Cuba of 113,000 barrels of oil and derivatives per day, when the Venezuelan oil basket sold for an average of $70 a barrel. At that rate, the island’s oil bill could have been around 2 billion 887 million dollars that year.

The NSO reported that total imports of Venezuelan goods cost 4 billion 300 million 560 thousand dollars in 2010, but did not break down the balance of services, which are the main source of income for the island.

Cuba sells to Venezuela integral solutions for services and has more than 40,000 professionals stationed in that country, working in healthcare, sports, computers, agriculture, sugar and security, among other sectors.

The joint venture Cuvenpetrol operates the refinery in Cienfuegos (south-central Cuba), with a capacity of 65,000 barrels per day. It is now expanding its production so it can reach 150,000 barrels per day in 2014.

The same consortium has announced the expansion of another refinery, the Hermanos Diaz in Santiago de Cuba (east), and is designing a new one in Matanzas (northwest), said PDVSA vice president Asdrúbal Chávez last August.

The binational company Cuvenpeq is planning to build a urea and ammonia plant in Cienfuegos, with Chinese and Japanese engineering, which will become operational in 2015. It is also designing a PVC factory that could be operational in 2017.

Also planned for Cienfuegos is a regasification plant with capacity for 2.06 million tons per year, mostly for electricity, which would begin operations in 2015, reported Héctor Pernia, local director of PDVSA, in November.

A third joint venture, Gran Caribe Telecommunications, lay a fiber optic submarine cable between the two countries, designed to multiply the capacity for voice, data and image connections. The link was to begin operations last July, according to the original plan, but its current status is unknown. Unconfirmed reports indicate that some project managers were arrested on charges of fraud.

At present, nothing is known about the status of other binational plans, such as a ferro-nickel plant in Holguín (east), the rehabilitation of the Matanzas-Cienfuegos pipeline, and oil exploration in the deep waters of the Gulf of Mexico.