Posted on Wed, Aug. 30, 2006



Chávez may be buying Cuba's future with oil

Venezuela's Hugo Chávez has thrown Cuba a huge economic lifeline, which may give him influence over what comes next on the island.


As Cuban leader Fidel Castro convalesces in Havana and brother Raúl rules temporarily, experts say another man may hold Cuba's future in his hands: Hugo Chávez.

The Venezuelan president is propping up the Cuban economy by giving it nearly 100,000 barrels of oil a day virtually for free, according to experts. At today's prices, the subsidy could exceed $2 billion this year, nearly half the $4 billion to $6 billion that Moscow once pumped into Cuba per year.

But Venezuela's contributions to the Cuban economy don't end there. It has bought nearly half of the island's aging Cienfuegos refinery and is reportedly providing $300 million to $500 million in credit for a number of projects that range from housing to electricity. Venezuela also has opened a shipyard with Cuba in the South American nation's city of Maracaibo and sent thousands to Cuba for eye and other surgeries.

''It looks like Chávez has a stranglehold on what's going to happen in Cuba,'' said Susan Kaufman Purcell, director of the University of Miami's Center for Hemispheric Policy. ``Cuba is dependent on him.''

Venezuela claims that Cuba pays for the bulk of the oil shipments with an estimated 30,000 to 40,000 medical personnel, sports trainers and teachers deployed in Venezuela to help the poor. But analysts say the deal amounts to a giveaway.

Chávez has long looked to Castro for ideological guidance and loosely used the Cuban model to push his own ''Bolivarian revolution'' at home and in other Latin American nations. He has also used the Cuban medical and other personnel to maintain his popularity at home.

But the Bush administration has complained that Chávez's aid will help a post-Castro Cuba and its perennially weak economy maintain its communist system and avoid any transition to democracy and open markets.

''If Castro dies tomorrow, who is going to pay for all those barrels?'' asked Jorge Piñon, a former Amoco executive who studies energy issues for the University of Miami's Institute for Cuban and Cuban-American Studies.

'If tomorrow Juan López is president [of Cuba] and he wants to forget about this little guy . . . then Chávez can say, `I am stopping delivery of this, and by the way, you owe me X.' And the next day, the airplanes in Cuba would stop flying, the tourist taxis and buses would stop hitting the highway.''

92,000 BARRELS

Venezuela began helping Cuba almost six years ago, shipping 53,000 barrels a day of crude and refined products on easy financial terms. Since then, it has increased those shipments to at least 92,000 barrels a day.

Trade between the nations is expected to reach $3.5 billion this year, Adán Chávez, the president's brother and former ambassador to Cuba, told The Associated Press in April. He said oil alone amounted to $1.8 billion in trade in 2005.

But while Venezuela says that Cuba is paying part of the bill with the professionals, medicines, books and other items that Cuba sends, independent analysts say the numbers don't add up. Havana would have to be collecting about $80,000 per year per Cuban worker in Venezuela to cover the costs of its oil imports, the analysts say.

Instead, Cuban doctors in Venezuela receive about $3,000 per year, according to three Cuban doctors who defected from the program.

Energy consultant Pedro Mantellini, a former official at the Venezuelan state oil company known by its Spanish acronym, PDVSA, likens the deal to a $1,000 car wash.

''It's illogical,'' said Mantellini, who spent 14 years in the PDVSA strategy room but now faces rebellion charges in Venezuela for his role in a 2002 coup against Chávez. He has obtained asylum in South Florida. ``It's a rip-off.''

The White House's point man on plans for a post-Castro transition, Caleb McCarry, recently told The Miami Herald that U.S. estimates of total Venezuelan subsidies to Cuba per year ``are up to the $2 billion figure.''


Still, it's hard to know for sure how the oil-for-Cuban workers agreement balances out in financial terms. Venezuela has provided scant data on how Cuba is paying for the oil; Cuba does not speak at all on the matter.

According to a copy of one oil accord signed by the two nations and obtained by The Miami Herald, if the price of oil exceeds $40 a barrel, Cuba would get a two-year grace period on repayments and they would be extended over 25 years at 1 percent interest. Venezuelan oil is now selling at about $60 per barrel, at a time when world prices are above $70, because it tends to be heavier and more difficult to refine.

But experts say that Cuba has never paid any cash for the oil. A University of Miami report last year said Cuba's deferred oil payments from 2000 to 2004 totaled nearly $2 billion.

The Venezuelan El Nacional newspaper reported last year that the only recent independent audit of PDVSA, by a local affiliate of the global accounting firm KPMG, found that Cuba owed $584 million as of December 2003. KPMG refused to reveal any details of its audit.

Most estimates of the amount of Venezuelan oil going to Cuba coincide at 100,000 barrels a day. Piñón said that includes 67,000 barrels of refined products such as gasoline, jet fuel and diesel. Another 37,000 barrels, he said, is crude that is refined in Cuba. Cuba itself produces an estimated 70,000 to 75,000 barrels, and its consumption is estimated at 170,000 to 200,000 barrels per day.

But Cuba needs more than oil shipments, experts say. It needs a coherent energy strategy, another area in which Venezuela is trying to help the island.

Venezuela has purchased 49 percent of a Cuban refinery in central Cienfuegos and is spending an initial $83 million to revive it. The refinery will need hundreds of millions more in upgrades. Once completed, it will produce about 76,000 barrels a day of refined products and ease Cuba's dependency on Venezuelan imports.

Venezuela has also promised to help Cuba upgrade its electricity grid and halt its frequent and prolonged blackouts. Earlier this month, four million people were plunged into darkness by what the government said was a fault in the grid.


On the social front, the Industrial Bank of Venezuela has opened up a $50 million credit line for housing projects in Cuba, and former Ambassador Chávez told the AP that up to $1 billion would be changing hands for housing projects in both countries.

In addition, the Venezuelan government has footed the bill for the thousands of Venezuelans and other Latin Americans who regularly fly to Cuba for various medical treatments.

''It's a replay of what the Soviet Union was doing,'' said Américo Martín, a Venezuelan political analyst.

But just how much influence Chávez will be able to buy in Cuba with his subsidies remains a question mark.

Martín believes that Raúl Castro's inner circle will control the country's next moves, regardless of Chávez's money or possible suggestions. ''There are elements of power that don't want to submit to Chávez,'' he said.

But Hans de Salas-del Valle, a research associate at the University of Miami's Cuba Transition Project, predicts a stronger role for Chávez.

''Raúl will run the country . . . but Chávez holds enormous leverage,'' he said. ``Other than Raúl, there is no one more than Chávez who will influence the future of Cuba.''

Miami Herald special correspondent Phil Gunson contributed to this article from Caracas.