Jamaica Gleaner

PetroCarib­e debt buy-back a game-changer

- Gar­nett Roper Gar­nett Roper is pres­i­dent of the Ja­maica The­o­log­i­cal Sem­i­nary and chair­man of the Ja­maica Ur­ban Transit Com­pany. Email feed­back to col­umns@glean­erjm.com and glroper@hot­mail.com.

THE GOV­ERN­MENT of Ja­maica has come up with a deal that is a game-changer in so far as Ja­maica’s fis­cal ac­count and in­vest­ment pro­file are con­cerned. This is iron­i­cally as sig­nif­i­cant as PetroCarib­e it­self was when it was first de­vel­oped 10 years ago.

PetroCarib­e pro­vided Ja­maica with a cash-flow shel­ter by al­low­ing Ja­maica to pay US$40 per bar­rel for oil and any cost above US$40 per bar­rel to be treated as a long-term loan payable in 25 years at an in­ter­est rate of one per cent per an­num.

The de­ci­sion by the GOJ to buy back the PetroCarib­e debt in 2015, dis­counted from US$3.2b at a price of US$1.5b, is an act of sheer ge­nius and will re­dound to the ad­van­tage of Ja­maica for years to come.

I say that for the fol­low­ing rea­sons: 1. The tremen­dous pos­i­tive cash-flow im­pact of the 54 per cent re­duc­tion in prin­ci­pal amor­ti­sa­tion (a sav­ing of US$1.76 bil­lion) from the deal. Sav­ings of US$1.76b are an enor­mous fil­lip in any sit­u­a­tion. How­ever, it is es­pe­cially so in a sit­u­a­tion where the Gov­ern­ment has been crip­pled (in a man­ner of speak­ing) for the lack of fis­cal space to do any­thing that re­quires GOJ match­ing funds in cap­i­tal projects. 2. This will re­sult in a dra­matic re­duc­tion in Ja­maica’s debtto-GDP ra­tio re­sult­ing from this deal, which will im­prove our cred­it­wor­thi­ness, ease our path through the IMF pro­gramme, and make us a more at­trac­tive in­vest­ment des­ti­na­tion. Some an­a­lysts pro­ject that Ja­maica’s debtto-GDP ra­tio will de­crease from 137% at present to be­tween 127 and 129 per cent to GDP. This ac­cel­er­ates Ja­maica’s ca­pac­ity to meet its tar­get of 90 per cent by 2020 and 60 per cent by 2025. 3. Most im­por­tant, the US$3.2b debt pur­chased from Venezuela is now owed to the GOJ by the PetroCarib­e Fund and is backed by the as­sets of that fund. Those cash flows from that fund will now come to the GOJ in­stead of go­ing to Venezuela, which should but­tress the GOJ’s fis­cal ac­counts and cre­ate ad­di­tional fis­cal space for more cap­i­tal ex­pen­di­ture by the GOJ. In this re­gard, some of the PetroCarib­e Fund’s as­sets are loans to the GOJ it­self, which can now be set off/can­celled (mu­tual debtor/cred­i­tor). 4. This is the rub: The buy-back of the PetroCarib­e debt, dis­counted from US$3.2b to a coupon price of U$1.5b, is a trans­ac­tion that is both cash flow pos­i­tive for Ja­maica (cre­at­ing US$525 mil­lion in over­all cash sav­ings), and also pos­i­tive on a net present value (NPV) ba­sis (US$309 mil­lion). 5. This gives us an op­por­tu­nity to celebrate the fact that re­mark­able so­lu­tions to our eco­nomic and so­cial dif­fi­cul­ties can come from South-South co­op­er­a­tion. They do not need to al­ways have the im­pri­matur of the North At­lantic. PetroCarib­e was an amaz­ing bi­lat­eral pro­ject be­tween a Caribbean coun­try, Ja­maica (though not for us alone), and Venezuela, from Cen­tral Amer­ica. It rep­re­sented a sig­nif­i­cant trans­fer of aid and grants and very gen­er­ous credit ar­range­ments. Ja­maica should make sure to li­onise Hugo Chávez and his suc­ces­sor, Pres­i­dent Madura of Venezuela, for gen­eros­ity of his­toric pro­por­tions. When Pres­i­dent Madura vis­its in Septem­ber in cel­e­bra­tion of the 10th an­niver­sary of PetroCarib­e, we should make him know how grate­ful we are as a peo­ple to his peo­ple for their gen­eros­ity.

How­ever, trib­ute must also be paid to the Ja­maican po­lit­i­cal class, es­pe­cially to suc­ces­sive ad­min­is­tra­tions of the PNP. Trib­ute is de­served not merely for ne­go­ti­at­ing this re­mark­able dis­count, but also for man­ag­ing the PetroCarib­e ar­range­ment in a man­ner so that now that we have ac­quired it, it is an as­set of enor­mous pro­por­tions.

The sav­ings on the price of a bar­rel of oil were not wasted. The re­sult of that is NPV and cash-flow pos­i­tive for the fis­cal ac­counts. The ques­tion to which we ought to di­rect our minds is, now that there are sav­ings of US$500m and US$309m, what are we go­ing to do with J$60b to stim­u­late growth in the Ja­maican econ­omy?


Fi­nally, a word about the JLP in this mat­ter. No one ought to be sur­prised that the JLP has in­ter­preted this as an op­por­tu­nity to find po­lit­i­cal cause and in­vent po­lit­i­cal points against the trans­ac­tion.

It is not the first time that the JLP has mis­cal­cu­lated on the mat­ter of PetroCarib­e and South-South re­la­tions. Ten years ago, when the PetroCarib­e deal was to have been signed in Mon­tego Bay, the JLP mounted a protest. To­day, An­drew Hol­ness, JLP leader, is de­mand­ing that the PetroCarib­e sta­tus quo re­main be­cause, he said, it is not trou­bling any­one. Loose talk is a fa­cil­ity of­ten utilised in pol­i­tics, so the leader of the Op­po­si­tion may be for­given.

What ought not to be for­given is a cyn­i­cism that is waste­ful of the op­por­tu­ni­ties to change the game in our na­tion. It is clear to any­one who cares to no­tice that the Gov­ern­ment is not al­lowed to make much ado about this mat­ter be­cause writ­ing off US$1.76b can­not play well in Venezuela.

It is in Ja­maica’s in­ter­est that the deal ma­tures. Let us not seek to make this another Goat Is­lands (which we talked into the ground un­til the would-be in­vestors ap­pear to have lost con­fi­dence in Ja­maica as a place to ex­pand their in­vest­ment op­tions).

 ?? FILE ?? Then Venezue­lan Pres­i­dent Hugo Chávez, now de­ceased, poses with Prime Min­is­ter Por­tia Simp­son Miller af­ter sign­ing the PetroCarib­e Agree­ment in Mon­tego Bay, St James, in 2005. Venezuela signed ac­cords to in­crease oil and fuel sup­plies to Ja­maica and...
FILE Then Venezue­lan Pres­i­dent Hugo Chávez, now de­ceased, poses with Prime Min­is­ter Por­tia Simp­son Miller af­ter sign­ing the PetroCarib­e Agree­ment in Mon­tego Bay, St James, in 2005. Venezuela signed ac­cords to in­crease oil and fuel sup­plies to Ja­maica and...
 ??  ?? Pres­i­dent of Venezuela Ni­co­las Maduro.
Pres­i­dent of Venezuela Ni­co­las Maduro.

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