Cablegate: Petrocaribe Update #24: Grenada's Plan For

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UNCLAS SECTION 01 OF 02 BRIDGETOWN 001254

SIPDIS

SIPDIS

SOUTHCOM ALSO FOR POLAD

E.O. 12958: N/A
TAGS: ENRG EPET PGOV PREL GJ VE XL
SUBJECT: PETROCARIBE UPDATE #24: GRENADA'S PLAN FOR
VENEZUELAN OIL

REF: BRIDGETOWN 1127

BRIDGETOWN 00001254 001.2 OF 002

1. (SBU) Summary: The Government of Grenada (GOG) hopes to
use the PetroCaribe oil accord to import diesel supplied by
PDVSA, Venezuela's state-owned oil company, as a means to
gain leverage over Grenada's privately owned electric company
and convince it to lower rates charged to consumers. At
present, the GOG plans to receive only diesel and aircraft
fuel directly from PDVSA and does not foresee involvement in
a proposed regional storage facility that would serve the
Eastern Caribbean. Grenada's strategy for utilizing
Venezuelan oil made available through PetroCaribe's
concessionary financing scheme resembles that of other
Eastern Caribbean countries, as it does not appear to provide
a means to lower fuel prices without incurring additional
debt. End summary

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Government Wants to Influence Energy Sector
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2. (SBU) The Government of Grenada hopes to use diesel and
aircraft fuel supplied through the PetroCaribe oil accord to
gain influence in the energy sector of Grenada's economy.
The petroleum products will be imported by PetroCaribe
Grenada Ltd., a parastatal company established by the GOG
(reftel), which will sell aircraft fuel to the Government-run
airport authority and diesel to GRENLEC, Grenada's privately
owned electric company. This plan is intended to allow the
GOG to re-enter the energy sector, in which it has not been
involved since GRENLEC was privatized in 1994, according to
John Auguste, the GOG's senior civil servant for energy
issues.

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Lower Electricity Prices Should Follow
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3. (SBU) With the Government, in effect, supplying diesel to
GRENLEC, the hope is that the private company can be
convinced to lower electricity rates charged to consumers,
Auguste explained to Poloff. Exactly how this would be
accomplished without the GOG selling the diesel at a price
lower than GRENLEC currently pays to Texaco, and thus
incurring debt, remains unclear. Auguste spoke vaguely of
the GOG more cost effectively maintaining the facilities used
to offload from ships and store diesel as a means to offer
the fuel at a lower cost. The GOG, as the supplier of diesel
to the electric company, would also have combined political
and commercial leverage with which to convince GRENLEC to
lower prices. In either case, the GOG needs to open a
dialogue with GRENLEC, which has not yet begun according to
the company's American owner (reftel).

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Government Lost Control of Electricity Rates
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4. (SBU) Part of the rationale for attempting to gain some
control of the energy sector comes from the GOG's
disappointment over the manner in which it privatized GRENLEC
in 1994, according to Auguste, who has been working on energy
issues in Grenada for twenty years. The legislation that
authorized the sale of the company failed to give the GOG the
means to regulate rates charged by the electricity monopoly,
a common practice of municipal governments in the U.S.
Making matters worse is the fact that Minister of Energy
Gregory Bowen was the longtime manager of Government-owned
GRENLEC. Whereas Bowen used to have control over energy
rates in his former position, the Minister now &kicks
himself8 over his current lack of influence, said Auguste.

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No Benefit from Regional Storage Facility
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5. (SBU) Grenada does not currently intend to utilize a
proposed regional storage facility for Venezuelan oil. The
facility, which would use existing tanks in Antigua to store
oil for the Eastern Caribbean nations that are part of
PetroCaribe, does not offer any economic benefit to Grenada,
argued Auguste. As the Eastern Caribbean country closest to
Venezuela, Grenada believes it could more cheaply import oil
directly without having to go through Antigua at the extreme
northern end of the region. The GOG energy official, who
participated in several regional meetings regarding

BRIDGETOWN 00001254 002 OF 002

PetroCaribe, said that it was a number of such objections
from Grenada and other countries that have indefinitely
delayed the proposed start-up of the Antigua storage facility.

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Comment
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6. (SBU) Grenada's plan for utilizing PetroCaribe oil appears
to be as poorly thought through as those in other Eastern
Caribbean countries. The GOG hopes that by supplying diesel
to the nation's sole electric utility it can lower rates, but
does not yet have a clear idea how to do so without offering
the fuel at a low price and incurring debt. It could, of
course, pressure GRENLEC into lowering rates, but such
heavy-handed tactics would scare off future private
investment. The fact that Grenada sees no benefit from a
regional approach to importing and distributing Venezuelan
oil suggests, as Post has reported previously, that each of
the Eastern Caribbean countries is going it alone with regard
to PetroCaribe, thereby missing what little opportunity they
may have had to maximize its benefits to the Organization of
Eastern Caribbean States (OECS) countries as a group.
KRAMER

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