Caribbean & Central America - May 2017 (ISSN 1741-4458)

Russia is once again supplying Havana with sizeable quantities of oil, harking back to the days, last century, when the former Soviet Union supplied Cuba with all its fuel needs. The terms of the supply agreement are unclear – Russia itself is in little position to be giving away oil.

According to a 3 May statement by Russia’s state oil company Rosneft, it has signed an agreement with Cuba’s state-run Cubametals to supply 250,000 tonnes (t) of oil and diesel fuel. An oil tanker, the Maersk Erin, carrying 249,000 barrels of refined products was due in Matanzas on 10 May, with others to follow, the Russian company said. No further details have been forthcoming, but there has been much head-scratching over the particulars. While the government led by President Vladimir Putin might welcome the political opportunity to cause ripples across the Florida Straits, Russia itself is hardly in a position to make charitable donations to its former prize Caribbean client. Jorge R Piñon, director of the Latin America and Caribbean Energy Program at The University of Texas at Austin, has estimated the value of the deal at about US$105m, for about 1.87m barrels of oil. In the period 2010-2015, Russia reported just US$11.3m in oil product sales to Cuba.

Putin is allied with both the communist regime led by President Raúl Castro and Venezuela’s radical left-wing socialist government led by President Nicolás Maduro. Venezuela’s state oil company Pdvsa and Russia’s Rosneft are, in turn, strategic operating partners. In late 2016, Rosneft took a 49.9% stake in Pdvsa’s US subsidiary Citgo, as the cash-strapped Pdvsa desperately sought to raise financing. There is some speculation, therefore, that this latest deal is some sort of ‘triangular’ arrangement between Caracas, Havana, and Moscow.

Cuba’s fuel need is about 140,000 barrels per day (b/d) of oil/oil products, plus 22,000 b/d of diesel. It produces about 50,000 b/d itself. In October 2000, Havana and Caracas (then led by the two late leaders Fidel Castro [1959-2008] and Hugo Chávez [1999-2013]), inked a strategic cooperation agreement, updated in 2004, whereby Venezuela effectively replaced Russia as Cuba’s main fuel supplier. At its peak, Venezuela was providing Cuba with about 100,000 b/d. Payment was largely to be in the form of Cuban technical support and expertise for Chávez’s new social welfare programs (‘missions’), including medical staff (and, rumour had it, Cuban military expertise). All was well for over a decade, but neither Venezuela, nor Cuba it would seem, ever considered the risk of an oil shock. Given Cuba’s harsh ‘special period’ in the 1990s (after the sudden loss of the Soviet subvention), locking in a critical dependency on one supplier all over again seemed particularly ill advised.

While President Maduro, who some critics believe is closely directed by Havana, has been very insistent that Venezuela will maintain its commitment to Cuba no matter what, oil industry experts calculate that Pdvsa’s shipments have fallen by as much as 40% since oil prices plummeted in 2014, to about 87,000b/d in 2016 and 55,000 b/d now. President Castro himself admitted to Venezuela-related difficulties in July 2016, announcing budget cuts and an energy savings drive (including electricity rationing in the state sector).

Cuba’s main Cienfuegos refinery – upgraded and remodelled by Pdvsa to process Venezuela’s heavy crude oil – has also been idling since mid-2016, another signal that it has not been receiving the same quantities of oil as before. This latterly appears to have changed somewhat, after gasoline shortages in both Havana and Caracas appear to have prompted Pdvsa to resume deliveries of some fuel.

According to oil analysts cited by Reuters, since last year Pdsva has been minimising shipment of its lighter grade crudes to Cuba (and its other Caribbean oil clients), apparently hanging onto it for its own use. Venezuelan’s heavy, tarry crude has to be mixed with lighter oil for export. The fact that Pdsva appears to have been hoarding its light crude supply (in recent years imported from places like Angola), suggests two things. First, that it is running short of light oil imports and, secondly, that it is using what it does have to keep up its (declining) oil exports to its regular, cash-paying customers (the most important, ironically, being the US). And even though Pdvsa reportedly increased shipments of refined products/reconstituted oil to Cuba instead, in an effort to partially compensate, the gasoline shortages (in both countries) suggest that Pdvsa is simply failing to produce and/or deliver enough fuel either in Havana or even at home in Caracas. In March, the Cuban authorities limited the sale of premium-grade gasoline exclusively to the tourist sector. Days earlier, there were gasoline shortages in Caracas, creating fury in a country where fuel is like water to consumers (and retails for less than bottled water).

Citing oil traders and shipping experts, Reuters suggested that Pdvsa resumed exports of light crude to Cuba in late March, after an eight-month pause. Traders estimate that it dispatched 1.39m barrels of light Mesa 30 crude, as well as a 596,000-barrels of reconstituted crude, possibly indicative of plans to restart the Cienfuegos refinery. Cuba used to sell – on the open market – some of the oil processed at Cienfuegos, giving it a useful source of foreign exchange. Since 2014, however, Cuba’s earnings from this side-line in oil exports have fallen by 97%, on United Nations (UN) estimates, from US$500m to just US$15.4m last year.

Piñon points out that Havana has also been getting oil from Angola and Algeria, clearly seeking to diversify its sources. How Cuba is paying for these supplies is unclear. Typically, its trading partners expect it to pay in cash. Piñon estimates that Cuba would need about US$2bn a year to source its oil needs on the open market. Yet along with oil sales, Cuba’s main exports have also tumbled, meaning reduced levels of foreign earnings to pay for imports (albeit its tourist earnings are proving a lifesaver). Professor Carmelo Mesa Lagos, a veteran Cuba expert, estimates that total export earnings fell by 47% in 2015. The economy fell into recession last year for the first time since the Special Period and, with the exception of tourism, remains subdued this year.

Russian gold to restore the Capitolio

A Russian state company is holding a tender for the restoration of the famous gold cupula in the Capitolio building, originally built to house Cuba’s parliament, according to Russian news site Sputnik. The Capitolio, one of Havana’s best known landmarks, has been undergoing restoration since 2013, when President Raúl Castro announced plans for the building to once again host the legislature (national assembly). After the 1959 Cuban Revolution, Fidel Castro disbanded and abolished parliament. In the subsequent decades, the Capitolio fell into disrepair. For a time, it housed the ministry of science, technology and the environment, and it was also a public museum and library. Raúl Castro’s plan to restore the building to its original function came as something of a surprise, given its pre-Revolutionary symbolism. The cost of the works has been estimated at about US$60m.

Goszagransobstvennost, identified as a state company under management of the Russian presidency, will oversee the Cupola tender, Sputnik reports. The winner will be announced in early June, with a work plan due by August. Russia will assume the total cost of the restoration, for which budget funds to the tune of US$354,000 have been set aside, under an intergovernmental agreement.   

The Capitolio was completed in 1929 by a US construction firm and with US bank funding. Its architects, Raúl Otero and Eugenio Rayneri, took inspiration from the US congress and St Peter’s Basilica in Rome. Sixty types of marble were used. The top of the Capitolio’s dome (92m) is slightly higher than the US congress building. The cupola, imported from the US, was the third highest in the world at the time of its completion.

• Cuba’s offshore oil

Cuba is still trying to promote its offshore oil sector, with no success. The US Geological Survey in 2004 estimated that Cuba should have undiscovered and technically recoverable reserves of 4.6bn of crude oil, 9.8trn cubic feet of natural gas, and 90m of natural gas liquids. Yet no-one has managed to find viable deposits. Russia’s Zarubezhneft and Spain’s Repsol are among the many firms that have drilled in Cuba’s portion of the Gulf of Mexico but, so far, no commercially viable finds have been made. Cuba’s state oil company CUPET is currently looking for bidders and technology partners for the North Belt, a 200km-long offshore area east of Havana, divided into 45 blocks. Onshore production is improving. Australia’s Melbana Energy in February revised up its estimates for onshore reserves in its Block 9 to 612m barrels, almost double earlier estimates.

• UN rights visit

Grazia Giammarinaro, the UN special rapporteur on trafficking in persons, was in Cuba on 10-14 April, marking the first visit by a UN human rights investigator in a decade. Giammarinaro said she hoped her visit would be “a stepping point for a more intense and fruitful dialogue with the whole human rights system”. Cuban dissidents were cautious. “It is notable they are not inviting special rapporteurs who look into torture, penitentiary systems, freedom of expression, the functioning of electoral systems, etc.”, stated Elizardo Sánchez, head of the illegal but tolerated Cuban Commission for Human Rights and National Reconciliation.