COMMODITIES: Oil, the Achilles’ Heel of Cuba’s Economy

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Nov 18 1998 (IPS) - Oil is still the Achilles’ heel of the Cuban economy, which must channel fully half of its convertible hard currency into petroleum imports in order to meet an annual internal demand of 10 million tonnes.

Although domestic production shot up from 526,800 tonnes of crude oil in 1991 – 191,600 down from the 1989 level – to a record 1.64 million tonnes projected for this year, the oil pumped in the Caribbean nation falls far short of satisfying internal needs.

Cuba channels some 1.2 billion dollars – approximately half of its convertible currency – into fuel purchases. Government reports point out that the oil purchased for the generation of electricity alone costs around one million dollars a day.

Cuba’s main oil supplier is Russia, a holdover from the days of the defunct Soviet Union. According to the trade agreement ratified at the start of the year, Russia supplies three tonnes of fuel for every tonne of sugar. But that country does not meet Cuba’s entire demand.

Meanwhile, work continues on the Juragua nuclear electricity plant in the southern province of Cienfuegos. The project, initially launched with aid from the former Soviet Union, is facing major financial hurdles due to the economic crisis that has had Cuba in its grip since the disappearance of the east European socialist bloc.

One of the key aspects of the government’s energy strategy are efforts to increase prospecting and drilling for crude oil in joint ventures with foreign capital. Around 10 foreign companies are currently prospecting in an area of 10,000 kms, with seven offshore oil rigs and 11 on land.

The joint ventures involve risk capital, with the overseas firms assuming the total costs of drilling. If oil is found, the wells are operated jointly, and Cuba pays the companies with the product itself.

Local industry experts say the cooperation is designed to increase Cuba’s database of geological information, and to introduce new prospecting methods and technologies for pumping petroleum, mainly in old oil wells and offshore areas.

A report by the Centre of Studies for the Cuban Economy estimates the total territory in which hydrocarbons can be found in Cuba at around 140,000 square kms, including an offshore area of 70,000 square kms.

The public oil company, Cubapetroleo, and the Ministry of Basic Industry have been authorised by the government to carry out a new distribution of the so-called “oil blocs” to attract new investment, according to the local press.

Of some 30 tracts of land with prospects, 22 are under contract to companies from Canada, Great Britain, France, Sweden and Spain, while the rest are open to negotiations.

The weekly ‘Granma Internacional’, the international version of the Communist Party’s official publication, called the outlook for operations with foreign capital “very encouraging, especially for drilling in the south of the country, because companies from various countries have invested more than 300 million dollars so far in that sector, a figure they will double over the next few years.”

Cuban experts say the companies putting up risk capital in the island’s oil sector enjoy the guarantees of the existence of hydrocarbons and the security and protection provided by local legislation on foreign investment.

The 1995 law on foreign investment stipulates that profits and capital can be freely transferred abroad, and limits expropriation to reasons of national interest.

Moreover, Cuban authorities point out that the tracts of land opened to foreign capital fall outside of the reach of the U.S. Helms-Burton law, which provides for sanctions only for companies investing in property in Cuba that was U.S.-owned up to the 1959 revolution. According to Cuban laws in effect prior to Jan. 1, 1959, foreign companies awarded concessions for oil prospecting did not hold property rights over the areas in which they were operating.

As a demonstration of the confidence and trust of the companies operating in Cuba, the local press cited Canada’s Sherrit International, which is financing the construction of installations for tapping natural gas in the Varadero gasfields, the largest discovered in Cuba.

The joint venture involving Sherrit International, Cubapetroleo and Cuba’s Union Electrica is to produce 215 megawatts of electricity, as well as gasoline, diesel fuel, liquified natural gas and sulphur.