Oil Deal Gets Mixed Reviews
By Candia Dames
4th July 2005
Players in the local oil-providing sector have mixed reviews on the recent signing of the PetroCaribe initiative, which promises to cushion Caribbean nations – including The Bahamas – from skyrocketing fuel costs.
But there is consensus on the fact that more consultation is needed between the government, the three major oil companies, and retailers.
Oil companies are seeking clarification on the whole deal, said Troy Simms, country/sales manager at Esso.
"We feel we should be an advisor to the government on this considering the experience we have locally and of course across the globe," Mr. Simms said.
"This is a pretty important change that’s being put on the table. We really want to make sure that it’s being discussed with a lot of rigor to make sure that the government is fully aware of the risks."
Texaco’s manger, Raymond Samuels was out of town, but another executive at the oil company said that Texaco is also eager for dialogue on the initiative.
The executive said up to now, Trade and Industry Minister Leslie Miller has "not been open with us" about the plan.
Under the plan, signed by regional energy ministers and other leaders in Venezuela last Wednesday night, Petroleos de Venezuela, the state oil company, will pick up 40 percent of the cost if oil is selling at more than $50 a barrel.
Venezuela has also promised that additional concessions would become available should prices reach $100.
Petroleos de Venezuela has also announced that it would also pay for oil shipment costs, and help to construct storage facilities throughout the region.
It’s a plan Minister Miller said last week would result in "tremendous savings" on electricity and cooking gas bills and at the gas pumps.
It would be welcome news, said Gardner Dawkins, president of The Bahamas Petroleum Retail Association.
"I think it will be good news for both the retailer and consumers," he told The Bahama Journal. "We’re hoping that we’ll be buying fuel at a lower price. Therefore, passing the savings on to the consumers."
Minister Miller has said those savings would be significant – up to $20 million in savings for BEC annually, and at least $1 in savings on a gallon of gasoline, which is now approaching $4.
Mr. Simms, the Esso manager- said that the company is not sure of the likely impact PetroCaribe would have because it has not yet received details of the agreement.
Petroleos de Venezuela has agreed to ship fuel directly to Caribbean nations like The Bahamas, which have signed the agreement.
Asked whether this would be something Esso would welcome, Mr. Simms said, "There’ve been some concepts discussed and we continue to wait for some details. One thing that the proposal seems to implicate is that there would be a single source of supply and this appears to be with the Venezuelans."
He said there are risks in having a single source of supply and Esso’s primary concern would be about reliability of supplies.
"If we can’t get the product when we need it, it’s going to have a detrimental impact on the business," Mr. Simms said.
He added that his impressions of how the whole arrangement would work is that the government would become the middleman.
"We need to fully understand how this would be implemented because this is a very complex and sophisticated supply system that’s now in place, that has been successful for so long. We have a lot of experience…the industry can handle unexpected changes and delays," said Mr. Simms, while stressing that the supply of oil to a small country like The Bahamas is a complex and costly undertaking.
"The folks in our industry have learnt over many, many years how to do this efficiently and be reliable. We need to be able to deliver petroleum products in a very safe and reliable manner."
Mr. Simms said that it’s much too soon to even speculate on how the PetroCaribe is likely to impact profits of local oil companies.
In his interview with The Bahama Journal last week, Minister Miller also said that the government expects to take another look at the operating margins in the industry.
Mr. Dawkins said this is something that retailers will fight.
"Our margins are what we survive on," he said. "The price of the gasoline will not change what our margins are."
He added that PetroCaribe would have more of an impact on the wholesalers because they are the ones who will be buying from PetroCaribe or the national energy corporation.
"So therefore we as the retailers will still be at the mercy of the wholesalers who we will be buying products from," Mr. Dawkins added.
He disagreed that PetroCaribe will be risky business.
"The oil companies, of course, are not going to be too happy with it," Mr. Dawkins said.