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08KINGSTON95 30 January 2008 Secreto Embassy Kingston

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DE RUEHKG #0095/01 0301750
P 301750Z JAN 08








E.O. 12958: DECL: 01/30/2028


Classified By: DCM James T. Heg for reasons 1.4 b and d

1. (S) The text below is taken directly from an internal
briefing document drafted by the Jamaican Ministry of Foreign
Affairs and Foreign Trade (MFAFT)’s Bilateral Relations
Department. The document was dated October 1 2007 and
prepared for the then-newly elected Prime Minister Bruce
Golding. PM Golding provided Ambassador Johnson a copy of
the document during a recent private meeting (see reftel).


Historical Review of Jamaica/Venezuela Relations


1. (C) Jamaica and Venezuela traditionally have enjoyed
friendly and mutually beneficial relations, since the
establishment of diplomatic ties on 25 March 1965. Jamaica’s
historical relations with Venezuela, however, date back to
the early 19th Century when Simon Bolivar, the architect of
the independence of Venezuela and several Latin American
countries, took refuge in Jamaica in 1815. It was then that
he penned his now famous Jamaica Letter, in which he wrote of
his grand vision for the integration of the Americas; "More
than anyone, I desire to see America fashioned into the
greatest nation in the world, greatest not so much by virtue
of her area and wealth as by her freedom and glory. Although
I seek perfection for the government of my country, I cannot
persuade myself that the New World can, at the moment, be
organized as a great republic". This historic link is well
known and appreciated in Venezuela, and represents a
fraternal bond between the two countries.

2. (C) Despite successive changes in political
administrations of both countries, the close governmental
relationship has remained uninterrupted. This has facilitated
the smooth development of bilateral relations, which are
characterized by frequent exchanges of high-level visits and
a steady expansion of economic and technical cooperation.
Jamaica and Venezuela have also collaborated closely at the
regional, hemispheric and international levels.

3. (C) Economic cooperation between the two countries has
been and remains a strong feature of the relationship. The
major component currently is in the area of energy, even
though agreements have also been signed in several other
areas. Jamaica’s reliance on financial assistance from
Venezuela has remained constant, and successive
administrations have sought and received significant support.

4. (C) The 1980s was a period of intense economic cooperation
between the two countries, with the government of Luis
Herrera Campins providing some USD 350 million in financial
and technical assistance to the Edward Seaga administration.
This amount was roughly equivalent to the combined sums
offered to Caribbean and Central American countries by US
President Ronald Reagan, in his significant speech before the
Organization of American States (OAS).

5. (C) At the beginning of the 1990s, the Michael Manley
administration, as it had done in the 1970s, sought the
assistance of the Carlos Andres Perez administration in
Venezuela to assist Jamaica to deal with increases in global
oil prices. This was done through the San Jose Accord, which
provided a special facility for oil importing countries of
the region. Venezuela also continued to provide Balance of
Payment support to Jamaica.

Current Relations

6. (C) Jamaica and Venezuela continue to enjoy excellent
relations at various levels. Jamaica,s current relations
continue to be driven largely by its economic interest,

evidenced by an increasing reliance on Venezuela as a source
of energy supplies, as well as financial and technical

7. (C) Since his election in 1999, President Hugo Chavez
Frias has shown a determination to strengthen relations with
the Caribbean, and Jamaica in particular, as part of his
grand vision of hemispheric integration. A watershed in
Jamaica/Venezuela relations was therefore celebrated in
Montego Bay on 23rd August 2005, with the Official Visit of
President Chavez for the signing of the historic PetroCaribe
Energy Cooperation Agreement.

8. (C) The Venezuelan opposition has voiced concerns about
President’s Chavez’s keen interest in Jamaica, sometimes
observing that the President is willing to spend money in
improving infrastructure in other countries (Jamaica) which
could have instead been spent on programs within Venezuela.
The Venezuelan media have expressed similar concerns.

9. (C) In fact, Forbes magazine reported on 26th August, 2007
that the Chavez government is currently offering more direct
state funding to Latin American and Caribbean (LAC) countries
than the US. It stated that Venezuela had provided a total
USD 8.8 billion to LAC in aid, financing and energy funding
up to mid-2007, compared to US grants and loans to the region
of USD 3 billion in 2005.

Current State of the Venezuelan Economy

10. (C) The Venezuelan economy grew by 8.9 percent during the
second quarter of 2007, the fifteenth consecutive quarter of
significant growth.

11. (C) According to the Finance Minister, Rodrigo Cabezas,
overall growth this year will be at least 8 percent compared
with an average for Latin America of 3.5 percent. This level
of growth, the Minister argues, is being translated into
greater social well-being for the population through a
variety of social policies which by year end should be
reduced to 7 percent. Venezuelan expectations about the
economy and polling company Datanalysis, which says that over
80 percent of Venezuelans are cheery about the country,
although there is still a lot of caution among businessmen
and among potential foreign investors.

12. (C) In relation to inflation and liquidity (the country
is awash with petrodollars) Cabezas has said that there is
pressure on prices but that the 12 percent target for FY 2007
was still within reach through the application of a policy of
fiscal responsibility, but that this did not suggest the
adoption of neo-liberal policies as is being recommended by
the IMF.

13. (C) Regarding the Balance of Payments (BOP), according to
the Venezuelan Central Bank (BCV), income derived from oil
exports declined during the second quarter 2007 at the same
time that expenditure on imports climbed steeply. Petroleum
exports declined 9.2 percent in Q2 2007 to USD 15.092
billion, while imports rose 38.7 percent from USD 7.85
billion to USD 10.89 billion. This shows that compared to Q2
2006 when 43 cents of every petrodollar earned was spent on
imports, Venezuelans in Q2 2007 spent 72 cents. The Central
Bank’s view is that the increase in imports is associated
with the growth the economy is experiencing and that much of
the imports are accounted for by capital goods. Another view
is that the overvaluation of the Bolivar (the parallel rate
is twice the official rate), is driving the surge in imports.
Nonetheless, there is a surplus on the BOP and the NIR
picture is still rosy.

There are several implications to the above economic
scenario, including the following, which may have some
relevance for Jamaica:

A. A growing economy suggests the sustainability of
Venezue1an technical assistance;

B. With oil production and export volumes falling, meeting
quotas may become more difficult while dependence on high
prices may become greater; and

C. Financing the Jamaican Embassy in an inflationary, fixed
exchange rate regime presents some challenges.

Main Areas of Cooperation

PetroCaribe Energy Cooperation Agreement

14. (C) The Agreement came into effect on 29th June 2005 and
replaces the Caracas Energy Agreement. The San Jose Accord,
to which Mexico is also a party, is still in effect. Under
the Agreement, Venezuela undertakes to supply Jamaica with
23,500 barrels per day of crude oil, refined products and
Liquefied Petroleum Gas (LPG) or its energy equivalents. This
occurs via a price formula that is based on the current
purchase prices (FOB-VZLA) of a barrel of oil.

15. (C) The financing scheme for Jamaica’s supply quota of
23,500 bpd includes a grace period of up to 2 years for
capital repayments, as well as an annual interest rate of 2
percent on applicable volumes, where prices are less than USD
40 per barrel. When the price of a barrel of oil exceeds USD
40 the interest rate is reduced to 1 percent and the
repayment period extended from fifteen to twenty three years,
plus the two-year grace period for a total of twenty five
years. The portion of the supply quota that can be financed
under the deferred payment scheme is related to the per
barrel price of oil and detailed on a scale that ranges from
5 percent to 50 percent. Should the price of oil reach USD
100 per barrel then as much as 50 percent of the total value
of Jamaica’s oil purchases can be deferred, for a period of
twenty five years at 1 percent interest.

16. (C) Although the Agreement requires the GOJ to pay the
full market price for crude oil and petroleum products it
also provides for a portion of the deferred payment
obligation to be paid for with goods and services.
Furthermore, the deferred financing loan provisions of the
Agreement eliminate the GOJ’s immediate need for foreign
exchange for repayment, thereby easing the pressure for
currency devaluation which would trigger inflation. In
addition, the loan comes without the conditions usually
attached by international lending agencies.

17. (C) The portion of the crude oil and petroleum product
imports that can benefit from the deferred payment scheme is
convertible into a concessionary loan at interest rates of
between 1 and 2 percent. In keeping with the philosophy of
the Venezuelan Government, resources in the Fund are
available to support social and economic development
programs, in order to improve the quality of life of the
poor. The Ministry of Finance is responsible for managing the
Fund and Cabinet approves the various programs and projects
that are undertaken.

18. (C) Within the price of oil on the world market currency
hovering in the USD 70 to USD 80 per barrel range, the
PetroCaribe Agreement has enabled Petrojam to forego having
to purchase approximately USD 4.6 million per week in foreign
exchange, in order to source crude on the spot market. In
this connection, the value of the Agreement to the stability
of the Jamaican dollar, which is oftentimes overlooked, is of
immense macro-economic significance to the country.

19. (C) An issue that has arisen and which is currently being
negotiated relates to the amount of crude oil that was
imported by Petrojam in 2006, which was in excess of
Jamaica’s quota under the Agreement. The amount imported last
year was 24,600 bpd, which is 1,100 above quota. Petrojam and

PCJ contend that Jamaica should be entitled to carry-over
this excess quantity, as a charge against the current year’s
quota. The Venezuelan authorities (PDVSA) however, argue that
no agreement was reached between the two countries to permit
this type of flexibility to be applied in the operation of
the quota. It is to be noted that although operational, the
renewal of the Agreement for the current period, i.e. 29 June
2007 to 28 June 2008 remains outstanding. (COMMENT: Minister
of Energy, Mining and Telecommunications, Clive Mullings told
the Ambassador and Econoff on January 23that the agreement
was renewed after the December 2007 PETROCARIBE conference in

Petrojam Upgrading and Expansion

20. (C) The governments of Jamaica and Venezuela through the
Petroleum Corporation of Jamaica (PCJ) and Petroleos de
Venezuela S.A. (PDVSA) have entered into a Joint Venture
Agreement to partner on an expansion and upgrading project
for the Petrojam refinery. The project is slated to be done
in two phases; Phase 1 is currently underway, and is expected
to be completed by the end of 2009, at an estimated cost of
approximately USD 250 million.

21. (C) Shares in the joint venture are allotted on a 51/49
percent basis, with Petrojam holding majority shareholding.
The end result of the upgrade will be to expand the capacity
of the refinery from 36,000 to 50,000 bpd and through the
introduction of new processing technology, to increase the
proportion of higher quality fuel produced from crude

22. (C) The capital requirements of the project will be met
by both parties as equity partners, through a combination of
debt and equity financing. There will be joint ownership of
existing Petrojam assets by the Joint Venture partners in the
first instance. Subsequently, the expanded refinery will be
owned and operated under a common ownership structure.

23. (C) It should be noted that to date, PDVSA has not
provided payment for its 49 percent equity shareholding,
which is valued at USD 63.7 million. The resolution
authorizing payment is awaiting the signature of the PDVSA
Board of Directors. The latest official word (as of 1st
October, 2007) is that the signature of the Minister of
Energy and Petroleum, Rafael Ramirez, is the only one that
remains to be affixed.

24. (S) (COMMENT: Jamaica has yet to be paid by Venezuela for
the 49 percent stake, which has been an issue of concern for
the cash strapped GOJ. In December 2007, Golding told
Ambassador Johnson he hoped to receive a USD 70 million
payment from Chavez, see reftel. However, Minister of
Energy, Mining and Telecommunications, Clive Mullings told
the Ambassador and Econoff on January 23 that the money still
had not been paid. Mullings said the GOJ hoped the funds
might come by the end of the month, but he did not appear
confident of this. The GOJ is in serious need of these
funds, the 2007-08 GOJ budget is already expected to miss its
targets. Government expenditures will surpass revenue
collection by about six percent, which is above the 4.5
percent target. At the same time the inflation rate for 2007
was 16.8 percent which is well above the GOJ target of 6 to 7
percent. Failure by the GOJ to collect these funds would
further exacerbate the budget deficits. END COMMENT).

Highway 2000 Refinancing

25. (C) Venezuela’s development bank BANDES undertook to
refinance USD 260 million worth of loans secured since 2005
to undertake the Highway 2000 project. A Heads of Agreement
for funding the project was signed by both parties in
Venezuela in January 2006.

The main features of the agreement are as under:
Borrower - Development Bank of Jamaica (DBJ)

Lender - Venezuelan Bank for Economic and Social Development
Loan Amount - USD 260 million equivalent
Current - EUROS
Interest Rate - Fixed 7.5 percent (indicative swap rate in
Euros, using as a reference the International Bond Rate of
9.25 percent)
Maturity - 2005

The loan represented savings on interest costs charged to the
project of approximately JAD 1.8 million per working day.

The transactions for the final tranche of the loan payment by
BANDES were finalized on August 15, 2007.

Liquefied Natural Gas

26. (C) Negotiations have been on-going between PCJ and PDVSA
Gas regarding the sourcing by Jamaica of LNG from Venezuela.
Discussions had also centered on the possibility of securing
LPG or Compressed Natural Gas (CNG) supplies. However, PDVSA
Gas has recently taken LPG and CNG off the table. Having
analyzed the situation, they claim they would not have enough
extra LPG to supply to Jamaica as an interim to LNG. In terms
of CNG they have expressed concerns about both its
availability and the technology that is required. As such,
the discussions now solely revolve around the possible supply
of LNG.

27. (C) Despite the mention of larger volumes earlier in the
discussions, PDVSA Gas’ current position is that it can only
commit to 1.2 million tones of LNG per annum at this time,
although the possibility of negotiating a greater amount in
the future will remain open. The 1.2 million tones would
represent 25 percent of PDVSA Gas’ total LNG production.

28. (C) One point of contention is that PDVSA Gas wished to
make the supply commitment an annual one, i.e. renewable each
year. This is the type of structure it uses in the oil
industry and applies to the PetroCaribe Agreement, for
example. The Jamaican negotiating team pointed out that this
structure would not work in the LNG industry and that Jamaica
was looking for a 20-year supply commitment. PDVSA Gas does
not yet have any proposals regarding pricing, but it has been
agreed that there should be some language in a MOU that
signals the intention to supply gas to Jamaica on a favorable
pricing basis.

29. (C) Despite not having sufficient supplies of LPG to
substitute for LNG, PDVSA Gas has demonstrated great interest
in going after the existing LPG market in Jamaica and are
keen to have discussions in this regard.

30. (C) PDVSA Gas’ current development schedule is for its
LNG facility to be commissioned in the last quarter of 2012,
so effectively Jamaica could not expect supply before 2013.
The company has completed pre-FEED studies, but the FEED for
its LNG facility is not expected to be finished before
end-2008. It is likely, therefore, that Jamaica would have to
wait a fairly long time to secure supplies of LNG from

Simon Bolivar Cultural Centre

31. (C) The project is designed to commemorate Simon
Bolivar’s sojourn in Jamaica, as well as to celebrate the
strength of relations between Jamaica and Venezuela. The
Centre will comprise an exhibition hall and theatre, to be
housed in a renovated two-storey Georgian building (the old
Jamaica Agricultural Society building at the corner of North
Parade and Church Street). The development plan for the Simon
Bolivar Exhibition Hall represents the construction of a new
280-300 Repertoire Theatre, and the restoration to their
former glory of two structures of historic architectural
significance from the Georgian period.

32. (C) The UDC has completed the acquisition of the property
from the Jamaica Agricultural Society that will serve as the
location for the Centre. The GOJ has received grant funding
from the Government of Venezuela in the amount of USD 2
million to undertake the project. An amount of USD 640,000.00
is being provided by the GOJ as counterpart funding.

33. (C) Although the architectural designs have been
completed, the UDC is awaiting the go-ahead from the
Venezuelan government, which has yet to authorize the payment
to be made to the Venezuelan architects. The completion of
the designs were severely delayed, as a result of
modifications that had to be undertaken in order to bring
them into compliance with the requirements of the Jamaican
planning authorities. Design approval is still being awaited
from the KSAC.

Jamaica,s Request for Emergency Fertilizer Supplies

34. (C) Prime Minister Simpson Miller met at Vale Royal on
2nd August, 2007 with a Special Envoy dispatched by President
Chavez, Vice Minister of Foreign Affairs Rodolfo Sanzo. The
purpose of Vice Minister Sanz’s visit was to encourage Prime
Minister Simpson Miller to personally attend the 3rd
PetroCaribe Summit, which took place in Caracas on 9th-10th
August, 2007. Prime Minister Simpson Miller had previously
indicated that she was unable to attend the Summit, due to
the imminence of the General Elections. In the event, the
Special Envoy was unable to persuade the Prime Minister to
change her decision in this regard.

35. (C) Prime Minister Simpson Miller used the opportunity of
her meeting with Vice Minister Sanz to make an urgent request
for the Government of Venezuela’s assistance in the provision
of fertilizer, which she indicated Jamaica was willing to pay
for on a normal commercial basis. She explained that the cost
of fertilizer was exorbitant and that Jamaican farmers had
complained loudly that they could not afford it. Vice
Minister Sanz promised to communicate the request to
President Chavez and provide a response as soon as possible.

36. (C) Since the meeting, contact has been made with the
Venezuelan company PEQUIVEN, which has advised that it has
instructions "to supply Jamaica with fertilizer in the most
economical and efficient way possible." It has proposed two
options: a) physically mix the three basic components in
Venezuela and ship the product to Jamaica; or b) ship the
components to Jamaica and have the blending done there.
PEQUIVEN advises that the second option is preferred, as a
blended product is altered on being transported (some
possible separation) and in addition, a recently blended
fresh product is more efficacious. Option two is also likely
to bring other benefits to the importer, in terms of price
and transport costs.

37. (C) The Ministry of Agriculture had advised that as the
GOJ did not have any blending facilities available, its
preference was to import blended and bagged fertilizer. This
had been communicated by the Mission in Caracas to PEQUIVEN.

PEQUIVEN has recently been in touch with Fersan, a firm from
the Dominican Republic based in Jamaica, which advised that
it could do the blending. PEQUIVEN is willing to work with
Fersan to supply it with the components, subject to GOJ

Proposed Construction of Children,s Hospital in Western

38. (C) In mid-July 2006, the Ministry of Health submitted a
Concept Paper to the Foreign Ministry on the establishment of
a Children’s Hospital in Western Jamaica. This followed a
request that was made by Prime Minister Simpson Miller to
President Chavez, during his visit on 12th March, 2007 when
an MOU on the Development and Expansion of Gas in Jamaica was

39. (C) Jamaica’s Mission in Caracas informed on 15th August,
2007 that the Concept Paper had been provided to the
Venezuelan health authorities. The Mission noted, however,
that what would now be needed is a decision to be taken at
the highest political level. It also noted that the initial
Concept Paper was short on technical details, which would be
required in order to move the project forward, once the
political decision had been taken by President Chavez.

Politically Sensitive Issues

40. (C) Jamaica has become increasingly reliant on Venezuela
as a source of energy supplies and of financial and technical
assistance. It may, therefore, be asked to pay an
ideological price for the support it has received, viz. to
subscribe to President Chavez,s dream of creating a
strategic anti-imperialist alliance of Latin American and
Caribbean countries.

41. (C) Jamaica needs to be fully cognizant of the economic
threat that a fall in oil prices could pose to Venezuela’s
ability to continue to fund its development programs and
projects. Political changes in Venezuela could also adversely
affect Jamaica’s active bilateral cooperation program with

42. (C) There is the possibility that Jamaica’s relations
with the US, and to an extent the UK and Canada, may be
negatively affected as a result of the perception that it is
forging closer political, ideological, economic, and trade
ties with Venezuela. This comes against the background of
strained US/Venezuela relations. The US views Chavez as a
"negative force in the region", and has been mobilizing
political support for a "united front" of Latin American and
Caribbean nations. This has caused increased scrutiny to be
placed on Jamaica’s relations with Venezuela and
consequential pressure to reduce the level of bilateral

43. (C) The US mounted vigorous efforts to lobby against
Venezuela’s bid last year to secure a nonpermanent seat on
the UN Security Council, which saw the US Ambassador in
Kingston meeting with the Jamaican Prime Minister to urge
support for Guatemala’s bid.

Bolivarian Alternative for the Americas ALBA


44. (C) The Bolivarian Alternative for the Americas (ALBA)
trade block was created a little over two years ago by
Venezuela and Cuba as an alternative to the Free Trade Area
of the Americas (FTAA) promoted by the US. The governments of
Bolivia and Nicaragua later joined the ALBA project, and
Ecuador has evaluated the possibility of joining as well. It
represents the first attempt at regional integration that is
not based primarily on trade liberalization but on a new
vision of social welfare and equity.

45. (C) The countries that make up the ALBA trade block met
in Venezuela on 6th June, 2007 for a meeting of the ALBA
Foreign Ministers. The meeting set forth future integration
projects, the initiative’s organizational structure, and the
countries agreed on the formation of an ALBA development

46. (C) Upon closing the meeting President Hugo Chavez
emphasized the importance of the ALBA program as a
counterforce to the FTAA, which he labeled imperialist and
hegemonic. ’We must go on visualizing a federation or
confederation of ALBA states" he said, emphasizing the need
to free the region of the old types of integration that there
have been in Latin America. President Chavez stated that they
had to pay special attention to not turn the ALBA integration
project into a project "with the same vices of the
integration models that we have had since a long time ago.
ALBA has to be distinct," he concluded.

47. (C) President Chavez has been pressing Jamaica to join
the ALBA and emphasized this to Prime Minister Simpson Miller
during his last visit to Jamaica on 12th March 2007 to
conclude an MOU on the Development and Expansion of Gas in
Jamaica. On that occasion he pointedly juxtaposed his
invitation for Jamaica to join ALBA with his offer of
economic and technical assistance. For example, in confirming
his government’s intention to supply the natural gas that
Jamaica needed to expand its bauxite industry, he pointed out
that, via ALBA, Jamaica could go further and develop the
process towards aluminium, aluminium oxide and various
alloys. He remarked that "whatever Jamaica decides on it
(i.e. to join ALBA), we would look for resources within ALBA
to develop that chain, as we are currently doing with Cuba
with steel, for instance."

Benefits of the Relationship to Venezuela

48. (C) The Chavez Administration has provided significant
levels of support to Jamaica, both in financial and economic
terms. The question that therefore arises is, "What does
Venezuela wish, or expect to receive, in return?"

49. (C) In point of fact, the Venezuelan government has not
requested a quid pro quo for the support and assistance it
has rendered to Jamaica thus far. This, however, may point
more to the subtlety of the modus operandi adopted by the
Chavez government’s relations with Jamaica, than a genuine
lack of expectation for a future pay-off. If this is the
case, it would reflect a deftness of approach not witnessed
in Chavez’s relations with other countries in the hemisphere.

50. (C) The two areas in which the Chavez administration
would mostly benefit, in terms of support from Jamaica are:

A. International Support
B. Ideological endorsement

51. (C) These two areas bear some relationship to each other
as the position adopted by Venezuela internationally,
together with the support it seeks from its international
partners have become more conspicuous as a result of the
strong ideological beliefs espoused by President Chavez. A
vote cast in support of Venezuela within multilateral fora is
very closely scrutinized, precisely because of the
ideological positions adopted by its President.

International Support

52. (C) Venezuela, as is the case with most countries, places
a priority on gaining the backing of those countries within
its regional ambit. This includes the candidatures it puts
forward for seats on international bodies. That it would
court Jamaica’s vote for its bid to secure a non-permanent
seat on the UN Security Council is therefore unsurprising.
One can reasonably assume that, given the level of assistance
provided to Jamaica and in view of the traditional strong
bonds of friendship between the countries, Venezuela
harboured a reasonable expectation that it would have
received Jamaica’s support.