VZCZCXRO3017
PP RUEHGR
DE RUEHPO #0312/01 2171824
ZNR UUUUU ZZH
P 041824Z AUG 08
FM AMEMBASSY PARAMARIBO
TO RUEHC/SECSTATE WASHDC PRIORITY 0288
INFO RUCNCOM/EC CARICOM COLLECTIVE PRIORITY
RUEHCV/AMEMBASSY CARACAS PRIORITY 1672

UNCLAS SECTION 01 OF 03 PARAMARIBO 000312 
 
SENSITIVE 
SIPDIS 
 
WHA/CAR FOR JROSHOLT 
INR FOR BCARHART 
WHA/EPSC 
EEB/ESC/IEC/ENR 
 
E.O. 12958: N/A 
TAGS: EPET ETRD PREL XM XL
SUBJECT: PETROCARIBE OIL SHIPMENTS TO BEGIN FALL 2008 
 
REF: A. CARACAS 976 
     ¶B. PARAMARIBO 18 
     ¶C. 05 PARAMARIBO 602 
 
 ¶1. (SBU) Summary.  The governments of Suriname and Venezuela 
reached agreement on the structure of their PetroCaribe deal, 
which has been dubbed the "Suriname Model."  Under this 
scheme, the Government of Suriname (GOS) will provide the 
Government of Venezuela (GOV) partial payment for the crude 
oil, refined oil, and liquefied petroleum gas (LPG), while 
the remainder of the payment will be made to a Trust Fund 
managed by the state-owned Venezuelan Development Bank 
(BANDES).  Trust Fund profits and principal will be used to 
repay the GOV at a 1 percent interest rate over 23 years 
(after a two-year grace period), and the remaining profits 
will fund social and development projects in Suriname.  The 
first shipment of PetroCaribe oil to Suriname is slated to 
arrive in late Fall 2008.  The GOS is also pursuing other 
projects that were discussed as "outputs" during the July 
2008 PetroCaribe Summit.  Whether the GOS will be any more 
effective in programming Trust Fund projects than other donor 
aid projects remains to be seen.  End Summary. 
 
------------------ 
The Suriname Model 
------------------ 
 
¶2.  (SBU) During a July 31 meeting with Armand Dongen, 
Manager of Corporate Planning at the parastatal Staatsolie 
Suriname Maatschappij (Staatsolie; the Suriname State Oil 
Company), Dongen shared with EconOff a detailed explanation 
of the agreed structure, the "Suriname Model," of the 
PetroCaribe Energy Cooperation Agreement between the 
governments of Suriname and Venezuela.  Staatsolie holds 
responsibility for implementing this model on behalf of the 
Government of Suriname (GOS). 
 
¶3. (SBU) PetroCaribe has an "attractive" financing scheme, 
according to Dongen, because oil purchases are "financed" for 
future payment.  The GOS was, however, adamant that Suriname 
incur no debt to Venezuela while taking advantage of the 
financing scheme.  Suriname will, like other PetroCaribe oil 
recipients, receive financing to include a 2-year grace 
period before the start of a 23-year repayment period at 1 
percent interest.  The percentage of each purchase that may 
be financed is the same as for other PetroCaribe countries, 
including adjustments made at the July 2008 5th PetroCaribe 
Summit (Reftel A). 
 
¶4. (SBU) The GOS met its key objectives in negotiating the 
new "Suriname Model" with the GOV, Dongen continued.  In 
order to incur no debt to the GOV, full payment will be made 
to the GOV upon delivery each time.  What is different about 
the "Suriname Model" is that the payment will be divided into 
two portions - the payment due will be paid directly to the 
GOV, and the financed portion will be funneled into a Trust 
Fund managed by the Venezuelan Development Bank (BANDES). 
BANDES will invest the funds in low-risk stocks and bonds, 
earning a projected 7 percent interest.  Trust Fund money 
will be used to repay the GOV for the financed portion at 1 
percent interest after the two-year grace period, while the 
remaining profits will be used for a still-to-be-designated 
Surinamese financial institution for social and development 
projects. 
 
¶5. (SBU) Dongen showed EconOff a PowerPoint slide of an 
"example case," which had been prepared for GOS use.  In the 
flowchart scenario, if the GOS were to buy one barrel of oil 
at $50 from the GOV, Staatsolie would make full payment.  Of 
this, $30 dollars would go to the GOV and $20 to the BANDES 
Trust Fund.  Profits not needed to repay the financed 
principal or interest would become available to the 
Surinamese financial institution; for this scenario the 
profits were $8.  The Surinamese financial institution would 
use $1 on social projects and $7 on development grants or 
loans.  Dongen said the GOS is already looking into building 
low-income housing as one of the social projects in order to 
demonstrate the value of the Petrocaribe agreement to the 
Surinamese people. 
 
¶6. (SBU) A second key component of the "Suriname Model" is 
Staatsolie's role in the PetroCaribe oil process.  Rather 
than allowing GOV tankers to deliver oil to Suriname, 
Staatsolie will send its own tankers to Venezuela. 
Staatsolie already had this excess capacity, Dongen 
explained, so it will be optimizing the use of its tankers. 
 
PARAMARIBO 00000312  002 OF 003 
 
 
The final agreement with the Venezuela state-owned oil 
company PDVSA is under preparation for signature, so 
PetroCaribe oil shipments will begin in the fourth quarter of 
¶2008.  Since Venezuelan oil is of lower quality than 
Surinamese oil, Staatsolie will then blend the two grades of 
oil before making the blended oil for sale on the local 
market at regular market prices.  Dongen clarified that 
despite much press speculation, no PetroCaribe oil will be 
available to subsidize the fisheries sector nor the 
parastatal Surinam Airways. 
 
¶7. (SBU) The "Suriname Model" covers crude oil, refined oil, 
and liquefied petroleum gas (LPG), but initial PetroCaribe 
shipments will be heavy fuel oil to replace some of what 
Suriname currently imports from Trinidad and Tobago. 
Importation of diesel and gasoline will be left for "next 
steps," although Dongen noted that Sol Suriname N.V. had 
already expressed interest.  (Note:  Established in 1966, the 
local office of the Sol Group acquired Shell and Esso assets 
in Suriname in February 2005 and November 2007, 
respectively.)  With respect to frequency of shipments, 
Suriname will probably start with one or two tankers of oil 
per month (with each tanker having a capacity of 40,000 
barrels).  Eventually, Suriname could increase to the agreed 
bilateral maximum of 10,000 barrels per day. 
 
¶8. (SBU) Dongen said he was very pleased with the "Suriname 
Model" because "some Caribbean islands" had agreed that their 
oil companies, which do not produce oil, would form joint 
ventures with Venezuela holding 51 percent of the shares. 
Under such an arrangement these Caribbean partners would no 
longer be in a position to determine what happens on their 
islands.  The GOS, on the other hand, held a firm position in 
negotiations and refused all suggestions of joint ventures. 
 
--------------------------------------------- -- 
Suriname Interest in PetroCaribe Summit Outputs 
--------------------------------------------- -- 
 
¶9. (SBU) On July 13, 2008, Dongen attended the 5th 
PetroCaribe Summit.  He shared that while the original 
objectives of Petrocaribe were to 1) diversify energy 
resources, 2) secure energy supplies, and 3) lower costs, 
during the Summit, member states agreed to create technical 
groups as an expansion on the original objectives.  These 
were added partially as a reaction to the increase in energy 
and food prices, and include:  1) petrochemicals, 2) 
renewable energy and energy conservation, 3) natural gas 
(including a proposed pipeline to Guyana and Suriname), 4) 
repayment with goods and services, 5) a verification and 
auditing mechanism (for the Trust Fund in the "Suriname 
Model"), 6) training and education, and 7) developing a fund 
management structure (based on the "Suriname Model.") 
 
¶10. (SBU) Referring to many of the Summit's outputs (as 
described in Reftel A), Dongen made special note of the new 
AgroFunds scheme, explaining that the GOV would contribute 
$1.2 million whenever oil prices reach $100/barrel.  He told 
EconOff that Suriname's Minister of Agriculture, Fisheries 
and Husbandry was in Honduras with other Ministers of 
Agriculture to begin planning for AgroFunds utilization.  All 
Petrocaribe member states will be eligible to apply for these 
funds to stimulate agricultural projects. 
 
¶11. (SBU) Dongen was especially enthusiastic about the new 
proposal for the oil sector.  He said Chavez was "crazy" to 
do it, but said Chavez proposed sharing the Orinoco Basin 
(with 180 billion barrel reserves) with PetroCaribe 
countries.  According to Dongen, Chavez said he would set 
aside the Boyaca 3 bloc (with proven reserves of 12 billion) 
for PetroCaribe countries to develop as a joint venture with 
the PDVSA.  Dongen said he believed that, due to 
Staatsollie's experience in heavy oil, Suriname's state oil 
company would be well-positioned to start a joint venture and 
extract the oil. 
 
¶12. (SBU) Comment.  Although it appears the GOS has great 
interest in the Trust Fund concept, it remains to be seen if 
the GOS is in a position to use these funds productively. 
Members of the international community in Suriname often 
discuss the GOS inability to program existing donor funds or, 
for that matter, the longstanding Netherlands-provided Treaty 
Funds.  Post remains skeptical that the GOS can move at a 
faster pace to apply Trust Fund profits to social and 
development projects.  Despite its questionable practical 
utility in spurring Surinamese development and social 
 
PARAMARIBO 00000312  003 OF 003 
 
 
projects, the PetroCaribe deal looks very good on paper.  If 
nothing else, the GOV has likely scored a public relations 
victory with Suriname's man-on-the-street.  End Comment. 
SCHREIBER HUGHES