hugo Chávez international airport. Cap-Haïtien, Haiti/Wikimedia commons

Chávez’s Oil for Haiti, No Strings Attached

Venezuela has given Haiti tankers of oil under preferential financing terms for years. What’s not to love?

When Venezuelan President Hugo Chávez passed away earlier this year, Haiti announced a three-day period of national mourning for the man who had become “a great friend of Haiti.” One month later, President Michel Martelly’s administration announced that it would name Haiti’s second largest airport after the late Venezuelan leader.

The fêting wasn’t out of the blue. Back in 2007, thousands of Haitians spilled into the streets to welcome Chávez during a state visit that marked a new agreement with then-president René Préval. That deal has brought 26 million barrels of oil and other petroleum products to the country under preferential financing terms, which has also allowed Haiti to fund a host of other development projects. The conspicuous power plants and roads funded by the program are one reason that Haitians champion Chávez and his country so much.

Venezuela started PetroCaribe – part regional alliance, part bulwark against U.S. influence in Latin America – in 2005. The program now gives 18 countries access to oil under preferential financing terms. In Haiti’s case, it works like this: Venezuela sends the country petroleum products – a total of $2.8 billion-worth as of July 2013. (The oil accounts for 11,000 of the 12,000 barrels of oil Haiti uses each day.) Haiti then sells the fuel to local energy and petrol companies. The exact terms depend on international oil prices, but Haiti pays Venezuela for about 40 percent of the fuel imports up front. The remaining 60 percent is payable over the next 25 years at 1 percent interest, with a two-year grace period. In the meantime, that chunk of money can be used by the central government for other projects.

It’s a significant source of revenue. During a June visit from Nicolas Maduro, Venezuela’s new president, Martelly said that the program funded 94 percent of all current infrastructure, agriculture, and education projects. “The majority of reconstruction projects,” he said, “such as roads, housing, hospitals, squares, and public buildings currently running in the country are financed from PetroCaribe funds.” An airport runway in Cap-Haïtien was one such project, hence the Hugo Chávez International Airport moniker.

The de facto aid that comes via PetroCaribe goes straight into government coffers and can be used however the state sees fit. That sort of unrestricted and direct funding is a far cry from most external money Haiti receives. In the two years following the January 2010 earthquake, donors sent less than 1 percent of the billions in aid money to the Haitian government. Almost 80 percent of money sent by the U.S. government was awarded to contractors in the Washington, D.C., area.

Because the loan on the PetroCaribe money will ostensibly come due one day, the funds are supposed to be used in ways that will provide a return – “growth-enhancing investment projects,” as the International Monetary Fund puts it (p. 13). That’s one reason Parliament demanded an explanation from the Prime Minister’s office in May when it suspected mismanagement of the oil funds. But even setting aside those worries, the structure underpinning Haiti’s PetroCaribe system may be another cause for consternation.

Once local energy companies pay for the imported fuel, they transform it into power and then sell it right back to the state through Électricité d’Haïti (EDH), the national utility. EDH then distributes electricity to Haitian homes and businesses. But its grids have deteriorated over decades of neglect, its offices lack effective billing and collection systems, and thousands of DIY connections siphon electricity away illegally. The consequence is that EDH collects revenues for only 19 percent of the electricity it provides, Prime Minister Laurent Lamothe has said. The Haitian government has covered the shortfall with subsidies, recently to the tune of about $200 million in annual losses.

Not all Venezuelan fuel imports are burned to produce electricity. Some go to gas companies and, eventually, to power the vehicles of the drivers who clog Port-au-Prince streets nearly every hour of every day. Others wind up running the diesel generators that power pockets of the country during blackouts. The prices at the pump for gasoline, diesel, and kerosene haven’t changed in more two years (p. 12), even though world fuel prices and shipping costs fluctuate regularly. The pump-price stability is no accident; the Haitian government adjusts excise taxes and customs duties on fuel – it forgoes revenues, and sometimes provides outright subsidies – to keep the prices stable.

Giving electricity to people who would otherwise have none and cheap gas to everyone is good politics but terrible economics. The IMF notes that energy and fuel subsidies are expensive and inefficient ways to help the poor – and that every subsidy must be paid for by someone, somewhere, eventually. The rich use much more energy than the poor and therefore benefit the most, energy subsidies can crowd-out the very sort of ‘growth-enhancing’ public investment PetroCaribe is supposed to support, and fuel subsidies encourage overconsumption and increase pollution. Haiti’s years-long Venezuelan-fuel bender is more than enough to give pause to anyone whose parents ever told them not to buy gas or groceries on a credit card.

As inflation, slow growth, and product shortages plague Maduro’s people at home, Venezuela has recently decided to double PetroCaribe interest rates for some countries. Haiti’s rate remains unchanged so far.

Perhaps the Haitian debt that is slowly snowballing under PetroCaribe will never actually come due. Venezuela already canceled the $395 million that was owed under the program after the 2010 earthquake. Haiti has accumulated more than $1.1 billion in PetroCaribe debt in the three-plus years since the quake, but as the least-well-off country in the program, it may receive more grace than the other 17 members. Or, with a joint Venezuela-Haiti entity in the works that will soon assume responsibility for the account – and its debt – maybe the Haitian government will be able to distance itself from the fallout of any possible future default. In the meantime, Haiti’s administration has asked to pay part of its bill with crop exports, including coffee and mangoes. They will amount to an estimated $12 million yearly, perhaps enough to cover a month’s-worth of oil repayments.

Haiti has deep ties to Venezuela; heads of state from the two nations can hardly meet without rehashing the story of early–19th-century Haitian President Alexandre Pétion providing Simón Bolívar with sanctuary and military aid in his quest to win Latin American independence from Spain. The destiny of the oil deal and its aftereffects may write the next chapter of the two countries’ relations – and determine how Haitians ultimately view Chávez and his legacy to their country.