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Wednesday, July 19, 2017

Cuba has something to offer Russia in exchange for oil

Cuba once again, as in Soviet times, asks help from Russia. And, as in Soviet times, it is about oil, and with a big discount. The main energy supplier to the island – Venezuela – can no longer provide supplies. Should Russia to meet old ally and what you would ask in return.

The Chairman of state Council and Council of Ministers of Cuba Raul Castro addressed the Russian President with a request to consider the establishment of a stable supply of oil and petroleum products to the island.

“Russia is interested in building naval and medical cooperation with Cuba”

Castro has complained to Vladimir Putin that Cuba had difficulties with deliveries from Venezuela. This forced Cuba to enter the international market to meet domestic needs, reported “Interfax” a source familiar with the appeal of Raul Castro to Vladimir Putin. In this regard, Cuba has adopted “restrictive measures in the application of energy” – in other words, the country began a shortage of gasoline.

Cuba wants the supply of oil and oil products from Russia were organized on the “favorable funding conditions”. According to the source, the appeal had to be worked out by the Ministry of energy, Ministry of economic development, Ministry of Finance, the Ministry of transport and the Ministry of foreign Affairs of Russia until August 31. However, until the decision on the part of Russia was not made public.

Due to the fall in oil prices, Venezuela was in a vulnerable position. The country’s economy is heavily dependent on oil, exports of which were given to 95% of foreign exchange earnings. In Venezuela a lot of oil, but it is almost all heavy and extra heavy. This means that the cost of its production is extremely high, and to produce it at world prices to $ 40-50 per barrel is unprofitable. The country itself barely survives, and was not able to help Cuba.

Venezuela – a major trading partner of Cuba. In the framework of the Alliance Petrocaribe (Petrocaribe) from 2005 Venezuela supplies oil and oil products to Cuba (and other countries of Central America and the Caribbean). Under the program, buyers of Venezuelan oil to pay for it, only 48% of “real” money. The balance is paid off within 25 years with an annual rate of one percent. Some countries, in particular Cuba, in part to pay Venezuela in goods and services. For example, Cuba in exchange for oil was provided the opportunity to use their medical system, one of the best in the world.

Literally at the end of July the Venezuelan state company PDVSA, which provides oil to Cuba, assured that he is not going to reduce supply. The representative of the state-owned company tried to deny the rumors at that time in the market. It was reported that PDVSA during the first half of 2016 have reduced oil exports to Cuba by 40%. It was also reported about the problems at the refinery of Cienfuegos. Assured by that this is some technical and engineering problems faced by all plants. “We will close certain areas of the plant during the year for 120 days to address these concerns and to update some processes,” the official said.

Nevertheless, if we are to believe Castro, Cuba still receives less oil from Venezuela. However, due to the secrecy of both economies is not clear, stopped Venezuela fully supplies or talking about their serious decline.

In Cuba there are refineries, which processed the Venezuelan oil, which is already in the form of petroleum products is exported, due to this, the country enters the currency. By the way, Havana got these three oil refineries in the Soviet Union. Sale of petroleum products, as well as the work of Cuban doctors are the main sources of foreign exchange earnings of the country, and after they are already cash transfers to relatives and tourism.

It is clear that Venezuelan oil supplies to Cuba were favorable, Castro never paid for it the real market price. So now Cuba is not willing to buy oil on the open market. In other words, Russia should not expect Cuba real prices for oil. So does it make sense to go to Havana to meet?

“I think that no response to the initiative of Cuba, we will not leave. We contribute to the resolution of the energy deficit,” – said Deputy Director General of national energy security Fund Alexander Pasechnik. Another question – in what form will be provided assistance and that Russia will be able to answer?

If it is only temporary disruption of supplies from Venezuela, Russia can provide oil in the form of humanitarian aid. However, problems in Venezuela, apparently, are of a protracted nature. They can only help the high price of oil, and when they grow up – is the big question. And Castro says it is about stable supplies.

“If you organize the supply of oil to Cuba on an industrial scale at a reduced price, then it can be done only within the framework of the swap supply in partnership with one of our partners, whose location in relation to Cuba is more convenient,” – says beekeeper.

Direct deliveries from Russia is very expensive, primarily because of logistics. Besides the excess of oil from Russia is actually there. “Russia has no problems with oil exports. There is always the possibility to sell it. Therefore, delivering its oil directly to Cuba, we are, in fact, replaced some other direction,” – said the Director of the energy development Fund Sergey Pikin. For Russia is the loss of foreign exchange earnings.

Might be a better resale Cuba oil, procured somewhere near the island. Of course, you have to do it at a loss. “Now warmer relations between Cuba and the United States. It may make sense to buy oil in America. Where the oil is cheaper, and it will reduce costs, including logistics and transport,” – said pikine.

“Obviously, this is pure financial aid to Cuba. Therefore, the decision is political. The company that will do it, and this is likely to be Rosneft or Zarubezhneft, which operate in Cuba will have in response to any preferential treatment,” – says Sergey Pikin.

In terms of energy, Russian companies already feel comfortable enough in Cuba. Moreover, Russia is the main investor. Therefore, in exchange for oil supplies at a discounted price Moscow, most likely, want to get dividends in other areas.

For example, Rosneft is considering the possibility to join the project of oil exploration on the Cuban shelf. It is assumed that the shelf is not less than 630 million tons of oil reserves and 280 billion cubic meters of gas and 120 million tons of gas condensate. However, with the exploration of these reserves were the problem. In Cuba there is also a “inter RAO UES”, which signed a contract for the construction of four power units of 200 MW each on two Cuban thermal power plant (2022-2024.). Hydropower Cuba wanted to deal with RusHydro.

The call number of bilateral economic projects – reconstruction of the “inter RAO” Cuban TPP “MAXIMO Gomez and East Havana” upgrade “METALLURGMASH” metallurgical plant “Antillana de Acero”, financed by the Russian direct investment Fund create a transport hub on the site of the air base of San Antonio de Los baños, as well as the construction of an international airport and modernization of the Mariel seaport.

In addition, among such projects – the development of Zarubezhneft, together with the Cuban oil company “Cupet” field Boca de Haruko.

Russia is interested in building naval and medical cooperation with Cuba. Earlier, defense Minister Sergei Shoigu expressed gratitude to the Cuban side for the reception, provided by Russian ships during the port of Havana. Also, Russia has accumulated rich experience in training of Cuban military personnel in military schools. Last year it was reported that Russia may resume operation of radio-electronic reconnaissance center, located in the suburbs of Havana, Lourdes. At one time there were also reports that Russia will reopen in Cuba, a military center, reminiscent of the head of the laboratory of Institute of Latin America Victor Semenov. “The Russian military ships can refuel on liberty Island, the sailors can relax there. Perhaps Cuba will be able to offer Russia participation in joint economic projects”, – the expert believes.

And, of course, in exchange for oil supplies at a discount Russia can count on continued political support to the Havana on the international stage.

Russia still considers Cuba its strategic partner, so the appeal of Castro to Putin, and not Obama, such a request is not surprising, says Semenov. It is unlikely that Washington would satisfy a similar request of Havana.

“Remember when Obama wanted to Pat Castro on the shoulder, and he pulled? The friendship between Washington and Havana yet, improving only grope,” Semenov said the newspaper VIEW. The analyst expressed his confidence: even if Cuba will become “very difficult,” the United States will not help her. “The United States will start to put Cuba political conditions. But with Moscow, from Havana all established, we have a good relationship. Her safer to deal with Russia, which wrote off her debt and trying to find on liberty Island oil field”, – he reminded.


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