Colin Bullock, financial secretary, has been named chair of an interim committee to approve financing for projects under PetroCaribe. - File Camilo Thame, Business Reporter

The Jamaican Government plans to lend PetroCaribe savings to public sector entities to avoid more expensive, planned borrowing, the International Monetary Fund (IMF) revealed in its staff report published earlier this week.

However, approximately US$150 million ($9.75 billion) accrued cash flow savings from the Jamaica/Venezuela oil pact for the fiscal year to March 31 appeared not to have been reported to the IMF.

The Financial Gleaner since August 23, had asked the finance ministry for details on the US$150 million, but no responses have been forthcoming.

Jamaican authorities "explained that they would use the cash flow savings to replace already planned but more expensive borrowing (including domestic borrowing) by public entities," said the IMF in its Interim Staff Report Under Intensified Surveillance on Jamaica published September 12.

"As such, the savings would not be used to increase public entities' spending relative to current plans."

Clarification

The IMF itself had sought clarification on the way the oil funds would be used to address its concern that public entities would expand their "overall spending envelope" including those allocated from the PetroCaribe funds.

"In this regard, the authorities' intentions to use at least some of the cashflow savings from the PetroCaribe agreement to finance public entities spending were potentially worrisome," said the report.

The IMF mission, as opposition spokesman on finance Audley Shaw did earlier this year, had recommended that the concessionary funding available from the PetroCaribe agreement be used to offset more expensive projected borrowings.

The pact with the Venezuelan government supplies oil to Jamaica - initially 21,000 barrels a day and since July 2006 23,500 barrels a day - with the government having to pay cash for 60 per cent of the purchase.

The remaining 40 per cent is converted to long-term loans, at interest as low as one per cent, initially to be used for development projects.

Savings

Jamaica is projected to save between US$180 million and US$200 million a year under PetroCaribe.

In early March this year, when Government would have accrued approximately US$150 million in PetroCaribe savings, financial secretary Colin Bullock was appointed head of an interim committee to vett requests for funding from an off-budget entity, the PetroCaribe Development Fund, which is yet to be established.

However, six months after the appointment and 16 months into the agreement, no accounting has been provided to the public.

Moreover, in the IMF's report the Government provided no figure for the PetroCaribe debt for the year to March 31, 2006.

In fact, in its own projections of the cumulative debt over the next few years - projected to grow at US$190 million per year - the IMF showed zero flows from PetroCaribe between June 2005 and March 2006.

Also not accounted for is the long-term financing that was provided through PetroCaribe's predecessor, the Caracas Energy Agreement, in which 10-25 per cent of the payment for the oil would be available for cheap development loans to Jamaica at two per cent.

The agreement was fundamentally the same as the current PetroCaribe arrangement, with access to 7.4 million barrels of oil annually, except that the financing portion was increased to 40 per cent, with a maximum allowable financing of 50 per cent of the cost should the price of a barrel of oil surpass US$100.

The IMF has cautioned the Government that "any receipts and uses of the funds should be reflected fully in the Government accounts and its administration integrated into the budget process to ensure transparency, efficiency and accountability of public spending."

camilo.thame@gleanerjm