Economists debate how hard Venezuelan economic storm will hit Cuba

Economists debate how hard Venezuelan economic storm will hit Cuba
BY MIMI WHITEFIELD
mwhitefield@miamiherald.com

Another country stole attention at the opening session of the
Association for the Study of the Cuban Economy conference in Miami as
the impact on Cuba of the potential end of Venezuelan oil largesse
became a prime topic for debate.

Faced with mounting energy problems, Cuban officials announced strict
energy savings measures at state enterprises earlier this month in hopes
of avoiding blackouts during the sweltering summer months. Officials
have said Cuba will have to cut fuel consumption by 28 percent during
the second half of the year.

Cuba produces about 50,000 barrels of crude oil a day and has relied on
Venezuela for the other 80,000 to 90,000 barrels it needs daily. But
with Venezuela on the ropes economically, continued supplies are
uncertain, said Jorge Piñón, an analyst at the University of Texas'
Center for International Energy and Environmental Policy.

Over the last six months, he said, Venezuelan oil production has come
dangerously close to dropping below 2 million barrels a day. "In our
business that's catastrophic," Piñón said.

"As of last week there was enough oil on the island to keep the lights
on," Piñón said. "June and July deliveries were sufficient."

Some analysts have only looked at oil arriving in Cuba directly from
Venezuela, which has declined, and predicted a more dire outlook for the
island, but Piñón said Cuba also receives oil from offshore Venezuelan
facilities.

Cuba also has been stockpiling oil, and he estimates there is a 60-day
supply on the island. The question is what happens with Venezuelan
deliveries in August and September, Piñón said.

"The hurricane is coming in Venezuela and it's a Category 5 hurricane,"
he said. "The question is: Will it hit Cuba?"

Already hours have been cut for some state workers, fleets at
nonessential enterprises have been parked and some neighborhoods have
reported blackouts, drawing comparisons to the 1990s "special
period."After the collapse of the Soviet Union and the end of its
generous subsidies, there were severe shortages in Cuba in everything
from fuel to food.

"There is speculation and rumors of an imminent collapse of our economy
and a return to the acute phase of the special period," Raúl Castro said
during a recent speech to Cuba's National Assembly. While he
acknowledged Cuba faces challenges and that "there may be ill effects,"
he said the island was "in better conditions than we were then to face
them."

Piñón said the surge in Cuban tourism and the growth of private
enterprise also is putting more pressure on Cuba's energy sector. About
68 percent of oil consumption in Cuba is fuel oil for its inefficient
electrical power sector. The government has said it will protect the
tourism sector and private businesses from cutbacks.

If Venezuelan oil supplies dry up, Piñón said it's unlikely Cuba would
be able to find another benefactor like Venezuela in Algeria, Angola,
Russia, China or any other country, forcing it to go to the world market
to buy about $1 billion worth of petroleum annually.

In recent years, Cuba has actually been receiving more oil from
Venezuela than it needs to meet its needs and has been selling the
excess on the world market as refined petroleum products. But Piñón
suggests it would be cheaper and more efficient for Cuba to shut down
its refineries and buy gasoline and jet fuel than buying crude and
refining it.

In general, economists at the three-day conference at the Hilton Miami
Downtown Hotel said the economic outlook for Cuba this year — and next —
is not good.

Omar Everleny Pérez, a Cuban economist who was among about a half-dozen
academics, private entrepreneurs and economists from Cuba at the
conference, said it has been projected that the Cuban economy will grow
by 1 percent in 2016.

"I'm not sure it will reach that this year," he said.

Even though final figures haven't been announced yet, he said Cuba would
show a deficit in goods and services trade for 2015. And even though
tourism is growing briskly, he said taking into account expenditures in
the tourism sector, the yield can be disappointing.

Among other problems Cuba is facing are servicing its debt, how to unify
its unwieldy dual currency system, decrepit infrastructure and sluggish
foreign investment.

"The Cuban government now finds itself again in need of foreign
financing and they're not going to get it," said Joaquín Pujol, who is
retired from the International Monetary Fund. "In fact, it has turned to
Miami."

In recent years, relatives and friends have become an important source
of funding for small start-up businesses in Cuba.

Source: Economists debate how hard Venezuelan economic storm will hit
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