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Exclusive: Mexico studies supplying Petrocaribe oil if Venezuela govt falls - sources
August 23, 2017 / 3:34 PM / a month ago

Exclusive: Mexico studies supplying Petrocaribe oil if Venezuela govt falls - sources

Venezuela's President Nicolas Maduro (C) speaks during the 16th PetroCaribe Ministerial Council in Caracas May 27, 2016. Miraflores Palace/Handout via REUTERS

MEXICO CITY (Reuters) - Mexico’s government has begun studying the possibility of stepping in to replace Venezuelan oil program Petrocaribe if the government of President Nicolas Maduro were to fall, according to three officials with knowledge of the plan.

Discussions on how to design credits through which Mexico could sell low-cost crude and oil products to Petrocaribe clients in the Caribbean and Central America are just a few weeks old, according to two of the officials, and involve the finance ministry, the foreign ministry and the energy ministry.

Venezuela’s Petrocaribe scheme, launched in 2005, has furnished about a dozen Caribbean states with oil supplies under a flexible credit mechanism, obliging them to pay cash for part of every shipment, and finance the rest at low interest rates, or buy it with goods like food and clothing.

A collapse in oil prices, however, has caused a major recession in Venezuela and Maduro’s government has faced months of deadly protests and splits within his administration amid growing international pressure from critics who allege he has formed a dictatorship.

Two officials said Mexico’s finance ministry and foreign ministry, which have taken the lead on the project of supplying oil to Petrocaribe, see the plan as a way for the world’s 11th biggest oil producer to acquire regional allies.

The energy ministry, however, is more cautious, with major concerns about Mexico’s current levels of crude oil production, which have been falling for 13 years, and declining output of refined products, the two sources said.

Petrocaribe nations’ loyalty to Venezuela has prevented Mexico and allies from winning enough votes to censure Venezuela in the Organization of American States diplomatic bloc.

Even though the plan is in its infancy and may not come to fruition, talk of it could chip away at Maduro’s already weakened support. It is also a fresh example of Mexico leading U.S.-backed, Latin American efforts against Maduro’s government.

Mexico has ditched years of hands-off foreign policy to helm the push against Caracas in the hope that its efforts will be recognized during the crucial renegotiation of the North American Free Trade Agreement, U.S. and Mexican officials say.

The foreign ministry denied any such plan. Foreign Minister Luis Videgaray on Tuesday met Mexico’s envoy to Venezuela “to set the course of action” for the country, the ministry said in a news release.

The other two ministries did not respond to a request for comment. Neither Venezuela’s state oil company PDVSA [PDVSA.UL] nor its oil ministry responded to requests for comment.

OIL DIPLOMACY

At its peak in 2012, Petrocaribe’s members received 121,000 barrels per day (bpd) of crude and refined products, according to official figures. Last year, though, due to state-owned PDVSA’s declining production and revenue, Venezuela shipped just 28,100 bpd under the program.

FILE PHOTO-The logo of Mexico's state-owned company Pemex is pictured at a refinery in Cadereyta, on the outskirts of Monterrey, Mexico, April 20, 2017. REUTERS/Daniel Becerril

The two officials said it was too early to say how much Mexico would consider supplying Petrocaribe’s member countries.

One of the sources estimated the nations of the Caribbean and Central America combined get through about 275,000 bpd.

In 1980, Venezuela and Mexico teamed up in a deal called the San Jose Accord to provide Central America and the Caribbean with low-cost oil and financing for domestic development projects. That arrangement ended in 2008, four years after Mexico’s crude output peaked at 3.4 million bpd.

At this stage, it was unclear if the scheme would borrow from the San Jose Accord, or be an entirely new mechanism, the sources said. Nonetheless, last week, PMI, the trading arm of Mexico’s state-owned oil company Pemex, drafted a document outlining the main contours of that accord.

It was not clear why PMI wrote up the document, which was seen by Reuters, but a former government energy official said PMI would be the most likely entity for oil diplomacy. A Pemex spokeswoman declined to comment on the document but said the company was “always looking for opportunities.”

FILE PHOTO-Pemex logo is seen at a petrol station in Mexico City, Mexico October 13, 2016. REUTERS/Carlos Jasso

REGIONAL EFFORTS

Venezuela offers an even more preferential deal to Cuba, Venezuela’s closest strategic and ideological ally. The island has received billions of dollars of Venezuelan oil and aid since the turn of the century, and has been particularly loathe to support attempts to lean on Maduro.

Nonetheless, Venezuela’s recession has curtailed oil supplies to Cuba in recent years, leading Havana to limit retail fuel sales and request help from Moscow.

Videgaray was in Havana last week to try and persuade Cuba to help fix Venezuela, and give assurances Mexico will support it if Maduro falls.

“The foreign minister’s trip went well,” said one of the officials. “The dialogue was very constructive and he returned happy. Just the fact they heard our arguments is positive.”

One of the sources said the Mexican oil plan was cooked up at a June immigration meeting in Miami, where senior U.S. officials including then-Department of Homeland Security (DHS) Secretary John Kelly and Vice President Mike Pence met with Mexican and Central American leaders.

The United States has been looking at ways of replacing Petrocaribe since at least 2015, according to an external White House advisor who spoke on condition of anonymity.

However, one of the Mexican officials rejected the idea that Mexico was doing the bidding of its top trade partner.

“It wasn’t the United States’ idea,” he said. “It’s ours.”

Additional reporting by Marianna Parraga in Houston, Ana Isabel Martinez in Mexico City and Alexandra Ulmer in Caracas; Editing by Frank Jack Daniel and Marguerita Choy

Our Standards:The Thomson Reuters Trust Principles.
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