San José, Costa Rica, since 1956

Oil Slides Costa Rica Into Bed With Chávez

Spiking oil prices have driven President Oscar Arias to cozy up to his longtime ideological foe and rival, leftist Venezuelan President Hugo Chávez.

The Arias administration this week formally asked to be part of PetroCaribe, a 2005 Chávez initiative that sells Venezuelan oil at preferential rates to Latin American and Caribbean countries.

It’s an unlikely choice for Arias, a U.S. ally who has sharply criticized Chávez and largely shunned his gestures of beneficence.

The measure also could face opposition from the notoriously sluggish Legislative Assembly, which must approve the pact.

Administration officials say a deal with PetroCaribe is needed to help relieve Costa Rica’s oil bill, which this year will likely double last year’s and is putting heavy stress on state finances.

“We are living a true national emergency,” said Presidency Minister Rodrigo Arias, the president’s brother.

Costa Rica imports up to 95 percent of its crude oil from Venezuela – some 18,000 to 20,000 barrels a day – and has just eight days to pay for it.

Under PetroCaribe, Costa Rica would be able to pay 60 percent of its fuel bill over 25 years with 1 percent interest and a two-year grace period. Payment for the other 40 percent would be due within 90 days.

If oil reaches $150 a barrel, as market analysts have predicted, Costa Rica would be able to pay 70 percent of its bill over 25 years. Oil was fetching about $136 a barrel Thursday afternoon.

Critics say Chávez has used PetroCaribe to strengthen his political clout in the region and shore up support in the Organization of American States. But Arias administration officials said they see no political cost – stated or implied – to joining the initiative.

“It’s very clear that this is an energy accord,” said Foreign Minister Bruno Stagno. “I don’t see a political component.” He added that the two nations have begun a “new” and “positive” relationship.

Venezuela formally invited Costa Rica to join the group at a summit for members last weekend in Maracaibo, about 750 kilometers west of the capital of Caracas.

Stagno attended the summit as an observer, along with Environment and Energy Minister Roberto Dobles and José León Desanti, who heads the National Oil Refinery (RECOPE).

Over the next few months, the two nations will negotiate specifics – including the type and quantity of fuel that Costa Rica will import.

Assuming the Legislative Assembly gives its stamp of approval, Costa Rica will likely become a full member at the next summit in December, administration officials said.

Because Costa Rica must still pay market price for fuel, membership in PetroCaribe won’t mean lower prices at the pump, President Arias told the daily La Nación.

Regular gas prices increased by about 9 percent last week, while diesel prices jumped 14 percent.

Still, the agreement is a boon for RECOPE, which now pays for fuel with pricey credit lines from international lending institutions.

Once the stress is off state coffers, more of that money can go toward social programs, said Rodrigo Arias.

Farmers and businesses will also benefit, Dobles said. Part of the fuel bill can be paid for with agricultural products, software, and even health or education services, he said.

According to an agreement at last weekend’s summit, Venezuela plans to sell 100,000 metric tons of the fertilizer urea to PetroCaribe members at a 40 percent discount. Farmers can delay payment on 30 percent of the bill until after the harvest.

“This opens up huge opportunities for national producers,” Dobles said. “Rising fertilizer prices have caused serious problems for the agricultural sector.”

What’s in it for Chávez? Two officials from Petróleos de Venezuela, S.A., Venezuela’s state oil company, asked the Costa Rican delegation last weekend for access to a RECOPE pipeline that runs from the Atlantic to the Pacific coast. Dobles said that was doable.

The pipeline would allow Chávez to ship oil more easily to Central American countries and China.

“(He’s) dying to get access to the Pacific,” said Jorge Piñón, an energy fellow at the University of Miami’s Center for Hemispheric Policy.

Costa Rica is the third Central American country to join PetroCaribe in the last year. Honduras joined in December, and Guatemala joined last weekend.

In expanding PetroCaribe, Chávez is seeking to project an image as the region’s natural leader, Piñón said.

“He’s going around the hemisphere saying, ‘I have oil, and I have cash, and I want to buy recognition,’” Piñón said.

For two years, President Arias was an unwilling customer. According to the Associated Press, last year Arias called Chávez a “dictator” whose foreign policies are “nothing more than (an effort) to stay in power” for life.

While Chávez tries to forge an “antiimperialist” bloc to counter U.S. influence, Arias has signed a free-trade agreement with the United States and supports President George W. Bush’s war on drugs.

In May, Arias attended a summit on food security convened under the umbrella of the Bolivarian Alternative for the Americas (ALBA), the leftist trade bloc founded by Cuba and Venezuela in 2004. But Arias refused to sign the final resolution, citing ideological differences.

Meanwhile, oil prices continued to climb, straining state coffers. The nation’s total oil bill this year could reach $2.86 billion – double last year’s.

Last month, the government began restricting entry to San José and the Circunvalación, a belt route around the city, in order to cut down gas use. Each car is banned from those zones for 13 hours one day a week. (The day depends on the last number of one’s license plate.)

The administration also proposed a bill to shift the diesel tax to super and regular gas, while doubling the tax on diesel vehicles. Lawmakers quickly rejected the idea, in favor of transferring it instead to the airport exit tax, among other proposed measures.

Arias’ decision to enter PetroCaribe was purely pragmatic, said Dan Erikson, an analyst at the Inter-American Dialogue, a think tank in WashingtonD.C. In the short term, he said, the alliance won’t change Costa Rica’s “shrewd” and independent foreign policy.

“Of course,” he added, “if (Costa Rica) really starts becoming highly dependent on this oil, that means if Hugo Chávez comes and asks the Costa Rican government for something, it becomes much harder to say no.”


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