Chinese Vicepresident in Cuba to meet on economic ties

HAVANA (Reuters) – Chinese Vice President Xi Jinping arrived in Cuba on Saturday for a three-day visit expected to accelerate fast-growing economic relations between the two communist-run countries.

One of Cuba’s six vice presidents, Esteban Lazo, was at Havana’s Jose Marti International Airport to greet Xi, who is tipped to succeed Chinese President Hu Jintao in 2013.

Xi came to Cuba from Italy, where $3.2 billion in business deals were unveiled during his visit, and he was to go on to Uruguay and Chile.

China is in the midst of a massive expansion of economic activity in Latin America, where its trade last year totaled $180 billion, up 50 percent from 2009, official Chinese news agency Xinhua reported.

In a written statement to the press, Xi said he was in Cuba to “increase friendship (and) deepen cooperation” in pursuit of development.

Xi and President Raul Castro were scheduled to hold talks and preside over the signing of so far undisclosed accords on Sunday.

A Chinese official told Xinhua this week the two countries would begin negotiations on a five-year plan for bilateral economic cooperation.

China is Cuba’s second largest trading partner, trailing only Venezuela, with trade between the two increasing to $1.83 billion last year from $440 million in 2001, according to Xinhua. The 2010 figure fell from $2.2 billion in 2008.

China has become the lender of last resort for debt-ridden Cuba, which is carrying out reforms to modernize and strengthen its Soviet-style economy.

Last year, China restructured debt believed to be as high as $4 billion and agreed to extend new credit in what Havana-based diplomats said was a show of support for Cuba’s reforms.

In his statement, Xi praised a recent Cuban Communist Party congress affirming the economic changes, which are timid compared with the market economy China has embraced.

Castro, who succeeded ailing older brother Fidel Castro in 2008 and turned 80 on Friday, is slashing government payrolls, expanding the private sector, putting more agriculture in private hands and giving state companies greater autonomy.

He has said the goal is to make sure Cuban socialism survives once the current generation of aging leaders is gone.

China’s involvement in Cuba’s economy is increasingly evident, with Chinese-made goods filling the stores and Chinese buses and cars a common sight on Cuban roads.

A unit of China National Petroleum Corp is expected to begin work later this year on a $6 billion project to expand and upgrade an oil refinery in Cienfuegos on Cuba’s southern coast, with plans including construction of a liquefied natural gas terminal.

China buys nickel, sugar and other products from Cuba and jointly produces pharmaceuticals in China.

After Sunday’s meeting with Castro, Xi will visit a Havana medical clinic on Monday, then leave for Uruguay from the beach resort of Varadero on Tuesday.

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Bahamas and Cuba agree on maritime border

CubaStandard.com:

Cuba and Bahamas agreed “in principle” on a maritime boundary, the Nassau Guardian reported, citing Bahamas Minister of Foreign Affairs Brent Symonette.

Symonette said at a news conference that the boundary was finally established after a long 15-year dispute. He added that the countries, assisted by the United Nations, maintained an amicable and diplomatic relationship throughout the process.

The agreements come after four rounds of negotiations between the neighbors since 2005. A resolution became pressing as Norway’s Statoil is seeking to perform exploratory drills adjacent to the Bahamian side of the border. On the other side, Russia’s Zarubezhneft and Petrovietnam have leased onshore and nearshore blocks in east-central Cuba, also near the maritime border.

The Bahamian government announced a drilling moratorium following the BP spill in the Gulf of Mexico last year and is in the process of developing a disaster management policy. The Bahamas Petroleum Company — Statoil’s local partner — is optimistic drilling will begin in 2012.

A spill at the Statoil location could affect Cuban tourism ambitions in the Cayo Coco area. The Bahamas and Cuba have apparently not had talks about drilling safety and disaster response.

“The Bahamas should approach Cuba on this subject if it has not already done so,” a recent editorial of Bahamas newspaper Freeport News suggested. “The two countries should at least discuss the environmental consequences of drilling, the regulatory framework each should put in place regarding drilling and what response would occur if a disaster occurs. The Bahamas could even be a go-between between the U.S. and Cuba on the issue.”

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Cuba’s Hunt For Oil Raises Questions For U.S.

NPR: In the deep waters off Cuba’s north coast, a Chinese-built oil rig is due to begin drilling this fall in an area geologists believe may have huge beds of undersea crude.

A significant find could transform Cuba’s economy and possibly alter relations with the United States, but it may also present new environmental threats for the Florida coast.

Mariel — the town 30 miles west of Havanna that was a departure point for more than 100,000 Cubans who left the island in the 1980 Mariel boatlift — is being remade into a servicing hub for the Cuban oil industry of the future.

Crews there are working furiously to finish new port facilities and a railway with hundreds of millions in Brazilian financing.

This fall, the Spanish company Repsol plans to start drilling five exploratory wells in Cuban-controlled waters at depths up to 5,000 feet — about as far down as BP’s Deepwater Horizon rig.

U.S. trade sanctions against Cuba require the rig to contain no more than 10 percent U.S. technology, which has slowed its completion. Owned by an Italian company, the rig is now in its final construction phase and set to depart from Singapore in June.

A study by the U.S. Geological Survey estimates there are nearly 5 billion barrels of oil in the bedrock off Cuba’s north coast, enough to make the island a major energy player in the region. Cuba’s own geological studies show several times that amount.

Ricardo Torres, a Cuban economist who tracks the energy sector, says that thousands of jobs would be created if Cuba could go from being a net importer of energy to an oil exporting country, and other subsidiary industries could also arise. Even if it takes several years to bring the oil to market, new credit lines will open up for Cuba’s cash-strapped government, he says.

Pressure On The Embargo

What’s less clear is the impact a major discovery might have on the 50-year-old U.S. trade embargo. Those sanctions will keep American companies on the sidelines, but representatives from energy producing states have already proposed new exceptions to the embargo for U.S. oil industry firms.

Marc Frank, a reporter for the Financial Times in Havana who has been covering Cuba’s long search for domestic oil supplies, says it clearly would make the embargo less effective.

“And [it] adds an additional question to why that policy still exists,” he says. “What’s its purpose? So one would think it would lead to pressure towards changing that policy.”

Oil companies from Malaysia, Norway, India and several other nations have also signed exploratory drilling agreements, and Iran’s foreign ministry spokesman said during a Havana visit recently that his country stands ready to help.

Environmental Risk

Because the drilling will happen just 60 miles off the Florida coast, John McAuliff of the Fund for Reconciliation and Development, a group that advocates engagement with Cuba, says it’s in Washington’s best interest to work with Havana on contingency plans. After all, he says, the U.S. has the best cleanup technology and know-how.

“The question is how you minimize the risk, and there’s only one way to minimize the risk, and that is to have the kind of collaboration with Cuba that we have with Mexico or the Bahamas or any other country that is exploring for oil in a way that is potentially damaging to the U.S.,” McAuliff says.

At a U.S. government conference on safe drilling practices last month in Washington, Interior Secretary Ken Salazar called Cuba’s exploration plans “an issue of concern” that the Obama administration is watching closely. But Cuba was not among the dozen or so countries invited to the conference.

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Cuba to drill five new oil wells by 2013

HAVANA (AFP) – Cuba on Tuesday announced plans to drill five deepwater oil wells in the Gulf of Mexico beginning this summer, expressing confidence that its efforts will be rewarded with major new energy finds.

“We’re about to move to the drilling phase,” said Manuel Marrero, an official with the government authority tasked with overseeing Cuba’s oil sector.

“We’re all really hopeful that we will be able to discover large reserves of oil and gas,” said Marrero, who added that the ventures would be undertaken with the help of unspecified foreign companies.

He said the deepwater wells were to be drilled between 2011 and 2013, and would be in waters ranging in depth between 400 meters (a quarter mile) and 1,500 meters (1.6 miles). He did not specify which countries would be among the foreign partners working with Havana on the project.

Some studies estimate Cuba has probable reserves of between five and nine billion barrels of oil in its economic zone in the Gulf of Mexico. Cuban authorities have said their crude reserves are as high as 20 billion barrels.

In 2010, Cuba produced 21 million barrels of oil, about the same as it had extracted the previous year, representing a little less than half of its annual energy needs.

Cuba depends on Venezuela for the rest of its oil imports of about 100,000 barrels per day. Any cut to Venezuelan supplies could spell political and economic disaster for Havana.

The only one-party communist regime in the Americas, Cuba has long been plagued by energy dependence that amounts to its economic Achilles’ heel.

Havana used to depend on the eastern bloc for cut-rate oil, and plunged into economic chaos and blackouts when it was cut off after 1989.

Locking in energy independence, aside from potentially turning Cuba from a cash-strapped developing nation into a flush oil exporter, could help project its current regime years into the future.

On Monday, Rafael Tenrreyro, the head of state oil form Cupet’s exploration branch, said Cuba was anxiously awaiting a platform made in China for one of its offshore efforts.

“At some point this summer it should be getting here,” Tenrreyro told reporters, referring to the next few months’ time.

Despite the BP oil spill tragedy in the gulf, Tenrreyro insisted “safety is more than guaranteed. Cuban institutions have made sure that is the case.”

Cuba’s economic zone in the Gulf, just a stone’s throw from the US state of Florida, is divided into 59 blocs. Of those 20 are ventures with Repsol (Spain), Hydro (Norway), OVL (India), PDVSA (Venezuela), Petrovietnam and Petronas (Malaysia). Petrobras (Brazil) recently pulled out and Sonangol (Angola) recently signed on.

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Cuba’s Deepwater Oil Exploration Could Be a Game Changer See full article from DailyFinance: http://www.dailyfinance.com/story/cuba-deepwater-oil-exploration-game-changer/19865273/?icid=sphere_copyright

Dailyfinance.com:

People who follow the oil industry are closing watching a pair of news items, both involving drilling operations in the Gulf of Mexico.

Earlier this week, the Obama administration said Noble Energy (NBL) could restart drilling operations at its Santiago well in the Gulf. The announcement will make Noble the first company to resume drilling in the region since last April’s BP (BP) Deepwater Horizon disaster — and the first since the moratorium on deepwater drilling in the Gulf was lifted last October.

The other bit of news is that a semi-submersible oil rig, originally due to arrive in Cuban waters this month, will reportedly be delayed until late summer.

Working Around U.S. Trade Embargo

The rig is a multinational project: owned by an Italian oil service group, constructed by a Chinese firm and funded by a consortium led by the Spanish energy company Repsol (REP). The delay is being blamed on technical problems — but “part of the delays were originally that the [rig's] works were going to have more than 10% of U.S. technology, which is not acceptable to the U.S.,” says Jonathan Benjamin-Alvarado, political science professor at the University of Nebraska at Omaha.

That 10% figure is a part of the U.S. trade embargo against Cuba, now in its sixth decade. But the possibility of a good-size oil find off the Cuban coast could be a major game-changer for both Havana and Washington.

A 2004 assessment by the U.S. Geological Survey reported that about 4.6 billion barrels of oil — as well as substantial deposits of natural gas — might lie trapped in the sediment just north of Cuba.

Some preliminary explorations of the site have shown promise, but the oil deposit is hardly a sure thing — especially since it’s in water even deeper than the BP Deepwater Horizon site. But given present concerns over oil supplies, “the idea is to eventually export [oil] in the area or for Cuban consumption,” says Arturo Lopez-Levy, a former political analyst for the Cuban government and now a research associate at the University of Denver.

Transitioning From Oil Importer to Exporter

“It could create a significant change in Cuba’s economic wherewithal,” says Benjamin-Alvarado, who recently co-authored a book on Cuba’s energy sector. He notes Cuba currently produces about 90,000 barrels of oil daily, or about half of its overall needs — with the rest being imported from Venezuela. But with the possibility of Cuba transitioning from an oil importer to a modest exporter, there’s been a dramatic increase in foreign direct investment in Cuba in recent years — as international companies invest in the country’s oil production infrastructure.

“About 88% of all the oil reserves in the world are already spoken for,” Benjamin-Alvarado says. “Only 11% are open and available for purchase by the international oil companies.” With that in mind, he says, “oil would solidify Castro’s effort to remain viable with the Cuban people, to satisfy their material needs. The Cuban people would take the trade-off. But over the course of 10 to 15 years, that may change.”

There are also some practical concerns about possibly having Cuban oil wells operating less than 90 miles from the Florida coast. A recent report by advocates for more U.S. engagement with Cuba suggests the U.S. government should start direct talks with Havana over energy and environmental issues — to prevent any future Deepwater Horizon-like spills in the Gulf.

That suggestion is getting a lot of push-back from anti-Castro groups in Florida, as well as state lawmakers. But according to the report, by the Center for Democracy in the Americas, the current trade embargo “restricts Cuba’s access to knowledge and associations that would help it plan for or react to a spill. The embargo prevents meaningful participation by U.S. private sector firms in planning for reaction, containment or remediation efforts.”

“The extent to which the U.S. can get on the stick and put forth a working agreement on environmental drilling will be very important, to be able to monitor very closely what the Cubans will be doing,” says Benjamin-Alvarado. “This won’t solve our energy problem, but it gives the U.S. an opportunity to have an imprint in the direction of the energy developments that are presently at play in Cuba.”

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Arrival of Cuba offshore oil rig delayed again

HAVANA, Feb 22 (Reuters) – Delivery of a Chinese-built drilling rig that will open the first full-scale exploration for oil in Cuban waters looks unlikely until at least August in the latest delay to beset the project, sources said this week.

They said an inspection of the newly-built, high-tech rig had been ordered to make sure it was in good shape after taking on water in transit from the Chinese shipyard where it was built to Singapore for completion in October.

The rig — the Scarabeo 9, owned by Italian oil service firm Saipem SPLM.SI — had been expected to arrive in Cuban waters in late June or early July after several earlier delays postponed its original delivery date of September 2009.

If the inspection turns up problems that need repair, the latest delay could stretch beyond August, sources said.

The water problem was not considered a major issue, but an inspection was ordered to assure the rig’s overall quality, they said.

Once the rig gets to Cuba, it will be used by a consortium led by Spanish oil company Repsol YPF (REP.MC: Quote, Profile, Research, Stock Buzz) to drill one or two exploratory wells, then passed on to other oil companies for exploration in drilling leases they hold in Cuba’s part of the Gulf of Mexico.

Repsol drilled the only offshore well in Cuba in 2004 and found oil, but said it was “non-commercial.”

It has long planned to drill another well, but is widely believed to have had difficulty finding a rig that does not violate limits on use of U.S.-developed technology set by the 49-year-old U.S. trade embargo against Cuba.

Cuba, which depends on its socialist ally Venezuela for much of its oil, has said it may have 20 billion barrels or more of oil in its untapped oil fields.

The U.S. Geological Survey has estimated a more modest 4.6 billion barrels and 10 trillion feet of gas.

The Scarabeo 9 is a dynamic positioning, semi-submersible rig, meaning it floats partially submerged in the ocean and is kept in place by thrusters built into the platform.

It will be drilling in more than 5,000 feet (1,524 meters) of water, but is capable of working in depths of 12,000 feet (3,600 meters).

An August arrival would bring Scarabeo 9 to Cuba at the height of hurricane season, but the rig is built to withstand winds up to 115 miles per hour (185 km) and waves up to 88 feet (26.8 meters).

The prospect of offshore oil exploration by Cuba has prompted proposed legislation in the U.S. Congress that could penalize companies operating in the communist-led country or require them to prove they can adequately respond to an accident like last summer’s BP blowout in the U.S. Gulf of Mexico.

Cuba is just 90 miles (145 km) from Florida, but U.S. oil companies cannot operate there because of the U.S. embargo.

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Cuba trades doctors for dollars

Globalpost.com:

HAVANA, Cuba — “$100 a barrel oil in sight,” read a recent headline in Granma, Cuba’s communist party newspaper, and not long ago, such news would likely have been followed by hand-wringing admonitions to conserve electricity or brace for transportation cuts and rolling blackouts.

Not anymore.

In today’s Cuba, climbing oil prices are channeling much-needed cash into government accounts, even though the island is years away from commercially developing its own offshore reserves or becoming a significant energy exporter.

Instead, Cuba is turning a tidy profit on other nations’ crude.

Over the past decade, in a feat of political and diplomatic ingenuity, Cuba’s leaders have transformed the country from a place hurt by high oil prices into one that rides their rise straight to the bank. Through service agreements that send Cuban doctors, nurses and other skilled professionals to energy giants like Venezuela, Angola and Algeria, the Cuban government is compensated on a sliding scale pegged to the price of oil.

The exact terms of those service contracts have not been made public, but the basic formula is that when energy prices go up, Cuba earns more. Last year, the island accumulated a $3.9 billion trade surplus, and services — such as health care — accounted for $9.4 billion out of $13.6 billion in total export revenue, according to the government’s National Statistics Office. Those earnings now dwarf Cuba’s traditional export commodities, such as sugar and nickel.

The added revenue is helping to ease the cash shortage that forced the Castro government to freeze accounts of foreign businesses operating in the country and defer payments on its estimated $20 billion in foreign debt. It has also provided a cushion to Cuban authorities at a time of economic tumult, as 500,000 state workers — 10 percent of the island’s workforce — are due to be laid off or reassigned in the coming months.

Analysts who track Cuba’s energy sector said the country’s increasingly lucrative service agreements are “a game changer.”

“Any exponential rise in oil prices will continue to increase export revenues,” said Jonathan Benjamin-Alvaro, a Cuba energy expert at the University of Nebraska at Omaha.

During the leanest years of the so-called Special Period, the post-Soviet economic collapse that gripped Cuba in the 1990s, frequent blackouts left Cubans simmering in their cramped apartments. The island had imported most of its fuel from the Soviet Union, and with the oil spigot shut off, Cuba’s power plants and transportation networks sputtered.

Today power outages are rare. And with help from foreign companies, Cuba now produces roughly 50,000 barrels per day of domestic crude to run its power plants. The island receives some 100,000 barrels from Venezuela as well, some of which is processed on the island and re-exported to other countries in the region through the Petrocaribe agreement.

Cuba’s most profitable service agreement continues to be with top ally Venezuela, where about 40,000 Cuban professionals are running health clinics, training athletes and working inside the Chavez government. While Cuban doctors and social workers have helped shore up political support for Chavez among Venezuela’s poor, Venezuelan hydrocarbons have helped pull the Castro government back from the brink of financial ruin.

The service arrangements have strained Cuban families and the island’s own health system, but Cuban workers typically welcome the chance to go abroad, even to faraway places like Qatar or Angola, since they can earn far more than the $20-a-month average salary they would get at home.

The island’s economic fortunes will be even more entwined with world energy prices in the coming years, as Cuba has signed more than a dozen deals with foreign companies to develop its offshore reserves. A sophisticated Chinese-built deepwater drilling rig is due to arrive into Cuban waters this summer, where a foreign consortium led by Spanish energy giant Repsol will try to tap undersea deposits that geologists believe hold billions of barrels of oil.

A large discovery will accelerate Cuba’s transformation from fuel-deficient importer to significant regional energy player.

The Venezuelan government has also invested more than $6 billion to upgrade Cuba’s Cienfuegos refinery, turning the southern port city into one of the region’s largest petrochemical centers. A similar expansion is also underway along Cuba’s north coast in Matanzas, and the two projects will more than double the island’s refining capacity.

Even with those projects years away from completion, economist Ricardo Torres said there’s no longer a sense of alarm in Cuba now when oil prices increase. But he cautioned that it’s difficult to calculate the exact benefit to Cuba, because the terms of its service contracts with foreign oil producers like Venezuela have never been disclosed.

There are other risks as well, he noted. “Those agreements were negotiated based on strong ties with those countries. But if you think of a situation in which one of those governments changes, Cuba will have to negotiate a new agreement. So it’s still vulnerable to political developments in those countries.”

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Cuba set for new revolution but US thaw could be a long way off

Irish Times: OPINION: Shedding public sector jobs, bolstering domestic enterprise while seeking foreign investment – does this sound familiar? Welcome to Cuba . . .

CUBANS HAVE entered a period of dramatic change with enormous implications for economic, political and social aspects of their lives, perhaps not seen since the collapse of Cuba’s old sponsor, the USSR.

With that cataclysmic break-up in the early 1990s, some 85 per cent of the Caribbean island’s income vanished, marking the start of a period of extreme hardship remembered bitterly as the Periodo Especial .

Not least among the changes now deemed necessary to deal with the country’s troubled economy by President Raul Castro is the laying off of 500,000 state employees between this month and the end of March. Effectively, this ends Cuba’s official policy of full state employment, with some commentators saying these changes could even mark the beginning of the end of the 50-year socialist economic experiment for the country’s 12 million people.

The demise of communism and the Castro brothers, Raul and Fidel, however, have been predicted many times before – indeed their deaths were once reported in a US newspaper by an Irish-American journalist in 1956 shortly after they had landed in Cuba from Mexico with a small group to begin the final phase of the revolution.

Despite the scale and scope of the proposed changes, however, President Castro is anxious to insist that the essential nature of the last communist state in the western hemisphere will not itself change. A recent 32-page document outlining proposed changes, Draft Guidelines for Economic and Social Policy , emphasised that “as we update our economic model, planning will be paramount, not the market”.

Preparing people for such seismic changes, Castro had said that Cuba would “fall off a cliff” if it did not make savings through efficiencies and “update” the tightly-controlled command economy. He said the economy was the first order of business for all the political leaders.

The measures are intended not only to correct the economy but to deliver improvements in living standards that ordinary Cubans have long and patiently desired. Most prominent of the changes are the dramatic shrinking of state employment; a significant expansion of the private sector; the encouragement of greater foreign investment in designated economic zones (not dissimilar to Vietnam and China, it appears); and a partial opening up of the property market, in which you may buy and sell property, but not accumul-ate.

On a recent visit to China, Cuban parliament speaker Ricardo Alarcon said: “Cuba is prepared to take advantage of China’s experience of development in reform and opening.”

China, now a major trading partner, recently signed a $6 billion (€4.53 billion) deal to upgrade an oil refinery and build a gas refinery in the southeastern city of Cienfuegos. This will process huge finds in the Cuban section of the Gulf of Mexico expected to come online this year.

More than 30,000 Cubans have already received licences to work privately as restaurateurs, mechanics, hairdressers and street vendors, for example, and for the first time such individuals may be allowed to take on employees and must pay taxes. As many as 250,000 licences may be issued eventually. Brazil, Latin America’s emerging economic superpower, has offered to share with Cuba its expertise in private enterprise.

Ordinary Cubans fear that if there is no match between jobs created in the private sector and the lay-offs, there will be a negative impact on the country’s social cohesion that full employment has delivered over the past half century. For example, it is feared that street crime, which is negligible by international standards, will rise.

Furthermore, Cubans express various degrees of anxiety as to whether they might be among the half million selected for efficiencies in the notoriously sluggish and bureaucratic state sector.

Alarm bells will also be ringing in Washington because of the potential for another mass wave of immigrants from Cuba.

Significantly, a long-awaited Communist Party Congress – the party forum which defines major policy issues and announces changes, but has not met since 1997 – has now been called for the end of April. At this meeting the proposals in the draft document and measures already taken will be discussed, and the shape of the new political order in Cuba will become clearer.

Cuba’s change in course is further hard evidence of Raul Castro’s shift away from the doctrinaire communism of his elder brother Fidel towards a more pragmatic, efficiency-socialism model. This approach was also evident recently with the state’s agreement with the Cuban Catholic Church and Spain to release more than 50 political prisoners, and with the opening of a Catholic seminary outside Havana, the first since the revolution.

All of this would suggest that now would be a fruitful time for the US to engage with Cuba, as indeed President Barak Obama promised in the early days of his presidency, which President Castro said he would respond to “measure for measure”.

However, the US economic downturn and mid-term elections have since changed the situation and the Republican Party’s control of the House of Representatives has given it sway over the powerful Foreign Relations Committee. From January, this committee will be chaired by Cuban-born, far-right Florida Congresswoman Ileana Ros-Lehtinen, best known for her visceral hostility towards the Cuban regime and other left-leaning administrations in Latin America.

In a 2006 Channel 4 documentary on the numerous attempts to kill the then Cuban leader, she was happy to announce: “I welcome the opportunity of having anyone assassinate Fidel Castro.”

So despite Cuba signalling an historic change in the state’s relationship with private enterprise, bar unforeseen circumstances it seems any likelihood of the US engaging with the new situation is likely to founder on the jagged rocks of old southern Florida émigré politics.

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Key political risks to watch in Cuba

HAVANA, Dec 2 (Reuters) – The success or failure of Cuba’s economic reforms will be the key issue to watch in the next year as the government moves to strengthen the economy and ensure survival of the island’s communist system once the current aging leadership is gone.

The cash-strapped government is looking for ways to cut spending while increasing income, and could get long-term help if offshore oil exploration slated to begin in 2011 is successful.

All this occurs against a backdrop of only slightly tempered hostility with the United States, including an ongoing dispute over a U.S. contractor held by the Cubans on suspicion of spying.

ECONOMIC CHANGES

President Raul Castro has taken aim at Cuba’s chronic economic problems with plans to slash 500,000 jobs from state payrolls by March while expanding the private sector and encouraging less reliance on the state.

About 200,000 of those jobs are expected to shift over to employee-run cooperatives that will be created at businesses currently operated by the state. The government also has begun issuing 250,000 new licenses for self employment and for the first time, the self-employed will be able to hire workers. So far, 30,000 licenses have been granted.

Self employment was first allowed in communist Cuba during the economic crisis that followed the collapse of the Soviet Union, the island’s main ally, in 1991. There were 143,000 licensed self-employed in 2009, and many more illegal ones.

The government’s bet is that it can create enough jobs quickly enough to absorb the laid-off government workers, most of whom it says were not in productive positions. After the first 500,000 jobs are cut, it plans to slash another 500,000 in the next few years, likely leading to more private sector expansion.

Castro announced the ruling Communist Party would hold in April its first Congress since 1997 to ratify the changes, many of which are already in action. Before the Congress, Cubans are to provide input at forums across Cuba.

The reforms are the biggest since Raul Castro succeeded brother Fidel Castro as president in 2008, and come with many questions.

Among them are whether the cumbersome government bureaucracy can move quickly to implement the plan and whether the new entrepreneurs will be too handicapped by regulations, taxes and lack of credit to succeed.

Also, do the planned job cuts present the danger of many people ending up without work and if so, what will the consequences be in a socialist country where people basically have been guaranteed employment for decades?

But the key question is whether the reforms will accomplish what Castro wants — more productivity, a stronger economy and, ultimately, the survival of communism, installed after his brother took power in a 1959 revolution. He has said maintaining the system is key to protecting national sovereignty.

Other reforms have been made, particularly in agriculture, with the same goal in mind. Castro, trying to increase output and reduce dependence on budget-draining food imports, has leased fallow lands to private farmers and taken other steps, but food production was down 7.5 percent in the first half of this year, as farmers complain that they are still too stifled by the state.

What to watch:

– How quickly the government moves to implement reforms.

– The numbers and performance of the newly self employed.

– The effects of government layoffs.

– Agricultural production.

CASH SQUEEZE, SOURCES OF REVENUE

Cuba, hit hard by hurricanes in 2008 and by the global financial crisis, has been so short of hard currency that it stopped paying most of its bills and froze Cuban bank accounts of many foreign businesses two years ago. The situation has eased, but is not yet resolved.

To avoid future cash shortages, Castro has cut spending and sought more income for the state, which controls 85 percent of Cuba’s economy. He has slashed imports by 30 percent.

Cuba is hoping to collect taxes from the newly self-employed and boost revenues from old standbys like nickel exports and tourism, two of its top hard currency earners.

The government has said it will allow construction of golf course developments, with the goal of attracting wealthier tourists.  The courses will be a small piece of the tourist industry in Cuba, but, given golf’s image as the leisure sport of the rich, a larger symbol of how far Cuba is prepared to go to improve its economy.

The government also hopes to one day get more American tourists, should the U.S. ease or eliminate the ban on most travel to Cuba under its 48-year-old trade embargo against the island. Republican gains in the U.S. Congress in the Nov. 2 mid-term congressional elections make changes less likely.

In a potentially game-changing development, a consortium led by Spanish oil firm Repsol YPF is expected to drill an exploratory well in Cuba’s part of the Gulf of Mexico in 2011. It previously drilled an offshore well in 2004, but said it did not find oil in commercially viable quantities.

The drilling rig to be used, which has been under construction in China, will be passed on to other companies such as Malaysia’s state-owned Petronas and a unit of India’s ONGC  to explore in blocks they have leased in Cuban waters.

The U.S. Geological Survey has estimated Cuba has about 5 billion barrels of oil offshore, but Cuba says it may have 20 billion barrels. Cuba currently depends on imports from its oil-rich socialist ally Venezuela.

Russia’s state oil company Zarubezhneft has said it plans to begin exploration next year in two blocks adjacent to Cuba’s coast.  A unit of China National Petroleum Corp. is set to begin a $6 billion upgrade of Cuba’s Cienfuegos refinery, with financing mostly by China’s Eximbank, backed by Venezuelan oil.

What to watch:

– Possible U.S. moves to ease its ban on travel to Cuba.

– Movement of nickel prices, start of golf course projects.

– Repsol’s second deep water exploratory well in Cuba.

– China’s growing presence in Cuba energy sector

U.S.-CUBA RELATIONS

Cuba’s relations with the United States have dominated events on the island for more than a century. During the last five decades of open hostility, the United States has tried to unseat the Castro brothers through subversion, assassination, coercion and a half-baked invasion. The long-standing trade embargo meant to topple the Castros through economic strangulation remains in place despite its lack of success. Cuba has used it to gain international support by casting itself as David versus an overweening Goliath, and at home as a scapegoat for its economic problems.

Despite modest changes at the beginning U.S. President Barack Obama’s administration, U.S.-Cuba relations have thawed only slightly and near-term prospects for improvement look dim due to Cuba’s detention of U.S. aid contractor Alan Gross.

Gross has been held since Dec. 3, 2009 on suspicion of espionage and providing illegal satellite communications equipment to government opponents, but has not yet been officially charged with a crime. The United States says he was only helping Jewish groups set up Internet access, but Cuba is suspicious because he was working for a U.S. federally-funded program seeking to promote political change on the island.

The U.S. government says it will take no major initiatives to improve relations with Cuba as long as Gross is held. Cuba may want to hold him until it gets something in exchange, such as the return of five Cuban agents imprisoned in the U.S. or an end to the programs like the one that sent Gross to Cuba.

The Cuban government is in the process of releasing political prisoners and sending them to Spain to resolve one of its biggest problems with the international community and to get its opponents out of the country.

While U.S. reaction has been guarded, the 27-nation European Union has instructed its foreign affairs chief to explore improved relations with Cuba.

Meanwhile, Cuba has steadily built relations with other key countries, among them China, Brazil, Russia and Spain. It has a special relationship with top trading partner Venezuela, whose President Hugo Chavez is close to Fidel Castro and agreed in November to extend economic cooperation another 10 years.

What to watch:

– Fate of Alan Gross.

– Continued release of political prisoners.

– U.S. and EU reaction to Cuban reforms.

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Cuba deal boosts China’s Latin American oil plans

HAVANA (Reuters) – China is taking another great leap forward in its Latin American energy plans, raising Cuba’s energy importance in the process, with a deal to lead a $6 billion refinery expansion project on the communist island, experts said this week.

The project, to be funded mostly by China’s Eximbank, is the latest of several significant moves in the region for the Asian power as it continues to expand its global influence.

For Cuba, the refurbishing of its antiquated refinery in the coastal city of Cienfuegos will provide an outlet for oil it hopes to tap soon in the Gulf of Mexico, while also laying the groundwork for the island to possibly become a key oil transshipment point for the Caribbean basin.

A unit of state-owned China National Petroleum Corp expects to begin work in early 2011 on the project that will more than double the refinery’s capacity to 150,000 barrels daily and include construction of a liquefied natural gas terminal.

Venezuela, Cuba’s closest ally, will provide financial guarantees in the form of oil, a pattern followed by Beijing in other deals for energy in Latin America.

In the past two years, China has financed projects and formed joint ventures in Venezuela, Brazil and Ecuador which are expected to bring it at least 500,000 barrels of crude oil per day.

It has leased a 5 million barrel storage facility on the Caribbean island of St. Eustatius and reportedly talked with San Antonio, Texas-based refining giant Valero Energy Corp. about buying its refinery on the island of Aruba.

The oil marriage of China with Latin America is one made in energy heaven, said analyst RoseAnne Franco at energy and mining consulting firm Wood Mackenzie in Houston.

“The regions are clearly of complementary interest. China is looking for energy security while Latin America is eager for new consumer capital markets,” she said. “There is a good foundation there for the relationship.”

MODERNIZING CUBAN INFRASTRUCTURE

The Cienfuegos project is part of larger modernization of Cuba’s energy infrastructure. Brazil is financing the refurbishing and expansion of the port at Mariel, which will be the logistical platform for offshore oil operations in the Gulf of Mexico set to begin next year.

Venezuela, Cuba’s principal ally and top trading partner, is refurbishing a tanker port at Matanzas and rehabilitating a cross-country pipeline to the Cienfuegos refinery. It has also committed to constructing a 150,000 barrel per day refinery at Matanzas, which is about 60 miles east of Havana.

The expectation that Cuba will find significant offshore oil reserves is driving much of the work.

Several companies are planning to sink exploratory wells off Cuba’s northern coast starting next year.

The U.S. Geological Survey has estimated Cuba has about 5 billion barrels of oil and 10 trillion cubic feet of natural gas offshore, but Cuba says it could have at least 20 billion barrels of oil.

The other, larger piece of the puzzle is the expansion of the Panama Canal, which is supposed to be finished by 2014 and will allow bigger oil tankers to use the waterway linking the Pacific and Atlantic oceans.

Cuba is well positioned to serve as both a refining center and oil transshipment point for the newly expanded canal, said Jonathan Benjamin-Alvarado, a Cuban oil expert at the University of Nebraska in Omaha.

“Cuba doesn’t solve anybody’s energy issues, but it expands the opportunities of the global markets to have Cuba as another point of transshipment or hub for oil services and activities,” he said.

“There is a need for expansion and diversification of both refining and storage capacity in the region, and Cuba fits perfectly,” he said.

Should normal relations with the United States ever be restored, Cuba, just 90 miles from Florida, would be well positioned to serve the U.S. market, said Jorge Pinon, an oil expert at Florida International University in Miami.

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