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Interview with Ing. Francisco López, President of  Petróleos de Nicaragua (Petronic)

Early in July , Tortilla con Sal interviewed  Ing. Francisco López, President de Nicaragua's State oil company Petróleos de Nicaragua (Petronic). Ing. López is a key figure for Nicaragua in the development of the Bolivarian Alternative for the Americas (ALBA) – the regional economic cooperation programme led by Venezuela and Cuba. Ing. López talks about  the achievements and challenges of ALBA in Nicaragua, how Petronic has been revived to benefit the Nicaraguan economy and also comments on the Nicaraguan opposition's disinformation campaign . This month Guatemala formally joined ALBA's flagship oil cooperation programme Petrocaribe. Costa Rica also applied to join Petrocaribe this month. The significance for United States policy in the region is hard to overstate.

TcS: Perhaps you could begin by talking about how ALBA began and how it has developed so far?

FL: In effect, we are going to be talking about and getting to know the most important  project in humanitarian and solidarity terms that Nicaragua has with the friendly, sister Bolivarian Republic of Venezuela, within the ALBA framework. This came about before Comandante Daniel Ortega's victory in this second phase of the Sandinista Popular Revolution whose only objective continues to be special attention for people in poverty.

In 2006, Daniel Ortega, now President Ortega, sent a delegation to explore the possibilities of oil supply. Contact was made with President Chavez and various ideas came up within the ALBA treaty and what is known as Petrocaribe and these ideas came from the unconditional solidarity-based support of President Chavez and the Venezuelan people for Nicaragua, to begin with by facilitating electricity generating plant of which the first 60 megawatts arrived before President Daniel took office. So those diesel fueled 60 megawatts are working now and are known as the Hugo Chavez plants in Las Brisas and Ciudad Sandino.

Then, around the same time, in November or December 2006 the first 80,000 gallons of fuel arrived via the River Rama. At that time, this was necessary because the generating plant needed that fuel too. The legal framework in those days was provided by Nicaragua's Association of Mayors together with Venezuela's PDVSA company and it was geared mainly to the supply of gasoline and diesel. That was the start, before the latest victory of the Revolution and the presidency of Comandante Daniel and the government of Unity and Reconciliation.

Logically, Nicaragua's oil company Petronic was taken over again. It had no activity . There existed only a warehouse with the general manager and four staff. Under neoliberal policies, Petronic was privatized; all its structures, service stations and the storage capacity in Corinto and Puerto Sandino  That was the  Petronic we found with four staff. These four staff had a management board of seven and these had seven assistants. So there were 14 people and four staff. The only functions and tasks they had were to receive royalties because the agreement of the transfer of all the public service stations that were handed over to Glencore meant they received a royalty per gallon that monthly added up to no more than US$40,000 plus an annual rent of about US$800,000. For practical purposes they handed over a highly profitable service infrastructure for a totally ridiculous, irrational, absurd price. That was the behaviour of the previous governments.

I began that year (2007) in February being nominated and entrusted by President Daniel Ortega, for which I thank him and of course the Nicaraguan people, and now we are developing our work so that Petronic is being reborn with the Revolution. In the present case, we began that very January 11th when President Daniel took office and took over Petrocaribe and that is what allowed us to sign a first contract with a Venezuelan company called PDVSA, a sale and supply contract. It is not a contract between governments. It is a contract between two companies. It is a simple business contract falling under the commercial law of Venezuela and the commercial regulations of Nicaragua.

There is no debt of any kind. The contract itself implies no obligation of  legal commitments. No guarantee is required of the Ministry of Finances or any other body of the revolutionary government of Unity and Reconciliation. It is a bilateral exchange between two businesses under whose terms and conditions the whole debt has to be paid within 90 days. That is the work plan. To date or until April, since last year we have received more than three million barrels and that represents in money terms about US$290 million which has been duly paid on time to our business partner and supplier PDVSA. Everything is in order.

TcS : One of the things that has come up in the national media is that there is some confusion over what is the mechanism managing the supply. Some say it is Petronic. Some say it is Albanisa. Some people confuse the work of Albanisa with ALBA-CARUNA. Could you explain the administrative mechanism?

FL : It's straightforward. The supply relationship Petronic has with PDVSA is a simple commercial contract which I can give you so you can see it is a simple contract of sale from one business to another. But we don't just deal with PDVSA. We also buy fuel from ESSO. We sell fuel to ESSO. That's normal. Perhaps the issue is not the mechanism but why a business called Petronic should receive such concessionary terms from a Bolivarian Venezuelan company called PDVSA. And this is the model of the Bolivarian Alternative within the framework of fair trade, within that responsibility and within the new models of commercial understanding of two revolutions - the Bolivarian Revolution and the Revolution of the government of Unity and Reconciliation. So the process is simple and ordinary. Month by month Petronic declares its imports in detail as any other business would.

What is going on here is a hostile discourse trying to raise these big question marks. Critics can go to the Company Register, to the Tax Office, to the Customs. There are all the import records. Petrocaribe is a regular business, What the Right gets upset about, those who conspire and harass the government of the impoverished, the government of Unity and Reconciliation, is that for them the supply transaction should not have been run by Petronic but incorporated into the budget of the National Assembly.

But that doesn't make sense. Here we are obeying the principles of the Constitution of the Republic of Nicaragua, we are respecting the procedures laid out in the Commercial Code. That has been the relationship between Petronic and PDVSA, the first contract which ended in May this year. That contract says that for each barrel of fuel that comes to Nicaragua, comes to Petronic in this case, Petronic because here we have to be clear that Petronic is not acting either through ALBA nor through Petrocaribe. Petronic in this case is acting as a business, authorized by its legal statutes which permits it to undertake obligations with third parties. That is a straightforward transaction. It is in accordance with its statutes and that is what allows us to do that.

TcS :  A question some people ask is that they suggest Petronic, by virtue of being a State or semi-State business, should it for some reason in future have cash flow problems, these people argue that Petronic's financial problems could create an obligation for the Nicaraguan State and that, they argue, is the reason for their concern about the supply mechanism of Venezuelan oil. What do you think of that concern?

FL : It's baseless, the issue of financial problems. PDVSA the Venezuelan seller and Petronic the buyer have their payments up to date. No commitment is undertaken involving the State. Furthermore, that contract between Petronic and PDVSA expired in May this year and a new contract has been signed between the joint company Albanisa and PDVSA. What are the terms and conditions? Exactly the same. Albanisa receives the product and has to pay PDVSA within 90 days.

What people here fail to grasp and this is where the argument, the boycott, the attacks on the government come in is that the issue of the means of payment that Petronic or Albanisa now has with Venezuela is that 50% is paid within 90 days, 25% is paid to a legal entity defined by Venezuela, in this case the ALBA fund and 25% is paid to a Nicaraguan financial entity called Caruna, those are the choices the owner of the money, PDVSA, has decided on and that is how the matter is treated in the contract. People know that very well. We have been to the Economic Commission of the National Assembly three times. The business project has been explained to them exhaustively with documentation.

But for the Right it is not a matter of a business project, rather they see it as a way of boycotting the work President Daniel has achieved within the Bolivarian Alternative of the Americas. But at no time has either Petronic or Albanisa implied a debt obligation for the State or, put another way, the Nicaraguan State has no commitment with the Venezuelan government. That is in the contracts. The Controller General can certify that, since they are reviewing at the moment all the technical, accounting and financial areas of Petronic.

TcS : Am I right in thinking the IMF also received an explanation?

FL :  Likewise, the IMF received three presentations documenting the contracts. It was amply demonstrated to them in these three presentations - two on Petronic and one on Albanisa - and they are clear that the matter is a technical one. Technically, everyone is quite clear that there is no State debt, the President of the Economic Commission of the National Assembly and the delegates of the IMF. What the Right never cease to question, their hostile argument, is why Venezuela should give these concessional credits to a business. Why not channel them through the National Assembly? That is what they want - to administer the contract.

TcS : ¿Would it be fair to say that from the beginning the FSLN foresaw they would not have a majority in the National Assembly and so for that reason set up a mechanism outside the national budget?

FL : We are not improvising mechanisms. The legal statutes of Petronic, Nicaragua's oil company, date from 1995 and have not changed. We are applying the law precisely as it stands.

TcS : Many people who see the benefits of ALBA worry about the effects of a possible change of government in 2011 or rather after the elections of 2011 and are worried that the country could lose the benefits of ALBA as a result of that political change. What do you think of those fears?

FL: No way. Because the laws don't change when the government changes. The laws continue the same. And that is what I was referring to. The Organic Law reformed with Decree 26 in 1995 approved on July 14th that year, published in the Gazette, states categorically that Petronic is an entity with legal personality, its own patrimony, set up for commercial purposes for an indefinite time and fully able to acquire rights and obligations. We're not talking about ALBA here, we're talking about Petronic and we are precisely within the spirit of that law.

There is no requirement within these contracts for the government to intervene of give any guarantees. That also means that Petronic is subject to the regulation contemplated in laws like Law 477, the General Law of Public Debt. There is no way to generate public debt, because public debt has to be authorized by the National Assembly. Other laws are, Law 550, the Law of Financial Administration and Budgetary Regime, both administered by the Ministry of Finance  and the Law of Contracts, Law 323.

All this we have presented to the National Assembly. What faculties does the company have going by the Decree? To explore and exploit hydrocarbon bearing resources, to refine oil, to sell oil and its derivatives, including the import and export of the same. That dates from 1995. It's not some fairytale we are telling. And finally we can store oil or carry out any other activity relating to our commercial life.

So then we are authorized by the law governing the Petronic company, just as with the other joint company, which has other regulations but always within the legal framework and the tax framework. Just so you have a better idea, when a tanker arrives here, the Corinto Port Authority receives it, the Customs receives it, the Police, the Army, even dogs are sent up onto the boat to see it isn't carrying drugs. And there the authorities look at the Bills of Lading to see what is supposed to be on board, they look at the invoices, they check if it is diesel and not something else so as to be sure it is what they say it is, they verify and not until that inspection is complete does the boat approach the port, where it unloads and makes the relevant declarations. This happens every day the world over.

But the Right, our enemies argue, attack and sabotage. They sabotage every day via the media using media terrorism to attack this noble project offering faith and hope to impoverished people. They attack every day. The line is to reject and refuse to understand how countries can be in solidarity with us. Why do they want and demand ratification by the National Assembly? So as to have influence themselves over the management  when their record is negative. Petronic hardly existed. The business has been reborn. Where it had 4 employees now there are more than 120 and we are selling 60% of all the nation's fuel consumption and expanding.

In such a way that, just as we buy from PDVSA, so we are buying from ESSO and the national oil distributors but we are also selling to businesses and to cooperatives. It is a straightforward commercial transaction. What they refuse to accept is that these new models exist, justice based models in which one does not talk about free trade but rather fair trade, where the Bolivarian Alternative of the Americas is a option favoring the impoverished, the oppressed, the exploited, as we have been ourselves, and that is now a social model, an economic model, a financial model. And what would it be like if the opposition had the newspaper came out saying "Chavez's oil is a political project" when every day two million barrels of oil from our Venezuelan brothers enters the most secure ports in the world in the United States. I only mention that because no one says anything in the United States.

TcS :  Venezuela even sells cheap heating oil to low-income districts there ...Staying with the issue of Petronic's import capacity. I think I read in the papers a statement from you saying that in a short period of time Petronic could become Nicaragua's biggest oil importer. What would that mean for the national economy?

FL : Nicaragua consumes currently about 10.5 million barrels of oil a year. Right now we expect to ensure about 64% of that. Up until April this year we had imported 1,186,000 barrels - almost what we imported in the whole of 2007. In 2007 we only imported 1,700,000 barrels. Now up until April we have imported 1,186,000 barrels and we are projecting to import another 5,300,000 barrels for a total of 6.9 million barrels or 62% of national imports reckoned at 10.9 million for this year.

Who imports the rest? ESSO. ESSO last year only allowed us to import 1,7 million barrels. Why? Because they were not buying our crude oil. Crude oil is most of what they refine here. But now, thankfully, we have an understanding. They have started buying crude from us and we are delivering about 500,000 barrels of oil a month. Because in the end it is the same product they were buying in Venezuela but with certain concessions. We don't ask them for a letter of credit. They have been surprised at the fair deal we are giving them.

TcS : What does that mean for the national economy? What benefit does it bring for Petronic to be the country's biggest oil importer?

FL : First we need to be clear that the law does not allow Petronic to finance anything, by subsidy or by subvention That is not in the commercial remit of either Petronic or of Albanisa because they are buyers and sellers and within 90 days have to pay for the product they receive from Venezuela. What I need to make clear as a Nicaraguan and a government official, as a revolutionary and a Sandinista, is that, as President Daniel Ortega and Rosario Murillo have said, the Bolivarian Alternative of the Americas has been a life raft for this country.What would have happened if we had not obtained that finance? When the problem of power cuts  was resolved by that product from Venezuela enabling the generating plant to operate?

So when you ask, "what are the benefits when Petronic doesn't fund or subsidize?" it's simple. The fair trade model of Bolivarian Alternative for the Americas has various programmes. When I said the terms and conditions for paying Petronic's oil invoice within 90 days, 50% is sent to PDVSA via normal bank transfer. It gets sent where they specify and in addition there's a programme of payment in kind so that instead of paying in cash we can send beef or live cattle, milk, beans, the black bean preferred by our sisters and brothers in Venezuela. That is called a programme of fair trade in kind, which doesn't involve me because the Bolivarian Alternative has its own operating mechanisms.

For example, Petronic pays 50% within 90 days by bank transfer to PDVSA and another 25% to Caruna - which the opposition regards as another unknown, a mystery, a subornment or underhand payment. But they know very well it is a straightforward business deal. For each dollar that enters the country via ALBA the programme leaves fifty cents in Nicaragua. Those fifty cents are managed by Caruna and the ALBA fund which we obviously do not manage because we just make the payments and beyond that we are out of the picture completely. From then on, all that is managed by PDVSA's ALBA fund which has its own financial mechanisms.

TcS :  So 50% of the oil purchase  is paid to PDVSA within 90 days, 25% is paid to the ALBA fund, does PDVSA manage that?

FL : No, the Bolivarian Alternative for the Americas has its fund with its operational mechanisms. Daniel's heroism lies in his decision and success in joining ALBA. It is not government money and that money involves no commitment of any kind for the government.

TcS : The basic line of the opposition media is that everything depends on Daniel's personal whim. What do you respond to that?

FL : They know very well, because nothing is hidden in the financial system and in the relevant declarations, the fund is paid to a non-governmental body and is managed within the ALBA policy framework. That framework has social policy areas that are inconceivable for the Right, inconceivable for the people who sabotage this project serving impoverished people.

TcS : So then if 50% gets paid to PDVSA. 25% gets paid to the ALBA fund managed by the Venezuelan authorities, and the other 25%?

FL : The contract stipulates that the other 25% should be handed over to a legally established Nicaraguan entity and we whether as Petronic or as Albanisa are instructed to pay the money to Caruna, a national financial body that has existed for 20 years and which as a bank or financial entity has a contract in the form of ALBA-Caruna with PDVSA to pay over 25 years. And that fund happens to finance thousands of Nicaraguan producers to produce beans, seed, maize, then there is the Zero Usury programme  and also the Zero Hunger programmes are funded in part with money received by ALBA Caruna.

But the government in its turn has another fund and it is worth explaining that the government has funds for the Zero Usury programme managed by the Ministry of Finance Commerce and Industry, MIFIC, as well as  the funds received by ALBA-Caruna, to make possible and finance the Zero Usury projects. The funds have different sources but their application is the same. They are commercial transactions but within a fair framework for people in need. These people pay 4% annual interest when before they borrowed from usurious micro-credit companies who lend US$100 in the morning and in the afternoon come looking for US$120 or else lend at 20% interest per week. This is criminal. These are the changes the opposition don't understand and which come about thanks to the Bolivarian Alternative for the Americas.

TcS : Another criticism that crops up from time to time in the national media in Nicaragua is the slow progress on the oil refinery project named after Simon Bolivar and its possible cancellation. Can you comment on those allegations?

FL : Today La Prensa published a report saying that "Chavez's oil is a political project" and it talks about the refinery. A refinery is not like building a fifteen-storey building. To the point that the last refinery in this country was built fifty years ago. A refinery is not a simple building project like any other. To the extent that, in Central America, there are no more than three refineries. Ours here belongs to ESSO, from which the empire has taken any quantity of profits and has not even paved a single road or built a single house for people. It hasn't bothered at all and nobody has said a thing. On that refinery, not one has been built in over half a century and it is now obsolescent.

What President Chavez and President Daniel began here with the refinery called the “Supreme Dream of Bolivar” is in the following stage, to be precise, the advanced feasibility studies are already done as are the site specifications. The basic engineering and detailed engineering studies are in process. Not even a year has passed since we began this. And it is not Nicaraguans that are doing the building. They are international specialists, ADSEM of France, British specialists, PDVSA's engineering company from Venezuela, people who have built eight refineries in the Untied States. This is the experience they have.

How can anyone say it's like building a structure of ten floors? No, this is a super-delicate study involving environmental impact studies taking seven months. The French are already doing the certifications and these impact studies are extremely demanding. But yes, the spirit of the Presidents' intentions remains : to have a first stage built within five years to process 25,000 barrels of the 150,000  which is the design proposed by President Daniel and President Chavez. But on top of that before the year is out we will see facilities for receiving oil that will enable us to double our reception capacity.

So next year, Nicaragua's importer, which will be Albanisa is going to be able to import 100% of the country's fuel while ESSO continues importing but there will be competition or an arrangement managed jointly because we are not trying to take away production capacity from ESSO, on the contrary as a system we are trying to preserve its production capacity.

We can rely on the word of President Hugo Chavez and of President Daniel Ortega. Already there is investment in definition of the refinery site. And just defining the refinery's site involves large scale studies. These are costly research investments. Even a simple study costs two or three million just for the geological, hydrological and geophysical aspect or the meteorological aspect. All those components demand basic engineering studies and that is already well advanced and certified by ADSEM, a French company that certifies this kind of study all over the world.

TcS : Changing focus a little, the oil price went up to US$145 yesterday. Last week it was at US$136. How does this apparently constant rise in the international oil price affect Petronic?

FL : We have to recognize that when we talk about the oil price, it is not set by Venezuela. Nor does Nicaragua set it. OPEC defines those prices based on the circumstances it sees in relation to consumption, reserves and in relation to other policies they have. We in Petronic receive oil at that price and we transfer it at exactly the same costs, "back to back", the price Venezuela sells to us is the price used here.

The people who make money are the oil companies who distribute it. Because unfortunately here in Nicaragua we do not have regulations obliging Esso, Shell, Texaco or the DNP to apply a fair price. Now in Nicaragua there is what is known as a free market, what one might call an unjust market. So then within what we have spoken about fair trade, those prices affect not just Nicaragua. It is a world problem, a planetary one  and cannot be addressed as if it were a partial problem.

What we can say is that people are affected because prices rise automatically . Not, though, in Managua's urban transport where a social price is in force no matter what a barrel of oil may cost and so people continue paying two cordobas fifty cents in Managua's buses and now nationally President Daniel via ALBA in relation to all passenger transport has managed a subsidy of US$1.30 per gallon. That is part of the benefit which is disparaged by the right-wing saboteurs.

So then, the international price at which we receive the oil as invoiced from Venezuela is the price we apply. But remember that 50% of the price of every barrel that arrives in Nicaragua goes into social projects in this country.

TcS : Staying a bit with the issue of OPEC, perhaps it is a bit outside your area because it deals more with the diplomatic sphere at an international level, but Comandante Daniel a little while ago was suggesting together with President Hugo Chavez that they were going to ask OPEC about the possibility of establishing a preferential price for a group of more than 40 countries, mainly extremely poor countries in Africa and the poorest countries in Latin America. Do you have any information about that idea?

FL : President Chavez in these OPEC meetings has expressed that idea and it hasn't had any response. And the only way he, together with the other ALBA Presidents, is able to help is by offering concessionary terms for projects in poor countries like Nicaragua, like Haiti and other countries making up ALBA among them now Honduras which has joined Petrocaribe and is receiving concessionary terms. But in the financial framework, what the Comandante is proposing in OPEC is that these countries receive an effective freeze on the price they pay so as to permit economic stability and maintain economic growth.

TcS : The outlook in the upcoming elections in El Salvador looks pretty favourable to the candidate of the FMLN. Do you think El Salvador might increase its participation within the ALBA framework as Nicaragua did, if the FMLN win the elections in March next year?

FL : You have mentioned the FMLN and that is an organization in favour of the poor. It is an organization for justice. And that means automatically if they get into government, as revolutionaries they will join the Bolivarian Alternative for the Americas and Petrocaribe, because these offer concessionary terms that will allow impoverished people in El Salvador to grow.

TcS : If El Salvador joins, maybe too the government of Alvaro Colom in Guatemala and other countries. Right now Ecuador has said it does not want to join ALBA  but that could change in the future, Does ALBA have the capacity to integrate so many countries?

FL : ALBA is not just the supply of fuel or oil and its derivatives. It has other components of justice like Mission Miracle, like literacy programmes, like the refurbishment of technological equipment in hospitals. But if we try and identify whether or not is has the capacity to produce oil for the whole of Central America. Yes, perfectly. Central America's consumption reaches about 160,000 barrels a day and here in Nicaragua a refinery is being designed with a regional, integrationist focus  That means that for products today processed elsewhere in other countries, consumption will remain the same, only now its origin will be from Venezuela. Venezuela has the biggest reserves in the Orinoco and capacity sufficiently strong to be sending 1.8 million barrels a day to the United States.

TcS : Recently, the United States reactivated its Fourth Fleet. This is the fleet that during World War Two protected the Caribbean against German submarines during the Nazi era. And then it was mothballed for decades. Now in a time of peace they have reactivated it when there is no aggressive threat in the region. How do you interpret that?

FL :  I think that the more they realize their economic model is exhausted they are returning to strategies of force, strategies of imposition, as they have done in Iraq. They do not dismiss imposing their policies on countries by force. But the Latin American alliance of peoples is forming and we will know how to defend ourselves. That move is a threat. It doesn't make sense to take up your rifle if you live in a time of peace. Or if it is through fear, then fear of what?

Since their methods, their policies, their neoliberal ideology have failed, their whole system is collapsing. Here in Nicaragua when the government of Unity and Reconciliation came to power we found more people in poverty, more children without schooling, more children malnourished, nonexistent infrastructure and energy capacity subject to power cuts. So that strategy has already collapsed economically and they are looking for alternative methods among which we think they have not discounted invading any territory they deem necessary or to try any means to put pressure on the development of countries in Latin America.

TcS : Do you think it is fair to describe national media coverage o ALBA as a destabilization campaign?

FL : It is permanent sabotage. that's how I see it. I also consider it to be media terrorism. It means attacking the hopes of the poor, the rights of children, of the malnourished, hungry and thirsty. Those media don't cover at all, for example, that President Daniel recently inaugurated another 40 megawatts of generating capacity.

To give you some idea, in the previous 16 years in this country, only 212 megawatts of new generating capacity was built, in 16 years. President Daniel and his government in less than two years have installed 280 megawatts. That gives you a clear idea of the change in concern about and attention to the country's development.

What is happening is that none of these ideological vultures in La Prensa or El Nuevo Diario who attack individuals want to recognize it. It is well known how they attack me day after day, even my family, talking about influence trafficking with an amalgam of the most outrageous lies. But we have to continue showing things by what gets done and the people are clear that President Daniel and the government of Unity and Reconciliation is for them.