June 2, 1999
CARACAS, June 2 (Reuters) - Venezuela and Cuba are in talks about a possible oil deal to allow Venezuela to explore for oil in Cuba, invest in an oil refinery and supply crude oil to the energy-starved island, Venezuelan industry sources said Wednesday.
The talks have taken shape since Venezuela's new President Hugo Chavez, an admirer of Cuba's Communist leader Fidel Castro, took office in February. Venezuela is the United States' biggest oil supplier .
A high-level delegation from state oil company Petroleos de Venezuela S.A. (PDVSA) visited Cuba in May, following a visit by Cuban oil officials in Caracas soon after Chavez's inauguration, and Cuban state oil company head Fidel Rivera Prieto came to Caracas for further talks this week.
"We are talking about exploration, refining and supply," said a Venezuelan industry source close to the talks. "We are studying the legal framework that will allow us to do business with them without contravening any national or international laws," he added.
Cuba has been desperately short of oil since the collapse in 1989 of its main supplier, the Soviet Union, but it is subject to strict sanctions by the U.S. which can hurt companies that invest in the island nation.
It is also short of cash and diplomats said the main obstacle to any deal would be economic.
A PDVSA spokeswoman declined to comment on the talks, but other PDVSA sources said oil exploration in Cuba, investment in its primitive refining system and a long-term Venezuelan crude oil supply agreement is under discussion.
"Cuba is in a process of liberalization and there could be a dilapidated refinery that you could perfectly well invest a little (in) and ensure a long-term outlet for your crude," a Venezuelan industry source said.
"There could also be an opportunity to explore in Cuba, but that would be a separate deal," he added.
It would not be the first time a political ally has attempted to alleviate Cuba's energy problem. In 1994, Mexico agreed to join a $200 million investment project in Cuba's Cienfuegos refinery, which also involved a supply agreement. But the deal fell apart on financial problems.
The Cienfuegos plant is now idle because it is cheaper to import refined oil products. Although completed only in 1991, it is based on obsolete Russian technology and requires big investments to operate efficiently.
Venezuela already supplies substantial volumes of refined oil products to Cuba through oil trading companies, but much of its crude oil comes from Russia under a sugar-for-oil swap which will expire this year.
About 15 oil companies from Sweden, Brazil, Britain, Germany, Spain and Canada already operate in Cuba, mostly in oil exploration.
Venezuela and Mexico already supply oil on easy terms to 11 Caribbean countries through the so-called San Jose pact, but Cuba is not included.
11:34 06-02-99
Copyright 1999 Reuters Limited
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