This week marks the beginning of the second month of continuous protests in Haiti. Haitians have called for President Jovenel Moïse’s resignation, blaming him for failing to address the problems of widespread food and fuel shortages as well as the country’s double-digit inflation. The island is experiencing severe fuel shortages, with gas on the black market selling for $13 to $15 a gallon. To make matters worse, hospitals, orphanages, and other emergency services are functioning with limited capacity because of the fuel shortages and lack of safe drinking water.
For more than a decade, an energy give-way program led by Venezuela, Petrocaribe, guaranteed a stable flow of oil to 18 Caribbean and Central American nations, allowing them to purchase millions of barrels of petrol on preferential payment terms from Venezuela. These favorable conditions allowed recipient governments to sell the cheaply purchased oil and use the proceeds to pay for social programs. Haiti’s agreement with Venezuela entailed an official quota of 14,000 barrels a day. At the peak of Haiti’s importation of Venezuelan oil in 2012, the country was importing roughly 60,000 barrels of oil per day, covering nearly 70 percent of Haiti’s oil needs.
However, years of mismanagement and corruption, added to a drop in oil prices in 2014, led to a sharp decline of oil production in Venezuela. By August 2019, production was down to 770,000 bpd, a 74.3 percent reduction from the three million bpd during peak production throughout the 1990s. Consequently, in June 2018, Petróleos de Venezuela (PdVSA)—the Venezuela state-owned oil company—announced the indefinite suspension of fuel exports to eight Petrocaribe nations including Haiti.
The collapse of Petrocaribe forced Haiti to return to international markets to purchase oil. By 2018, Novum Energy, a Houston-based company, was supplying 80 percent of Haiti’s gasoline and diesel needs. But Haitian energy companies lacked the hard U.S. currency needed to be able to buy enough fuel in international markets. Haiti’s Bureau of Monetization and Development Aid Programs (BMPAD) reported that by early 2019 it ran out of operating funds. In February, a Novum Energy vessel was docked in Port-au-Prince for over a month waiting for a $37 million overdue payment. The payment was never made and on April 4, the vessel was sent to Jamaica rather than delivering its cargo of 150,000 barrels of gasoline, the equivalent to roughly half of Haiti’s monthly consumption. Novum Energy has supplied Haiti with oil for over four years, but since the collapse of Petrocaribe in 2018, Haiti has been unable to make its payments.
The challenges to relieving the fuel crisis
Haiti faces multiple roadblocks to relieve the current fuel crisis. First, U.S. policy toward Venezuela through the tightening of sanctions have intensified the fuel crisis in Haiti. Sanctions implemented on PdVSA in January 2019 effectively prevent U.S. companies from doing business with the state-owned oil company. In April, additional sanctions blocked PdVSA from operating in the U.S. financial system.
These sanctions not only weaken Venezuelan exports, but make it almost impossible to route bank payments to Caracas. More, they essentially block Petrocaribe countries from making payments on their oil debt to Venezuela, or arranging shipments of oil at market rates since they cannot find banks willing to transfer the money.
In addition to the effects of the Venezuela crisis on Haiti’s access to oil, there are a number of other factors hindering the country’s recovery. The introduction of fuel subsidies in 2008 by the Haitian government (then-President Préval) as a response to the global spike in oil prices, and the decision to freeze prices on all liquid fuels below international parity levels in 2011, have put the island’s current administration in a tough position. It is important to understand that the process for importing fuel in Haiti does not reflect a free market system.
In a market system, it would allow Haiti’s five gas distributors to buy directly from importers and set their own prices with some regulation. Instead, the Bureau of Monetization of Programs and Development Aid (BMPAD) buys gas from importers like Novum Energy and then sells it to the distributors. Because of fuel subsidies, currently BMPAD pays a higher price for fuel than the price that customers pay at the pumps. This fiscal year (ended June 30, 2019), the government spent $376 million on fuel subsidies—resources that could have been invested in Haiti’s education and health systems. Although the subsidies have helped Haitians afford fuel, this model is unsustainable and represents a huge burden on the island’s budget.
The Haitian government has made multiple attempts to eliminate fuel subsidies. However, each time, Haitians have taken to the streets in protest. The government reached a tentative deal with the International Monetary Fund (IMF) in February 2018 to obtain $96 million in loans and grants that could be used in part to pay for fuel. But as part of the agreement, the Haitian government was mandated to raise fuel prices by 38 percent for gasoline, 47 percent for diesel and 51 percent for kerosene.
The announcement of a hike in fuel prices in July 2018 caused widespread riots throughout the country, resulting in the Haitian Prime Minister, Jack Guy Lafountant’s resignation on July 14, 2018. The government backed down and kept prices fixed. Similar attempts were made in 2019; however, protests again blocked the implementation. Unable to fulfill the IMF’s conditions, Haiti has not gained access to crucial loans that could help ease the fuel crisis and facilitate economic recovery. International aid funds over 20 percent of Haiti’s operating budget, highlighting the importance of securing the loan.
On top of the challenges arising from fuel subsidies, internal politics have hindered the access to international aid, presenting yet another roadblock to easing the fuel crisis. Haiti has not had a functioning government since March, after then-Prime Minister Jean Henry Ceant was ousted in a no-confidence vote. The most recent nominee, Fritz William Michel has been approved in the Chamber of Deputies but the vote in the Senate was suspended indefinitely after opposition protesters vandalized the parliament building on September 23 to disrupt the session and block the vote. These internal divisions and political polarization have grave consequences for the Haitian government’s ability to access international loans and grants.
Without a prime minister, a budget cannot be approved to allocate funds, and consequently, the state is unable to receive international loans.
What can Haiti do to relieve the crisis?
The political crisis in Haiti compounds the effects of the decline of Petrocaribe, severely complicating in an ideal world a path to recovery from a complex fuel crisis.
To begin to overcome the crisis, first and foremost, a domestic political solution must be reached to approve a federal budget. This will be challenging as the opposition has refused to take part in a national dialogue without President Moïse’s resignation. If an agreement were reached, negotiations with international organizations could take place, providing Haiti with necessary loans to ease the fuel crisis in the short term. Since previous loans have called on austerity measures that incite the anger of Haitians, it will be critical for international institutions to focus less on austerity and thoroughly consider the gravity of the humanitarian crisis when setting conditions for loans. Although an aid package could relieve the fuel crisis in the short term, in the long term, Haiti must diversify its energy sources. Currently, Haiti depends on fossil fuels for 85 percent of electricity generation making it very vulnerable to volatile oil prices.
Some former Petrocaribe countries have been able to move away from their dependency on oil generated by the Petrocaribe agreement. For example, the Dominican Republic paid off their Petrocaribe debt in 2015, before the Venezuelan economy collapsed. Now, it has the opportunity to invest in renewables, diversify its energy sources, and transition to cleaner fuels like natural liquid gas. Despite this opportunity, Caribbean countries still face the challenges of weak sovereign credit, small markets, and limited access to financing for an energy transition. Of course the situation in Haiti is not directly comparable to the Dominican Republic. In Haiti’s case, diversifying energy sources is nearly impossible in the current political and economic state. To make the transition, the country must invest in infrastructure needed to access, store, and transport such fuels. Strapped for cash and unable to even make oil payments, it is unlikely that Haiti will be able to diversify its energy sources without international aid.
But not all hope is lost. One initiative from the World Bank, called the Off Grid Electricity Fund has already had a preliminary impact on Haitian energy diversification. Launched in early 2019, with an initial budget of $7.2 million over 10 years, the World Bank is partnering with the Haitian government to develop small-scale electricity grids and solar PV installation. The goal is to power 200,000 households over 10 years. This fund represents a step in the right direction; however, many more initiatives like these will be critical to create a long-term solution to Haiti’s energy needs.