Posted April 28, 2008 by publisher in Cuba Business.
By Konrad Yakabuski | Globe and Mail
If Communist Cuba is open for business - as its seems like never before to be under new president Raul Castro - then Canadian companies should be the first through the door, right?
After all, Pierre Trudeau became the first leader of a NATO country to visit the communist island in 1976. Jean Chrétien paid a follow-up visit to Fidel Castro a decade ago, just after passing legislation to protect Toronto-based Cuba booster Sherritt International Corp. from any nasty spillover in this country from the anti-Cuba U.S. Helms-Burton Act.
With that history of Cuban-Canadian complicity, Raul Castro’s stepped-up efforts to court foreign investment to develop the island’s oil, power and tourism sectors should mean dividends for Los Canadienses.
Not quite. Not only are Canadian businesses not first in line as Cuba opens up, not many outside Sherritt appear to be in line at all.
And even if they were, they’d risk being trampled by more quick-footed contenders - those erstwhile Cuba-bashers, Los Yankis.
Behind the scenes, American business lobbies have been increasing pressure on their government to ease or lift the 47-year-old U.S. trade embargo. There’s one reason for that: oil.
The U.S. Geological Survey estimates almost five billion barrels of oil and almost 10 trillion cubic feet of natural gas lie below Cuban waters in the Gulf of Mexico - enough to make Cuba energy independent for a while.
So far, oil companies from Spain, Norway, Malaysia, Brazil, Vietnam and India have all struck deals with the regime to explore for oil in Cuban waters.
But exploration rights for more than half of Cuba’s 59 deep-water blocks have yet to be awarded by Mr. Castro’s government, and U.S. oil giants want in.
A shifting political tide in the U.S., with the election of a new president in November and a waning of anti-Castro sentiment even among Cuban-Americans in Florida, means the U.S. oil firms just might get their wish. An easing of the embargo appears inevitable, according to Cuban-born energy consultant Jorge R. Pinon, “I think that script has already been written, even if we don’t know for sure yet who the [political] actors will be.”
Mr. Pinon, a former BP PLC executive and currently a professor at the Center for Hemispheric Policy at the University of Miami, added: “If Canadian businesses wait to read on the front page of the newspaper that the U.S. has lifted the embargo, they are going to lose opportunities.”
In fact, they are already losing out in at least one sector of the Cuban economy.
Under an eight-year-old exemption from the embargo, U.S. grain growers saw sales to Cuba soar to more than $400-million (U.S.) in 2007. Mr. Pinon expects them to nearly double this year.
Canada remains among Cuba’s biggest trading partners, with two-way trade totalling about $1.6-billion (Canadian) last year. But foodstuffs accounted for little of Canada’s $564-million in exports to the island, which consisted largely of machinery and equipment.
As a result, U.S. exports to Cuba are on track to surpass Canada’s this year, likely the first time that has happened since the 1959 communist revolution that brought Fidel Castro to power.
Mr. Pinon expects whoever wins the White House in November to extend an olive branch to Cuba, since pressure to do so from within the U.S. Congress has been growing.
In particular, Montana Democratic Senator Max Baucus, whose state could profit from relaxed rules governing agricultural exports to Cuba, has called Raul Castro’s recent economic reforms an opportunity to “get our Cuba policy right by easing trade and travel restrictions.” His sentiments have been echoed by governors in other grain-growing states.
Canadian businesses, meanwhile, seem strangely complacent. Mr. Pinon said he was surprised to see so few Canadian business representatives at the annual meeting of the Inter-American Development Bank, held earlier this month in Miami, while business people from other countries were keen to talk to him about opportunities in Cuba.
“Outside of Sherritt International, I haven’t seen any other Canadian companies positioning themselves for when Cuba opens up. But there are many U.S. companies that I know of who are planning to get in through joint ventures with [companies from other countries] to avoid being seen as carpetbaggers in Cuba.” In addition, a slew of non-U.S. consumer goods companies have entered Cuba in the past few years through joint ventures with the government, including Nestlé, InBev, Unilever, Pernod Ricard and British American Tobacco. But Canadian food and beverage makers are absent.
Junior oil producer Pebercan Inc. of Montreal and Vancouver-based Leisure Canada Inc., which has been trying to kick-start hotel and golf resorts in Cuba for years, are among the handful of Canadian firms currently on the ground in Cuba.
Toronto-based Sherritt remains Canada’s primary flag bearer in Cuba. It has grown in more than a decade to become the island’s biggest foreign investor with interests in nickel mining, oil production and power generation. It is also a minority partner with Spain’s Sol Melia SA in two Cuban hotels.
Sherritt, which has been likened to Cuba’s Canadian Pacific by its outspoken executive chairman Ian Delaney, has outlined aggressive plans to invest more than $1-billion in Cuba in the next few years, in part to increase the output the Moa nickel mine it owns in partnership with the Cuban government, by almost half to 49,000 tonnes annually.
Sherritt has also set its sights on offshore oil exploration. It is already Cuba’s biggest oil producer, pumping out more than 30,000 barrels a day in 2007 in partnership with state oil company Cubapetroleo (Cupet). The production accounts for about 15 per cent of Cuba’s daily consumption.
Cuba currently gets most of its oil from Venezuela, whose anti-American president Hugo Chavez has sold the black gold to his communist ally on favourable terms.
But with estimates of Cuba’s own offshore oil reserves pegged at more than five billion barrels, Mr. Castro is said to be eager to develop the resource and reduce Cuba’s dependence on Mr. Chavez.
Sherritt, meanwhile, also reached a deal with the government in February to increase the capacity of its one-third-owned gas-fired power plants in Cuba to 526 megawatts from the current 376 MW.
Mr. Delaney developed such a close relationship with Fidel Castrothat he was long a punching bag for the anti-Castro forces in U.S. politics. He still cannot set foot in the United States under the 1996 Helms-Burton Act that extended the reach of the embargo.
Fidel, 81, and Raul Castro, 76, are believed to have quarrelled over Cuba’s political and economic future. But Sherritt spokesman Michael Minnes insisted Mr. Delaney - who often talked about the Toronto Blue Jays with baseball fanatic Fidel - is on as good terms with the new president as he was with the old one.
“He has a very good working relationship with Raul and Fidel. He’s met all the senior folks in the government there,” Mr. Minnes said. “Raul understands the Cuban state has to evolve to meet people’s needs.” So far, the new president has shown that with a string of popular reforms that include lifting wage limits on state salaries that currently average less than $20 a month; allowing Cubans to own cellphones and other electronic devices; enabling retired state workers to own their own homes; and freeing up private farmers.
Mr. Pinon thinks it’s just a taste of what Raul Castro has planned. If Sherritt appears ready for that, other Canadienses risk missing the boat to post-Fidel Cuba.
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