COLUMN | Caribbean update: British Virgin Islands, Venezuela, Guyana and Colombia [Offshore Accounts]

Operations at the Perla Field, one of Latin America's largest gas fields, offshore Venezuela (Photo: Repsol)

Ah, the Caribbean, a tropical paradise of idyllic isles fringed with palm trees, coral reefs and white sand beaches, famous for calypso music, cricket and…. oh, flags of convenience, schemes to sell passports for cash, rampant drug smuggling, and considerable oil and gas potential.

Last week, we looked at the implications of the shocking arrest of the British Virgin Islands’ (BVI) premier and his director of ports in Miami on drugs trafficking charges (here). This came after they were caught on a private jet inspecting bags of cash that they believed a Mexican drug cartel would pay them.

The “Mickey Mouse” governance of these small tax havens creates threats to the shipping industry from money laundering and corruption and undermines the rationale of so-called flags of convenience. As we reported, BVI ports director Oleanvine Maynard told undercover drugs agents that she intended to launder the proceeds of her drugs crime through BVI shell companies.

This week we widen the scope to look at the problems of governance in the Caribbean-facing countries that have long had oil production (Venezuela), those that are only now becoming major producers (Guyana, which borders the Caribbean) and those that hope to be major offshore producers (Colombia), as major deepwater gas appraisal programmes kick off offshore Cartagena.

The combination of oil, gas, and drugs is a pretty potent one.

British Virgin Islands update

The woes of Andrew Fahie, the former premier of the British Virgin Islands, continue. His efforts to obtain his release from custody by claiming immunity from prosecution as head of state have failed. The US Government was too polite to point out that the head of state of the BVI is actually her majesty Queen Elizabeth II, but anyway, the US Attorney’s office has denied Mr Fahie’s formal motion for release from pretrial detention.

The US argues that whilst Mr Fahie was the premier of BVI, he was not head of a sovereign state recognised by the US government at the time of his arrest,  The Jamaica Observer has reported (here).

Miami vice tightens

Mr Fahie was offered US$500,000 bail by the Federal Court, but last week prosecutors filed an appeal against the trial judge’s decision to offer him that bail. So, he will remain in custody awaiting the resolution of the appeal, the court told the BVI News website (here).

Even if Mr Fahie is granted bail, it comes with terms and conditions, including a requirement that he must disclose the source of any funds that are used to acquire the assets for the bail payment, and that they must be legitimate funds. The offer of bail was also based on a requirement for him to give up his passport and travel documents to the court, to refrain from visiting any “transportation establishments,” and that he remains confined to the address he gave to the court in Miami, wearing a monitoring bracelet on his ankle at all times.

Oleanvine pleads the fifth

His ports director, Oleanvine Maynard, meanwhile, has “pleaded the fifth” – the right to avoid self-incrimination – and is declining to answer American investigators’ questions about the alleged cocaine-smuggling plot.

In the run up to their arrest, Mr Fahie had been pushing to give Ms Maynard control over the islands’ airports as well as its sea ports. One can see how this would have been very convenient for the duo in their conspiracy to smuggle drugs for the Mexican Sinaloa cartel.

But so far, like anyone charged with a criminal offense, Andrew Fahie and Oleanvine Maynard are both entitled to the presumption of innocence.

Birds of a feather flock together?

At home in the capital Tortola, the BVI’s political crisis has deepened, as Britain tries to asset direct rule over the territory in the aftermath of the drugs arrest and the damning commission of inquiry into corruption and bribery under Premier Fahie. Direct rule is being resisted by Mr Fahie’s colleagues in the islands’ parliament.

The Organisation of Eastern Caribbean States has chimed in to say that it regards direct rule from London as a “retrograde step”. In a statement (here), the leaders of Antigua and Barbuda, Dominica, Grenada, Saint Lucia, Saint Vincent and the Grenadines, Saint Kitts and Nevis and Montserrat, said they had taken note of the position taken by the duly elected BVI government, “which, while welcoming the recommendations arising from the inquiry, rejects the intention of the British government to impose direct rule on the BVI”.

Readers will note that many of these states are major centres of offshore financial services, and of flag of convenience ship registries. All six have economies based on similarly opaque disclosure rules, weak institutions, and small electoral bases, like BVI.

Mr Fahie is not the first leader of a small Caribbean state to be busted for collusion in drugs smuggling. In 1985, Norman Saunders, the former chief minister of the Turks and Caicos Islands, was convicted in a plot to use the islands as a drug-smuggling way station to the United States and was sentenced to eight years in prison, whilst Stafford Missick, the Turks and Caicos’ minister of commerce and development, was sentenced to ten years in prison, following his conviction on a cocaine-importation charge (AP report here).

Fahie isn’t even the only Caribbean leader accused by the USA of drug smuggling, either, as we shall see.

EZ Shipping and easy money?

Meanwhile, the first shipping-related revelation has emerged from the BVI commission of inquiry. The inquiry’s report has recommended a full audit, and if deemed necessary, a criminal investigation into Mr Fahie’s dealings with EZ Shipping. EZ Shipping was hired in 2020 by the government to provide what the BVI press has described as “radar barges”. These were rented as part of the country’s defences against drug-smuggling by sea.

The former British judge running the inquiry, Sir Gary Hickinbottom, has recommended an investigation of how EZ Shipping came to be retained by the BVI government under a multi-million dollar contract in the first place. Sir Gary recommended that the investigation should address the extent to which there was compliance with public procurement policies in place for major contracts by the BVI authorities, along with a justification for any departure from these regulations.

Premier Fahie has described the EZ Shipping barges as having saved the government “untold millions (here). But did he follow the rules when he awarded the company a contract? Were there, ahem, “conflicts of interest” between a man now accused of trying to smuggle drugs into BVI contracting EZ to provide the territory’s primary defences against drug-smuggling?

The commission of inquiry report has recommended that all major contracts exceeding US$100,000 that were considered and approved by the BVI Cabinet over the last three years should be the subject of a full audit performed by the territory’s Auditor General.

EZ Shipping is an established cargo line in the Caribbean, and has reported that it has a partnership with Crowley of the US to provide services in the region. It acquired the multi-purpose cargo vessel Midnight Czar in 2018 (here). The vessel is around 90 metres LOA, 2,982 GT, and offers 314 TEU capacity above and below deck.

Venezuela – another Caribbean country run by an alleged drugs smuggler

Anyone who wants to consider how corruption and bad government in the Caribbean can wreck an entire country, needs only to look at Venezuela. Since Hugo Chavez took power in Caracas in 1999, he and his successor Nicholas Maduro presided over a massive pillaging of state funds, which makes even the plunder of South Africa by former president Jacob Zuma look positively amateurish.

In 2020, the American government indicted President Maduro and other top officials in Venezuela, including the defence minister, General Vladimir Padrino, for allegedly conspiring to smuggle cocaine into the US. The Department of Justice accused Maduro and three military men of running a drug-smuggling ring known as the “Cartel of the Suns.” Unlike Fahie, however, they have avoided the cruise industry conference in Miami where they might be arrested.

Venezuela is a warning to all as to what happens when criminality is entrenched in the highest levels of government.

Take three million barrels of production a day!

President Chavez took a country that was producing over three million barrels of oil per day (bpd) in 1999, then nationalised most of the oil industry, booting out ConocoPhillips and ExxonMobil, and fired most of the professional management of the state oil company PDVSA, replacing them with his party hacks. For a while, none of this mattered, as Venezuela’s large reserves continued to produce, and Chavez continued to spend the oil income. The proceeds were both lavished on social programmes in Venezuela, and embezzled by Chavez’ ministers and officials.

In 2003, the Chavez government suspended private foreign currency trading in an effort to prop up the value of the Venezuelan currency, the bolivar. This meant that to acquire US dollars, Venezuelans had to apply through a government body, the Commission for the Administration of Foreign Currency. It set an official rate that grossly overvalued the bolivar against the dollar, and allowed the friends and cronies of the regime to buy dollars at the absurdly low official rate, whilst routinely denying businesses and private citizens access to funds. Venezuela’s non-oil exports collapsed, starved of investment.

Chavez died unlamented in 2013, and his successor, the moustachioed despot and former bus driver Nicholas Maduro, presided in the single largest economic collapse in any country in peacetime. The fall in the oil price in 2015 and the fall in production in Venezuela exposed the weakness in the Chavista model. The country could no longer afford food imports or basic consumer goods like toilet paper. People starved (here). Hyperinflation ravaged the economy. Oil production requires investment, and investment plunged as funds dried up and nobody wanted to lend to PDVSA.

The result was social breakdown, and Venezuela had the highest murder rate in the world in 2015 and 2016. Demonstrators against the government were shot and tear-gassed. America imposed sanctions on the oil trade as Maduro refused to relinquish power.

Money from PDVSA laundered through Panama and Luxembourg

Meanwhile, prosecutors in Andorra have established that over US$2 billion extracted from PDVSA in bribes and procurement scams was laundered through banks in the tiny territory in the Pyrenees (here). As expected, Maduro’s cronies were quick to get the cash offshore through companies in the some of the usual jurisdictions of choice for money launderers – Panama and Luxembourg. Like BVI, Panama and Luxembourg do not make public the ultimate beneficiaries of companies registered there.

“The extreme hardships faced by many Venezuelans [have] seen almost five million flee the country since 2015, with almost half estimated to have sought refuge in Colombia,” noted Matthew Scott. “Venezuela’s calamitous economic collapse, the worst ever witnessed during peacetime, and near failure of the state serves as a cautionary tale for petroleum-rich states and the dangers of falling into the extractive trap where reliance upon oil becomes the primary economic engine.”

Turn it into 540,000 barrels per day

The graph below shows what bad government did to Venezuela:

Venezuelan oil production from 2010 to 2020 (amounts in thousands of barrels of oil produced per day in the country)

By 2020, Venezuela’s oil production had collapsed by over 80 per cent from 2015 levels to just over 500,000 bpd today. In a powerful metaphor for the neglect and incompetence of the Venezuelan regime, the FSO Nabarima, which had been delivered as a newbuilf to ConocoPhillips for the Corocoro field near the border with Trinidad, was “listing, rusting and taking on water” in 2020, according to National Geographic magazine, which feared an environmental disaster here. Corocoro field, which ConocoPhillips had projected would produce over 100,000 barrels per day, was shut in by the Venezuelan state oil company, and remains not producing a single barrel at the time of writing.

The FSO Nabarima listing in the Gulf of Paria off Venezuela on October 16, 2020 (Photo: Fishermen and Friends of the Sea)

Bad government wrecks lives and wrecks entire countries. Offshore secrecy in places like BVI and Panama makes it possible.

Guyana and Suriname at a cross roads

Venezuela’s neighbours Guyana and Suriname desperately need to avoid Venezuela’s mistakes. These two countries are now on the cusp of becoming major oil producers at a time of high oil prices, as we reported here. ExxonMobil and its partners Hess and CNOOC have discovered over 10 billion barrels of oil in Guyanese waters, whilst TotalEnergies and its partner Apache have made a significant series of discoveries offshore Suriname in deepwater Block 58 project. Final investment for the development offshore Suriname is expected this year, with first oil hoped for by the end of 2025.

Liza Unity achieves first oil

Guyana is already producing. First oil was achieved from Guyana’s second floating production storage and offloading vessel (FPSO) Liza Unity in February this year, with production projected to peak at 220,000 barrels of oil per day (bpd). This comes on top of the 120,000 bpd production from the Liza Destiny FPSO in Phase 1 of the project, taking total oil output offshore Guyana to around 340,000 bpd. By 2030, it is forecast to hit one million barrels per day, and by 2035 over 1.5 million barrels a day.

Double-digit growth

Last year, the economy of Guyana grew 20 per cent, according to The Economist magazine. This year, production from Liza Unity will drive it up close to 50 per cent. Now, flush with cash, the government of Guyana projects its own revenues could increase from around US$4 billion this year to over US$10 billion a year from 2025 onwards. With the population at just 787,000, this abundance of riches opens the way for the possibility of opportunity for prosperity in Guyana on a scale hitherto unseen in the country, but also for corruption on a massive scale, if mismanaged.

Guyana has now set up a sovereign wealth fund to try to steward the first fruits of its oil production, and President Irfaan Ali has stated that the country will try and invest in infrastructure, heath care, and education to ensure broad-based economic development, a better standard of living for Guyanese, and diversification of the economy away from oil revenues.

Whether the country’s institutions are strong enough to manage the influx of cash is unclear.

Colombia hopes for good appraisal results

Whilst Guyana and Suriname are moving to exploit their deepwater discoveries, Colombia currently has two rigs drilling offshore, a record for the Caribbean nation. Colombia has large onshore production, but offshore development has been limited to the small, shallow water Chuchupa gas field in the Caribbean.

Now Shell is drilling offshore with the Transocean drillship Deepwater Thalassa to appraise a potentially large natural gas discovery. Deepwater Thalassa is currently working on the Gorgon-2 well in Block COL-5.

In 2020, with perfect timing, Shell signed an agreement (here) with Colombia’s state oil company Ecopetrol to acquire a 50 per cent stake in three offshore licences in Colombia. These contained the existing Gorgon-1, Purple Angel-1 and Kronos-1 gas discoveries, which had been drilled by Anadarko before that company was sold to Occidental.

Petrobras announced last week that it had spudded the Uchuva-1 prospect in the Tayrona block in 837 metres of water. Petrobras has chartered the Transocean semi-submersible rig Development Driller III for US$331,000 per day, according to the latest Transocean fleet status report.

Upstream reported that Petrobras has previously made two gas finds in the licence – Araza-1 and Orca-1 – but failed to detect commercial quantities of hydrocarbons with the Brahma-1 probe.

Petro say he will stop new exploration

It may be the last chance that Petrobras and Shell have in Colombia, as the country holds its bitterly contested presidential election at the end of this month. The candidate leading in opinion polls, Gustavo Petro, a former M-19 guerrilla and mayor of Bogota, has promised what he describes as the “democratisation of the economy.” He says this will include freezing new oil and gas exploration, and scaling back coal production.

Reuters reported (here) that onshore oil production accounts for nearly half of Colombia’s exports and close to 10 per cent of national income, but Petro argues new projects should be barred for environmental reasons, and he wants to move Colombia away from its dependence on oil and gas revenues. This would make him a world leader in environmentalism, but only if the country is able to develop alternative sources of jobs and income, and if it is able to fuel its power and transport needs through different sources of energy.

Why, oh why would anyone think turning to import oil and gas from overseas would be good for Colombia, or that selling gas from the new discoveries would be worse for the environment than producing and exporting coal? Colombia produced around 50 million tonnes of coal in 2020, according to the BP Statistical Review of Energy 2021, making it the twelfth largest producer in the world, and seven per cent of its electricity is generated from coal-fired power stations.

After the catastrophic mismanagement of the Venezuelan economy by Chavez and Maduro, Petro needs to be careful. Through incompetence and corruption, Maduro effectively shut down Venezuela’s oil and gas industry, and the results weren’t pretty. Ivan Duque’s term as president of Colombia has been hard on the poor, and so Petro has benefited from the hunger for change from Colombians tired of Duque’s authoritarian and elitist government.

However, good government is something nobody should take for granted, especially in the Caribbean, and especially where natural resources are concerned.

Background Reading

The Commission of Inquiry report into corruption in BVI is available here.

EZ Shipping webpage is here.

For OCCRP’s detailed investigation of various aspects of corruption in Venezuela under Hugo Chavez and Nicholas Maduro, see here for exchange rate fraud, here for power generation embezzlement and here for corruption in the military.

For the political crisis that preceded Irfaan Ali’s swearing in as president in Guyana, see our coverage from 2020 here.

Colombia Reports has an excellent account of the struggle between paramilitary gangs to export cocaine from Santa Marta container port here – cocaine remains a major driver of violence in Colombia.

Hieronymus Bosch

This anonymous commentator is our insider in the world of offshore oil and gas operations. With decades in the business and a raft of contacts, this is the go-to column for the behind-the-scenes wheelings and dealings of the volatile offshore market.