Will Chavez victory fulfill Nicaragua’s megaproject dreams?

ALBA’s legacy may hinge on its ability to deliver on a $6.6 billion ‘Supreme Dream of Bolivar’ oil refinery in Nicaragua. Part III in a III part series on the future challenges of Nicaragua's economy

MANAGUA, Nicaragua—Last Sunday’s reelection of Venezuelan President Hugo Chávez could turn Nicaragua into major oil exporter before the end of the decade.

As President Chávez tackles the herculean task on investing in the modernization of sluggish state oil company Petróleos de Venezuela (PDVSA)— the golden goose that funds the expansionist Bolivarian Alliance for our Americas (ALBA)—Venezuela’s long-stalled plan to build a $6.6 billion oil refinery in northwestern Nicaragua is being given new relevance and urgency.

The so-called “Supreme Dream of Bolívar” refinery in Nicaragua would give Chávez a Pacific gateway to China—a key market for Venezuelan oil exports as the country tries to ramp up its slumping production levels after years of falling behind other oil-producing nations.

“Chávez needs to focus on increasing his country’s level of oil production and investing in logistics for the future. This project is a no-brainer; it’s the perfect arrangement because Nicaragua is an ideological ally and the refinery will give Chávez strategic access to the Chinese market, ” says Nicaraguan political analyst Arturo Cruz, President Daniel Ortega’s former ambassador to Washington and a professor of political science at INCAE.

Cruz says the refinery megaproject meets the main political and economic objectives of both Chávez and Ortega. In addition to becoming an emblematic legacy project for ALBA (after years of unmet promises), the “Supreme Dream” oil refinery will also become a linchpin in the future economic expansion of Venezuela and Nicaragua—not to mention an important move to break their countries’ economic dependence on the United States.

The refinery will also allow Ortega to create jobs in a country rife with poverty and unemployment—Nicaraguans’ two principal concerns, according to polls. The construction of the oil refinery will create an estimated 5,000 direct jobs and 15,000 indirect jobs, while the operation of the plant will create an additional 1,500 direct jobs and 6,000 indirect jobs, according to government projections.

The success of the project would, in many ways, be a lasting—not to mention polluting—monument to ALBA. On the other hand, if the project fails to materialize, as so many other ALBA projects have, it will be an enduring reminder of the leftist bloc’s ultimate failure to deliver on its populist promises.

In 2008, in response to Nicaraguan media reports that the refinery was way behind schedule, Venezuelan Ambassador Pedro Prenso said the Supreme Dream of Bolívar is “the most important project that is being developed on the Central American isthmus.”

But now five years have passed and the only thing that has been built is an access road to the future construction site. In total, ALBA has spent only $92 million—mostly in studies and fussing about—of the $6.6 billion that the project is projected to cost. As bulldozers continue to push dirt around in circles, the refinery’s superlative claim to be the most important project in Central America is start to sound a bit silly.

The Supreme Dream refinery would give Nicaragua the most oil storage capacity in Central America (photo/ Eric Sabo)

That’s why the Sandinista government is suddenly anxious to move the project forward, before the cornerstone placed by Chávez and Ortega in 2007 gets completely lost in the weeds. Sandinista officials insist the delays are normal for a project this size—the biggest and most expensive ever attempted in Nicaragua.

“The dimension of this project, with the technical complexity that it has and the size of the investment requires a lot of studies, just like any other big investment projects in other countries,” Energy Minister Emilio Rapaccioli told The Nicaragua Dispatch.

The minister insists the project is going to happen and says the legislative National Assembly’s recent approval of the project was a big step in the right direction.

On Sept. 20, the National Assembly approved the three-phased plan for the refinery and an oil pipeline across Nicaragua. The project will be handled by the company ALBA de Nicaragua, or ALBANISA, a mixed Venezuelan-Nicaragua venture that is managed like Ortega’s private business.

The assembly’s rubberstamp approval was mostly symbolic, but it lent a sudden sense of official importance to the bulldozers’ busywork.

Once the refinery is completed (perhaps in 2017, since the 2012 deadline has come and gone), Nicaragua will have a total fuel-storage capacity of nearly 1 billion barrels of diesel, gasoline and fuel oil, according to government plans. Not only will Nicaragua be able to supply China and its own domestic needs, where gas pump prices are the highest in the region, but also supply 40% of Central America’s oil needs.

Nicaragua is already dabbling in oil exports. According to government data, ALBANISA this year has exported $42.5 million worth of Venezuelan oil, mostly to El Salvador. The terms and conditions of ALBANISA’s oil-exporting business remain a Sandinista secret.

PDVSA’s challenge to play catch-up

Despite sitting on the largest oil reserves in the world, Venezuela’s oil production has declined by an estimated 30% since Chávez took power 14 years ago, according to industry sources. At the same time, Chávez continues to stretch Venezuela’s oil assets thin as he doles out billions of petrodollars to finance his populist political project, which is tied to a bloated portfolio of foreign and domestic projects—not to mention dozens more that never materialized.

Given Venezuela’s current production rate and ALBA’s expanding commitments, Chávez would be in serious trouble if world oil prices were to dip below $90 a barrel (prices are currently at $92.39 a barrel), according to Cruz’s calculations.

Regardless, Cruz says, it makes no sense for Venezuela to slowdown its production levels when it’s sitting on 250 years of oil reserves and other oil-producing countries such as Russia and Saudi Arabia are pumping it out of the ground as fast as they can.

Chávez needs to make hay while the sun shines because “in 20 or 30 years, oil might not be as valuable,” Cruz advises.
That means Chávez needs to fulfill what he thinks was the “supreme dream” of his hero, Simón Bolívar, who, when not liberating South America from colonial rulers, was apparently fantasizing about one day converting Nicaragua into platform to export Venezuelan oil to China.

Reporting for this article was supported by a grant from the Pulitzer Center on Crisis Reporting.

Read part I in this series here: Arce: Nicaraguans need to invest in Nicaragua

Read part II in this series here: Nicaragua hopes to privatize its megaproject plans

  • Jack Daniels

    Why does the price of gasoline remain so high in Nicaragua, especially considering that Chavez has allegedly made a deal with Ortega to provide it at a great discount?

  • Mela Pellas

    In 2017, Nicaragua will have a new Presidente and Chavez will have died some years ago. Who is to say that sandinistas will not be running for their lives under the new Presidente and that Capriles will still believe in all that Supreme Dream crapola. Tell that to mr Cruz, ex-contra, ex-sandinista and now capitalist. A man of principles, ha.

  • Jim Lynch

    Excellent piece of reporting Tim. Easy to see why the CSM picked it up.

  • Lee Mitchell

    This project will never happen because of Ortega’s corruption that has already embezzled a big percentage of the initial investment and makes this refinery the most expensive one in the world. This bottomless corruption will never make the project feasible!

  • Alberto

    Wow! Good for Nicaragua! I hope this project gets completed ASAP!

    Go Chavez!

    Go Ortega!

    Yours truly,
    Un Nicaraguense.

  • terrance rogan

    venezuela exporting oil to china thru Nicaragua? China has already basically prepaid for oil at below market rates with loans for years and who knows how low…So where is Nic edge? Its all just a dream