Will Chávez Victory Fulfill Nicaragua's Megaproject Dreams?

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," says Nicaraguan political analyst Arturo Cruz, President Daniel Ortega's former ambassador to the United States and a professor of political science at INCAE. "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 Mr. Cruz.

An ALBA legacy

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 starting to sound a bit silly.

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.

Three-phased plan

"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 says.

Mr. Rapaccioli 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 percent 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 game of catch-up

Despite sitting on the largest oil reserves in the world, Venezuela's oil production has declined by an estimated 30 percent 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.