Productores de Azúcar de Cuba, Inc.

ANALYSIS: RUSSIAN SUBSIDY  FOR CUBA, OIL FOR SUGAR SWAP
       The ITAR-Tass news agency in Moscow reports an increase in Russia's oil-for-sugar swap
with Cuba over last year's figures of 1.8 million metric tons of crude oil for 850,000 metric tons of
raw sugar or a ratio of 2.25-to-l/oil-for-sugar. The 1997 deal rose to 9.75 million metric tons of
oil for 3.25 million metric tons of raw sugar or a ratio of 3-to-1/oil-for-sugar. This amounts to a
subsidy to Cuba of nearly one-half billion dollars based on current world market prices for crude
oil and raw sugar as listed in the Financial Times of June 25th. At $17.87 per barrel of oil (spot
price for crude IPE S/barrel August) and S .1108 per pound of sugar (price for raw sugar CSCE
S/pound July), the current Russian-Cuban oil-for-sugar agreement subsidizes the Cuban sugar
industry by S478,010,000. As a result, Russia's deal tends to raise the price it pays to Cuba for its
sugar by nearly 10 cents above the world market price of 11 cents per pound up to 21 cents per
pound. With Cuba's sugar harvest optimistically expected to yield 4.2 million metric tons for the
1996-97 harvest, even a swap of 3.25 million metric tons of raw sugar will be difficult to fill when
domestically Cuba needs 600,00C-to-800,000 metric tons for internal consumption alone leaving
it with a balance of between 3.6-to-3.4 million metric tons of raw sugar for export purposes; just
enough to fulfill its agreement with Russia. Discounting shipments to all other Cuban clients, the
arrangement with Russia accounts for 77 % of this year's harvest assuming a production level for
1996-97 of 4.2 million metric tons. As indicated in the above article, Cuba's total raw sugar
exports have ranged from 76 %-to- 86% between 1992 and 1996. At the end of the day, Russia's
provision of 9.75 million metric tons of crude oil does not satisfy Cuba's overall oil needs
estimated at 16 million metric tons annually. Apart from the operational energy requirements of its
sugar industry, Cuba's cement and mining industries require significant energy commitments. In
order to reduce overall costs, this deal may revive the Russian-Cuban-Venezuelan triangular
arrangement whereby Cuba receives Venezuelan oil while Venezuela's European clients receive
Russian oil saving the parties substantial shipping costs. This latest Russian-Cuban oil-for-sugar
barter agreement draws attention to the nonmarket based trade provision which the
Helms-Burton Act prohibits under Section 106, Assistance e the Independent States of the
Former Soviet Union for the Cuban Government. Section 106(c)(3) includes exports, imports,
exchanges, or other arrangements that are provided for goods and services (including oil and
other petroleum products) on terms more favorable than those generally available in applicable
markets or for comparable commodities. " (MH, Russia agrees to boost oil-for-sugar agreement,"
617197, p.16A).

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