As Cuba's oil debt to Venezuela tops $752 million, President Hugo Chávez, a confidant of Fidel Castro's, becomes Cuba's biggest financial supporter.

  BY ALEXEI BARRIONUEVO AND JOSE DE CORDOBA

  The Wall Street Journal

  CARACAS - With little fanfare, Venezuela's left-leaning President Hugo Chávez has become Cuba's biggest financial supporter since the Soviet Union pulled the plug on its subsidies more than a decade ago.

  Over the past three years, Cuba has run up a massive debt of $752 million for oil shipped by Venezuela's state oil company, according to people close to the company and internal documents reviewed by The Wall Street Journal.

  Though Venezuelan officials deny that Cuba is falling behind, people familiar with the debt say it is piling up and that the government has made little effort to collect. This makes the shipments a crucial subsidy that is helping keep the island's economy afloat as it struggles with the impact of endemic mismanagement, declining sugar sales and U.S. sanctions.

  While the subsidy doesn't approach the more than $3 billion in subsidies a year that the Soviets were doling out to Cuba at the height of the Cold War, it underlines the
  growing strategic alliance between Castro and Chávez, a populist former coup plotter elected in 1998.

  ''We certainly see a Venezuela-Cuba axis which is broadening and deepening and which is not conducive to the promotion of democracy and human rights,'' said Otto
  Reich, the White House special envoy for the Western Hemisphere.

  IMPLICATION FOR U.S.

  U.S. officials have another reason to be concerned about the rising Cuban debt to Venezuela's oil company: It represents a further threat to an oil-producing apparatus
  that is the fourth-largest provider of oil to the United States.

  Chávez's election in 1998 marked an upswing in Cuba's fortunes. He has made no secret of his admiration for Castro, and in October 2000 he and Castro signed a
  so-called Integral Cooperation Accord that gives Cuba preferential terms for buying up to 53,000 barrels a day of crude and refined products -- a third of Cuba's estimated daily energy consumption.

  PREFERENTIAL TERMS

  Among other things, Cuba has 90 days to pay for the shipments, compared with no more than 30 days for the other clients of the state-owned Petroleos de Venezuela, or PDVSA, according to company documents. Unlike other PDVSA clients, Cuba wasn't required to obtain bank guarantees from a world-class bank. Instead, Cuba's National Bank provides a letter of credit.

  But Cuba quickly fell into arrears, fueling an internal clash in PDVSA between long-time professional employees and the new leaders Chávez brought in to run the oil giant.

  ''We didn't mind that Cuba was a client, just as long as it paid its bills and the terms of the contract were transparent,'' says Edgar Paredes, PDVSA's former director of refining and supply, who helped lead a general strike against Chávez last year. To break the strike, the Chávez government fired 19,000 workers and consolidated control of the company under Alí Rodríguez, a leader of pro-Cuban Communist Venezuelan guerrillas in the 1960s and 1970s

  ACCUMULATION

  According to internal documents from PDVSA, Cuba's oil debt to Venezuela piled up quickly. When Cuba asked to renegotiate its debt in November 2001, its short-term debt to PDVSA was $95.7 million. By August 2002, Cuba owed $144 million. By late last year, that figure had leapt to $520 million. Last month the figure was $752 million, people with knowledge of the matter say.

  Venezuelan Energy and Mines Minister Rafael Ramírez flatly denied that Cuba is behind on its payments. ''There is no delay at all,'' he said in a telephone interview.

  Lazaro Herrera, a spokesman for the Cuban Interests Section, which serves as Cuba's diplomatic representative in Washington, declined to comment on the size of Cuba's oil debt to Venezuela. ''Cuba is honoring its agreement,'' he said.

  Cuba has renegotiated the terms of the debt at least twice, the internal documents show. In the months before the PDVSA strike in December 2002, Cuba paid at least
  $87.2 million of its oil debt, according to the documents, before again falling behind on its payments.

  People familiar with PDVSA say the debt dispute has become a virtually taboo subject inside the company. For instance, PDVSA employees are forbidden to mention the contract in e-mail messages or to issue official correspondence on company letterhead, these people say.

  PDVSA officials declined to comment on any aspect of the agreement with Cuba.

  The debt represents about 80 percent of the roughly $931 million owed to PDVSA by its clients, say the people close to the company. In 2002, PDVSA had revenue of
  $42.58 billion and net income of $2.59 billion, according to its latest reports.

  REPAYMENT UNLIKELY

  Cuba's prospects for repayment appear slim. Although Cuba has managed to double its own oil production since 1991, so far it has only found sulfur-laden heavy oil, which is less valuable. Its biggest source of dollars is the Cubans who live abroad, most of them in the United States. In 2002, Cubans abroad sent an estimated $1.1 billion to Cuba in remittances, according to a study by the Inter-American Development Bank.

  Nevertheless, the island's economy is fragile, and Havana would be hard-pressed to find other sources of oil if Venezuela were to cut it off. Such a possibility would loom large if Chávez loses a proposed recall referendum. Leading opposition figures have already spoken out against the shipments.

  ''If Chávez loses in Venezuela it would be total devastation to the Cuban economy,'' said Jorge Salazar-Carrillo, a Cuba expert at Miami's Florida International University.

  Barrionuevo reported from Houston and De Cordova from Caracas.