March 28th, 2011

Economics & Finance

Venezuela ranks lowest in growth among oil producing nations

In its recent report on the global economy a leading British investment bank, Barclays Capital, compared growth in 1999-2010 for Latin American countries and members of the Organization of the Petroleum Exporting Countries (OPEC). The report showed that despite high revenues, Venezuela performed badly over the past 12 years. The numbers show that OPEC Member States, except for Iraq, grow 6.1% annually. Latin American countries, with Venezuela joining the bigger economies in the region -Brazil, Argentina, Colombia, Mexico and Peru- grew by 3.4%. In contrast, Venezuela barely reached an average annual growth of 2.3%, despite skyrocketing oil prices that injected USD$ 529 billion into the government vaults. (El Universal, 03-25-2011; http://english.eluniversal.com/2011/03/25/venezuela-is-the-oil-producing-state-with-the-lowest-growth.shtml)

Private exports fell by 32, 4% during Chávez’s second term in office

The collapse of this economic indicator over the past few years has been highest for the private sector and in non-petroleum exports. Sales for products other than oil were USD$ 3,39 billion in 2009 and USD$ 3,47 billion in 2010, according to the Central Bank. This is a 54,9% drop from 2006 when such exports were a record USD$ 7,61 billion, and the lowest level since 1992. More information in Spanish: (El Nacional; http://impresodigital.el-nacional.com/ediciones/2011/03/28/default.asp?cfg=4498CLKC4084&iu=4626)

Local banks face losses with excess idle funds in their vaults

With a feeble credit demand and a government that uses oil income to inject more local currency into the domestic economy, Venezuelan financial organizations have plenty of cash in their vaults. The mismatch translates into losses. In 2010, banks kept a monthly average of USD$ 3.72 billion above the requisite for legal reserves with the Venezuelan Central Bank (BCV). By¿ February 2011, this average doubled up to USD$ 7.45 billion. Deposits are used to extend loans or buy bonds but local banks have not succeeded in placing funds in an economy where the private sector has been in recession for two years. (El Universal, 03-25-2011; http://english.eluniversal.com/2011/03/25/local-currency-overage-triggers-idle-money-at-banks.shtml)

Venezuelan stock market up 9.57%

Caracas stocks rose on low volume, as the Caracas Stock Exchange Index rose 2.25% to close at 71,587 for the week. Only one stock, Banco Provincial, changed in price, closing at Bs. 30. With many of the largest brokerage firms shut down last year by President Chavez’s government, volume was low all week, with 25,000 shares changing hands over five days of trading ending March 25. (Latin American Herald Tribune, 03-28-2011; http://www.laht.com/article.asp?ArticleId=390338&CategoryId=10717)

Government considers increased price for food staples such as rice, oil, powdered milk, pre-cooked corn flour, sugar, chicken and cheese, informed Venezuelan Food Minister Carlos Osorio. He explained the prices of products at MERCAL will not be increased as the official subsidy will rise from Bs.F.5.2 billion to Bs.F.7 billion. (Veneconomy, 03-25-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=25408&idc=1)

Oil expert Gustavo Coronel asks for the immediate dismissal of PDVSA board of directors and an in-depth investigation of its true operational, financial and managerial situation.  After reviewing the 2010 Annual Report from State to the National Assembly. Coronel concludes that PDVSA is a bankrupt company, led to failure by inept management and by the president of the Republic who uses it for its personal goals. (Veneconomy, 03-25-2011;

http://www.veneconomy.com/site/index.asp?ids=44&idt=25404&idc=4)

Commodities

Venezuela projects an oil output of 4.5-5.0 mln BPD by 2014

Venezuela aims to boost oil production by two-thirds to 4.5 million or 5.0 million barrels per day (BPD) over the next three years, according to Energy Minister Rafael Ramirez. Ramirez routinely announces high output figures for this OPEC member's main export, which actually has fallen over the past two years. Industry experts point to figures from his ministry, certified by an independent auditor, which show production down to 2.78 million BPD in 2010, from 3.01 million BPD the year before. Ramirez claims current output is some 3.1 million BPD. (Reuters, 03-27-2011; http://in.reuters.com/article/2011/03/27/venezuela-oil-idINN2713051820110327)

Venezuelan oil climbs back to USD$ 100

The Venezuelan oil basket of crude oil and products ended the week at USD 100.15 per barrel, according to the Venezuelan Ministry of Energy and Petroleum. The Venezuelan oil basket returned to the USD 100 level amid an upward trend in oil prices driven by the Libyan conflict and demonstrations in oil-producing countries in the Middle East and North Africa. (El Universal, 03-25-2011; http://english.eluniversal.com/2011/03/25/venezuelan-oil-climbs-again-to-usd-100.shtml)

Ramírez says attacks on Libya are a serious crime against petroleum exporting countries

Venezuela’s Oil Minister and President of the state oil company PDVSA, Rafael Ramirez, said Sunday that the military aggression against Libya represents a serious crime against the petroleum exporting countries. During an interview withe a local TV show, Ramirez said Libya is one of the main producing nations in Africa and a founding member of the Organization of Petroleum Exporting Countries (OPEC). He also claimed that Venezuela has the world’s largest oil reserves and a production of close to 3.16 million barrels per day BPD. (AVN, 03-28-2011; http://www.avn.info.ve/node/50383)

PETROANDINA to invest USD 240 million in exploration

PETROANDINA, a joint venture between Bolivian and Venezuelan state-owned energy companies, plans to invest USD$ 240 million this year in exploration for new oil and gas reserves, according to Bolivian officials. The Bolivian company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), noted that it has a 40% interest in exploration activities in traditional and non-traditional areas. (El Universal, 03-25-2011; http://english.eluniversal.com/2011/03/25/petroandina-to-invest-usd-240-million-in-exploration.shtml)

PDVSA plans on revamping exploration units to raise output

Petróleos de Venezuela, S.A., Venezuela’s state-owned oil company, is planning to restructure its exploration and production division to increase output and boost efficiency. The exploration and production division of PDVSA, as the Caracas-based company is known, will create a new unit to oversee projects in the heavy crude Orinoco Belt, a Venezuelan newspaper reported today, without identifying its sources. PDVSA’s oil output declined by 3.9% last year, after disputes with oil service providers and refinery power outages. Eulogio Del Pino, a vice president at PDVSA, will continue to head the exploration and production division, which will absorb PDVSA’s unit that oversees international joint ventures with private oil firms known as CVP. (Bloomberg, 03-28-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aEnbBP5cJe9g)

Briquette production at 28% capacity

Briquette production has collapsed in less than two years. The "Giordani Plan" to create a completely state-owned enclave, using Guayana for the experiment, is a glaring failure. The "Plan for a Socialist Guayana 2019, calls for the "the disappearance of dissolved companies and stifling centralism of "corporate social iron-steel and aluminum." MATESI COMSIGUA, VENPRECAR, and FERROMINERA produced one million 739 thousand tons of product in 2010. Production is now a mere 28% of that figure. More information in Spanish. (Tal Cual, 03-28-2011; http://www.talcualdigital.com/index.html)

Politics

Venezuela seeks commercial pact with Colombia in view of its own imminent departure from the Andean Community

According to diplomatic sources in both countries, Venezuela’s Government presented Colombia´s a draft bilateral trade agreement in order to fill a void left by its own exit from the Andean Community. According to Colombian Foreign Minister María Ángela Holguín, the initiative was left with Colombia last week, as it´s government has been negotiating a similar agreement since last November with their Venezuelan counterparts. The proposal will be discussed by President Juan Manuel Santos and Hugo Chávez during their forthcoming meeting in Cartagena. The Minister made the announcement at a joint press conference with her Venezuelan counterpart, Nicolás Maduro, in Bogotá; adding that the expect further progress during the Presidential meeting next Friday. (More information in Spanish: La República/ Bogotá) - http://www.noticieroindustrial.com/site/comercio/562-acuerdo-comercial-con-colombia-busca-venezuela-ante-su-salida-de-la-can

Chávez visits Argentina, Uruguay, Bolivia, Colombia

Venezuelan President Hugo Chavez will be on tour beginning March 27, to 4 South American countries to strengthen integration and review the progress of agreements made with countries of the region. He reaffirmed that he will travel to Argentina, Uruguay, Bolivia and Colombia to strengthen regional integration. (AVN, 03-27-2011; http://www.avn.info.ve/node/50295)

Venezuela poll: Preferences split, many undecided

A poll suggests Venezuelans are split between President Hugo Chavez and the opposition, although a sizable one third is undecided about whom they would vote for if elections were held soon. Luis Vicente Leon, director of the polling firm DATANALISIS, said Thursday that results of a survey last month said 26% of those questioned were sure they would vote for Chavez if elections were held within a week. Support for all the opposition's potential candidates reached 28%, while 34% of those surveyed said they were undecided. More than 13% said they would not vote for anybody. (Boston, 03-24-2011; http://www.boston.com/news/world/latinamerica/articles/2011/03/24/venezuela_poll_preferences_split_many_undecided/)

Venezuela’s Chavez supports Syrian leader amid protests, blames US for unrest

Venezuelan President Hugo Chavez expressed support for Syria’s president on Saturday, calling him a “humanist” and a “brother” facing a wave of violent protests backed by the United States and its allies. Chavez’s support for President Bashar Assad follows his defense of Libyan leader Moammar Gadhafi, who is fighting rebels backed by international airstrikes. Venezuela’s socialist leader accused Washington of fomenting the protests in Syria as a pretext for Libya-style airstrikes. (The Washington Post, 03-26-2011;

http://www.washingtonpost.com/world/venezuelas_chavez_offers_supports_to_syrian_leader_amid_protests_blames_us_for_unrest/2011/03/26/AFFCkteB_story.html?wprss=rss_world)

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

March 25th, 2011

Economics & Finance

China to extend Venezuela another USD$4 billion loan in joint fund

China will inject $4 billion next month into a joint development fund with Venezuela, according to a Venezuela government official, stepping up its lending to the South American country while securing a steady flow of oil. With the latest loan, China will have extended Venezuela$28 billion in financing since August, all to be serviced with oil. Two previous Chinese installments into the bilateral fund, totaling $8 billion, have been mostly repaid by Venezuela. Venezuela will be adding $2 billion to the fund, which was set up between BANDES, the Venezuelan development bank, and the China Development Bank. Many analysts and economists include the Chinese loans with Venezuela's sovereign debt, but the government doesn't, because they will be serviced with petrodollars. China is Venezuela's second-most important trade partner. (By Ezequiel Minaya, Dow Jones Newswires, 03-24-2011; http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201103241643dowjonesdjonline000520&title=china-to-extend-venezuela-another-4-billion-loan-in-joint-fund)

Venezuela's debt payments at USD$ 19.4 billion in 2011-2012

The decision of the Venezuelan Executive Office to cover the revenue gap by increasing indebtedness has a strong impact on fiscal accounts and public debt service for 2011 and 2012, when total indebtedness amounts to USD$ 19.4 billion. Domestic debt represents the biggest burden on future payments. The domestic debt service in 2011 and 2012 will reach USD$ 10.7 billion, according to data released by the Ministry of Finance. (El Universal, 03-22-2011; http://english.eluniversal.com/2011/03/22/venezuelas-debt-payments-at-usd-194-billion-in-2011-2012.shtml)

Government import policy expected to weaken production in Venezuela

Venezuelan government's attempts to centralize imports of commodities will curb domestic production, said Ismael Pérez Vigil, the executive president of the Venezuelan Confederation of Industries (CONINDUSTRIA). "Regulations are always a nuisance (...) The government has misread the economic situation and is trying to fix economic problems through regulations and monopolizing certain activities. This will eventually end up worsening the economy," Pérez Vigil said.

The business leader added that the plan announced by the Executive Office will further delay imports of inputs and, consequently, will undermine production in private companies. (El Universal, 03-23-2011; http://english.eluniversal.com/2011/03/23/governments-imports-expected-to-hit-production-in-venezuela.shtml)

Venezuela raises bread, pasta prices as much as 33%

Venezuela raised price caps on bread and pasta in order to bring costs in line with rising international prices, Food Minister Carlos Osorio said, threatening to accelerate the hemisphere’s fastest inflation. The cost of baguette-style bread was increased about 24 percent to 5.52 bolivars (USD$1.29) per kilo and pasta was raised 33 percent to 4.33 bolivars per kilo, Osorio said. Venezuelan President Hugo Chavez’s government regulates the price of basic foods. (Bloomberg, 03-22-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a_pE0JBoJRlg)

Commodities

Venezuela's oil obligations to China may go unfulfilled

Venezuelan President Hugo Chavez says he hopes to send one million barrels of oil per day to China within the next three years, but industry data suggests odds are against that happening. The plan would require a drastic increase in production at a time when the South American country faces a lack of investment in the petroleum sector and declining output. (The Wall Street Journal, 03-22-2011; http://online.wsj.com/article/SB10001424052748703921204576217073681492388.html?mod=WSJ_World_LEFTSecondNews)

Pdvsa's oil exports down 11.6 percent in 2010

Exports by state-run oil company Petróleos de Venezuela (PDVSA) lost ground in 2010, according to the preliminary results shown in PDVSA's 2010 Annual Report and Accounts submitted to the National Assembly. The document claims PDVSA exported 2.41 million barrels per day of crude oil and byproducts. According to PDVSA's figures, 1.93 million barrels were crude and upgraded oil while the remaining 485,000 barrels were oil byproducts. (El Universal, 03-23-2011; http://english.eluniversal.com/2011/03/22/pdvsas-oil-exports-down-116-percent-in-2010.shtml)

PDVSA puts pressure on partners to find funding-sources

Venezuela's state oil company PDVSA has told its foreign partners to secure funding of hundreds of millions of dollars by July to boost production at joint ventures in line with a government demand, according to sources involved in the ventures. PDVSA is the financial motor of President Hugo Chavez's socialist "revolution" in the South American OPEC member, but it has been suffering from falling crude output levels. Seeking to pump more and reap the rewards of high oil prices, the government gave foreign companies a one-month deadline late last year to present higher production targets for more than 20 joint venture projects. Among the companies involved were CHEVRON, REPSOL, BP and SHELL. In January, Energy Minister Rafael Ramirez said the foreign oil companies must hike production or possibly face a review of their rights to operate in the country. (Reuters, By Marianna Parraga, 03-25-2011; http://af.reuters.com/article/energyOilNews/idAFN2418833820110325)

Concomitant shutdowns in oil upgraders

This week, there will be simultaneous shutdowns in PETROPIAR and PETROMONAGAS, two oil upgraders at the Orinoco Oil Belt, according to Eudis Girot, a union leader of the Federation of Venezuelan Oil Workers (FUTPV). The spokesperson for the Federation said that the shutdowns will be "partial." Girot explained that the upgraders will not be totally halted, but there will be a drop in crude oil processing. He did not provide further details about the decline in production. (El Universal, 03-23-2011; http://english.eluniversal.com/2011/03/23/concomitant-shutdowns-in-oil-upgraders.shtml)

Venezuela’s Guri Dam reduces capacity

Two turbines at Venezuela’s Guri dam, the country’s largest hydroelectric plant, were shut down this week, which may reduce generation by more than 1,000 megawatts. A 730-megawatt unit was shut because of vibration problems and a 375-megawatt turbine was taken offline for tests, the Caracas-based newspaper reported today, without identifying where it got the information. (Bloomberg, 03-23-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=an0y1.pwIhtM)

Politics

Hugo Chavez decries capitalism....on Mars

Venezuelan President Hugo Chavez, who routinely blames capitalism for many of this world's troubles, pointed elsewhere in the galaxy for his latest critique, saying Tuesday that the economic system may have destroyed life on Mars. (The Wall Street Journal, 03-22-2011; http://online.wsj.com/article/SB10001424052748704461304576217060217916894.html?mod=WSJ_World_LEFTSecondNews)

Chavez decree strengthens pro-government militias

New rules authorizing Venezuela's military to distribute weapons to pro-government militias took effect Tuesday, raising concern among critics who say the armed groups could be used by President Hugo Chavez to cement his hold on power.

Rocio San Miguel, an anti-Chavez activist who heads Citizen Control for Security, a non-governmental group that studies military-related issues, said the decree could allow Chavez to turn the militias into "the armed branch of the revolution."

Militiamen had previously been trained to use firearms, but were not issued weapons. They used firearms only in training exercises and military parades under the strict supervision of military officers. (Miami Herald, 03-22-2011; http://www.miamiherald.com/2011/03/22/2129201/chavez-decree-strengthens-pro.html)

Chavez, Fernandez resume quarterly meetings next week

Venezuelan President Hugo Chavez and Argentina’s Cristina Fernandez will meet in Buenos Aires next Tuesday to review the progress of bilateral accords, reported Venezuelan television channel VTV. Argentina’s Foreign Ministry confirmed that Fernandez will welcome her Venezuelan counterpart at the Casa Rosada presidential palace, where they would hold a closed door meeting with their cabinet of ministers. Foreign ministers of Argentina and Venezuela, Hector Timmerman and Nicolas Maduro, are expected to present to their presidents the achievements of the third High Level Binational Commission Argentina-Venezuela, which will be hold next Monday at the seat of the Argentinean foreign ministry. (AVN, 03-24-2011; http://www.avn.info.ve/node/49790)

H1N1 outbreak in Venezuelan state, official says

An outbreak of the H1N1 virus, known commonly as the swine flu, has hit the Venezuelan Andean state of Merida, the country's health minister said, the state-run AVN news agency reported. More than 100 cases of H1N1 have been recorded in Venezuela as of Tuesday, according to Health Minister Eugenia Sader. (CNN, 03-23-2011; http://edition.cnn.com/2011/WORLD/americas/03/23/venezuela.swine.flu/index.html)

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

March 22th, 2011

Economics & Finance

Prices for imported foodstuffs will rise by 18,3% once Venezuela leaves the Andean Community

The Food Producers Chamber says Venezuela will lose its tariff privileges as of 22 April, when the nation’s withdrawal from the Andean Pact becomes fully effective. Chamber President Pablo Baraybar says Venezuela will cease to enjoy preferential tariffs, not only from the Andean Region, but also from third parties such as the United States, Canada, and Argentine, which account for a large part of its imported finished products. See more in Spanish. (El Nacional, Entorno Inteligente, 03-22-2011; http://www.entornointeligente.com/articulo/1098819/Alimentos-importados-costaran-183-mas-por-salida-de-la-CAN)

The Government will have to pay cash for imports

If the Government decides to centralize purchases required by national private agribusiness it will be forced to pay cash for most imports of food items and raw materials. Rising international prices for major agricultural commodities, along with restricted global inventories for most cereals, fats, dairy and sugar leads to fierce competition among countries with deficits and insufficient domestic production. All this is compounded by lack of confidence n the Venezuelan market among international brokers, after problems with payments caused by official exchange controls and the recent devaluation.  More information in Spanish. (El Nacional, Entorno Inteligente, 03-21-2011; http://www.entornointeligente.com/articulo/1098576/El-Gobierno-esta-obligado-a-pagar-las-importaciones-al-contado)

Government opened 11 plants in cooperation with Iran

The president, Hugo Chavez, said Sunday that 11 plants will soon be opened in cooperation with Iran. He also announced plans to open 15 facilities with countries such as: Argentina, Belarus (2) and China (1). The president explained that milk plants are to be located in Guárico, Bolivar, Táchira, and corn plants will be located in Guárico, Bolivar and Portuguesa. It also will open a factory located in Tinaquillo for processing petroleum pipelines; a vegetable processing factory in Táchira state; and industrial refrigeration, cattle processing and a fruit processing installations in Lara state. (Ultimas Noticias, 03-20-2011; http://www.ultimasnoticias.com.ve/Noticias/Gobierno-abrira-11-plantas-en-cooperacion-con-Iran.aspx)

Only 53% of oil export income went to the Central Bank during 2010

Income and expenditure flows for foreign exchange at the Central Bank of Venezuela (BCV) and Venezuela’s balance of payments show that during 2010 state-run oil company Petróleos de Venezuela (PDVSA) transferred to the BCV USD $33.41 billion, which is only 53% of total Venezuelan oil revenue. Such treatment of revenue is possible under a legal reform approved in 2005, which exempts PDVSA from the obligation of transferring almost all the petrodollars to the Central Bank. However, this practice has important implications for inflation and the amount of foreign exchange available for private sector imports. As PDVSA transfers petrodollars to the Central Bank, the bank builds up international reserves to cover private sector foreign currency purchases, once approved by the Foreign Exchange Administration Commission (CADIVI). (El Universal, 03-21-2011; http://english.eluniversal.com/2011/03/21/only-53-percent-of-petrodollars-were-transferred-to-the-central-bank.shtml)

Expert charges Venezuela is gradually abolishing private property

"We are not facing the threat of private property, we have it’s gradual abolition," said sociologist Felipe Benites, who is director of the Observatory Center Property Dissemination of Economic Development Association (CDA). The department recorded 2,000 actions against property rights between 2005 and February 2011. Benites say that statistically, if contrasted with the amount of assets, the data has no greater significance. "It's a quite small percentage, but the issue is not statistical; the issue are the impacts and implications and the notice given to other owners, political apathy, the injection of fear and you say this can happen to you". (El Mundo, 03-21-2011;

http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=17&Id_Noticia=50775)

Commodities

Oil related construction slows down

Public construction wound up in the red for 2010 due to lack of investment and materials, and the downturn was even sharper in the oil sector. Based on statistics supplied by the Central Bank of Venezuela (BCV), in 2008 (during high oil prices), construction related to the oil sector recorded an average growth of 9% during each quarter. This performance improved the following term. Despite shrinking oil revenues during 2009 as a result of diving prices, the state-run oil holding Petróleos de Venezuela (PDVSA) injected funds into the sector and growth rates ranged from 13 to 22%. (El Universal, 03-18-2011; http://english.eluniversal.com/2011/03/18/construction-related-to-oil-loses-momentum.shtml)

Venezuela says OPEC won’t hold meeting over Libya

Venezuelan Oil Minister Rafael Ramirez dismissed the possibility holding a special meeting of the Organization of Petroleum Exporting Countries to evaluate the situation in Libya, which is a member of the group. “We can’t pretend to have stability in the oil market when the big industrial powers introduce this kind of destabilization,” Ramirez said. (Bloomberg, 03-20-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a5f1wJkpcJz0)

Venezuelan oil basket down USD 3.69 to USD 97.57

The price of the Venezuelan oil basket sank USD$ 3.69 and ended the week at USD$ 97.57 per barrel, according to the Ministry of Energy and Petroleum. "Average oil prices fell this week due to the uncertainty as to the impact on the economy and on crude oil demand following the earthquake and tsunami in Japan," the ministry stated. (El Universal, 03-18-2011; http://english.eluniversal.com/2011/03/18/venezuelan-oil-basket-down-usd-369-to-usd-9757.shtml)

According to Chávez, food distribution networks will rise to 300,000 tons per month by the end of 2011

State food distribution network will go from the current 170,000 tons per month to 300,000 tons, by the end of 2011, and will cover 50% of the national demand. According to the President, the Venezuelan Government allocated a sum of $697.67 million as a part of its policy to expand the system for producing, processing and distributing food. “Employment, development, technology, and the satisfaction of basic human needs are the main goals of the Bolivarian Revolution. Food is the first of them,” he underscored. (AVN, 03-20-2011; http://www.avn.info.ve/node/49069)

Catalytic cracking unit of Isla refinery shuts down

335,000-bpd Isla refinery, operated by state-run oil company Petróleos de Venezuela (Pdvsa) in Curacao, halted its catalytic cracking unit due to a failure in the supply of steam, the president of the union of workers of the plant told Reuters. Isla, the second largest refinery in the Caribbean, halted earlier this month four processing units and had begun the start-up protocol, but the continuing failures in industrial services complicated the restart of operations of the plant.
"The CUOC plant (Curacao Utilities Operating Company) has problems again. During the restart of operations we had to stop the cracking unit. We expect to resume operations this week," said Angelo Meir, the president of the union of workers of the refinery. (El Universal, 03-21-2011; http://english.eluniversal.com/2011/03/21/catalytic-cracking-unit-of-isla-refinery-shuts-down.shtml)

Logistics & Transport

Chávez says railroad construction in the Cua-La Encrucijada segment will start anew

Construction work on the railroad section Cua (Miranda) – La Encrucijada (Aragua) will be start back up soon, thanks to the new investment sources available to the national government. President Hugo Chavez said that construction had been deferred for lack of funding to meet payments to international companies involved. (AVN; 03-20-2011; http://www.avn.info.ve/node/49109)

Politics

Venezuela, Cuba reviewed bilateral agreements at 11th Inter-ministerial Conference

Cuban and Venezuelan representatives held their 11th Inter-ministerial Conference in order to strengthen the bilateral agreements on international cooperation. The Venezuelan Oil Minister announced that debates will be held by areas, through the creation of working groups. Cuban vice-president Ricardo Cabrisas said he was pleased with this conference that follows intense work by both countries. (AVN, 03-21-2011; http://www.avn.info.ve/node/49161)

Chavez condemns Libya airstrikes, warns Obama: “Don’t even think about it” in Venezuela

Venezuelan President Hugo Chavez condemned what he called “indiscriminate bombing” by the U.S. and its allies in Libya, saying Sunday that the assault is unjustified and will only unleash more bloodshed. Chavez claimed the U.S. is after Libyan oil, and warned President Barack Obama not to try any similar intervention in his country. “With Venezuela, don’t even think about it, Mr. Obama,” he said. (Washington Post, 03-20-2011;

http://www.washingtonpost.com/world/venezuelas_chavez_airstrikes_killing_civilians_in_libya_us_europe_shouldnt_intervene/2011/03/20/ABjyju1_story.html?wprss=rss_world)

National Production Law proposed

Primero Justicia’s national coordinator Julio Borges proposed the creation of a National Production Law, which would further the creation of new jobs, food production and an increase in Venezuelan brand names. Borges said Venezuela currently imports 70% of the food staples it consumes. (Veneconomy, 03-21-2011;

http://www.veneconomy.com/site/index.asp?ids=44&idt=25303&idc=3)

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.

March 18th, 2011

Economics & Finance

Venezuelan Government takes over imports for five key commodities

The State will directly import essential raw materials such as powdered milk, raw sugar, wheat, corn and oil, through its’ trade agreements with Argentina, Brazil and China. The Vice President, Elias Jaua told El Universal that the State "concentrate a high percentage of food imports, with the aim of ensuring stability of supply, given the volatility of prices for raw materials the international market”. Marketing the raw material between the state and private industry is to be done according to the cost structure for each sector. (El Universal, 03-17-2011; http://www.eluniversal.com/2011/03/17/el-estado-asumira-la-importacion-de-cinco-materias-primas.shtml)

Former Chavez Minister Luisa Romero says: “Government is destroying domestic production”

Luisa Romero Bermudez, former Minister of Production and Trade, regrets that the goal of promoting domestic development has been left behind. Domestic production is increasingly weakened and has created a dangerous dependence on imports, she warned. The State has abandoned support for the industrial sector. It seems that it is the target in recent years. Romero also regrets Venezuela´s decision to get out of the Andean Community of Nations.  She notes that since there are few days remaining for tariff preferences enjoyed by Venezuela as part of the Andean bloc, it is imperative to have an agreement with Colombia. "Next month we lose these preferences and will be up in the air," she said, indicating that since diplomatic relations have returned to normal with Colombia, it might be possible to secure a trade agreement to keep some preferential treatment. More information in Spanish. (Entorno Inteligente, 03-16-2011; http://www.entornointeligente.com/articulo/1097583/%C2%ABSe-esta-provocando-la-destruccion-de-la-produccion-nacional%C2%BB)

Exporters fear poor conditions after Venezuela's withdrawal from CAN

With only a few weeks ahead for Venezuela's official withdrawal from the Andean Community of Nations (CAN), the Venezuelan Association of Exporters (AVEX) said that "future trading conditions are not encouraging" for Venezuelan non-traditional exporters, as the removal of tariff preferences under the regional economic bloc looms ahead. The association regretted that the countdown of this official decision continues. AVEX expressed "concern and uncertainty" over "the international consequences that Venezuela could face, as a result of not being a member of any regional integration bloc." (El Universal, 03-16-2011; http://english.eluniversal.com/2011/03/16/exporters-fear-poor-conditions-after-venezuelas-withdrawal-from-can.shtml)

More Government imports of raw materials will exacerbate shortage of scarce Items

Business representatives say worse shortages of dairy products and wheat over the short and medium term looms ahead for agribusiness, after the announcement by Food Minister, Carlos Osorio, announced that the State "centralize" importation of raw materials for food processing in the basic basket. By freezing prices on some regulated items, devaluating the preferential exchange rate by 65%, and with rising international commodity prices since January there are not sufficient raw materials to meet domestic consumption, according to Thomas Socías Group President Strategies and an expert in the food industry. While some companies have continued to place orders internationally, although in smaller quantities, there will come a time when they can‘t do more because of increased costs while government set food prices remain regulated, added Roger Figueroa, president of the Milk Industry Association (CAVILAC). (El Mundo, 03-17-2011; http://www.elmundo.com.ve/Default.aspx?id_portal=1&id_page=17&Id_Noticia=50309)

Half of Venezuela’s petrodollars are deposited in parallel funds

In its latest report on Venezuela, British investment firm Barclays Capital examined the management of the country's petrodollars by the Venezuelan government, and found that more than half of the foreign currency is placed in quasi-fiscal funds, that is, a series of government financial institutions such as the National Development Fund (FONDEN), which is not part of the official budget approved by the National Assembly and where funds are managed at the discretion of the Executive. According to Barclays, in 2010, state-run oil company Petróleos de Venezuela (PDVSA) transferred USD 33.2 billion to the Executive Office. However, official data show that only USD 14.1 billion was delivered to the Central Government, where funds are managed under the official budget guidelines. This means that "less than half of the money that Pdvsa reported as tax contribution" was assigned to the Central Government. (El Universal, 03-16-2011; http://english.eluniversal.com/2011/03/16/half-of-petrodollars-are-deposited-in-parallel-funds.shtml)

Commodities

Pdvsa contemplating oil swap to compensate Exxon and Conoco claims

Pending a final decision within international arbitration undertaken by EXXON MOBIL and CONOCO PHILLIPS pending this year, PDVSA is negotiating for payment to be made in oil supplies if there is an unfavorable decision against Venezuela. The legal proceedings started in late 2007 at the International Center for Settlement of Investment Related Disputes, which is a part of the World Bank, could render a final decision to compel PDVSA to indemnify the US companies. At the state owned company, studies are underway to negotiate with both companies so that payment can be made by supplying crude oil or derivates products over a period similar to the financial agreements. According to Barclays Capital’s report on PDVSA, this company’s liability toward EXXON and CONOCO would raise its debt level, which by February 2011 was US $ 31.5 billion, when the latest issue is accounted for. PDVSA’s own report for 2010 indicates its financial indebtedness rose 15,6% in one year, when it went from US$ 21,5 billion to US$ 24,9 billion, mainly because of papers issued due over the next 26 years, from 2011 to 2037.Barclay’s says “it is estimated that total compensation to CONOCO could be up to US$ 9 billion and to EXXON up to US$ 3,7 billion, which translates into additional contingent liabilities of around US$ 12,6 billion. This would raise PDVSA total liabilities to over US$ 40 billion. More in Spanish at: (El Nacional, 03-18-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Pdvsa stricken by power outages and shortage of qualified staff

Venezuela's state oil industry was hit in the first half of 2010 by a financial crisis due to falling oil prices that affected the operational management of the state-run oil company Petróleos de Venezuela (Pdvsa). According to Pdvsa's 2010 Annual Report and accounts "cuts in the investment and operating spending budgets" was among the main obstacles recently found by the state-run oil company. Crumbling oil prices to USD 57 per barrel in 2009 adversely affected Pdvsa's finances and led to a reduction in the budget of several exploration and development projects, such as the ones carried out at the Orinoco Oil Belt. This has also affected development and maintenance of oil wells, among other core activities. The Venezuelan oil industry is not immune to the electrical troubles faced by the Venezuelan industrial park. (El Universal, 03-18-2011; http://english.eluniversal.com/2011/03/18/pdvsa-stricken-by-power-outages-and-shortage-of-qualified-staff.shtml)

Fire at Venezuela´s principal refinery slows output

A fire at a unit of Venezuela's largest refinery Amuay slowed but did not entirely halt operations at the 645,000 barrel-per-day facility on Tuesday, a source at state oil company PDVSA told Reuters. The source said PDVSA was still evaluating whether the fire damage required Amuay to close its catalytic cracker gasoline unit. (Reuters, 03-15-2011; http://www.reuters.com/article/2011/03/15/venezuela-oil-idUSN1523179020110315)

Giant ISLA refinery becoming unwelcome guest in Curacao

Lighting up the night sky with flames from its chimneys, Curacao's giant Isla refinery is at the center of an increasingly acrimonious dispute over the island's economic and environmental future. Run by neighboring Venezuela's state oil company PDVSA, the smoky, 335,000-barrels-per-day facility is the second-biggest in the Caribbean but has long been plagued by technical problems. Now some residents say PDVSA should give up the refinery when its contract expires in 2019 -- freeing up land in the heart of the capital Willemstad, removing the distinctive smell of sulfur emissions and an eyesore that puts off tourists. (Reuters, 03-16-2011; http://www.reuters.com/article/2011/03/16/curacao-refinery-future-idUSN1614198520110316)

Latin Business Chronicle special report - Oil: Latin America Winners & Losers

Recent developments in the Middle East and North Africa have brought about another source of uncertainty to the international markets. On top of the poignant human tragedy involved with the uprisings started and since the different regimes started to react, the recent developments in Yemen, Tunisia, Egypt and Libya have generated a material increase in international oil prices. Since the news of the crisis started to take over world headlines in early February, the price of oil has increased by about +20 percent, going from $87 to $105. The increase in oil prices has also generated a material increase in the level of market volatility, with the VIX going from 15 to around 21 in the second week of March. Risk aversion has increased because higher oil prices shed growth in the medium-run. According to the current IMF estimations, a sustained 10 percent increase in international oil prices tends to reduce yearly global growth by 0.2 percent to 0.3 percent. (Latin Business Chronicle, 03-16-2011; http://www.latinbusinesschronicle.com/app/article.aspx?id=4817)

Chavez seeks additional $4 Billion loan From Chinese companies for housing

Venezuela signed an agreement with Chinese companies Citic Group and Industrial & Commercial Bank of China Ltd. to negotiate a $4 billion loan to finance oil and construction projects, President Hugo Chavez said. Citic International Contracting Inc., a unit of China’s state-owned Citic Group, will build 20,000 housing units in Venezuela and start a joint venture with Petróleos de Venezuela SA to operate mature crude fields. Chavez has boosted oil shipments to China to repay billions of dollars in loans destined to finance infrastructure projects in the South American country. Venezuela expects to increase oil exports to about 1 million barrels a day in three years from the current 400,000 barrels, Chavez said. (Bloomberg, 03-16-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aETTN9p_Nl1c)

SIDETUR plant in Puerto Ordaz paralyzed

The SIDETUR Casima plant in Puerto Ordaz has been paralyzed for six days due to lack of raw material. Workers warned the shutdown of the steel and iron company endangers the construction of the two million housing units promised by President Chávez. Before nationalization, SIDETUR produced 450,000 metric tons metrics of steel a year to supply the domestic market. (Veneconomy, 03-16-2011; http://www.veneconomy.com/site/index.asp?idt=25257&idc=3&ids=44&Var_Send=1&mmD=03&ddD=16&mmH=03&aaD=2011&ddH=17&aaH=2011&Send=Buscar)

Politics

Chavez Halts Venezuela Nuclear Plans After Japanese Crisis

Venezuelan President Hugo Chavez said that he’s halting plans to develop nuclear power in the South American country as Japan struggles to avoid a meltdown at a plant after last week’s earthquake and tsunami. “I’m ordering Energy Minister Rafael Ramirez to freeze all nuclear power development projects for peaceful means,” Chavez said today on state television. Chavez had signed a deal with Russia’s ROSATOM Corp. in October to develop nuclear power in Venezuela including a research reactor. Electricity Minister Ali Rodriguez said on Oct. 21 that Venezuela hoped to eventually produce 4,000 megawatts of nuclear power. (Bloomberg, 03-15-2011; http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aewApIYeDEis)

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.