Venezuelan Daily Brief

Published in association with The DVA Group and The Selinger Group, the Venezuelan Daily Brief provides bi-weekly summaries of key news items affecting bulk commodities and the general business environment in Venezuela.

Friday, March 18, 2011

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;

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;

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;

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;

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;


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;

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;

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;

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;

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;

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;

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;


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;

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.

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