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, May 27, 2011

May 27th, 2011

Economics & Finance

Venezuela: US sanctions to hurt US businesses most
U.S. sanctions against Venezuela's state oil company will primarily affect American businesses, the country's foreign minister said Thursday: "These illegal, abusive measures taken by this weak government of the United States ... those most affected are businesspeople of the United States." Referring to oil-industry technology previously obtained from U.S. companies, Maduro said: "We can substitute them in a process of adjustment and produce them in Venezuela or begin to acquire them from our strategic allies in the rest of the world." Oil Minister Rafael Ramirez said previously that while shipments of heavy crude to PDVSA's U.S.-based subsidiaries will continue, the company cannot guarantee shipments to nonaffiliated private oil companies. "Our industry has the capability to face and overcome this attempt at sanctions," Maduro said. "What they're trying to do with the sanctions is hit us from an economic point of view." Asked whether Venezuela might consider suspending oil shipments to the United States, Maduro said such actions could only be considered in "extreme moments," though he didn't give details. (AP, 05-26-2011; http://www.google.com/hostednews/ap/article/ALeqM5gEojwiAZVudpbGCaUaF_6MnlWkiA?docId=801b8312a7f4424a9158fbc9c4b2fce3)

PDVSA received over U$D 265 billion oil in royalties and taxes since 2002
Since the enactment of the Hydrocarbons Law in 2002 to date Venezuela has received over U$D 265 billion dollars in royalties and taxes paid by oil companies operating in the country, according to Energy and Petroleum Minister Rafael Ramírez. He said before this law went into force transnational corporations, "were expropriating 'oil resources and dividends, as a result of their operations”. More information in Spanish at: (Enfoque 365; 05-26-2011; http://www.enfoques365.net/N23102-mas-de-265-mil-millones-de-dolares-en-regalias-e-impuestos-ha-percibido-pdvsa-por-la-ley-de-hidrocarburos-de-2002.html)

PDVSA bonds slide after U.S. imposes sanctions on company for Iran links
Petroleos de Venezuela SA bonds plunged, pushing yields up the most in three months, after the U.S. announced sanctions on the state-owned oil company for supporting Iran’s energy industry in ways that might aid the country’s alleged “illicit” nuclear activities. The yield on 8.5% dollar-denominated bonds due 2017 jumped 39 basis points, or 0.39 percentage point, to 15.65% at 2:29 p.m. in New York, according to prices compiled by Bloomberg. The price fell 1.31 cents on the dollar to 71.58 cents. The price sank as much as 1.72 cents earlier in the day. (Bloomberg, 05-24-2011; http://www.bloomberg.com/news/2011-05-24/pdvsa-bonds-sink-after-u-s-imposes-sanctions-on-company-for-links-to-iran.html)

Plunging bonds raise cost of financing Venezuela
Plunging bond value is raising interest rates on financing to Venezuela. Investment banks such as JP Morgan believe that this year both PDVSA and the National Government will issue new bonds for about U$D 5 billion to meet financing needs, even after the increase in oil prices. (El Universal; 05-27-2011; http://www.eluniversal.com/2011/05/27/la-caida-de-los-bonos-le-eleva-al-pais-el-costo-del-credito.shtml)

Venezuela's power generation up 17.3$ as population doubles
The Economic Commission for Latin America and the Caribbean (ECLAC), in its 2010 report, details the region's economic and social situation. In the item related to development of the electricity industry, Venezuela shows a slow growth. According to a ranking of 27 countries, Venezuela ranks 19th, above Dominican Republic and Haiti, which reported a decline, and Suriname, Guyana, Trinidad and Tobago, which reported slight expansions, as well as Colombia and Uruguay. (El Universal, 05-25-2011; http://english.eluniversal.com/2011/05/25/venezuelas-power-generation-up-173-percent-population-doubles.shtml)



Commodities

Despite official anti-American rhetoric, the United States remains Venezuela’s largest trading partner
Data from the National Institute of Statistics show that one third of Venezuela's imports from the United States. Purchases from the US in 2010 totaled U$D 9.5 billion, and the rest of the world U$D 21.2 billion to Venezuela. Other countries after the United States are China, with U$D 3.3 billion, Brazil, with U$D 2.9 billion, Colombia, with U$D 1.4 billion, and Mexico, with U$D 1.3 billion. The U.S. also is among the first suppliers of foodstuff. Last year Venezuela bought U$D 198 million in corn, USD 166.6 million worth of wheat, U$D 128.3 million worth of rice and U$D 66.7 million in edible oils, among others. More information in Spanish at: (El Nacional; 05-26-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Food imports rose 442% since 2003
In 2003 the food industry imported U$D 2.4 billion dollars, whereas in 2010 imports rose to U$D 13 billion dollars, an increase of 442% in imports in the industry, according to Pablo Baraybar, Chairman of the Board of Venezuela’s Food Industry Chamber. "The food policy the Government has implemented in recent years has not been successful. They have only created more shortages, more inflation and a sustained increase in imports," he said.
The rains in recent weeks will fuel increased purchases abroad, said Baraybar. More information in Spanish at: (El Nacional; 05-26-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Venezuela's petrochemical imports skyrocket
The petrochemical sector reported a slight growth in sales during 2010. However, the figures also show that the chemical and petrochemical industries are undergoing an ordeal and have a somewhat bleak outlook. Juan Pablo Olalquiaga, president of the Venezuelan Chemical and Petrochemical Industry Association (ASOQUIM), reported that last year the value of the petrochemical sector's gross sales rose by 10.3%, thanks to a 37.7% hike in exports. In the meantime, the domestic market only grew 1%. Total sales reached USD 3.63 billion in 2010.  However, the trade balance shows a deficit, as imports totaled U$D 3.24 billion and exports amounted to U$D 1.16 billion in 2010. (El Universal, 05-25-2011; http://english.eluniversal.com/2011/05/25/venezuelas-imports-of-petrochemicals-skyrocket.shtml)



Politics

Venezuela shakes up PDVSA’s Board of Directors after pension fund losses
Petroleos de Venezuela SA ousted half its board of directors today after the state-owned oil company’s pension fund lost about $500 million in a Ponzi scheme linked to a Connecticut-based investor. PDVSA ejected the head of finance Eudomario Carruyo, internal director of production Luis Pulido, planning director Fadi Kabboul, head of gas Carlos Vallejo and research director Hercilio Rivas. According to Patrick Esteruelas, senior analyst at Moody’s Investor Service. “It could be construed as a response to the Ponzi scheme, which has certainly attracted a lot of criticism of PDVSA’s finances and a lack of proper supervision.” Finance Minister Jorge Giordani and Foreign Minister Nicolas Maduro were added to the board as external directors as well as the head of a pro-Chavez union named Will Rangel. Giordani will bring “additional pressure” on the company to invest more in Chavez’s social programs rather than in the oil sector, Esteruelas said. “Giordani has been shifting the burden over to PDVSA and has been extremely reluctant to use resources to emit external bond issuances that fund capital flight,” Esteruelas said. “This is something that could become firmly entrenched now that Giordani has a seat on the board.” (Bloomberg, 05-26-2011; http://www.bloomberg.com/news/2011-05-26/venezuela-shakes-up-pdvsa-s-board-of-directors-ratifies-oil-minister.html

Opposition members of the National Assembly partially support censure of PDVSA sanctions
Pro government assembly members voted to reject sanctions the US has placed on PDVSA for its support of the Iranian oil industry; while opposition parliamentarians abstained, but agreed on some of the points in the resolution. Opposition spokesman Omar Barboza, said sanctions could negatively impact the oil industry:"We support defending principles, and also national sovereignty, and therefore reject those sanctions on PDVSA, which we believe are disproportionately contrary to the national interest; and because they are a unilateral move by the US against Venezuela, not the product of a United Nations decision ". He added, "this does not mean we support PDVSA or Government policies”. More information in Spanish at: (Unión Radio, 05-24-2011; http://www.unionradio.net/ActualidadUR/Nota/visornota.aspx?id=76266&tpCont=1&idsec=3&idprog=0

Venezuela to launch 2nd Chinese-made satellite
Venezuela formalized plans on Thursday to launch its second satellite from China next year to help the government improve mapping and more accurately estimate agricultural harvests. Science and Technology Minister Ricardo Menendez said the Chinese-made satellite, to be launched in October 2012, will also be used for monitoring weather patterns so authorities can prepare for potential dangers like floods. "We are going to have a satellite that will facilitate monitoring national territory 24 hours a day, which gives us enormous potential for assistance in extreme situations such as torrents of rainfall", according to Menendez. (The Sydney Morning Herald, 05-27-2011; http://news.smh.com.au/breaking-news-technology/venezuela-to-launch-2nd-chinesemade-satellite-20110527-1f78r.html)

Spain investigates estimated EU 42 million commission on sale of patrol boats to Venezuela
According to a report in “El Confidencial”, a middleman made EU 42 million on the sale of 8 patrol boats by the Spanish Government to Venezuela. La sale was agreed upon in a meeting May 2005 between Venezuelan President Hugo Chavez and Spanish Government chief José Luis Rodríguez Zapatero. The government shipbuilding firm Navantia is building the vessels and had delivered four. Days before signing the contract, 28 November 2005, Navantia accepted the Rebazve Holding Ltd as a middleman with a 3, 5% commission. In light of the public uproar over the commission in a government to government purchase, Navantia sources simply say. “Rebazve has historically been involved in sales operations toward Venezuela”. More information in Spanish at: (Noticiero Venevisión, 05-26-2011; http://www.noticierovenevision.net/index_not.asp?id_noticia=20110526002103&id_seccion=03)

Spain arrests 8 on charges of negotiating military equipment between Venezuela and Iran
Spanish policy arrested 8 men who were negotiating the sale of 9 combat helicopters and other military goods from Venezuela to Iran. Five Spanish businessmen and 3 Iranians were negotiating the sale of combat aircraft parts from Venezuela to Iran, according to Spanish authorities. The shipment of nine BELL-112 helicopters, parts and other military equipment valued at U$D 140 million was hidden in warehouses in Madrid and Barcelona. More information in Spanish at: (Enfoques 365; 05-26-2011; http://www.enfoques365.net/N23143-espaa--detienen-a-ocho-sujetos-que-negociaban-material-de-guerra-para-venezuela-e-iran.html)

Trade with Iran grew 131% in the first quarter
Despite sanctions, business with Iran continues. Although no explosive or gasoline sales were registered during the first quarter this year, trade doubled and was pegged at U$D 4, 13 million, an increase of 131% over last year, according to the National Statistics Institute. The jump in bilateral trade is due to a 134% increase in imports, while exports fell by 98% from U$D 18.921 to 350. More information in Spanish at: (El Nacional; 05-27-2011;  http://www.el-nacional.com/www/site/p_contenido.php)

Colombia and Venezuela will sign trade agreement
Presidents Hugo Chavez and Juan Manuel Santos are scheduled to sign a Bilateral Production and Economic Complementation agreement between Colombia and Venezuela, which will definitely replace the Andean Community. More information in Spanish at: (El Nacional; 05-26-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Chavez to meet with Rousseff in Brasilia on June 6
Presidents of Hugo Chavez of Venezuela and Dilma Rousseff of Brazil are expected to meet in Brasilia on June 6, a source of the Brazilian president's office told AFP on Wednesday. Chavez and Rousseff had a telephone conversation on Tuesday and they agreed on the date for the visit of the Venezuelan Head of State, who would visit Brazil on June 6, a source of the Brazilian president's office told AFP. (El Universal, 05-25-2011; http://english.eluniversal.com/2011/05/25/chavez-to-meet-with-rousseff-in-brasilia-on-june-6.shtml)




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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