June 28th, 2011

Economics & Finance

Venezuelan bonds recover on expectation of policy changes

Bonds of the Republic and of Petróleos de Venezuela rose on speculation that there could be another bond issue in the absence of President Hugo Chávez and possible policy changes, even a government with different economic strategies. The price of the oil securities rose 1% to 2%, while the Republic rose between 2.5% and 3%. It is considered unusually positive for paper to increase value by more than 1% in one day. Unofficially it was learned that the Global 2027 could increase to 17 points. More information in Spanish. (El Nacional; 06-28-2011; http://www.el-nacional.com/www/site/p_contenido.php)

CITI says the government can avoid deficit

If Venezuelan oil prices remain above U$D 82.9 and production continues at current levels (2.3 million barrels a day), the Government can avoid a deficit this year, says the latest report Citi Group. For the situation to continue in 2012, the barrel can’t be below U$D 85.3. It adds, the proviso that Executive decisions can impact this outcome as an excessive increase in bond emissions bonds in order to finance current spending-would impact accounts. The firm believes that it is an "external variable to consider," as of production does not increase in 2013 there could be a deficit. More information in Spanish. (El Nacional; 06-28-2011; http://www.el-nacional.com/www/site/p_contenido.php)

Debt issues may not be imminent

The ECOANALÍTICA economic consultant firm believes that new bond issues will be offered in 2011, but are not imminent as the Ministry of Planning and Finance does not want to pay a high coupon and prefers to wait for market conditions improve. More information in Spanish. (Tal Cual; 06-28-2011; http://www.talcualdigital.com/index.html)

Power failures and fitful input jeopardize Venezuelan industry

Government statistics showed a surge in the Venezuelan economy for the first quarter of the year. According to data supplied by the Central Bank of Venezuela (BCV), manufacturing recorded one of the most significant growth rates (7.6%). However, members of the Venezuelan Confederation of Industries (CONINDUSTRIA) are cautious and maintain that manufacturing still shows no real signs of recovery, except for specific sectors. Carlos Larrazábal, president of CONINDUSTRIA, says some industries increased their production during the first quarter in order to deplete inventories purchased with the old exchange rate. (El Universal, 06-27-2011; http://english.eluniversal.com/2011/06/27/power-failures-and-fitful-input-jeopardize-venezuelan-industry.shtml)

Venezuela faces unstable food supply

The supply of food in Venezuela is still hit by instability and volatility. According to figures provided by pollster DATANÁLISIS, the shortage rate amounted to 16% two weeks ago; a reduction of numbers shown  in April, when the index stood at 21%. However, the situation cannot ne regarded as a steady decrease. The real issue is that the government is not dealing with the underlying problem with price adjustments and a stimulus to domestic production, but rather trying to offset shortfalls with imports to create the perception that the market is supplied, according to Luis Vicente León, director of polling firm. (El Universal, 06-27-2011; http://english.eluniversal.com/2011/06/27/venezuelas-food-supply-is-characterized-by-volatility.shtml)

Government says it has invested over U$D9.2 million in electricity

The Government of Venezuela has invested over U$D 9.2 million to stabilize the National Electric System, according to Electric Energy minister Ali Rodriguez Araque. He explained that a series of projects in the sector have been developed since 2010, first aimed at solving the electrical crisis caused by the “El Niño” climate phenomenon; as well as unification of 14 electric companies into the National Electric Corporation (CORPOELEC); and the creation of the Electric Energy Ministry. (AVN, 06-27-2011; http://www.avn.info.ve/node/64581)

Commodities

PDVSA's partners are unaware of the extent of windfall tax

According to oil companies the new oil windfall tax or "special tax on windfall and exorbitant oil prices" is unexpected and untimely. Companies face an uncertain scenario about the scope and potential impact of the new tax, which sets 80 to 95% rates, when the barrel of oil exceeds U$D 70. The tax severely hits the cash flow of subsidiaries and minority partners of state-run oil holding Petróleos de Venezuela, and this prevents joint ventures from implementing the "remedial" plans that the Ministry of Energy and Petroleum set at the end of 2010 plans to raise oil output. (El Universal, 06-27-2011; http://english.eluniversal.com/2011/06/27/pdvsas-partners-are-unaware-of-the-extent-of-windfall-tax.shtml)

Chevron sees Orinoco output in 2012, needs funds

Chevron could begin pumping 50,000 barrels per day from Venezuela's huge Orinoco extra heavy crude belt next year but needs investment in the project, an executive said in remarks published on Sunday.

Ali Moshiri, Chevron's president of exploration in Africa and Latin America, added that a move to hike taxes on some windfall oil income in Venezuela could affect the company's future investment decisions in the country, which is South America's biggest oil exporter. The U.S. major has a 34% stake in Orinoco's Carabobo Project 3, which has estimated reserves of 66 billion barrels. Venezuelan state oil company PDVSA holds 60%, while Venezuelan and Japanese companies split the rest. (Reuters, 06-26-2011; http://www.reuters.com/article/2011/06/26/venezuela-chevron-idUSN1E75P01W20110626)

Venezuela is offering Russian TNK-BP 40% of its stake in PetroMonagas

According to Russian daily Kommersant negotiation depends on how the ongoing litigation with ExxonMobil goes and on the share price. (Veneconomy, 06-24-2011; http://www.veneconomy.com/site/index.asp?ids=44&idt=26497&idc=4)

Guasare mines produce no coal

No mineral has been extracted for four days at the Paso Diablo mine in Mara Township, operated by the state company Carbones del Guasare. Workers maintain an indefinite sit-down strike, to the failure of the company of their contractual benefits. The stoppage halts production of 11 metric tons of coal per day, reported yesterday employees, who request anonymity. "The strike is total. There are no activities. We're not doing anything at the mine or the port. We are waiting for a decision by the company." (Petroleumworld, 06-23-2011; http://www.petroleumworldve.com/notat11062301.htm)

Politics

With Hugo Chávez hospitalized, Venezuela frets about the future

There is genuine cause for speculation about Chávez's health, if only because the world is getting little more than Twitter messages right now from a leader who is famous for interrupting Venezuelan TV broadcasts so he can talk for hours. But medical experts say it can take a few weeks to recover from abdominal abscesses, and that may well be what Venezuelan Foreign Minister Nicolás Maduro was referring to over the weekend when he said Chávez is "battling for his health." His hospital hiatus in Cuba has raised questions about the condition of his socialist Bolivarian revolution. With problems like high inflation, chronic power outages and a bloody prison riot outside Caracas vexing the oil-rich South American nation, many Venezuelans are fretting about who's in charge of their government. Officials in Caracas sound tongue-tied. Chavistas seem genuinely spooked about their 2012 prospects if Chávez can't run. (Time, 06-27-2011; http://www.time.com/time/world/article/0,8599,2079996,00.html#ixzz1QVdeaWrM)

A Chávez brother threatens armed struggle

Adán Chávez, the president's older brother and governor of the southwestern state of Barinas said during a meeting of the United Socialist Party of Venezuela (PSUV), that while their United Socialist Party prefers to retain power at the ballot box, "we must be aware of the dangers that beset us and that the enemy does not rest. As authentic revolutionaries, we cannot exclude other forms of fighting, including armed struggle." (El Universal, 06-27-2011; http://english.eluniversal.com/2011/06/27/hugo-chavezs-brother-urges-the-psuv-not-to-forget-armed-struggle.shtml)

National Assembly Speaker says Chavez doesn’t have cancer, will return home

Fernando Soto Rojas, the pro-Chavez leader of the National Assembly, says “I would be the first to tell the country” if Chavez had cancer. The lawmaker said that Chavez continues to recover from an operation to remove a pelvic abscess and should return to Venezuela in time to celebrate the 200th anniversary of the nation’s independence from Spain on July 5. (Bloomberg, 06-27-2011; http://www.bloomberg.com/news/2011-06-26/chavez-doesn-t-have-cancer-assembly-leader.html)

Venezuela’s opposition: Chavez’s health following surgery should not be shrouded in secrecy

Opposition leaders accused Hugo Chavez on Sunday of failing to fully inform Venezuelans about his health, saying the president’s condition following surgery in Cuba should not be shrouded in secrecy. Despite assurances from top government officials and close relatives that Chavez is recuperating following surgery more than two weeks ago, the president’s silence and seclusion since the operation have spurred growing speculation about how ill Chavez may be. Opponents say Chavez and his aides should be more straightforward. (The Washington Post, 06-26-2011; http://www.washingtonpost.com/world/americas/health-of-president-chavez-raises-questions-in-venezuela-over-possible-successor/2011/06/25/AGzZZ3kH_story.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.