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.

Tuesday, November 29, 2011

November 29th, 2011

Economics & Finance

Venezuela sees oil claim verdicts this year
Venezuela expects verdicts in high-profile international compensation claims from oil majors Exxon Mobil and Conoco Phillips later this year, Energy Minister Rafael Ramirez said on Monday.
The nation is battling about 20 arbitration cases triggered by nationalizations that were ordered by President Hugo Chavez's socialist administration. The biggest by far are the Exxon and Conoco cases, which stem from the 2007 state takeover of multibillion dollar extra heavy crude projects in Venezuela's Orinoco Belt. Venezuela has proposed paying Exxon $1 billion in compensation, far less than it wants. The two companies originally claimed more than $40 billion in combined compensation, while Venezuela's state oil company PDVSA calculated the assets, after payments to creditors, were worth less than $2 billion. Some analysts say PDVSA might have to sell overseas holdings to meet a big compensation bill. (Reuters, 11-28-2011;

Investment in Q3 is 20% lower
Government authorities recently affirmed that a 4.2% hike in FY2011Q3 shows that an invigorated domestic economy. Nonetheless, investment, a major booster of sectors, has not yet recovered. Based on information from the Central Bank of Venezuela (BCV), in July-September, fixed gross investment -the flow of funds used for procurement of equipment and facilities to push production- scantly varied, at 0.4%. Compared with 2007 -a booming stage- it is 20% lower. (El Universal, 11-26-2011;

Liquidity soars 38% in a year to U$D 94.19 billion
The average price of Venezuela's oil barrel (over U$D 90 in 2011) allows the government to fuel an expanded public spending policy, thus leading to a higher amount of money in circulation. According to data provided by the Central Bank of Venezuela (BCV), as of November 18, liquidity amounted to U$D 94.19 billion, a nominal increase of 38% year to date. This growth is higher than that reported throughout 2010 (26%). (El Universal, 11-28-2011;

Venezuelan spending could be interpreted as investment, according to IESA professor Silvana Daduk, who explained that although spending here may be seen as irrational as compared to other countries, it may also be understood as a response to the constant threat of inflation. (Veneconomy, 11-28-2011;

Gold shipment arrives in Venezuela as Chavez begins to remove reserves from European, US banks
President Hugo Chavez’s government began repatriating Venezuela’s gold reserves from European banks Friday as the first shipment arrived on a flight from Paris. Troops guarded the shipment in a caravan of at least five armored trucks that carried the gold to the Central Bank in Caracas. (The Washington Post, 11-25-2011;

Plans to install monetary gold processing plant
The president of the Venezuelan Central Bank (BCV), Nelson Merentes says that the Government has a plan to install a monetary gold processing plant in Venezuela. He explained that gold technological transformation and certification are currently made only in European factories; and added that since Latin America does not have a convertible currency, it is necessary to own a convertible asset internationally to back imports. (AVN, 11-28-2011;; El Universal,

Chavez again says Government will expropriate all the banks that do not comply with the obligation to grant home loans. He signed a decree that “urges” the Venezuelan banks to participate in the long-term home loan financing. However, he said his intention was not to threaten but to comply with the country’s laws. (Veneconomy, 11-28-2011;

Business predicts scarcities and a black market
Local business is are worried about the Government’s decision to freeze 20 foodstuffs and personal care items, in addition to oversight of major production centers, upon the implementation of the Law on Costs and Fair Prices.
The Venezuelan Federation of Industries (CONINDUSTRIA) believes price controls curb production and result in surcharges and speculation. (El Universal, 11-26-2011;


Russia's Rosneft to pay U$D 2.2 bln for Carabobo
Russia's state-controlled oil giant Rosneft (ROSN.MM) will pay U$D 1.2 billion up front and also give a U$D 1 billion loan to Venezuela's state company PDVSA for access to the Carabobo 2 block. The companies are partnering in the project in the southern Orinoco extra heavy crude belt, which Venezuelan Energy Minister Rafael Ramirez said could eventually produce 400,000 barrels per day (bpd). Rosneft is also one of five Russian companies in a consortium working with PDVSA to develop the Junín block 6 of the Orinoco belt."A $1 billion loan for PDVSA and a bonus of $1.2 billion were agreed," Ramirez told reporters, saying a formal deal would be signed at a later date. (Reuters, 11-29-2011;

Chavez accuses Italy's PARMALAT of hoarding
President Hugo Chavez accused the Italian dairy company PARMALAT of hoarding products at a time when Caracas is slapping new price controls on basic goods. Chavez is deepening socialist reforms by implementing a new Law of Fair Prices and Costs intended to break inflation with new price caps and checks on private companies for speculation or hoarding. (Reuters, 11-28-2011;; Bloomberg,; El Universal, 11-28-2011;

Agribusiness productivity lower due to controls
Local production of foodstuff, both raw materials and finished products, is lower due to price controls and has increased dependency on imports. In order to supply both industry and the market, the Government has to import basic staples where Venezuela used to be self sufficient. It currently imports 43% of corn; 50% of rice; 30% of coffee and 40% of sugar required to meet local demand. More in Spanish: (El Universal, 11-29-2011;

International Trade

Colombian President Santos and President Chavez sign broad tariff, energy agreements
Meeting in Caracas on Monday, both Presidents signed a broad tariff agreement to replace rules set by the Andean Community. The new agreement reportedly removes all customs duties on over 3,500 items. In all 13 agreements were signed during the meeting of both Presidents, including plans to extend the bi national oil pipeline to Ecuador and Panama, and additional exploration rights for Colombia’s ECOPETROL in Venezuela. President Santos says the new agreement “has the same objectives” as the treaty signed by both nations 20 years ago “to eliminate tariff and non tariff barriers”; and adds that all of the objectives in his visit have been reached. More in Spanish: (El Universal, 11-29-2011;; Agencia Venezolana de Noticias;ón-productos; El Nacional,

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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