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, January 6, 2012

January 06th, 2012

Economics & Finance

Annual inflation at 27.6%; could go higher in 2012 amid heavy election year spending
The Central Bank says the country finished the year with 27.6% inflation, the highest in Latin America. The nation has had the highest inflation in the Americas for six years running. Inflation in 2010 was similar at 27.2%. Venezuela had the second-highest official inflation rate in the world as of November, surpassed only by Ethiopia's 31.5%.
The government and the Central Bank both predict inflation of between 20- 22% this year. But analysts say inflation could rise above 30%, influenced by an expanding money supply and heavy government spending. (AP, 01-05-2012;; The Washington Post, 01-03-2012;; AP,ç)

BCV may transfer U$D 3 billion to government
Under current legislation the Central Bank of Venezuela (BCV) is obligated to transfer to the government all foreign currency held as international reserves at the end of each six-month period, whenever reserves achieve the so-called optimal level. President Chavez remarked on December 21 that the appropriate level of international reserves is U$D 26.8 billion, and by the end of 2011n foreign currency reserves amounted to U$D 29.89 billion. As a result, the BCV will transfer U$D 3.09 billion to the National Treasury in the coming days. (El Universal, 01-04-2012;

AMERICA ECONOMÍA magazine ranks Caracas among the worst cities for business
Caracas fell by 10 slots in the 2011 ranking of the best cities for business in Latin America prepared by AMERICA ECONOMÍA magazine. According to this publication, Caracas came in 44 out of 45 cities analyzed. The study is based on 43 international reports from organizations such as ECAC, IMF and the World Bank which evaluate conditions that influence the social and political environment, economic dynamism, serve to companies and businessmen, infrastructure, connectivity among others. More in Spanish: (El Mundo;


EXXON’s says it is ‘not over yet’ after arbitration ruling, Chavez calls demand “crazy
EXXON MOBIL Corp.’s four-year hunt for billions of dollars in nationalized Venezuelan oil profits isn’t finished after an international panel slashed the U.S. oil company’s claim by 89%. Exxon and the Venezuelan government are scheduled to resume arguments before the World Bank panel in February. The separate proceeding before the World Bank’s International Centre for the Settlement of Investment Disputes is “larger” than the ICC case, said Patrick McGinn. “This ICC arbitration award represents recovery on a limited, contractual liability of PDVSA that was provided for in the Cerro Negro project agreement.” Russ Dallen, a lawyer and head bond trader at Caracas Capital Markets says “I would expect the ICSID judgment to easily come in for almost U$D1 billion minimum, rising to U$D 3 billion if they use a more modest discount and higher real world oil price than the $27 to $35 provided for in the 1997 contract”. President Hugo Chavez termed EXXON MOBIL Corp.’s demand for as much as U$D 12 billion in international arbitration for assets, as “crazy”. (Bloomberg, 01-03-2012;; Bloomberg, 01-04-2012,; UPI,; AVN, 01-05-2012;

PETROLEUM WORLD: Arbitration award MOBIL versus PDVSA (II)
The recent award of $908 million in the Mobil case has given rise to much comment. But there are two parallel cases under arbitration: 1) MOBIL versus PDVSA for breach of contract, and 2) MOBIL versus the Republic under the Bilateral Investment Treaty (BIT) with The Netherlands. The first case was heard at the International Chamber of Commerce and some experts assert the award is only for breach of contract and does not represent compensation for the assets expropriated. PDVSA'S lawyers question this opinion and believe it covers compensation so the matter is far from clear. The second case is still in progress at the International Centre for Settlement of Investment Disputes. The BIT with The Netherlands states "Such compensation shall represent the market value of the investments affected immediately before the measures were taken or the impending measures became public knowledge, whichever is the earlier." Should it be construed as the replacement cost of the assets the replacement cost of the wells drilled and the upgrader could be U$D 2 billion or more. Venezuela considers it to be the expropriation of assets, while ExxonMobil considers it to be the expropriation of a business and so has included an element to compensate for the loss of future earnings. The important factor is if the arbitration panel will allow for any loss of earnings or whether they will equate market value with asset replacement cost. (Petroleum World, 01-05-2012;

CONOCO expects to receive a U$D 2.7 billion compensation
The British investment firm Barclays Capital said that the ICC decision, which ordered Venezuela to pay U$D 907 million to EXXON MOBIL, an amount close to the so-called book value of the project, sets "an important precedent" with regard to a similar claim filed by CONOCO-PHILLIPS "which seeks a compensation of U$D 2.7 billion from PDVSA." (El Universal, 01-05-2012;

Standard & Poor’s Ratings Services says it won’t change its B+ rating on PDVSA as a result of the ICC judgment. Given that PDVSA held about U$D 9 billion in cash as of June 30, “the compensation amount will not effect the company’s liquidity,” Fabiola Ortiz, an S&P analyst based in Mexico City, said in a note to clients. (Bloomberg, 01-03-2012;

Development problems force Venezuela to extend natural gas imports
Venezuela's inability to develop its natural gas industry as planned has forced it to revise and extend a deal with Colombia's state-controlled ECOPETROL and CHEVRON involving gas imports from the partners' Guajira gas field in northeastern Colombia, a Caracas-based consultant said Wednesday. The renewal deal announced by the two countries last week included unspecified adjustments to the portion of the original deal that called for Venezuela's PDVSA to begin exporting gas to Colombia in 2012, a clause that has been delayed in light of Venezuelan problems in developing its enormous natural gas reserves. According to PDVSA's Seed Plan 2006-2012, the country hoped to be producing 11.5 billion cf/d by this year, but according to official figures, is producing 6.961 billion cf/d. Venezuela's PDVSA financed the construction of the pipeline on both sides of the two countries' shared border, although gas-compression facilities in Colombia were built by ECOPETROL and CHEVRON. The Guajira field is operated by CHEVRON. The 2 1/2-year extension of the agreement runs through mid-2014. (Platts, 01-05-2012:

Peru cherishes energy agreements with Venezuela
Peruvian state-run oil holding PETROPERÚ will try to strike a deal with Venezuela ahead of the visit of Peruvian President Ollanta Humala to Caracas to meet with his Venezuelan counterpart Hugo Chavez, according to PETROPERÚ President Humberto Campodónico, who promised to travel to Venezuela for a meeting on Wednesday with Venezuelan oil authorities. The steps will be later discussed by both presidents during their meeting next Saturday. "We will talk about several issues: oil drilling, the Ilo petrochemical plant, chances of buy and sale of oil, oil trade agreements, the possibility of fertilizers plants, agreements on capacity building," Campodónico told reporters. (El Universal, 01-03-2012;

Nicaragua pursues loan with Venezuela to prevent higher electricity rates
The government of Nicaragua is seeking funding from Venezuela of U$D 70 million – U$D 108 million to elude a 20.2% hike of the electricity rate, according to David Castillo, the head of state-run Nicaraguan Energy Institute (INE), who declared the borrowing, which would be executed through the Bolivarian Alliance for the Peoples of Our America (ALBA). (El Universal, 01-04-2012;

Government and BBVA Provincial to provide steel plant financing
BBVA Provincial and the Ministry for Finance and Planning have agreed on financing a first phase for production of German machinery by SMS SIEMAG AG for the Siderúrgica Nacional, C.A. plant, a “social production” company. The total investment in a project for steel production and lamination could reach U$D 4 billion. More in Spanish: (El Nacional, 01-05-2012;

International Trade

Humala and Chavez to negotiate substitutes for Andean Community rules
Peruvian President Ollanta Humala will meet Saturday with President Hugo Chavez to review progress son bilateral agreements established after Venezuelan withdrew from the Andean Community. Peruvian Foreign Minister Rafael Roncagliolo has said the meeting is to set rules “for a future partial agreement on trade and economic complementation”. More in Spanish: (AVN, 01-06-2012;ávez-negociarán-caracas-pacto-sustitutivo-can)

Imports soar to their highest level in three years
Imports have skyrocketed. Official data show that at the end of 2011, Venezuelan imports amounted to U$D 45.62 billion, an 18% jump compared to the previous year and the highest level since 2008. Another outstanding fact is that the State has become a major importer of goods; in fact, public sector's imports account for 35% of total purchases abroad, the highest level since 1997. (El Universal, 01-04-2012;

Exports grow 42.8% in 2011, according to Central Bank
Exports grew 42.8% compared to 2010, reaching U$D 93.90 billion, as shown in the annual report published by Central Bank President Nelson Merentes: U$D 89.39 billion were from oil exports, which increased considerably due to higher prices in the international oil markets and growth in the volume exported. (AVN, 01-04-2012;


Chavez shuffles the pack
The convalescent president moves to shore up his ties to the army and oligarchs at the expense of civilian radicals,
Nothing seems to irk Hugo Chavez more than the rise of a possible rival within the ranks of his Bolivarian revolution. Talk in Caracas had begun to focus on Nicolás Maduro, the foreign minister, as the most likely dauphin. But in announcements over Christmas, Chavez shuffled the pack of his leading aides. The “bourgeoisie”, he said, saw Maduro, as a potential successor. Similarly sidelined were the vice-president, Elías Jaua and the interior minister, Tareck el Aissami. All, along with the defense minister, General Carlos Mata Figueroa, will seek to wrest key states from the opposition in gubernatorial elections in December. The big winner in all this is Diosdado Cabello, a former vice-president who has been named first vice-president of the ruling United Socialist Party (PSUV) and president of the National Assembly. An ally of Cabello’s, Francisco Ameliach, another former army officer, has been put in charge of party organization and electoral strategy.Cabello represents a pragmatic alliance between elements of the army and business interests, Jaua and other leading civilians are radical socialists. By putting the party machine in the hands of Cabello, Chavez has signaled his reliance on the military wing of his movement. Nobody, not even the president, understands politics, the armed forces and the business world, and the way they interact, better than Cabello. That makes him both a crucial ally and also a potential threat to Chavez. (The Economist,

Ahmadinejad sets Latin American tour for talks, trade
Iranian President Mahmoud Ahmadinejad is back in Latin America building bridges with fellow oil producers Ecuador and Venezuela and populist governments in Cuba, Guatemala and Nicaragua. Ahmadinejad added Guatemala to his itinerary to take part in the inauguration of President-elect Otto Perez, a ceremony that will be attended by at least 11 other heads of Latin American and Caribbean states. Prince Felipe de Borbon, heir to the Spanish crown, is also to attend. During his visit to Venezuela Iranian President Mahmoud Ahmadinejad is to ratify agreements reached in September by a bilateral commission, mainly in reference to construction. (UPI, 01-04-2012; and more in Spanish: El Universal;

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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