September 11th, 2012

Economics & Finance

Chavez’s cash pump PDVSA runs on empty

Hugo Chavez’s cash pump, Petróleos de Venezuela (PDVSA), is running on empty. The troubled state oil group may now pay its suppliers with IOUs instead of cash. That’s hardly surprising given Chavez’s systematic squeezing of PDVSA to finance social spending, particularly ahead of elections set for Oct. 7. Harder to imagine is what happens when oil prices decline from today’s lofty heights. PDVSA is a lesson in oil wealth mismanagement. Last year the company posted U$D 125 billion in sales. More than 40% of that fed Chavez’s spending machine. Roughly U$D 24 billion fattened state coffers in the form of royalties, taxes and dividends. And U$D 30 billion lined Chavez’s discretionary spending funds. After covering production and financing costs, PDVSA had to borrow U$D 9.5 billion and tap its U$D 6 billion cash holdings to help fund investments. Despite generally rising crude prices, PDVSA has seen negative free cash flow for the last five years. Worse still, Chavez appears to be letting PDVSA put too little back into the business. The company invested U$D 17.5 billion last year, scarcely more than half what went to Chavez’s social projects. But PDVSA’s own plan requires it to invest nearly twice that much on average over the next six years to reach its goal of producing 4.2 million barrels a day by 2018. Venezuela is currently pumping 2.9 million barrels a day, according to the Organization of the Petroleum Exporting Countries, and it probably won’t reach its goal of 3.5 million by year-end. Output is 17% less than when Chavez took office 13 years ago. (Reuters, 09-06-2012; http://blogs.reuters.com/breakingviews/2012/09/06/chavezs-cash-pump-pdvsa-runs-on-empty/)

Official budget estimates for 2013 project oil prices at U$D 50, and 15% inflation

Official sources report the Ministry of Planning and Finance, along with the Central Bank are currently preparing overall variables for the 2013 budget using several scenarios, among them inflation is projected to range between 12-15% and the average price per oil barrel is being estimated at U$D 50. More in Spanish: (El Universal, 09-11-2012; http://www.eluniversal.com/economia/120911/crudo-en-50-dolares-e-inflacion-de-15-por-ciento-estiman-para-gasto-20)

Domestic debt went up 17% from one quarter to the next even though the country’s external debt experienced a slight drop of 0.5% in the second quarter to close at U$D 43.3 billion. A report published by the Planning and Finance Ministry reveals the central government’s total public debt is U$D 93.5 billion at the end of this year’s second quarter, up 8.2% ($7.0 billion) from last March. (Veneconomy, 09-09-2012; http://www.veneconomy.com/site/index.asp?ids=44&idt=31991&idc=2)

Venezuela debt up 7 times in 14 years

Public debt has risen out of all proportion due to the Governments voracious spending, which not only eat up income received from the oil industry, but also seeks extraordinary resources to fund unbridled public spending. Economist Ricardo Villasmil, who coordinates the policy platform for opposition candidate Henrique Capriles, says the main problem is not the amount of indebtedness, nor its accelerated increase, but rather the cost of interest payments. More in Spanish: (Tal Cual; http://www.talcualdigital.com/index.html)

Companies using SITME may open dollar denominated accounts

Central Bank President Nelson Merentes estimates that around 30% of the companies currently obtaining foreign currency through the SITME system may open dollar denominated accounts in Venezuela starting next week under the recently issued Exchange Agreement No. 20. More in Spanish: (El Mundo, 09-10-2012; http://www.elmundo.com.ve/noticias/economia/politicas-publicas/empresas-que-obtienen-divisas-a-traves-del-sitme-p.aspx)

Venezuela bottoms the list in the Global Competitiveness Ranking, as it fell two positions to 126th place in the rating prepared by the World Economic Forum 2012-2013. More in Spanish: (El Mundo, 09-10-2012; http://www.elmundo.com.ve/noticias/economia/internacional/venezuela-en-el-piso-del-ranking-de-competitividad.aspx)

DATANÁLISIS: Shortages down a bit, close at 11.6%

Supplies for the basic food basket rose slightly last week. "The index shows a 1.7% drop in shortages from the previous survey, for a total of 11.6%," according to the weekly report prepared by DATANALISIS. More in Spanish: (El Mundo, 09-10-2012; http://www.elmundo.com.ve/)

Commodities

Cost of refining overseas soars by 4.5%

As PDVSA has tried to develop 11 oil refining projects in the Americas and Asia, particularly in countries that are allies of the Chavez Government, it is finding that the cost in foreign refining plans has soared 4.5% as investment requirements rose from U$D 65.2 billion in 2011 to U$D 68.2 in 2012. The information comes from PDVSA's Refining Director Jesús Luongo. For instance, in Brazilian refinery Abreu e Lima, jointly developed by Brazilian state-run oil company PETROBRAS (60%) and PDVSA (40%), U$D 15.2 billion are needed to process 230,000 barrels per day (bpd) as of 2014, whereas only U$D 13.3 billion were needed for the project last year. (El Universal, 09-10-2012; http://www.eluniversal.com/economia/120910/venezuelas-foreign-refining-cost-soars-45)

Presidential rivals present sharply differing views on agriculture 
The opposition points out that production in agriculture has dropped 22% over the past few years and 70% of food consumed by Venezuela is imported from other nations. The government candidate insists that production has grown in all items, and says that while the agricultural component of GDP was insignificant in 1998 it is now 4%. More in Spanish: (El Mundo; http://www.elmundo.com.ve/noticias/tuvoto/dos-visiones-del-agro-quieren-levantar-produccion-.aspx)

International Trade

Construction of 5,000 houses with Portuguese bank financing

Portuguese bank Espirito Santo will finance $ 100 million to construct 5 thousand homes through the Grand Mission Housing Venezuela for housing complexes to the middle class.

Venezuelan Foreign Minister Nicolas Maduro said the information during the opening of a prefabricated building components manufacturer in Cua city, central state of Miranda.

The funding is possible given that Espirito Santo Bank started operations in Venezuelan territory last January, amid joint projects to develop the Orinoco Oil Belt and others of bilateral strategic interest. (AVN, 09-10-2012; http://www.avn.info.ve/contenido/construction-5000-houses-portuguese-bank-financing)

Logistics

Oil tanker launched by Venezuela and China

The government news agency says that Venezuela y China have launched the "Carabobo", an oil tanker built at the Bohai shipyard in Huludao. with the capacity to hold 320,000 tons of dead weight, which is around 2 million barrels of oil. Bilateral agreements call for the construction of 3 more very large crude carriers in order to supply over one million barrels a day to China. More in Spanish: (Agencia Venezolana de Noticias, 09-11-2012; http://www.avn.info.ve/contenido/venezuela-y-china-estrenan-buque-para-transporte-petróleo)

Politics

Capriles pledges to end oil giveaways abroad, will adjust minimum wage upon taking office

During the presentation of the program for his first 100 days in office, opposition candidate Henrique Capriles Radonski pledged to maintain diplomatic relations with all nations, but will not "give away" any more oil to any country since oil revenue must be invested in solving local problems. He said: "Our oil will be used to develop Venezuela, not other countries". He also pledged to raise the minimum wage to VEB 2500 the day he takes office, and not allow it ever to fall behind inflation. More in Spanish: (El Siglo, 09-11-2012; http://elsiglo.com.ve/modules.php?name=News&file=article&sid=32007; El Mundo; http://www.elmundo.com.ve/noticias/tuvoto/capriles-radonski-promete-ajustar-el-salario-minim.aspx)

Chavez woos rich, warns of "civil war"

Venezuela's famously anti-capitalist president, Hugo Chavez, has urged rich voters to back him or face "civil war," while his opponent sought to reassure the poor he will not abandon popular socialist welfare policies if he wins next month's election. (Reuters, 09-10-2012; http://www.reuters.com/article/2012/09/10/venezuela-election-idUSL1E8KA3JK20120910)