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, September 28, 2012

September 28th, 2012

Economics & Finance

Chavez oil-fed fund obscures money trail in Venezuela
FONDEN is the largest of a handful of secretive funds that put decisions on how to spend tens of billions of dollars in the hands of President Chavez. Since its founding seven years ago, FONDEN has been funneling cash into hundreds of projects personally approved by Chavez but not reviewed by Congress -- from swimming-pool renovations for soldiers, to purchases of Russian fighter jets, to public housing and other projects with broad popular appeal. The fund now accounts for nearly a third of all investment in Venezuela and half of public investment, and last year received 25% of government revenue from the oil industry. All told, it has taken in close to U$D 100 billion of the nation's oil revenue in the past seven years. Finding out how much of that money FONDEN has spent, and on what, is not easy. This perception of secrecy has left investors unsure how to measure Venezuela's fiscal strength. Fitch Ratings this year warned it could downgrade the country's debt, in part because of transparency concerns. Those same concerns are also helping push up borrowing costs. "The visible portion that we can compare in Venezuela vis-a-vis other countries has declined considerably," said Erich Arispe, director in Fitch Ratings Sovereign Group. "I can't rate what I can't see." At the same time, Chavez is under growing opposition fire over abandoned or half-built projects, including some that received millions of dollars from FONDEN. A Reuters reporter at a FONDEN event who approached the finance minister -- the fund's president - to ask questions was physically restrained by two security personnel. (The Chicago Tribune, 09-26-2012;,0,6066004.story)

Central Bank loans to PDVSA stand at U$D 26.5 billion
Since 2007, Venezuelan state-owned oil company PDVSA has relied on public institutions to obtain financial resources for plans and programs assigned to it by the central Government, and the Central Bank of Venezuela (BCV) is its foremost contributor. According to BCV data, by August 26, 2011, financial aid to PDVSA amounted to U$D 12.9 billion. One year later, such figure increased to U$D 26.5 billion (105%). Although the Venezuelan oil basket has averaged U$D 100, oil revenues are not enough, considering the growing amount of liabilities. (El Universal, 09-27-2012;

PDVSA President: We are sliding into debt, but our assets have grown
Confronting criticism on rising indebtedness by the state-run oil company PDVSA, its president and also minister of Petroleum and Mining, Rafael Ramirez, says that although the oil company owes the Central Bank and private banks, "it is important to note that company assets have grown." "We were a U$D 37 billion oil company. Today the wealth of the company amounts to U$D 72 billion. Our assets have sparkled Our iron, our equipment, our machinery stand at USD 183 billion," Ramírez explained. (El Universal, 09-27-2012;

What is going on with Venezuelan gold reserves? A report by the International Monetary Fund (IMF) indicates Venezuela’s gold reserves –parts of the international reserves- are 362.05 tons after a 3.7 ton drop in August. Financial sources claim the Venezuelan Central Bank (BCV) sold another 1.8 ton lot this week. (Veneconomy, 09-27-2012;


Output begins at two Orinoco oil projects
Early production began on Thursday at two joint ventures with Russian and Vietnamese investors in the nation's huge Orinoco heavy crude belt.  The PETROMIRANDA project, where state oil company PDVSA is partnered with Russian companies including ROSNEFT and LUKOIL, began producing 1,500 barrels per day, a PDVSA source told Reuters. Oil Minister Rafael Ramirez says: "These are literally the first barrels that are being produced here ... We will also have early production today at our joint venture with Vietnam, PETROMACAREO." PDVSA's Russian partners have invested some U$D 800 million in PETROMIRANDA, Ramirez added, and the project was expected to be producing 6,000 bpd soon, eventually rising to 45,000 bpd. PETROMACAREO, where PDVSA is working with state-run Petrovietnam, began producing 800 bpd on Thursday, he said, and is forecast to be pumping some 4,000 bpd in the short term. (Reuters, 09-27-2012;

Ecuador and Venezuela to share U$D 13 billion Pacific refinery complex
Ecuador plans to process 84% of Ecuadorean and 16% of Venezuelan crude oil in the U$D 13 billion planned REFINERIA DEL PACIFICO, a refining and petrochemical complex project to be run by state oil companies of the two countries. The complex is expected to process 300,000 barrels of crude a day, but is still seeking new partners. Talks with China "are advancing well," Dow Jones reports. (The Wall Street Journal, 09-27-2012;

Venezuela and Russia agree to launch PETRO VICTORIA
The Venezuelan government has just signed a number of agreements with the Russian Federation, among them one that calls for setting up PETRO VICTORIA, to exploit two areas: Carabobo 2 North and Carabobo 4 West in the Orinoco oil belt. This agreement was entered into by PDVDSA and ROSNEFT, and must be approved by the National Assembly. Oil and Mining Minister Rafael Ramirez explained that Venezuela's investment with Russian companies amounts to U$D 38 billion and projects will also be developed in the Junin 6 in accordance with standing bilateral agreement on the joint exploitation of a group of oil and gas fields in the river basin. More in Spanish: (AVN;;ón-infraestructura-petrolera;; The Washington Post,

FLSmidth says wins U$D48 million Venezuela contract
Danish engineering group FLSmidth & Co A/S on Thursday said it had won a contract in Venezuela worth U$D 48 million for engineering, supply and installation of a feeding system for an aluminum smelter. The order had been placed by Venezuelan state-owned aluminum company CVG ALCASA, FLSmidth said in a statement.
The project is part of a U$D 400 million refurbishment plan of CVG ALCASA's technologies, it said. (Reuters, 09-27-2012;

Flour, pasta, vegetable oil, coffee, margarine, sugar and powdered milk are being rationed by government and private supermarkets, as reported by ULTIMAS NOTICIAS daily after checking several establishments. "There is not enough supply in food to meet the large demand", according to an employee at the government owned Bicentenario market who refused to be identified for fear of reprisals. More in Spanish: (Ultimas Noticias, 09-27-2012;

Logistics & Transport

Road connectivity between Colombia and Venezuela should improve with construction of the “Transversal de las Américas” in Colombian territory, according to Colombia´s National Agency for Infrastructure (ANI). The road project is to extend alongside the Northern departments, connecting Colombia to Venezuela and the Caribbean coast to the center of the country, via a unified road network. The works are expected to be concluded in seven years. (Veneconomy, 09-27-2012;


Chavez rival maintains lead in poll ahead of Oct. 7 election, bond markets rise
Opposition candidate Henrique Capriles Radonski maintained his lead over President Hugo Chavez in the latest survey from CONSULTORES 21; a Caracas- based polling company, less than three weeks before elections. Capriles had 48.1% against 46.2% for Chavez in a poll taken at the end of August, Consultores 21 President Luis Christiansen told a conference hosted by the Council of the Americas in New York. The survey of 1,000 people was taken in the last two weeks of August had a margin of error of 3.2 percentage points, Christiansen said. “If we were to make a linear projection for the election, it would be that Capriles will maintain an advantage of 2.5% over Chavez,” he said.  According to analyst Russell Dallen: "What has lit a fire under Venezuela markets today is the latest polling from respected firm Consultores 21 which shows Capriles leading against Chavez, and leading by more than the margin of error now. This has been like jet fuel for Venezuela bond markets, as the odds of electoral regime change increase." and direct quote from Mr. Dallen. (Bloomberg, 09-19-2012;

Even if Chavez wins the election, his aura is gone
IMAGINE an election in which the incumbent routinely commandeers the nation’s airwaves for endless campaign broadcasts while his opponent gets just three minutes a day. The incumbent uses all the resources of the state—money, vehicles, buildings—for his campaign, and he has branded state social-welfare programs as his own personal gift. He controls the courts and the electoral authority. No wonder that Henrique Capriles, the opposition candidate, calls the contest between himself and Hugo Chávez, who has ruled Venezuela for almost 14 years, one of David against Goliath, and that one of his allies says that the election will be “free but not fair”. Yet despite all these unfair advantages, Goliath is threatened.  There are clear signs that Mr. Chávez’s appeal is finally fraying. Mr. Capriles is sensibly trying to close Venezuela’s partisan divide by promising to maintain and improve most of Mr. Chávez’s social programs, while pledging to crack down on corruption and boost the economy by seeking the foreign investment the president has shunned. For all these reasons, Mr. Capriles deserves to win, and he just might do so; and even if Mr. Chávez prevails once more, Latin America’s most controversial autocrat is a diminished figure. (The Economist;

Election Board director: "The ballot is secret, vote with confidence"
National Electoral Council (CNE) director Vicente Díaz emphasizes that balloting is secret, and has told Venezuelans to not allow "electoral scoundrels" to scare them. "Do not let them scare you because the ballot is secret. Vote with confidence and liberty because, first, your vote will count, second, it will be anonymous, and third, it will reflect the results you want for the country". (El Universal, 09-26-2012;

Ambassador: "a vote for Chávez is a vote for Fidel"
Venezuela's ambassador to Cuba, Edgardo Antonio Ramírez, said at a press conference in Havana that voting president-candidate Hugo Chávez Frías in the upcoming October 7 presidential election amounted to "voting Fidel (Castro, Cuba's ex-president), peace, and union in Latin America and the Caribbean." (El Universal, 09-27-2012;

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