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, December 27, 2013

December 27, 2013

Economics & Finance

Central Bank still withholding November inflation rate, unofficial sources estimate 4-5%. Christmas has come and gone and the Central Bank (BCV) has yet to publish long overdue November inflation data, which by law it should have made public 27 days ago.  Venezuela is the only nation in the region that has not published November inflation rates. If President Maduro is limiting Central Bank autonomy it will join the National Statistics Institute (INE) and the Foreign Exchange Board (CADIVI) as another institution that manipulates and hides data essential for economic decisions. A group of Venezuela's most prominent economists recently declared that "such a delay...hurts BCV's credibility and calls its statistics into question."  October's inflation was 5.1% bringing the year-to-date total to 45.8%. Unofficial information - according to opposition leader Henrique Capriles - is that the November rate could be around 4%, and other sources place it as high as 4.8%. More in Spanish: (El País:; and El Universal:;

Collapse of gold prices hits Venezuela's international reserves. Amid the global economic crisis of 2008, the Central Bank of Venezuela (BCV) transferred most of its liquid reserves to the National Development Fund (FONDEN) thinking that gold prices would rise steadily. 70% of Venezuela's international reserves are in gold and gold prices have dipped 29% so far this year, from U$D 1,621.50 per ounce to U$D 1,195 by December 20th, thus bringing down the value of Venezuela's reserves. (El Universal, 12-23-2013;

Total FOREX allocations dropped by 71% in 2013. FOREX allocations at the official VEB 6.30/U$D have dropped by 71% this year, since the SITME exchange allocation system was replaced by SICAD, which auctions an average U$D 100 million every week to predetermined businesses, travelers, and persons needing health treatment or studying abroad. Total allocations this year by SICAD and CADIVI, including those made through SITME which operated up to February, are 71% below allocations made in 2012. More in Spanish: (El Universal,

Venezuela devalues Bolivar for tourists by 44%. Venezuela devalued its currency for foreign tourists by 44% after the Bolivar slumped to a record low on the black market. People visiting the country can buy bolivars at 11.3 to the U.S. dollar compared with the 6.3 official rates for most other transactions. Investors in the oil industry will also use the new exchange rate that is set at weekly currency auctions. “This is the first step toward an officially weaker exchange rate across the board,” says Daniel Snowden, emerging markets economist at INFORMA Global Markets in London. “We are looking at a significant devaluation early next year.” (Bloomberg, 12-23-2013;; El Universal, 12-23-2013;; Latin American Herald Tribune,; El Universal, 12-24-2013;

SICAD to auction U$D 100 million to corporations. The Central Bank (BCV) has announced the last auction sale of the Ancillary Foreign Exchange Administration System (SICAD) for 2013. The invitation goes to corporations only and for the amount of U$D 100 million. Companies in the food sector (finished products, inputs and raw materials) and health care (X-ray products and materials; lab agents; surgical equipment; prosthesis; etc.) may bid between Thursday, December 26 and Thursday, January 2, by noon. FOREX will be allocated on January 3, 2014. (El Universal, 12-24-2013;

Excess liquidity increases inflationary pressure. In October the Central Bank increased the percentage of deposits financial institutions must set aside as legal reserves from 17% to 20.5%. Despite this, Bolivars mushroom. Last November, banks recorded in average VEB 87.7 billion (USD 14 billion) on the amount of reserves. At December 23, the amount of idle cash that has not been lent or placed in bonds climbed 26% to VEB 110.2 billion (U$D 17.5 billion). (El Universal, 12-26-2013;

Many stores may not reopen in January due to lost inventories. Mauricio Tancredi, President of CONSECOMERCIO warns that merchants were forced to sell stock they had set aside for January sales in November and have nothing to sell at the start of next year. "Renewed operations depend on the speed of FOREX allocations". Tancredi adds that it takes 75 to 90 days to bring merchandise from Japon and China, and says there are also some merchants that were seriously hurt financially by selling goods at a loss in November. More in Spanish: (El Nacional;

Stock market up. Venezuela’s stock market rose 2.3% during the week ending December 20 to close at 2,725,813, an all time high, with all stocks closing up or flat on reasonable volume. The leading gainers were state companies, such as government-owned Banco de Venezuela and the nationalized telephone company (CANTV). Other shares gaining ground were commercial real estate developer Fondo de Valores Inmobiliarios B, up 3.8% at Bs. 27.5; and Banco Provincial, up 2.5% at Bs. 810. The Venezuelan stock market is now up 294.65% in official rate (6.30) dollar terms. (Latin American Herald Tribune, 12-22-2013;

Oil & Energy

Venezuela car owners unfazed by planned fuel hike. Owners of the 1970s-era gas guzzling trucks and sedans that have long reigned over Caracas' smog-filled roadways will soon have to pay a bit more to keep flaunting their energy-inefficient monsters. As an economic crisis drains government coffers, President Nicolas Maduro is putting motorists on notice and taking on one of the nation's biggest sacred cows: nearly free gasoline. With cut-rate prices for fuel, Venezuelans have never felt compelled to buy smaller, more environment-friendly vehicles like motorists in many other countries, often favoring decades-old clunkers or newer SUVs. Prices at Venezuelan gas pumps have been frozen for almost 20 years with politicians hesitant to repeat the mistake of rising prices in 1989, triggering days of deadly rioting. The late President Hugo Chavez once confessed it pained him to practically give away fuel to luxury car owners, but during 14 years of rule he never dared to touch the gasoline subsidy that consumes upward of U$D 12.5 billion a year in government income. (Fox News, 12-23-2013;

International Trade

Bolivia has sent 48,500 tons of sugar to Venezuela. During 2013 Bolivia exported 48,500 tons of sugar; 2,000 tons of milk and over 1,000 tons of hearts of palm to Venezuela. A source at state-run Insumos Bolivia, which is responsible for exports, confirmed the shipments.
As many as 12,500 tons of sugars await shipment in order to reach a targeted 60,000 tons. Another 6,000 tons of powdered milk are expected to arrive during the first quarter of 2014.
(El Universal, 12-26-2013;


Maduro met with Cuban President in Havana.  Nicolas Maduro met with his Cuban counterpart Raul Castro in Havana to discuss relations between the two countries and highlighted the close relationship between the people and governments of Cuba and Venezuela. They also discussed other issues of international and regional agenda. (AVN, 12-24-2013;; El Universal,; Latin American Herald Tribune,; More in Spanish: CNN,

Maduro says Cabello is to be re-nominated as President of the National Assembly when the new legislative term convenes on January 5th. 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.

Friday, December 20, 2013

December 20, 2013

Economics & Finance
Central Bank calls off press conference on November inflation, unofficial sources report it at 3.5%. The Central Bank called off a press conference it had called to report on its November Consumer Price Index. Unofficial sources report inflation is at its highest level since the measurement was established. Experts say it could be up to 3.5%, despite government mandate price reductions. Food prices continue to rise and block efforts to bring the index down. More in Spanish: (El Mundo,; and Noticias 24,

Venezuelan Bolivar overvaluation estimated at 54.7%. With the official exchange rate unchanged since February at VEB 6.30 per US dollar and inflation skyrocketing, both US dollars sold by the FOREX authority (CADIVI) and gasoline are the two cheapest items in Venezuela's domestic market. As currency is overvalued items people can buy here for VEB 6.30 are much less than what they can purchase for one US dollar abroad. This boosts imports to increasingly unsustainable levels and impacts public accounts: public expenses continue rising and the government's dollar income falls short of the country's needs. A major currency devaluation is required, and research firm ECOANALÍTICA has constructed an index to measure the Bolivar's overvaluation against the currencies of Venezuela's main trade partners, including the United States, Colombia, Brazil, China and Mexico. The index takes inflation and imports into account and shows that by the end of this year the Bolivar will be overvalued by 54.7% in real terms. The exchange rate required to balance this distortion should be VEB 14.45 per US dollar. (El Universal, 12-19-2013;

Analysts believe Venezuela will devalue Bolivar during Q1 2014. Venezuela will make the biggest devaluation of its currency since 2010 by the end of March in an effort to boost revenue and narrow the budget gap, all analysts surveyed by Bloomberg forecast. It will weaken the official bolivar rate 39% to 10.3 per dollar, boosting local currency revenue from each dollar of oil exports, according to the median estimate of 14 analysts surveyed Dec. 11-13. A record gap between the official and black market rate has fueled the world’s fastest inflation. (Latin American Herald Tribune, 12-18-2013;

Ford estimates U$D 350 million in losses due to devaluation in Venezuela. Ford Motor Co. is worried about Venezuela's economy and its impact on regional results. The auto manufacturer estimates that political and financial volatility will make it lose U$D 350 million here in 2014, Efe reported. Ford's CFO Bob Shanks put Venezuela as the second element that will have an adverse effect on corporate results. "The environment in Venezuela is volatile, increasingly difficult and unpredictable for companies." The company lowered its regional economic estimates for the last quarter of 2014 due to hindrances in its Venezuelan operations, and estimates U$D 350 million in potential losses. (El Universal, 12-19-2013;

215% rise in debt service aggravates FOREX scarcity.  Venezuela's Government increased its foreign debt by 108% from 2008 to 2012, from U$D 50.909 billion to U$D 105.779 billion, and the load has started to impact national accounts. An important part of outstanding bonds came due this year, on top of interest payments; as a consequence the amount the Central Bank takes from international reserves to service these debts is rising steadily. According to official data the Central Bank disbursed U$D 5.804 billion in debt service during the first three quarters of 2013, a 215% from the same period in 2012. More in Spanish: (El Universal,

Government claims November unemployment rate at 6.6%. Venezuela's unemployment rate stood at 6.6% in November according to the National Statistics Institute (INE). This reflects a 0.2% increase from November 2012. (El Universal,

Venezuelan bank to buy Spain’s NCG after bailout. Venezuela’s BANESCO Group will acquire control of NCG Banco SA for 1 billion Euros (U$D 1.37 billion) as Spain lines up buyers for banks rescued under last year’s European-funded bailout. Through its Spanish Banco Etcheverria unit, BANESCO, controlled by billionaire Juan Carlos Escotet, will also buy two portfolios of written-off loans, Spain’s bank rescue fund said in an e-mailed statement yesterday. Etcheverria said in its own statement that its bid didn’t include any request for state aid. NCG Banco faces potential losses of 1 billion Euros ($1.38 billion) that are not covered by provisions, a source at bank restructuring fund FROB said. The sale of 88.3% of NCG Banco to BANESCO is a step forward for Spain as it seeks buyers for lenders nationalized under the 41 billion-euro bailout that prevented mounting losses at savings banks from overwhelming government finances. NCG Banco has 57 billion Euros of assets and 672 branches, and was formed from a merger of savings banks in the region of Galicia. It needed 9.1 billion Euros of aid to replenish its capital. BANESCO will pay 40% of the price when the sale closes and the rest in stages through 2018. (Bloomberg:; Reuters, 12-19-2013;; Latin American Herald Tribune,

Oil & Energy
Venezuela considers fuel price rise in three-year plan. President Nicolas Maduro says he is contemplating a three-year period to raise domestic fuel prices, a sensitive issue for Venezuela where a similar move helped spark deadly 1989 riots. "Without a doubt, we have to correct a distortion," Maduro said of Venezuela's highly-subsidized gasoline that, at less than $0.02 per liter, is the cheapest in the world. "(There is) a three-year plan to adjust the prices of hydrocarbons in the internal market ... We'll do it fairly at the right time, not right now, not in January, not rushing," Maduro said at an unusual meeting with opposition politicians. (Reuters, 12-18-2013;; Bloomberg,; El Universal,; Fox News,

S&P lowers rating on CITGO Petroleum to ‘B’ and CORPOELEC to ‘B-’. Standard & Poor’s Ratings Services said on Tuesday it lowered its long-term corporate credit on CITGO Petroleum Corp. to ‘B’ from ‘B+’. At the same time, the agency lowered its senior secured debt ratings on CITGO to ‘BB-’ from ‘BB’. The senior secured recovery rating of ‘1’ is unchanged. The outlook remains negative. The rating action on CITGO follows the downgrade of PDVSA to ‘B-’ from ‘B’. S&P bases its downgrade on the application of Group Ratings Methodology and its assessment of CITGO as an insulated subsidiary to its Venezuelan parent, PDVSA. The agency assesses the group credit profile of PDVSA at ‘b-’, in line with its corporate credit rating on PDVSA. S&P believes the facts and circumstances warrant CITGO being rated one notch above PDVSA. Standard & Poor’s Ratings Services lowered its long-term corporate credit and senior unsecured debt ratings on Corporacion Electrica Nacional, S.A. (CORPOELEC) to ‘B-’ from ‘B’. The outlook remains negative. (Latin American Herald Tribune, 12-18-2013;;

PDVSA awards tenders for fuel components to India, Russia firms. State-run Petroleos de Venezuela (PDVSA) awarded a tender to import up to 2.88 million barrels of alkylate from Indian refiner Reliance and another one to buy up to 8.64 million barrels of MTBE from Russian oil company LUKOIL, traders told Reuters. The tenders, launched by PDVSA in late November to buy its annual supply of components for motor gasoline and intermediate fuels for mixing with heavy crudes, guarantees some 42,000 barrel per day (bpd) of products that the company will use during 2014. The price agreed by PDVSA and Reliance for the alkylate is 23-30 cents per gallon over the U.S. Gulf Coast waterborne price, one of the traders said. (Reuters, 12-19-2013;

Central bank, PDVSA establishes gold joint venture. The Central Bank of Venezuela (BCV) and state oil company PDVSA has established a joint venture to engage in the gold business in an attempt to stop smuggling. PDVSA will hold 60%. Rafael Ramírez, Vice President for Economic Affairs has said the Central Bank of Venezuela will buy all gold output from miners at the rate set by the Ancillary Foreign Currency Administration System (SICAD). (El Universal:

SIDOR back to work after 32 day strike. Venezuela's main steel industry, SIDOR, is back in operation following a 32 day strike by workers over benefit payments. An agreement was reached with Guayana Corporation Vice President Heber Aguilar, who is now in Caracas reviewing demands with government analysts. More in Spanish: (El Mundo,; El Universal,

International Trade
Paraguayan Congress okays Venezuela's entry into MERCOSUR. Paraguay's Congress has given a green light to Venezuela's entry into the Common Market of the South (MERCOSUR). The move also marks Paraguay's comeback to the South American trade bloc and redirects the relations among its members for them to make headway with their talks with the European Union, thus overcoming the "legal impediment" argued by the government of Conservative President Horacio Cartes, Reuters reported. (El Universal, 12-18-2013;

Swiss holding sells 10 Dornier airplanes to Venezuela. Swiss armament and aeronautic holding RUAG has sold ten Dornier-228 airplanes to Venezuela. The amount of the deal was not disclosed. A spokesperson for the group said that it was "at the higher level" of a two-digit amount in terms of millions. Eight new Dornier 228 and two secondhand Dornier 228-12 airliners are included in the purchase order, RUAG specified. (El Universal, 12-19-2013;

Logistics & Transport
Container arrivals at ports have dropped by 70%. There has been a sharp decline in the number of containers arriving at Venezuelan ports over the past two months as a consequence of limited access to FOREX with the government holding back permits, in addition to an "economic offensive" forcing stores to reduce prices  in store. Sources close to shippers operating at Puerto Cabello have confirmed a 70% drop in container movement in November and December, except for priority areas such as food, medicines and spare parts for vehicles or Xmas holiday items. José Manuel Rodríguez, president of the Puerto Cabello Chamber of Commerce says up to 75% of imports are bulk loads, foods like wheat, soybeans, sorghum or sugar, and the overall load has sharply diminished. "Many people decided not to make their purchases and others chose to leave their goods in Panama, waiting for the situation to stabilize the country, as they are forced to sell at a loss. They feel distrust and refrain from bringing merchandise". (Notitarde, 12-18-2013;

American Airlines runs out of tickets for Xmas season. American Airlines reports it has run out of tickets to and from Venezuela during the Xmas season, and is deny ling local media reports that it has suspended ticket sales here. American Airlines and other international carriers operating in Venezuela have over U$D 2 billion in backed up debt pending with the FOREX authority (CADIVI). More in Spanish: (Ultimas Noticias,; El Universal,

Maduro holds rare dialogue with opponents. President Nicolas Maduro held a rare meeting with opponents on Wednesday, challenging them to collect signatures to oust him in 2016 if they wanted but to work with him in the meantime. Maduro invited opposition mayors and governors to the presidential palace in an attempt to draw a line after four bitterly fought elections in Venezuela in little over a year. "I respect all your political positions," said the 51-year-old former union activist, urging them to join government anti-poverty projects in the OPEC nation of 29 million people. "In the spirit of Christmas, we can turn over a new page," he added. "Our differences will remain, but I urge you to work." Before the meeting, Maduro shook hands with high-profile. While Maduro spoke of a fresh start between bitterly opposed political factions and listened attentively to his opponents, many will remember how his mentor, Chavez, skillfully interspersed rapprochements and attacks to outwit his foes. The president's opponents sat stone-faced through Maduro's opening speech at the meeting but then did not hold back when allowed to give ripostes. The opposition's main leader, Miranda state Governor Henrique Capriles, chose not to attend, saying he did not oppose dialogue but felt the government was imposing conditions, and complained about the government's undermining of local authorities in opposition hands by creating parallel bodies. In various opposition-controlled areas, the government has named alternative "protectors" and organizations funded by the state. Caracas Mayor Antonio Ledezma urged Maduro to consider an amnesty for jailed opponents. (AVN, 12-19-2013;; El Universal,; Reuters,

Capriles: Time will tell if government-opposition dialogue has started. Opposition leader and governor of Miranda state Henrique Capriles referred to the meeting by President Nicolás Maduro and the newly elected opposition mayors by saying he believes in dialogue and supports any initiative in that direction. "The country needs dialogue and yesterday we showed that we're willing to talk under the Constitution. Time and facts will say if yesterday's meeting with mayors is the beginning of the dialogue the country is calling for." (El Universal, 12-19-2013;

CIPE Blog: The Private Sector and the Future of Venezuela. The big question after election results is whether the government will feel secure enough to open meaningful talks with the private sector seeking support for measures that must be taken in a very short term. These include devaluation of the currency, loosening of exchange controls, and support for investment, particularly in the oil sector. The private sector has reached out to the government in this respect, as witnessed by its recent press release regarding economic reform. Should this be the case, the economy will start to stabilize. However, if the more radical elements in the government continue to control the agenda and are successful in taking further steps towards eliminating private property and continuing the country’s path toward a communist economy then the potential for economic chaos and political/social confrontation will be very high. (CIPE)

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.

Tuesday, December 17, 2013

December 17, 2013

Economics & Finance
Venezuela to use weaker exchange rate for oil sector. Venezuela's government has moved closer to devaluing its currency by adopting measures to use a weaker exchange rate for its key oil sector, as the country looks to attract investment and jump-start its slowing economy. President Nicolás Maduro's administration will also begin a round of discussions on a potential increase for gasoline prices in Venezuela. At pennies a gallon, locals fill their tanks for less than anywhere else in the world, Oil Minister Rafael Ramirez said. Ramirez said that all new investments into the country's oil sector will be conducted using a weaker exchange rate offered through the government's SICAD dollar auction system. The central bank will also use the SICAD reference rate for its gold transactions. Ramirez called the measures the start of a new phase of the government's efforts to boost the economy. The changes are part of an incentive "for the sectors that want to bring dollars into the country for increasing production," Ramirez said. The rate used in SICAD has never been disclosed by the government, but private-sector executives and analysts say it is close VEB 12/U$D, compared with the official rate of VEB 6.3/U$D. Ramirez said the rate could change weekly in auctions and would also be adjusted to specific economic sectors. "It's a nod to reality," said Russ Dallen, a partner at Caracas Capital Markets. "It looks like a back door way to devalue." Dallen said that he still expects Venezuelan officials to fully devalue the local currency in the near term, even if they divert more transactions to a weaker exchange rate. Analysts say the measures would also exacerbate inflation, which at around 54% is already one of the highest rates in the world. (The Wall Street Journal,; Reuters, 12-16-2013;; Bloomberg,; El Universal,

Venezuela to devalue Bolivar by late March, survey says. Venezuela will make the biggest devaluation of its currency since 2010 by the end of March in an effort to boost revenue and narrow the budget gap, all analysts surveyed by Bloomberg forecast. It will weaken the official Bolivar rate 39% to 10.3 per dollar, boosting local currency revenue from each dollar of oil exports, according to the median estimate of 14 analysts surveyed Dec. 11-13. A record gap between the official and black market rate has fueled the world’s fastest inflation. “Importing everything apart from food and medicine at the lower rate basically amounts to a stealth devaluation,” Alberto Ramos, Goldman Sachs Group Inc. chief Latin American economist, said by phone from New York yesterday. “This is a necessary adjustment they had to make given the unsustainable demand for dollars at the official rate.” The government will auction more than U$D 5 billion through the secondary auction system known as Sicad in 2014, compared with about U$D 1.3 billion sold since its start in March. (Bloomberg, 12-16-2013;

Moody's and S&P downgrade Venezuela, warn of economic collapse. Moody's Investors Service has downgraded Venezuela's credit rating and warns it could cut it again given what it sees as the growing risk of an economic and financial collapse in the country. It was the second ratings downgrade in just a few days for the country after Standard & Poor's cut its bond ratings on the "radicalization" of economic policy and declining international reserves. Moody's said it cut Venezuela's local and foreign currency ratings to Caa1 from B1 and B2, respectively, while the outlook for the rating was negative. "The downgrade reflects Moody's view that Venezuela is facing increasingly unsustainable macroeconomic imbalances, including a sky rocketing inflation and a sharp depreciation of the parallel exchange rate," the agency said. "As government policies have exacerbated these problems, the risk of an economic and financial collapse has greatly increased." It cited high inflation, a black market exchange rate 10 times the official level, widespread shortages of goods, a shrinking current account surplus, "perilously" low foreign exchange reserves and "anemic" 1.4% growth during the first three quarters of 2014. "A sharp increase in Venezuela's sovereign yields to more than 15% in early December from less than 10% in mid-May suggests the country's ability to access markets has been severely curtailed," it added. S&P maintained a negative outlook on concerns political polarization may increase the difficulty of carrying out adjustment measures such as widely expected currency devaluation, boosting the risk of default in the next two years. The ruling Socialist Party's strong showing in last Sunday's elections for mayors "will reinforce the trend toward more government intervention in the private sector, extending macroeconomic dislocations and further increasing the risks to economic, fiscal, and external sustainability," S&P said. (Reuters,; and

Central Bank withholds November inflation data. Venezuela's Central Bank has failed to publish its usual National Consumer Price Index for the month of November, overdue since December 10th, the longest such delay since this economic indicator was established. Bank rules require publication of the CPI within the first 10 days of each month.  Several economic analysts have expressed astonishment at the delay, which they call "unjustified". José Guerra, former Central Bank chief analyst, calls it "very serious".  A few days ago President Nicolás Maduro declared inflation should be 5%, and the year to date rate was 45.8% by the end of October. (Notitarde:

JP Morgan says PDVSA needs currency devaluation to VEB 15/U$D. JP Morgan's latest report on Venezuela indicates that PDVSA requires an additional devaluation down to VEB 15 to the U$D in order to stop receiving funding from Venezuela's Central Bank. "The necessary adjustment must be recessive if the government wants it to be effective, but 2014 is heading to be a year in which "stagflation" worsens, along with scarcity in some items. Social tensions continue to be a risk that must be monitored." The report projects a 1% GDP reduction, along with a severe drop in consumption, and estimates inflation above 60% in the first half of the year, averaging 50% for the year. More in Spanish: (El Nacional;

Government to control 60% of imports by 2015. Imports by the Venezuelan public sector are likely to hit 60% in 2015, according to a report released by economic research firm ECOANALÍTICA. "Despite the gap in the cash flow of the Venezuelan State, the Executive Office keeps consolidating its model. ECOANALÍTICA estimates that imports will hit 60% in 2015," explains the report entitled, "An Unsustainable Model." The firm reckons that public imports will continue their current upward trend, reporting a 20% growth by the end of this year. This figure stands in contrast to the 15% drop estimated in private imports.
The weekly report added that private imports are expected to continue falling in 2014. (El Universal, 12-16-2013;

Oil & Energy
Maduro to decide on a 2683% rise on gasoline prices as PDVSA admits U$D 12.5 billion losses. Rafael Ramírez, Vice President for Economic Affairs, Minister of Energy and Oil and President of PDVSA, says it is up to President Maduro to decide on charging for gasoline "because in this country we do not pay for gasoline, it is PDVSA that pays for gasoline to be pumped". He showed charts to prove gasoline production costs are 28 more than what gasoline is sold for. He said the way for PDVSA to cut such losses on domestic gasoline production is by increasing pump prices by no less than 2683%: "we are setting a high number to recover production is a discussion we have underway". Ramirez added that PDVSA is losing over U$D 12.5 billion a year in fuel subsidies. (El Nacional, 12-17-2013;

Venezuela’s export barrel averaged U$D 97.40/bbl., up U$D 0.98/bbl. from last week, in a volatile week amid positive economic figures from the United States and expectations that Libyan exports will soon resume, says the Oil and Mining Ministry. The average for the year-to-date stood at U$D 99.98/bbl., down from the annual historic record of U$D 103.42/bbl., posted last year. (Veneconomy, 12-13-2013;

INVEPAL has imported almost 2000 tons of paper to cover production shortfalls. Government run INVEPAL is continuing imports of staples, and has brought in almost 2 thousand tons of paper from Brazil in order to cover its production shortfalls. More in Spanish: (El Carabobeño, 12-17-2013;

CARBONORCA workers go on strike. Workers at the CVG CARBONORCA carbon anode factory have gone on strike over wage payment delays. More in Spanish: (El Universal, 12-17-2013;

Maduro to meet with opposition mayors and governors
President Nicolás Maduro has invited opposition mayors and governors for a meeting tomorrow in the Presidential Palace: "I have invited them in good faith to dialogue and listen; now, what I demand in the first place is respect for the Constitution. No one can enter ...who does not accept and respect the Constitution. It would be madness".  He said his "Plan for the Fatherland" must be accepted as the law of the land. "If you do not acknowledge it, go do so outside...if we are to begin a new stage of dialogue we must correct bad habits". Opposition leader Henri Falcon, Governor of Lara state, responds he will attend the meeting, but adds that opposition mayors and governors will not attend as subordinates, nor will they accept "for them to give us orders or read us a riot act". "We are going to this meeting in order to make a productive dialogue happen, to make our administrations more workable, effective and efficient." Ramón Guillermo Aveledo, Secretary General of the opposition Democratic Unity Conference (MUD) says: "There must be dialogue and cooperation between the different instances of power because it is established within the Constitution...Dialogue cannot be based on insults and aggression, nor can it be based on conditions (...) we are willing to hold talks because we are accountable to citizens". More in Spanish: (El Nacional, 12-17-2013;; El Universal, and

Local elections are a mixed bag for Venezuela's opposition. The country continues to be evenly divided between two warring factions, reflecting the sharp polarization in Venezuelan society. While the government has navigated tenuously between dictatorship and farce, Venezuela's opposition has similarly failed to become the majority force they hoped to be at this point. From the start of the campaign, opposition leaders labeled this election a referendum on Maduro and campaigned across the country to support opposition candidates, fighting for a win that always seems a bit out of reach. There were a lot of factors playing against them in the run up to the elections. In particular, the government made sure opposition candidates were all but shut out of mass media. In the end, the opposition racked up significant wins: It started the day with 55 mayors, and they will now have around 76, most in the country's largest cities. However, chavismo can also play a claim to victory. It won the most municipalities, and its political party beat the opposition coalition, although the total vote tally for each side is not yet known because there are many small opposition parties that, taken together, won a significant percentage of the vote - with a roughly 41% abstention rate. Many had thought an overwhelming opposition win in the popular vote would engender a massive shakeup in Venezuelan politics. That did not happen. Nevertheless, time is in the opposition's favor. Many of the government's economic measures had been postponed until after this election, and voters will wake up in a few days to find themselves poorer and paying higher prices for many basic staples. (Foreign Policy)

Poll shows 83.95% believe land takeovers aggravate scarcity
A recent poll by DATANALISIS on public perception of government moves to improve food supply shows that the most favored option is to invest in food producing industries (88.5%). 68.9% believe easing import restrictions on the private sector is positive, and 61% believe store inspections are helpful.  80.4% say that taking over food industries worsens supply, and 77.8% say as much about expropriation of supermarkets. 83.95% believe land takeovers make scarcity worse. Asked about the reasons for scarce supply, 48.4% blame power outages, 46% say government should control companies that are not producing, and 44% said price controls lower supply.  More in Spanish: (El Universal, 12-16-2013;

Spain’s ABC: Diplomats confirm Venezuelan links to drug trafficking. Information published by ABC regarding negotiations between Nicolás Maduro’s staff—when he was foreign minister—in an FMLN drug trafficking operation in El Salvador, has corroborated suspicions that existed in Venezuelan political and diplomatic circles. “This news confirms what many already knew about the significant and growing presence of drug trafficking in Venezuela and its important relations with the top echelon in the government and the Armed Forces,” former Venezuelan ambassador to Sweden and Guyana, Sadio Garavini commented. The information from ABC proves that Maduro’s cabinet facilitated the flight of a plane in which Italian drug lord Roberto Adamo was on to negotiate with the FARC in Apure, where the Colombian guerrillas operate with impunity and where no international flights are supposed to land. Meanwhile, Venezuela’s former ambassador to El Salvador, Juan José Monsant, is not surprised that leaders of the Farabundo Marti National Liberation Front (FMLN) in El Salvador are linked to the Colombian guerrillas, while stressing the massive financial backing from Venezuela to the FMLN, which has been done to take complete control of the country. “The FMLN and Alba Petroleos of El Salvador – the entity that funnels Venezuelan aid – has taken over the country in ways the United Fruit Company would have never imagined: from airlines to mass purchases of land in the capital, coffee crops above price, pharmacies, banks, and media outlets." (Interamerican Security Watch)

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.

Friday, December 13, 2013

December 13, 2013

Economics & Finance
International reserves continue decreasing.
Venezuela's international reserves have continued to decrease and hit U$D 20.5 billion this week, a 31% drop year-to-date, and their lowest level ever since August 20, 2004. The reduction in reserves is due to lackluster gold prices, increasing debt service cost, more imports, and lower oil revenues –caused by dwindling oil output and agreements under which Venezuela sells oil at discount price to other countries. (El Universal, 12-11-2013;

ECLAC estimates 1% economic growth in Venezuela in 2014.
The UN Economic Commission for Latin America and the Caribbean has released its "Preliminary Overview of the Economies of Latin America and the Caribbean", which projects Venezuela's economic growth for 2014 at 1%. (El Universal, 12-11-2013;

Nearly 40% of firms acquiring FOREX in 2013 were dummy corporations.
Interior and Justice Minister General Miguel Rodríguez Torres says nearly 40% of the firms which acquired FOREX through the official system this year were dummy corporations, which have cheated the Government of millions of dollars, with official accomplices. (El Universal, 12-12-2013;

Venezuela's food inflation is the highest in Latin America.
Venezuelan authorities have established controls on prices for a large variety of products, set up a number of agro-industrial corporations, and control vast agricultural areas. However, according to the UN Food and Agriculture Organization (FAO) there is huge gap between goals and results. In October 2012 - October 2013, the price of food and non-alcoholic beverages was 72.1% in Venezuela, while the increase rise in Latin America and the Caribbean was merely 9.6%. (El Universal, 12-12-2013;

Oil & Energy
Attached is a SPECIAL REPORT from Latin Business Chronicle: China, Russia, India, and the Venezuelan Petroleum Industry. By Dr. Evan Ellis, Associate Professor with the William J. Perry Center for Hemispheric Defense Studies in Washington DC.

This week PDVSA and REPSOL could sign an agreement through which the Spanish oil company will invest U$D 1.2 billion in the PETROQUIRIQUIRE joint venture. The agreement should have been signed last week. REPSOL had plans to close this year with a U$D 470 million net investment in Venezuela. (Veneconomy, 12-10-2013;

Venezuelan government weighs gasoline increase.
Land Transport Minister Haiman El Troudi says the government is considering raising gasoline prices, and that President Nicolás Maduro is responsible for announcing any decision on this matter. El Troudi ruled out any effect on public transport and nationwide freight services. (El Universal, 12-12-2013;; Veneconomy,

CAF grants U$D 300 million loan to Venezuela's electricity corporation.
Venezuela's Electric Power Corporation (CORPOELEC) and CAF - the Andean Development Bank signed a U$D 300 million loan to partially finance the consolidation of power transmission grids in west and east Venezuela.
The funds will be disbursed as follows: U$D 122 million this year; U$D 100 million in 2014; and U$D 78 million in 2015.
(El Universal, 12-11-2013;

SIDOR works begin street protests.
SIDOR workers who have been striking for 27 days over wage calculations, and benefits have taken their protests to the streets of Puerto Ordaz in Bolivar state (Eastern Venezuela). They denied having starting up operations, saying "they can’t continue to lie to President Maduro, SIDOR has not started up again, we have stopped working." More in Spanish: (El Universal,

International Trade
Smuggling from Venezuela to Colombia exceeds formal trade.
Authorities at San Antonio (Táchira state) Main Customs in western Venezuela told the Venezuelan-Colombian Economic Integration Chamber (CAVECOL) that "volumes and amounts involved in smuggling" on the border "may outnumber those of formal trade." According to CAVECOL's figures, Venezuela-Colombia bilateral trade in January-July 2013 dropped by 9% to U$D 1.5 billion, under U$D 1.6 billion the same period in 2012. (El Universal, 12-12-2013;

Logistics & Transport
IATA concerned over Venezuela's U$D 2.6 billion debt with airlines.
Tony Tayler, Director General of the International Air Transport Association (IATA) expressed the group's concern that the Venezuelan government has "continued to block repatriation of U$D 2.6 billion in cash due to the airline industry". More in Spanish: (El Universal,

Kerry says Washington is ready for talks with Venezuela.
Despite concerns about some moves by Nicolás Maduro's Government, US Secretary of State John Kerry says - in reference to Venezuela-US relations: "We are ready and willing, and we are open to improving that relationship." He adds that Washington is "concerned" about the recent approval of the Enabling Law, which grants the Venezuelan president special powers to issue decrees, something that could lead to "potential" abuse. Despite this, Kerry claimed he is prepared to resume a bilateral dialogue, yet hopes Caracas does not try to take advantage of the bilateral relationship to hide Venezuela's problems. (El Universal, 12-11-2013;

...but Caracas says US must stop funding dissenters in order to resume relations.
Venezuelan Foreign Minister Elías Jaua says that for US-Venezuela relations to come back to normal, the United States must "once and for all" stop "financing Venezuelan opposition organizations" and stop former officials allegedly plotting against the country. His remarks came in response to the statements issued by US State Secretary John Kerry. "For the purpose of advancing in the normalization of relations with the United States, once and for all that Government must stop financing opposition groups and purported non-governmental organizations in Venezuela," Jaua said in a press conference. (El Universal, 12-11-2013;

Opposition coalition evaluates its next steps.
President Maduro is touring districts where is party won municipal elections, claiming opposition leader Henrique Capriles must resign as Governor of Miranda state because he had called recent elections a "plebiscite" and they failed to garner a plurality. Capriles counters by saying he will continue to seek uniting all Venezuelans - adding that the President is not concerned about the nation's polarization. At the same time, Ramón Guillermo Aveledo, Secretary General of the United Democratic Conference (MUD), says the coalition must examine the agenda to determine what most concerns voters: There was a 58.9% turnout during municipal elections, which is high for a local vote, but not enough for the plebiscite format the opposition sought to achieve.  The pro-government United Socialist Party and its allies tallied 5.1 million votes (short of 50%) and controlled 255 municipalities - many of them in rural and remote areas, while the opposition's total was 4.2 votes and 75 municipalities which include most of the nation's largest cities. A variety of minor independent parties controlled 8.03% of the total vote, depriving the government of a clear majority. More in Spanish: (Infolatam)

Government claims the murder rate has dropped under Maduro.
According to the Venezuelan government, the murder rate here has dropped by about a quarter this year, and claims opponents' talk of ever-rising crime is propaganda. Violent crime has been Venezuelans' No. 1 concern in recent years. Awash with guns, the nation is one of the worlds most violent, with an official homicide rate of about 52 per 100,000 people last year, or more than 15,000 victims. (Reuters, 12-12-2013;

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.

SPECIAL REPORT from Latin Business Chronicle:

China, Russia, India, and the Venezuelan Petroleum Industry, by Dr. Evan Ellis, Associate Professor with the William J. Perry Center for Hemispheric Defense Studies in Washington DC.

PDVSA is increasingly beholden to foreign oil companies to keep up production. Is it sustainable?

Venezuela is in economic crisis: inflation exceeds 50%, basic goods run short, reserves are dwindling, and the Bolívar trades on the black market at almost 11 times the official rate. In this context, the oil sector -which generates over 96% of the country’s revenues – finds itself stuck between investors cutting their losses, and a group of Chinese, Indian, Russian, and Western firms who are expanding their presence and commitment to the country.

While the decision to stay may reflect a lack of better alternatives, it also implies a hope or faith that PDVSA will grant them greater autonomy, due to its need for continued investment. This autonomy could include allowing them to rationally manage the operations that are, in name, controlled by PDVSA, as well as ensuring that they can take delivery on additional oil, as promised, to repay themselves. In the process, those staying hope to emerge with a strategic position in the Venezuelan oil and gas sector, whose 300-500 billion barrels of oil (depending on assumptions about recovery rates) make its reserves the largest in the world.

China: The role of China in Venezuela includes:(1) loans to the Venezuelan government (a part of which is for goods and services that support the petroleum sector), (2) direct investments to quantify, develop and exploit oil blocks, (3) loans to PDVSA to cover its share of petroleum joint ventures, (4) augmentation of Venezuelan refinery capacity, and (5) the sale of major assets for future petroleum deliveries, including oil tankers and drilling rigs.

As of December 2013, loans actually disbursed by China Development Bank (CDB) to the Venezuelan government through its development bank BANDES total  U$D 36 billion, with U$D 15.4 billion still outstanding. The vehicle, referred to as the “China Fund” includes three separate instruments: the Heavy Investment Fund (HIF) Phase 1, into which CDB has made two injections of U$D 4 billion each, HIF Phase 2, which has similarly received two injections of U$D 4 billion, and the Large Volume fund, disbursed in two “tranches” totaling U$D 20 billion.

Some confusion exists over the price Venezuela received for its oil to repay these loans. The documents establishing the instruments mention a “Reference Price” used to calculate the volume of oil deliveries to repay the loan, based on the low market price for Venezuelan heavy crude when the deals were signed (U$D 50 for HIF Phase 1 and U$D 40 for HIF Phase 2). The actual credit received by BANDES for each barrel of oil delivered against its outstanding loan balance was based on the market price (plus markup) at the time of delivery.

Outside the “China Fund,” CDB has loaned U$D 4 billion to PDVSA to support the joint venture SINOVENSA. International Commerce Bank of China (ICBC) has also explored loaning as much as U$D 4 billion in support of projects being worked in Venezuela by the Chinese company CITIC, although no ICBC funds appear to have been disbursed.

The presence of Chinese companies in Venezuela’s oil industry predates the current “Bolivarian Socialist” regime. In 1997, CNPC was awarded rights to exploit the mature Intercampo and Caracoles oilfields. The project was the largest Chinese investment in the Americas at that time. In 2001 CNPC established a joint venture with PDVSA, SINOVENSA, to produce a special boiler fuel, Orimulsion, from heavy petroleum extracted from the MPE-3 oilfield in the Orinoco belt region. In 2006, SINOVENSA switched to upgrading the extracted product to sell it as oil instead. In 2004, CNPC was awarded another mature field, Zumano, converted to a joint company in 2007 as part of the nationalization of the Venezuelan oil sector.

Production from these mature fields supported the ramp-up in petroleum exports to China, starting in 2005, although the 2008 agreement with CNPC to develop Junin-4 (formalized in 2010) grabbed more attention. PDVSA received U$D 900 million from CNPC for the rights to Junin-4, plus the company’s commitment to contribute its 40% share of the U$D 16.4 billion estimated to be required to develop the block.

Despite the initial promise, progress on Junin-4 was very slow, with PDVSA lacking the funds to pay for its 60% of the infrastructure required to develop the field. Chinese commitments to other joint ventures were also slow to emerge. In 2010, SINOPEC was contracted to quantify reserves in Junin 8, yet there was no award for follow-on development, nor progress on the Junin-1 and Boyacá 4 blocks which PDVSA head Rafael Ramirez announced in 2011 might be awarded to SINOPEC. Similarly, in non-associated gas production, although China National Offshore Oil Company (CNOOC) signed a MOU in 2011 to participate in the Mariscal Sucre field, no commitment emerged.

In February 2013, amidst questions about leadership succession in Venezuela, China’s growing reservations led it to defer a request for a new U$D 4 billion loan. By the summer, however, with Xi Jinpeng officially installed as China’s president, and with serious challenges to Nicholas Maduro’s claim to power in Venezuela in the past, China appears to have decided to proceed with new loans to and projects with the regime. In June 2013, CDB agreed to loan U$D 4 billion, outside the China fund, to help the PDVSA-CNPC joint venture SINOVENSA more than double production at MPE-3 in a bid to generate more revenue. In September, trips to the PRC, first by Ramirez and subsequently Maduro, led to agreements with SINOPEC to develop Junin 1, and to CNPC for Junin 10, giving PDVSA much needed, albeit small, royalty payments. The meetings also produced a commitment by CDB to inject an additional U$D 5 billion to the China fund, although the latter was reportedly a disappointment for Maduro, who was hoping for an even bigger loan with cash not tied to specific projects.

Beyond loans and joint ventures, Chinese support to Venezuela’s petroleum sector includes a U$D 843 million Wilson Energy Services contract to support the Puerto la Cruz refinery in eastern Venezuela and CNPC’s construction of a 400,000 barrel per day refinery in Guangdong to process heavy Venezuelan crude. While CNPC is formally partnered with PDVSA on the refinery, it has had to fund the venture on its own, with PDVSA committing to pay its share through future petroleum deliveries.

Finally, PETROCHINA is supplying eight new oil tankers to PDV Marine through the joint company CV Shipping, also paid for through the China fund by Venezuelan oil deliveries. The tankers are important to control PDVSA’s freight costs as it ships increasing volumes of petroleum across the Pacific to China and India. While the first of such tankers, the Carabobo, never left China following its September 2012 christening in (now scheduled for delivery in May 2014), the second, the 2 million barrel Ayacucho arrived in Anzoátegui in October 2013, and the third, the Boyacá, overdue as this article went to press.

Russia: As with China, Russia is also making a long-term play for a stake in Venezuela’s petroleum sector, although its presence is more modest. Russia’s participation was initially spearheaded by a 5-company consortium, comprised of ROSNEFT, GASPROM, LUKOIL, SURGUTNEFTEGAZ and TNK-BP, which was awarded rights in 2010 to develop the Junin 6 block in partnership with PDVSA (forming the joint company PETROMIRANDA). In 2011, the consortium was named to develop the Mariscal Sucre offshore gas fields, while GAZPROM was separately given a contract for the Bachaquero Tierra and Lagunilla Tierra oil fields in the state of Zulia. The driving force behind the Russian initiatives was arguably Igor Sechin, Deputy Prime Minister until 2012, and current Executive Chairman of ROSNEFT.

Sechin, with close ties to the leftist regimes in both Cuba and Venezuela, assembled the consortium of Russian companies to present a unified front while negotiating with Venezuela on a state-to-state basis, rather than engaging PDVSA as individual companies. The consortium quickly ran into problems. In 2012, ROSNEFT began the purchase of TNK-BP, while SURGUTNEFTEGAZ pulled out of Venezuela, with ROSNEFT picking up stake. More damaging, however, was LUKOIL’s 2013 decision to withdraw. Within the consortium, LUKOIL arguably had the greatest technical knowledge and capability for operating in Venezuela, and its pullout left ROSNEFT with a difficult challenge to absorb LUKOIL’s stake and execute the concession.

Despite such problems, Russian companies remaining in Venezuela have decided to continue with PDVSA and “ride out the storm.” In November 2013 GAZPROM agreed to loan PDVSA U$D 1 billion to help it to bring production on line. At an industry conference the same month, ROSNEFT committed to invest U$D 65 billion in Venezuela through 2022, although industry experts are doubtful of the credibility of such commitments.

India: The third significant extra-regional actor in Venezuela is India. Its potential participation expanded significantly at the end of 2013, yet its companies have actually committed very little real money. Indian companies have been participants in the Venezuelan petroleum sector since the 2008 formation of PETROINDOVENEZOLANA (which included ONGC VIDESH) to develop the San Cristobal project in Junin, followed in 2010 by the formation of PETROCARABOBO (including ONGC-VIDESH and India Oil) to develop Carabobo-1.Indian engagement with PDVSA has also included contracts to purchase oil through Venezuela for Reliance and other Indian refineries.

A September 2013 summit in India between PDVSA head Rafael Ramirez and Indian Energy and Mines Minister Veerappa Moily, followed by the visit of an Indian delegation to Caracas in October, produced multiple new agreements including with Reliance to evaluate the Ayacucho-8 block and with ONGC VIDESH to evaluate Ayacucho-3. The agreements also included potential work for ESSAR and Oil India on transportation infrastructure. Also mentioned was the possible expansion of the ONGC VIDESH investment in Carabobo-1, to pick up the share being abandoned by the Malaysian company PETRONAS. The Carabobo-1 investment would also potentially include a multi-billion dollar investment in an upgrading facility so that the product extracted from the block could be transported to and processed in conventional refineries. Reportedly, Indian companies also continued to be interested in Ayacucho 3 and Boyaca-4 (previously earmarked by PDVSA for the Chinese company CNPC).

For PDVSA, the pursuit of new concessions with India were arguably motivated by hoped-for royalty payments from a potential future agreement. For India, possible motivations included controlling more of the oil used to feed its refineries and decreasing direct oil purchases from Iran, although the imperative for the later diminished as Tehran and Washington moved closer to a nuclear deal that could re-legitimize the latter as an international oil producer. India’s initiatives also reportedly were facilitated by its Ambassador in Caracas, Smita Purushottam, who had written a graduate thesis while at Harvard on using China as a model for India’s engagement in countries such as Venezuela.

Other Actors: As noted previously, Chinese, Russian and Indian companies are not the only ones who have made the calculation that the best of bad options is to remain in Venezuela and help PDVSA to bring online the oil production that will repay their extra-contractual collaboration. Although EXXON MOBIL and CONOCO PHILLIPS pulled out years ago, western companies electing to stay for the moment include CHEVRON, Spain’s REPSOL, and Italy’s ENI. Indeed, the estimated U$D10 billion in loans provided to PDVSA by its partners this year (although some are simply conversion of accounts receivable with PDVSA to debt) includes an announced U$D 2 billion from Chevron, U$D 1.2 billion from REPSOL, and U$D 1.5 billion from Schlumberger.

Conclusions: Looking toward the future, Venezuela experts consulted for this article generally agree that the country’s present trajectory is unsustainable. Perhaps the greatest cause for hope is suggestions by persons close to PDVSA that the current crisis is forcing a greater role of foreign firms in the operational, financial, and strategic management of joint ventures.

The complex truth is that PDVSA will be able to bring up production in some areas, and address some problems in refining, transportation and other areas. It will not, however, be able to meet all of its increasingly desperate future commitments to its partners, while simultaneously passing enough money to the government and society to stave off public disorder. The calculus of government and industry actors is thus arguably evolving from desperate attempts to save the ship of state to an ugly struggle over “who gets the last lifeboat.” In this game, the only rule is ruthlessness, and competitors and partners alike are the enemy. Someone will eventually end up in control of 300 billion barrels of recoverable oil, even if market developments in other areas like shale gas diminishes their value, and even if, in the process, Venezuela descends into chaos and bloodshed.