September 24, 2013

Economics & Finance

Maduro announces a new U$D 5 billion credit from China

President Nicolas Maduro met with China's President Xi Jinping over the weekend in Beijing and said that China had granted Venezuela another $5 billion credit line -- and all was announced by twitter. "In the meeting we approved projects and resources for the development of energy, housing, agriculture, transportation, among others," he tweeted. Official sources report Venezuela already had 365 cooperation agreements with China in areas including energy, oil, education, health, technology, trade, construction, agro-industry and agriculture, infrastructure, industry, culture and sport, among others. The agreements signed during the trip bring the total to 400. Oil Minister Rafael Ramirez says is supplying China with 626,000 barrels per day of oil, and expects exports to China will reach 1 million barrels per day within 2 years. This is up from 49,000 BPD in 2005. Venezuelan officials, including Foreign Minister Jaua claim oil shipments have helped pay back some U$D 20 billion out of the U$D 46.5 billion that China loaned Venezuela between 2005 and 2012. Maduro also used twitter to announce an agreement between Venezuela and Chinese oil company SINOPEC for the production of 200,000 BPD of crude oil in the Junin 1 oil block in the Orinoco Belt. "In the energy field, we agreed with Sinopec an investment of U$D 14 billion in the block Junin 1 of oil in the Orinoco Belt, for the production of 200,000 barrels per day," Maduro wrote. The U$D 5 billion is basically a credit that will be invested in the country, through a credit from the China Development Bank (BDC) for the financing of strategic projects in the field of health, science road, transport, technology, industry, electricity and mining. The China Development Bank will establish an office in Caracas to oversee the loans. Projects announced include:

• U$D 391 for construction of a maritime terminal for Pequiven (petrochemical company), through The Export-Import Bank (Eximbank) of China, in order to export Urea and ammonia.

• Develoment of the Las Cristinas gold mine project.

• CITIC construction group to build 4,500 homes in the states of Nueva Esparta and Anzoategui.

• SINOHYDRO to rehabilitate the Las Majaguas irrigation system in Portuguesa state and for road connection in the East-West Kempis - Santa Lucía road in Miranda State.

• BEIDAHUANG, a leader in China's agricultural industry in China, agreed to plant 60,000 hectares of corn, rice and soybean in Guarico, Barinas, Apure, Delta Amacuro and Portuguesa.

• YUTONG BUS will sell Venezuela 2,000 vehicles for public transportation, and a bus production joint venture for exports to the surrounding region. (Latin American Herald Tribune; http://www.laht.com/article.asp?ArticleId=1030596&CategoryId=10717; Veneconomy, 09-23-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36414&idc=3; AVN, 09-23-2013; http://www.avn.info.ve/contenido/venezuela039s-economic-development-dream-be-actualize-end-decade; El Universal, http://www.eluniversal.com/nacional-y-politica/130923/maduro-relations-with-china-are-modern-and-advantageous; Fox News, http://www.foxnews.com/world/2013/09/22/venezuela-receives-5-bn-credit-line-from-china/; http://www.foxnews.com/world/2013/09/22/venezuelan-president-signs-agreements-with-his-chinese-counterpart-on-trip-to/; The Washington Post, http://www.washingtonpost.com/business/venezuelan-president-signs-agreements-with-his-chinese-counterpart-on-trip-to-beijing/2013/09/22/765e7b3a-2381-11e3-9372-92606241ae9c_story.html)

Expected FOREX tender postponed indefinitely

Although authorities had announced a new FOREX to be held last week, the event did not take place. Some sources indicate a decision on FOREX will be taken once the party of officials that went to China with President Maduro return to Venezuela. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politicas-publicas/sectores-de-la-economia-se-quedan-a-la-espera-de-n.aspx#ixzz2fnwZYBi8)

Central Bank is considering trading gold to increase disposable reserves

The Central Bank has started to consider options to increase disposable reserves available for imports and debt service. One option would be to use gold bullion deposited abroad - worth U$D 2.6 billion - in exchange for credit. Disposable reserves closed at U$D 1.3 billion in August, a record low point, at a time foreign debt service has tripled since 2012, imports remain high and oil exports remain stagnant due to lower production and discount sales to allied nations. More in Spanish: (El Universal, http://www.eluniversal.com/economia/130924/bcv-analiza-entregar-oro-como-garantia-para-subir-las-reservas)

Inflation could close at 45-48% by the end of the year, according to economist José Guerra. Production is “stagnant” and “incapable” of growing up to capacity, according to the economist who says that added to that, there is “an out of control inflation and a noticeable shortage of products,” that according to the figures from the Central Bank is at “an alarming 20.2%.” (Veneconomy, 09-23-2013; http://www.veneconomy.com/site/index.asp?ids=44&idt=36416&idc=2)

Venezuelan stock market up 252%

Venezuela’s stock market rose 3% during the week ending September 20th with the Caracas Stock Index closing at 1,660,974, a new all time high. The leading gainers were the shares of Mercantil Servicios Financieros A and B, both closing at Bs. 500 for a gain of 7.8% and 7.3% respectively. MANPA rose 4.2% at Bs. 12.5, before its toilet paper plant was taken over by the government on Saturday; Banco Provincial gained 3.8% to close at Bs. 500. Nationalized phone company CANTV lost 3.1% at Bs. 46. All other stocks were flat or did not trade. The Venezuela Stock Market is now up 252.32% for the year to date in bolivar terms, though only 140.48% in official rate dollar terms because of February devaluation, still making it the best performing stock market in the world. (Latin American Herald Tribune, 09-23-2013; http://www.laht.com/article.asp?ArticleId=1032160&CategoryId=10717)

Commodities

OVL mulls raising stake in U$D 20 billion Venezuela oil project

ONGC Videsh Ltd and its partners are mulling raising stake in Venezuela's U$D 20 billion Carabobo-I oil project even as India looks at raising crude oil imports from the Latin American country. OVL, which has 11% stake in the project that will produce 400,000 barrels per day of oil (20 million tons) in four years, is looking at buying a similar stake that Malaysia's PETRONAS has decided to give up in the project. On the other hand, Reliance Industries Ltd, which gets about 20% of its oil needs from Venezuela, is looking at raising imports while state-run firms like Indian Oil Corp (IOC) and HPCL-Mittal Energy Limited (HMEL) are keen to start buying oil from the Latin American nation. "Indian companies' representatives will visit Venezuela on October 7 and 8 and have some concrete proposals worked out," Oil Minister M Veerappa Moily told reporters after meeting Oil Minister Rafael Ramirez. (Economic Times, http://economictimes.indiatimes.com/news/news-by-industry/energy/oil-gas/ovl-mulls-raising-stake-in-20-billion-venezuela-oil-project/articleshow/22992242.cms)

PDVSA said to lose U$D 111 billion due to lower production

Oil and gas expansion projects have failed to strike targets set for production by official plans, and Venezuela's share in the global oil market is now narrower. The program to expand production called for a U$D 77.3 billion investment, including U$D 54 billion furnished by PDVSA. (El Universal, 09-23-2013;http://www.eluniversal.com/economia/130923/pdvsa-said-to-lose-usd-111-billion-out-of-less-production)

Most offshore gas production slated for 2017

PDVSA estimates that the bulk of production from Rafael Urdaneta and Mariscal Sucre projects will be achieved as of 2017. The oil giant has calculated gas production in Dragón at 252 million cubic feet per day (mcfd) by 2014, and this will be the only unit starting early production. (El Universal, 09-23-2013; http://www.eluniversal.com/economia/130923/most-offshore-gas-production-expected-in-2017)

Tariff hike will cut Venezuela's income from methanol sales

Exports from Petróleos de Venezuela (Pdvsa) to the European Union, particularly methanol, will be altered in 2014 upon the entry into force of a tariff increase. The decision not only will impact PDVSA but also threatens the domestic market. Until 2010, Venezuela was listed among countries with tariff preferences at a 0% level for exports to Europe, under the Generalized System of Preferences (GSP). This year Venezuela was included in the list of nations that pay a 2% tariff. However, by 2014, Venezuela will pay the full rate at 5.5%. PEQUIVEN and its joint ventures sell Europe some 700,000 tons of methanol a year, for about U$D 252 million. (El Universal, 09-23-2013; http://www.eluniversal.com/economia/130923/tariff-hike-cuts-venezuelas-income-from-methanol-sale)

SIDOR paralyzed for six days due to strike

The SIDOR steel combine has been at a standstill for six days due to spontaneous labor protests. More in Spanish: (El Universal, http://www.eluniversal.com/economia/130924/sidor-acumula-seis-dias-de-paralizacion-por-protesta-laboral)

Toilet paper factory occupied by government officials

The Venezuelan Government has "intervened" into the nation's major paper manufacturer, MANPA, in order to verify production, distribution and sales of toilet paper. No details were given on what the company might have done wrong. MANPA is the nation's best know manufacturer of toilet paper, sanitary towels and disposable diapers. Karin Granadillo, head of the Consumer Protection Agency says, "the team responsible for temporary occupation can take all decisions necessary, even taking over the direction of production, distribution and sales up to 15 days since the date the company was notified". The Maduro regime has been blaming the private sector for scarcities, while business says difficult access to FOREX needed for buying supplies is to blame. More in Spanish: (INFOLATAM and

AVN, http://www.avn.info.ve/contenido/revisan-estructura-producci%C3%B3n-distribuci%C3%B3n-y-comercializaci%C3%B3n-manpa)

Politics

Independent municipal candidates will be expelled from the United Socialist Party

The pro government United Socialist Party (PSUV) has set forth its official candidates for the upcoming December 8th municipal elections, and the party's Vice President, Diosdado Cabello, has announced that all pro-government candidates running outside the party list will be expelled from the organization. More in Spanish: (El Universal, http://www.eluniversal.com/nacional-y-politica/130924/sacan-del-psuv-a-los-que-se-lanzaron-solos-para-el-8d)

U$D 270 million worth of cocaine found on Air France flight

There was something odd about the 30 suitcases that showed up on a flight from Venezuela. The colorful bags weren't registered to any of the passengers on the plane. When French officials opened them up, they discovered why -- 1.3 tons of pure cocaine was stuffed inside the anonymous bags. The street value of the stash? About 200 million Euros, or UD$ 270 million. The catch was made on September 11, but French authorities didn't publicize the find until Saturday. (CNN, 09-23-2013; http://edition.cnn.com/2013/09/22/world/europe/air-france-cocaine-found/index.html?iref=allsearch)


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.