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.

Thursday, January 14, 2016

January 14, 2016



Logistics & Transport

 

American Airlines writes off US $592 million trapped in Venezuela

American Airlines Group Inc on Tuesday said it has written off more than half a billion dollars in revenue stuck in Venezuela because of currency controls. American, the world's largest airline, said in a regulatory filing it will recognize a $592 million special charge in the just-ended fourth quarter "due to continued lack of repatriations and deterioration of economic conditions in Venezuela." The country's socialist government had compelled carriers to sell tickets in bolivars but made reconverting the sales into U.S. dollars difficult. Globally, airlines have around US$ 3.7 billion trapped in Venezuela as a result of its 12-year-old currency control system, the International Air Transport Association said in June. American also said on Tuesday it continues to expect a pre-tax margin between 12% and 14% for the fourth quarter, excluding special items. It continues to expect that passenger unit revenue fell between 5% and 7% in the quarter from a year earlier. (Reuters, http://www.reuters.com/article/us-american-airline-venezuela-idUSKCN0UQ1OI20160112; El Universal, http://www.eluniversal.com/economia/160112/american-airlines-writes-off-usd-592-million-trapped-in-venezuela)

 

 

Oil & Energy

 

PDVSA still mulls debt refinance proposal

PDVSA is still mulling a potential bond refinancing, its president said on Tuesday, referring to a proposal floated by the state oil company to seek an extension on payments for bonds maturing this year and next. "We're evaluating it," PDVSA president and Oil Minister Eulogio del Pino told Reuters as he and other executives carried a huge Venezuelan flag during an oil workers march in downtown Caracas. "We're evaluating a whole series of economic measures that the president will announce soon," he added, without giving details. Del Pino told local media in November that PDVSA was mulling a proposal to extend the payment for bonds that mature in 2016 and 2017 to 2018 and 2019, when the company has a lighter payment load. He said this would give better value for investors too because it would help PDVSA's growth and performance. (Reuters, http://www.reuters.com/article/us-venezuela-pdvsa-idUSKCN0UQ2C720160112; El Universal, http://www.eluniversal.com/economia/160113/pdvsa-assesses-means-to-refinance-debt)

 

Blackout halts Paraguana refineries

Operations at Venezuela's massive 955,000-barrel-per-day Paraguana refinery complex were paralyzed by an electrical blackout on Wednesday morning, according to two workers and an anti-government union leader. Employees at the 645,000-bpd Amuay refinery and adjacent 310,000-bpd Cardon refinery were evacuated as a precaution and children at schools near the complex were sent home, one worker said. Firemen were at the site, another worker added. Images on social media appeared to show thick columns of black smoke emanating from the refineries, which are run by state oil company PDVSA. It was not immediately clear what caused the problems reported by the workers. (Reuters, http://www.reuters.com/article/refinery-operations-pdvsa-idUSL2N14X13O20160113)

 

 

Economy & Finance

 

Oil price nears US$ 20, which is PDVSA’s production cost, banks fear worse recession here

President Maduro says Venezuela’s oil price average is near US$ 24 per barrel. He revealed the figure as he signed a collective bargaining contract with industry workers granting them a 143% raise. DEUTSCHE BANK reports that price is “perilously near PDVSA’s production cost of US$ 20 per barrel”.  The bank adds that for each dollar the price goes down, the nation receives US$ 800 million less for its exports. “As we go from an initial scenario of US$ 48 to US$ 30 per barrel this year, the FOREX deficit can rise from US$ 17.5 billion to US$ 34.2 billion…this will significantly increase the probability, even before the year ends, of a credit event such as a default or a partial restructuring”.  Japan’s NOMURA says that there is a higher risk of social unrest in Venezuela that could “lead to a possible military intervention if the dead end continues”. It warns that an institutional crisis can endanger “the messy transition”, and adds that “political paralysis will worsen recession as the opposition is forced to take back political control”.  BANK OF AMERICA says a number of elements lead to great uncertainty as to whether the Maduro regime will honor foreign debt commitments. It says debt was paid in 2015 despite parliamentary elections which it lost, and says “it now makes political sense for authorities to reconsider their decision since a recall referendum may be called in 2016”, and adds that “the closer that voting gets it becomes more probable that authorities might try to use resources used to pay off debt to cover other expenses that can improve their election prospects”. As to Maduro’s proposed economic emergency decree, BOFA continues to say “it is unlikely the opposition controlled National Assembly will approve the decree. But in any case that decision is only symbolically relevant and not as important as the FOREX rate, price controls and debt service, which are controlled by the Executive.” More in Spanish: (El Nacional: http://www.el-nacional.com/economia/Precio-acerca-produccion-barril-Pdvsa_0_774522722.html)

 

National Economic Council says “Venezuela is in a recession

The National Economic Council has issued a statement asking the government to improve the allocation of FOREX for imports as part of the steps it must take to propel the economy. “Venezuela is in a macroeconomic recession with high inflation and product supply problems”, it says. The statement says this situation is caused by an economic policy that limits supply of goods and services and stimulates domestic demand. More in Spanish: (El Nacional, http://www.el-nacional.com/economia/Consejo-Nacional-Economia-Venezuela-encuentra_0_773922837.html)

 

Main business federation says eliminating controls will improve supply in 8 months

Venezuela’s principal business federation, FEDECAMARAS, says that if the government frees up controls over the economy there will be a “relief” in supply over the coming months. FEDECAMARAS President Francisco Martínez said that the truth is that “we are in an emergency,,.. the nation’s economy cannot wait a second more without giving it due attention. We hope the economic emergency decree announced by President Nicolas Maduro includes adjustments that are so necessary for the country and go to the root of the problem”. He added: “There is no domestic production because we have excessive controls…if those ties are eliminated we will start to see relief in store shelves in 8 to 12 months” More in Spanish:
(El Universal, http://www.eluniversal.com/economia/160113/eliminar-controles-aliviara-los-anaqueles-en-8-meses; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/fedecamaras-medidas-economicas-deberian-ser-conver.aspx; El Nacional, http://www.el-nacional.com/economia/Fedecamaras-realidad-pais-emergencia_0_773922608.html)

 

National Assembly will investigate China-Venezuela and PETROCARIBE agreements

Elias Mata, Vice President of the Energy and Oil Committee of the National Assembly says there are signed agreements the people do not know about, and companies that are managed with little or no transparency. “We will necessarily have to set up a joint committee with the Finance Committee on the matter of the Central Bank, Comptroller’s office and energy and oil…in this context we will be requesting ample information on the terms of the agreements with China and the China Fund. We will do likewise with agreements signed within the framework of PETROCARIBE. All we know is that buybacks have been carried out and we have lost a lot of money.”  In the case of the China Fund, Mata underlined that “it is US$ 60 billion and no one knows what those resources were used for, we must know what they have been invested in”. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/energia/se-revisaran-los-convenios-china-venezuela-y-petro.aspx#ixzz3xDJSxKgl)

 

Venezuela paid US$70,3 million on bond

Venezuela has paid out US $70,3 million in interest on the Venezuela 2034 sovereign debt bond. The next important debt payment the nation must make is scheduled for February when it will have to pay out US$ 1.5 billion upon maturity of the Sovereign 2016 bond. More in Spanish: (El Mundo, http://www.elmundo.com.ve/noticias/economia/politica/venezuela-pago--70-3-millones-por-bono-de-deuda.aspx#ixzz3xDIxOdgs; Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/economia/venezuela-pago-70-3-millones-por-bono-de-deuda.aspx)

 

 

Politics and International Affairs

 

OAS Secretary General condemns Maduro's "erosion of democracy" in Venezuela

The Secretary General of the Organization of American States (OAS), Luis Almagro, called Tuesday's ruling of the Supreme Court of Venezuela against three opposition deputies a "direct blow to the will" of the voters. "The attempts to harass the opposition, rape the separation of powers and interfere with the powers of the state constitute an erosion of democracy" in Venezuela, Almagro said in an extensive open letter to President Nicolas Maduro. "I am sure you will keep your word and respect the electorate's will."  Almagro argues that the decision of the Electoral Chamber of the Supreme Court to find the National Assembly in contempt and disregard any of the parliament's actions sets the country back to the nineteenth century. "The InterAmerican Democratic Charter forces me to act when institutional political process is altered," he wrote. He added that the Supreme Court intended to undermine the will of the voters when the Electoral Chamber tries to ignore the already accomplished legal effects of the proclamation of the winners of the election. (Latin American Herald Tribune: http://www.laht.com/article.asp?ArticleId=2403358&CategoryId=10717)

 

Challenged opposition legislators move to unblock congressional deadlock

Three Venezuelan opposition lawmakers voluntarily gave up their seats on Wednesday to try to defuse an acrimonious power dispute between President Nicolas Maduro's government and the newly opposition-led National Assembly. Venezuela's Supreme Court had barred the three - plus a government legislator - from office pending a probe into alleged vote cheating in their jungle state Amazonas. But the opposition, which won control of the legislature in December's elections for the first time in 17 years of socialist rule, defiantly swore the three in anyway. However, the opposition majority has approved a letter from the three asking to leave the legislature pending resolution of the election dispute. National Assembly President Henry Ramos Allup said: “They have asked to be disincorporated in order to defend themselves legally and stop this Supreme Tribunal maneuver from making National Assembly activity futile”. Legislator Hector Rodriguez, who heads the pro-government parliament group, said "The Constitution and the motherland's group have triumphed". He added that the pro-government parliament group wanted to produce new evidence of vote buying in Amazonas state involving opposition Governor Liborio Guarulla. (Reuters, http://www.reuters.com/article/us-venezuela-politics-idUSKCN0UR1UF20160113; Bloomberg, http://www.bloomberg.com/news/articles/2016-01-13/venezuelan-congress-backs-down-in-conflict-with-supreme-court; Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2403416&CategoryId=10717; El Universal, http://www.eluniversal.com/nacional-y-politica/160113/deputy-rodriguez-the-constitution-and-pro-govt-deputies-have-won); and more in Spanish: (. (Ultimas Noticias, http://www.ultimasnoticias.com.ve/noticias/actualidad/politica/impugnados-piden-ser-desincorporados.aspx#ixzz3x7U91Wpw)

 

Congress Speaker: Venezuela's crisis cannot be overcome under this government

From the Federal Legislative Palace, the seat of the Venezuelan National Assembly, Congress Speaker Henry Ramos Allup has insisted that opposition deputies are committed to meet the main goals they have outlined in Parliament, namely, "promoting an amnesty law, recovering the Executive Power and proposing a democratic formula to terminate this government." "Presently in Venezuela, looking at the future is looking into the darkness. If mistakes are not corrected, a catastrophe will ensue. We believe the crisis the country is going through cannot be overcome under this government. There are many constitutional ways to oust (President Nicolás) Maduro," said Ramos Allup in an interview. Ramos Allup remarked "the answer to a democratic proposal cannot be snatching." He recalled that when former President Carlos Andrés Pérez was impeached and ousted, “public powers worked; he was removed and there was no bloodshed in the country." (El Universal, http://www.eluniversal.com/nacional-y-politica/160113/congress-speaker-venezuelas-crisis-cannot-be-overcome-under-this-govt)

 

Nicolás Maduro will deliver his 2015 State of the Union at the National Assembly on Friday, as established by Article 237 of the National Constitution. The event is scheduled for 10 A.M. (Veneconomy, http://www.veneconomy.com/site/index.asp?ids=44&idt=46610&idc=1)

 

Opposition presents property bill for beneficiaries of housing programs

Julio Borges, leader of the opposition coalition within the National Assembly, has presented bill granting the title deed to the beneficiaries of the government’s housing programs. "Not only do those families not own those houses, but they are victims of political abuse," he said. He termed "false" the number of dwellings the government said it has completed since the welfare program started to date. "Venezuela needs to build three million dwellings to fill the gap." (El Universal, http://www.eluniversal.com/nacional-y-politica/160113/opposition-presents-property-bill-for-beneficiaries-of-housing-mission)

 

Venezuela's first lady says her nephews were kidnapped by U.S.

First lady Cilia Flores on Tuesday said two of her nephews who have been indicted on drug trafficking charges were kidnapped by U.S. authorities, her first comments on the case since their arrests sparked a scandal last year.

Franqui Flores de Freitas, 30, and Efrain Campo Flores, 29, were arrested in Haiti in November in an operation involving the Drug Enforcement Administration (DEA). The two were later indicted in New York on charges of conspiring to traffic cocaine, an embarrassment to President Nicolas Maduro. "We have evidence that the DEA was here on Venezuelan territory violating our sovereignty and committing crimes on our territory," said Flores, who is also a congresswoman, when asked about the issue by reporters at the legislature. (Reuters, http://www.reuters.com/article/us-venezuela-drugs-idUSKCN0UR04P20160113; El Universal, http://www.eluniversal.com/nacional-y-politica/160113/first-lady-cilia-flores-accuses-dea-of-kidnapping-her-nephews)

 

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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